UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-K
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended January 3, 2009
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period
from
to
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Commission
File Number: 000-52059
PGT,
Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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20-0634715
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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1070
Technology Drive
North
Venice, Florida
(Address of
principal executive offices)
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34275
(Zip
Code)
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Registrant’s
telephone number, including area code:
(941) 480-1600
Former
name, former address and former fiscal year, if changed since last
report: Not applicable
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which
Registered
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Common
stock, par value $0.01 per share
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NASDAQ
Global Market
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Securities
registered pursuant to Section 12 (g) of the
Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
o
No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer,” “large accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated
filer þ
Non-accelerated filer o
Smaller reporting company o
(Do not
check if a smaller reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act). Yes o
No þ
The
aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant as of June 27, 2008 was approximately $34,051,039 based
on the closing price per share on that date of $3.18 as reported on the NASDAQ
Global Market.
The
number of shares of the registrant’s common stock, par value $0.01, outstanding
as of February 28, 2009 was 35,391,794.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Company’s Proxy Statement for the Company’s 2009 Annual Meeting of
Stockholders are incorporated by reference into Part III of this
Form 10-K.
Table of Contents to
Form 10-K
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BUSINESS
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GENERAL DEVELOPMENT OF
BUSINESS
Description
of the Company
We are
the leading U.S. manufacturer and supplier of residential impact-resistant
windows and doors and pioneered the U.S. impact-resistant window and door
industry. Our impact-resistant products, most of which are marketed under the
WinGuard® brand name, combine heavy-duty aluminum or vinyl frames with laminated
glass to provide protection from hurricane-force winds and wind-borne debris by
maintaining their structural integrity and preventing penetration by impacting
objects. Impact-resistant windows and doors satisfy increasingly stringent
building codes in hurricane-prone coastal states and provide an attractive
alternative to shutters and other “active” forms of hurricane protection that
require installation and removal before and after each storm. Combining the
impact resistance of WinGuard with our insulating glass creates energy efficient
windows that can significantly reduce cooling and heating costs. Our current
market share in Florida, which is the largest U.S. impact-resistant window
and door market, is significantly greater than that of any of our
competitors.
The
geographic regions in which we currently operate include the Southeastern U.S.,
the Gulf Coast, the Caribbean, Central America and Canada. We distribute our
products through multiple channels, including over 1,300 window distributors,
building supply distributors, window replacement dealers and enclosure
contractors. This broad distribution network provides us with the flexibility to
meet demand as it shifts between the residential new construction and repair and
remodeling end markets.
We
operate manufacturing facilities in North Venice, Florida and in Salisbury and
Lexington, North Carolina, which produce fully-customized windows and doors. We
are vertically integrated with glass tempering and laminating facilities in both
states, which provide us with a consistent source of impact-resistant laminated
glass, shorter lead times, and lower costs relative to third-party
sourcing. Our facility in Lexington, North Carolina was vacant and being
marketed for sale as a result of the completion of our move to the larger
Salisbury facility. In December 2007 we reclassified it as held and
used when we made the decision to utilize the facility for manufacturing
purposes.
History
Our
subsidiary, PGT Industries, Inc., was founded in 1980 as Vinyl Technology, Inc.
The PGT brand was established in 1987, and we introduced our WinGuard branded
product line in the aftermath of Hurricane Andrew in 1992.
PGT, Inc.
is a Delaware corporation formed on December 16, 2003, as JLL Window
Holdings, Inc. by an affiliate of JLL Partners, our largest stockholder, in
connection with its acquisition of PGT Holding Company on January 29,
2004. On February 15, 2006, we changed our name to PGT, Inc.,
and on June 27, 2006 we became a publicly listed company on the NASDAQ National
Market under the symbol “PGTI”.
FINANCIAL INFORMATION ABOUT
INDUSTRY SEGMENTS
Statement
of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an
Enterprise and Related Information (“SFAS 131”) defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Under this definition, we have concluded that our Company operates
in one segment, the manufacture and sale of windows and doors. Other
required information is incorporated by reference to Item 8.
NARATIVE DESCRIPTION OF
BUSINESS
Our
Products
We
manufacture complete lines of premium, fully customizable aluminum and vinyl
windows and doors and porch enclosure products targeting both the residential
new construction and repair and remodeling end markets. All of our products
carry the PGT brand, and our consumer-oriented products carry an additional,
trademarked product name, including WinGuard, Eze-Breeze and, introduced in
early 2009, SpectraGuard vinyl windows.
Window
and door products
WinGuard. WinGuard is our
impact-resistant product line and combines heavy-duty aluminum or vinyl frames
with laminated glass to provide protection from hurricane-force winds and
wind-borne debris that satisfy increasingly stringent building codes and
primarily target hurricane-prone coastal states in the U.S., as well as the
Caribbean and Central America. Combining the impact resistance of WinGuard
with our insulating glass creates energy efficient windows that can
significantly reduce cooling and heating costs.
Aluminum. We offer a complete
line of fully customizable, non-impact-resistant aluminum frame windows and
doors. These products primarily target regions with warmer climates, where
aluminum is often preferred due to its ability to withstand higher temperatures
and humidity. Adding our insulating glass creates energy efficient windows
that can significantly reduce cooling and heating costs.
Vinyl. We offer a complete
line of fully customizable, non-impact-resistant vinyl frame windows and doors
primarily targeting regions with colder climates, where the energy-efficient
characteristics of vinyl frames are critical. In early 2008, we introduced a new
line of vinyl windows for new construction with insulating glass and unsurpassed
wood-like aesthetics, such as brick-mould frames, wood-like trim detail and
simulated divided lights. In early 2009, we introduced SpectraGuard, a line of
vinyl replacement windows combining superior energy performance and protection
with unsurpassed wood-like detail and character.
Architectural Systems. Similar to WinGuard,
Architectural Systems products are impact-resistant, offering protection from
hurricane-force winds and wind-borne debris for mid- and high-rise buildings
rather than single family homes.
Porch-enclosure
products
Eze-Breeze. Eze-Breeze
sliding panels for porch enclosures are vinyl-glazed, aluminum-framed products
used for enclosing screened-in porches that provide protection from inclement
weather.
Sales
and Marketing
Our sales
strategy primarily focuses on attracting and retaining distributors and dealers
by consistently providing exceptional customer service, leading product quality,
and competitive pricing and using our advanced knowledge of building code
requirements and technical expertise.
Our
marketing strategy focuses on television and print advertising in coastal
markets that reinforce the high quality of our products and educate consumers
and homebuilders on the advantages of using impact-resistant products. We
primarily market our products based on quality, building code compliance,
outstanding service, shorter lead times, and on-time delivery using our fleet of
trucks and trailers.
Our
Customers
We have a
highly diversified customer base that is comprised of over 1,300 window
distributors, building supply distributors, window replacement dealers and
enclosure contractors. Our largest customer accounts for
approximately 2.7% of net sales and our top ten customers account for
approximately 16.3% of net sales. Our sales are composed of residential new
construction and home repair and remodeling end markets, which represented
approximately 37% and 63% of our sales, respectively, during
2008. This compares to 46% and 54% in 2007.
We do not
supply our products directly to homebuilders but believe demand for our products
is also a function of our relationships with a number of national homebuilders,
which we believe are strong.
Materials
and Supplier Relationships
Our
primary manufacturing materials include aluminum extrusions, glass, and
polyvinyl butyral. Although in many instances we have agreements with our
suppliers, these agreements are generally terminable by either party on limited
notice. All of our materials are typically readily available from
other sources. Aluminum extrusions accounted for approximately 44% of our
material purchases during fiscal year 2008. Sheet glass, which is sourced from
two major national suppliers, accounted for approximately 17% of our material
purchases during fiscal year 2008. Sheet glass that we purchase comes in various
sizes, tints, and thermal properties. Polyvinyl butyral, which is used as the
inner layer in laminated glass, accounted for approximately 16% of our material
purchases during fiscal year 2008. We have negotiated an agreement with our
polyvinyl butyral supplier that is in effect through 2009. We have
also entered into an agreement with this same supplier for the purchase of
ionoplast structural inner layer, an alternative inner layer product, that is in
effect until 2012.
Backlog
As of
January 3, 2009, backlog was $9.3 million compared to $13.1 million at
December 29, 2007. Our backlog consists of orders that we have
received from customers that have not yet shipped, and we expect that
substantially all of our current backlog will be recognized as sales in the
first quarter of 2009. The decrease in our backlog resulted from the
continuation of the downturn in the housing market and the overall economy,
which has had a negative impact on order intake, but also due to a decrease in
lead time between order intake and product shipment. Future period to
period comparisons of backlog may be negatively affected if sales and the level
of order intake decrease further.
Intellectual
Property
We own
and have registered trademarks in the United States. In addition, we own several
patents and patent applications concerning various aspects of window assembly
and related processes. We are not aware of any circumstances that
would have a material adverse effect on our ability to use our trademarks and
patents. As long as we continue to renew our trademarks when
necessary, the trademark protection provided by them is perpetual.
Manufacturing
Our
manufacturing facilities, located in Florida and North Carolina, are capable of
producing fully-customized products. The manufacturing process typically begins
in one of our glass plants where we cut, temper and laminate sheet glass to meet
specific requirements of our customers’ orders.
Glass is
transported to our window and door assembly lines in a make-to-order sequence
where it is combined with an aluminum or vinyl frame. These frames are also
fabricated to order, as we start with a piece of extruded material that we cut
and shape into a frame that fits our customers’ specifications. After an order
has been completed, it is immediately staged for delivery and shipped within an
average of 48 hours of completion.
Competition
The
window and door industry is highly fragmented and is served predominantly by
local and regional competitors with relatively limited product lines and overall
market share. In general, we divide the competitive landscape of our industry
based on geographic scope, with competitors falling within one of two
categories: local and regional competitors, and national window and door
manufacturers.
Local and Regional Window and Door
Manufacturers: This group of competitors consists of numerous local job
shops and small manufacturing facilities that tend to focus on selling branded
products to local or regional dealers and wholesalers. Competitors in this group
typically lack the service levels and quality controls demanded by larger
distributors, as well as the ability to offer a full complement of
products.
National Window and Door
Manufacturers: This group of competitors tends to focus on selling
branded products nationally to dealers and wholesalers and has multiple
locations.
The
principal methods of competition in the window and door industry are the
development of long-term relationships with window and door dealers and
distributors and professional homebuilders, and the retention of customers by
delivering a full range of high-quality products on time while offering
competitive pricing and flexibility in transaction processing. Although some of
our competitors may have greater geographic scope and access to greater
resources and economies of scale than do we, our leading position in the U.S.
impact-resistant window and door market and the high quality of our products
position us well to meet the needs of our customers and retain an advantage over
our competitors.
Environmental
Considerations
Although
our business and facilities are subject to federal, state, and local
environmental regulation, environmental regulation does not have a material
impact on our operations, and we believe that our facilities are in material
compliance with such laws and regulations.
Employees
As of
March 12, 2009, we employed approximately 1,000 people, none of whom was
represented by a union. We believe that we have good relations with our
employees.
FINANCIAL INFORMATION ABOUT
GEOGRAPHIC
AREAS
Our net
sales from customers in the United States were $205.9 million in 2008, $263.2
million in 2007 and $354.9 million in 2006. Our net foreign sales, including
sales into the Caribbean, Central America and Canada, were $12.7
million in 2008, $15.2 million in 2007 and $16.7 million in 2006.
AVAILABLE
INFORMATION
Our Internet address is www.pgtindustries.com. Through our Internet website under
“Financial Information” in the Investors section, we make available free of
charge, as soon as reasonably practical after such information has been filed
with the SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act. Also available through
our Internet website under “Corporate Governance” in the Investors section is
our Code of Ethics for Senior Financial Officers. We are not including this or any other
information on our Web site as a part of, nor incorporating it by reference into
this Form 10-K, or any of our other SEC filings. The SEC maintains an Internet site
that contains our reports, proxy and information statements, and other
information that we file electronically with the SEC at www.sec.gov.
We are subject to
regional and national economic conditions. The unprecedented decline in
the economy in Florida and throughout the United States could continue to
negatively affect demand for our products which has had, and which could
continue to have, an adverse impact on our sales and results of
operations.
A continuation of
the downturn in our markets could adversely impact our credit agreement.
As of January 3, 2009, we had $90 million of outstanding indebtedness. As
noted elsewhere in this report, we have experienced a significant deterioration
in the various markets in which we compete. A sustained and continued
significant deterioration in these markets may adversely impact our ability to
meet certain covenants under our credit agreement. Management continues to
evaluate what, if any, action or actions may be available or necessary to
maintain compliance with these various covenants, including cost saving actions
and the prepayment of debt.
The new home
construction and repair and remodeling markets have declined.
Beginning in the second half of 2006, we saw a significant slowdown in the
Florida housing market. This slowdown continued during 2007 and 2008,
and we expect this trend to continue through 2009 and possibly
further. Like many building material suppliers in the industry, we
have been and will continue to be faced with a challenging operating environment
due to this decline in the housing market. Specifically, new single
family housing permits in Florida decreased by 49% in 2007 and 47% in 2008 each
as compared to the prior year. Beginning in the third quarter of
2008, we began to see a decrease in consumer spending for repair and remodeling
projects as credit tightened and many homeowners lost substantial equity in
their homes. The resulting decline in new home and repair and remodeling
construction levels by our customers has decreased demand for our products which
has had, and which could continue to have, an adverse impact on our sales and
results of operations.
Current economic
and credit market conditions have increased the risk that we may not collect a
greater percentage of our receivables. Economic and credit conditions
have negatively impacted our bad debt expense which has adversely impacted
our results of operations. If these conditions persist, our results
of operations may continue to be adversely impacted by bad debts. We monitor our
customers’ credit profiles carefully and make changes in our terms when
necessary in response to this heightened risk.
We are subject to
fluctuations in the prices of our raw materials. We experience
significant fluctuations in the cost of our raw materials, including aluminum
extrusion, polyvinyl butyral and glass. A variety of factors over which we have
no control, including global demand for aluminum, fluctuations in oil prices,
speculation in commodities futures and the creation of new laminates or other
products based on new technologies impact the cost of raw materials we purchase
for the manufacture of our products. While we attempt to minimize our risk from
severe price fluctuations by entering into aluminum forward contracts to hedge
these fluctuations in the purchase price of aluminum extrusion we use in
production, substantial, prolonged upward trends in aluminum prices could
significantly increase the cost of the unhedged portions of our aluminum needs
and have an adverse impact on our results of operations. We anticipate that
these fluctuations will continue in the future. While we have entered into a
three-year supply agreement through early 2012 with a major producer of
polyvinyl butyral that we believe provides us with a reliable, single source for
polyvinyl butyral with stable pricing on favorable terms, if one or both parties
to the agreement do not satisfy the terms of the agreement it may be terminated
which could result in our inability to obtain polyvinyl butyral on commercially
reasonable terms having an adverse impact on our results of
operations. While historically we have to some extent been able to pass on
significant cost increases to our customers, our results between periods may be
negatively impacted by a delay between the cost increases and price increases in
our products.
We depend on
third-party suppliers for our raw materials. Our
ability to offer a wide variety of products to our customers depends on receipt
of adequate material supplies from manufacturers and other suppliers. Generally,
our raw materials and supplies are obtainable from various sources and in
sufficient quantities. However, it is possible that our competitors or other
suppliers may create laminates or products based on new technologies that are
not available to us or are more effective than our products at surviving
hurricane-force winds and wind-borne debris or that they may have access to
products of a similar quality at lower prices. Although in many instances
we have agreements with our suppliers, these agreements are generally terminable
by either party on limited notice. Moreover, other than with our suppliers of
polyvinyl butyral and aluminum, we do not have long-term contracts with the
suppliers of our raw materials.
Transportation
costs represent a significant part of our cost structure. Although prices
decreased significantly in the fourth quarter of 2008, the increase in fuel
prices earlier in 2008 had a negative effect on our distribution
costs. Another rapid and prolonged increase in fuel prices may
significantly increase our costs and have an adverse impact on our results of
operations.
The home building
industry and the home repair and remodeling sector are regulated. The
homebuilding industry and the home repair and remodeling sector are subject to
various local, state, and federal statutes, ordinances, rules, and regulations
concerning zoning, building design and safety, construction, and similar
matters, including regulations that impose restrictive zoning and density
requirements in order to limit the number of homes that can be built within the
boundaries of a particular area. Increased regulatory restrictions could limit
demand for new homes and home repair and remodeling products and could
negatively affect our sales and results of operations.
Our operating
results are substantially dependent on sales of our WinGuard
branded line of
products. A majority of our net sales are, and are expected to continue
to be, derived from the sales of our WinGuard branded line of products.
Accordingly, our future operating results will depend on the demand for WinGuard
products by current and future customers, including additions to this product
line that are subsequently introduced. If our competitors release new products
that are superior to WinGuard products in performance or price, or if we fail to
update WinGuard products with any technological advances that are developed by
us or our competitors or introduce new products in a timely manner, demand for
our products may decline. A decline in demand for WinGuard products as a result
of competition, technological change or other factors could have a material
adverse effect on our ability to generate sales, which would negatively affect
our sales and results of operations.
Changes in
building codes could lower the demand for our impact-resistant windows and
doors. The market for our impact-resistant windows and doors depends in
large part on our ability to satisfy state and local building codes that require
protection from wind-borne debris. If the standards in such building codes are
raised, we may not be able to meet their requirements, and demand for our
products could decline. Conversely, if the standards in such building codes are
lowered or are not enforced in certain areas, demand for our impact-resistant
products may decrease. Further, if states and regions that are affected by
hurricanes but do not currently have such building codes fail to adopt and
enforce hurricane protection building codes, our ability to expand our business
in such markets may be limited.
Our industry is
competitive, and competition may increase as our markets grow or as more states
adopt or enforce building codes that require impact-resistant products.
The window and door industry is highly competitive. We face significant
competition from numerous small, regional producers, as well as a small number
of national producers. Some of these competitors make products from alternative
materials, including wood. Any of these competitors may (i) foresee the
course of market development more accurately than do we, (ii) develop
products that are superior to our products, (iii) have the ability to
produce similar products at a lower cost, (iv) develop stronger
relationships with window distributors, building supply distributors, and window
replacement dealers, or (v) adapt more quickly to new technologies or
evolving customer requirements than do we. As a result, we may not be able to
compete successfully with them.
In
addition, while we are skilled at creating finished impact-resistant and other
window and door products, the materials we use can be purchased by any existing
or potential competitor. New competitors can enter our industry, and existing
competitors may increase their efforts in the impact-resistant market.
Furthermore, if the market for impact-resistant windows and doors continues to
expand, larger competitors could enter, or expand their presence in the market
and may be able to compete more effectively. Finally, we may not be able to
maintain our costs at a level sufficiently low for us to compete effectively. If
we are unable to compete effectively, demand for our products and our
profitability may decline.
Our business is
currently concentrated in one state. Our business is concentrated
geographically in Florida. In fiscal year 2008, approximately 88% of our sales
were generated in Florida, and new single family housing permits in Florida
decreased by 47% in 2008 compared to the prior year. A further or prolonged
decline in the economy of the state of Florida or of the coastal regions of
Florida, a change in state and local building code requirements for hurricane
protection, or any other adverse condition in the state could cause a decline in
the demand for our products in Florida, which could have an adverse impact on
our sales and results of operations.
Our level of
indebtedness could adversely affect our ability to raise additional capital to
fund our operations, limit our ability to react to changes in the economy or our
industry, and prevent us from meeting our obligations under our debt
instruments. As
of January 3, 2009, our indebtedness under our first lien term loan was
$90.0 million. All of our debt was at a variable interest rate. In the
event that interest rates rise, our interest expense would increase. A 1.0%
increase in interest rates would result in approximately $1.0 million of
additional interest expense annually.
The level
of our debt could have certain consequences, including:
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increasing
our vulnerability to general economic and industry
conditions;
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requiring
a substantial portion of our cash flow from operations to be dedicated to
the payment of principal and interest on our indebtedness, therefore
reducing our ability to use our cash flow to fund our operations, capital
expenditures, and future business opportunities;
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exposing
us to the risk of increased interest rates because certain of our
borrowings, including borrowings under our credit facilities, will be at
variable rates of interest;
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limiting
our ability to obtain additional financing for working capital, capital
expenditures, debt service requirements, acquisitions, and general
corporate or other purposes; and
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limiting
our ability to adjust to changing market conditions and placing us at a
competitive disadvantage compared to our competitors who have less
debt.
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We may incur
additional indebtedness. We
may incur additional indebtedness under our credit facilities, which provide for
up to $30 million of revolving credit borrowings. In addition, we and our
subsidiary may be able to incur substantial additional indebtedness in the
future, including secured debt, subject to the restrictions contained in the
agreements governing our credit facilities. If new debt is added to our current
debt levels, the related risks that we now face could intensify.
Our debt
instruments contain various covenants that limit our ability to operate our
business. Our credit facility contains various provisions that limit our
ability to, among other things, transfer or sell assets, including the
equity interests of our subsidiary, or use asset sale proceeds; pay
dividends or distributions on our capital stock or repurchase our capital
stock; make certain restricted payments or investments; create liens
to secure debt; enter into transactions with affiliates; merge or
consolidate with another company; and engage in unrelated business
activities.
In
addition, our credit facilities require us to meet specified financial ratios.
These covenants may restrict our ability to expand or fully pursue our business
strategies. Our ability to comply with these and other provisions of our credit
facilities may be affected by changes in our operating and financial
performance, changes in general business and economic conditions, adverse
regulatory developments, or other events beyond our control. The breach of any
of these covenants, including those contained in our credit facilities, could
result in a default under our indebtedness, which could cause those and other
obligations to become due and payable. If any of our indebtedness is
accelerated, we may not be able to repay it.
We may be
adversely affected by any disruption in our information technology
systems. Our
operations are dependent upon our information technology systems, which
encompass all of our major business functions. A disruption in our information
technology systems for any prolonged period could result in delays in receiving
inventory and supplies or filling customer orders and adversely affect our
customer service and relationships.
We may be
adversely affected by any disruptions to our manufacturing facilities or
disruptions to our customer, supplier, or employee base. Any
disruption to our facilities resulting from hurricanes and other weather-related
events, fire, an act of terrorism, or any other cause could damage a significant
portion of our inventory, affect our distribution of products, and materially
impair our ability to distribute our products to customers. We could incur
significantly higher costs and longer lead times associated with distributing
our products to our customers during the time that it takes for us to reopen or
replace a damaged facility. In addition, if there are disruptions to our
customer and supplier base or to our employees caused by hurricanes, our
business could be temporarily adversely affected by higher costs for materials,
increased shipping and storage costs, increased labor costs, increased absentee
rates, and scheduling issues. Furthermore, some of our direct and indirect
suppliers have unionized work forces, and strikes, work stoppages, or slowdowns
experienced by these suppliers could result in slowdowns or closures of their
facilities. Any interruption in the production or delivery of our supplies could
reduce sales of our products and increase our costs.
The nature of our
business exposes us to product liability and warranty claims. We are
involved in product liability and product warranty claims relating to the
products we manufacture and distribute that, if adversely determined, could
adversely affect our financial condition, results of operations, and cash flows.
In addition, we may be exposed to potential claims arising from the conduct of
homebuilders and home remodelers and their sub-contractors. Although we
currently maintain what we believe to be suitable and adequate insurance in
excess of our self-insured amounts, we may not be able to maintain such
insurance on acceptable terms or such insurance may not provide adequate
protection against potential liabilities. Product liability claims can be
expensive to defend and can divert the attention of management and other
personnel for significant periods, regardless of the ultimate outcome. Claims of
this nature could also have a negative impact on customer confidence in our
products and our company.
We are subject to
potential exposure to environmental liabilities and are subject to environmental
regulation. We are subject to various federal, state, and local
environmental laws, ordinances, and regulations. Although we believe that our
facilities are in material compliance with such laws, ordinances, and
regulations, as owners and lessees of real property, we can be held liable for
the investigation or remediation of contamination on such properties, in some
circumstances, without regard to whether we knew of or were responsible for such
contamination. Remediation may be required in the future as a result of spills
or releases of petroleum products or hazardous substances, the discovery of
unknown environmental conditions, or more stringent standards regarding existing
residual contamination. More burdensome environmental regulatory requirements
may increase our general and administrative costs and may increase the risk that
we may incur fines or penalties or be held liable for violations of such
regulatory requirements.
We conduct all of
our operations through our subsidiary, and rely on payments from our subsidiary
to meet all of our obligations. We are a holding company and derive all
of our operating income from our subsidiary, PGT Industries, Inc. All of our
assets are held by our subsidiary, and we rely on the earnings and cash flows of
our subsidiary to meet our debt service obligations. The ability of our
subsidiary to make payments to us will depend on its respective operating
results and may be restricted by, among other things, the laws of its
jurisdiction of organization (which may limit the amount of funds available for
distributions to us), the terms of existing and future indebtedness and other
agreements of our subsidiary, including our credit facilities, and the covenants
of any future outstanding indebtedness we or our subsidiary incur.
We are exposed to
risks relating to evaluations of controls required by Section 404 of the
Sarbanes-Oxley Act of 2002. We are required to comply with
Section 404 of the Sarbanes-Oxley Act of 2002. While we have concluded that
at January 3, 2009, we have no material weaknesses in our internal controls over
financial reporting, we cannot assure you that we will not have a material
weakness in the future. A “material weakness” is a deficiency, or combination of
deficiencies, that might prevent prudent officials in the conduct of their own
affairs from concluding that they have reasonable assurance that transactions
are recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles. If we fail to maintain
a system of internal controls over financial reporting that meets the
requirements of Section 404, we might be subject to sanctions or
investigation by regulatory authorities such as the SEC or by the NASDAQ Stock
Market LLC. Additionally, failure to comply with Section 404 or the report
by us of a material weakness may cause investors to lose confidence in our
financial statements and our stock price may be adversely affected. If we fail
to remedy any material weakness, our financial statements may be inaccurate, we
may not have access to the capital markets, and our stock price may be adversely
affected.
The controlling
position of an affiliate of JLL Partners limits the ability of our minority
stockholders to influence
corporate matters. An
affiliate of JLL Partners owned 53.0% of our outstanding common stock as of
January 3, 2009. Accordingly, such affiliate of JLL Partners has
significant influence over our management and affairs and over all matters
requiring stockholder approval, including the election of directors and
significant corporate transactions, such as a merger or other sale of our
company or its assets. This concentration of ownership may have the effect of
delaying or preventing a transaction such as a merger, consolidation, or other
business combination involving us, or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control, even if such a
transaction or change of control would benefit minority stockholders. In
addition, this concentrated control limits the ability of our minority
stockholders to influence corporate matters, and such affiliate of JLL Partners,
as a controlling stockholder, could approve certain actions, including a
going-private transaction, without approval of minority stockholders, subject to
obtaining any required approval of our board of directors for such transaction.
As a result, the market price of our common stock could be adversely
affected.
The controlling
position of an affiliate of JLL Partners exempts us from certain
Nasdaq corporate governance requirements. Although
we have satisfied all applicable Nasdaq corporate governance rules, for so long
as an affiliate of JLL Partners continues to own more than 50% of our
outstanding shares, we will continue to avail ourselves of the Nasdaq
Rule 4350(c) “controlled company” exemption that applies to companies in
which more than 50% of the stockholder voting power is held by an individual, a
group, or another company. This rule grants us an exemption from the
requirements that we have a majority of independent directors on our board of
directors and that we have independent directors determine the compensation of
executive officers and the selection of nominees to the board of directors.
However, we intend to comply with such requirements in the event that such
affiliate of JLL Partners’ ownership falls to or below 50%.
Our directors and
officers who are affiliated with JLL Partners do not have any
obligation to report corporate opportunities to us. Because
some individuals may serve as our directors or officers and as directors,
officers, partners, members, managers, or employees of JLL Partners or its
affiliates or investment funds and because such affiliates or investment funds
may engage in similar lines of business to those in which we engage, our amended
and restated certificate of incorporation allocates corporate opportunities
between us and JLL Partners and its affiliates and investment funds.
Specifically, for so long as JLL Partners and its affiliates and investment
funds own at least 15% of our shares of common stock, none of JLL Partners, nor
any of its affiliates or investment funds, or their respective directors,
officers, partners, members, managers, or employees has any duty to refrain from
engaging directly or indirectly in the same or similar business activities or
lines of business as do we. In addition, if any of them acquires knowledge of a
potential transaction that may be a corporate opportunity for our Company and
for JLL Partners or its affiliates or investment funds, subject to certain
exceptions, we will not have any expectancy in such corporate opportunity, and
they will not have any obligation to communicate such opportunity to
us.
None.
|
PROPERTIES
|
We own
facilities in one location in Florida and two locations in North Carolina that
are capable of producing all of our product lines. In North Venice, Florida, we
own a 363,000 square foot facility that contains our corporate headquarters
and main manufacturing plant. We also own an adjacent 80,000 square foot
facility used for glass tempering and laminating, a 42,000 square foot
facility for producing Architectural System products and simulated wood-finished
products, and a 3,590 square foot facility used for employee and customer
training. In Salisbury, North Carolina, we own a 393,000 square foot
manufacturing facility including glass tempering and laminating capabilities. We
also own a 225,000 square foot facility in Lexington, North Carolina which
was vacant and being marketed for sale as a result of the completion of our move
to the larger Salisbury facility. In December 2007 we reclassified
the real estate as held and used when we made the decision to utilize the
facility.
We lease
four properties in North Venice, Florida. The leases for the fleet maintenance
building, glass plant line maintenance building, fleet parking lot, and facility
maintenance/glass hub in North Venice, Florida expire in January 2012, November
2010, September 2013 and December 2010, respectively. Each
of the leases provides for a fixed annual rent. The leases require us to pay
taxes, insurance and common area maintenance expenses associated with the
properties.
All of
our owned properties secure borrowings under our first lien credit agreement. We
believe all of these operating facilities are adequate in capacity and condition
to service existing customer locations.
|
LEGAL
PROCEEDINGS
|
We are
involved in various claims and lawsuits incidental to the conduct of our
business in the ordinary course. We carry insurance coverage in such amounts in
excess of our self-insured retention as we believe to be reasonable under the
circumstances and that may or may not cover any or all of our liabilities in
respect of claims and lawsuits. We do not believe that the ultimate resolution
of these matters will have a material adverse impact on our financial position,
cash flows or results of operations.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
|
Name
|
Age
|
Position
|
||
|
Rodney
Hershberger
|
52
|
President,
Chief Executive Officer, and Director
|
||
|
Jeffrey
T. Jackson
|
43
|
Executive
Vice President and Chief Financial Officer
|
||
|
Mario
Ferrucci III
|
45
|
Vice
President - Aluminum Product Stream and General Counsel
|
||
|
David
McCutcheon
|
43
|
Vice
President - Operations
|
||
|
Deborah
L. LaPinska
|
47
|
Vice
President - Sales and Marketing
|
||
|
C.
Douglas Cross
|
53
|
Vice
President - Vinyl Product Stream
|
Rodney Hershberger, President,
Chief Executive Officer, and Director. Mr. Hershberger, a co-founder of PGT
Industries, Inc., has served our Company for nearly 30 years.
Mr. Hershberger was named President and Director in 2004 and became our
Chief Executive Officer in March 2005. Mr. Hershberger also became
President of PGT Industries, Inc. in 2004 and was named Chief Executive Officer
of PGT Industries, Inc. in 2005. In 2003 Mr. Hershberger became executive
vice president and chief operating officer and oversaw our Company’s Florida and
North Carolina operations, sales, marketing, and engineering groups. Previously,
Mr. Hershberger led the manufacturing, transportation, and logistics
operations in Florida and served as vice president of customer
service.
Jeffrey T.
Jackson, Executive Vice President and Chief Financial Officer.
Mr. Jackson joined our Company as Chief Financial Officer and Treasurer in
November 2005, and his current responsibilities include all aspects of financial
reporting and accounting, internal controls, cash management, supply chain,
information technology and the business planning process. Before joining our
Company, Mr. Jackson spent two years as Vice President, Corporate
Controller for The Hershey Company. From 1999 to 2004 Mr. Jackson was
Senior Vice President, Chief Financial Officer for Mrs. Smith’s Bakeries,
LLC, a division of Flowers Foods, Inc. Mr. Jackson has over seventeen years
of increasing responsibility in various executive management roles with various
companies, including Division Chief Financial Officer, Vice President Corporate
Controller, and Senior Vice President of Operations. Mr. Jackson holds a
B.B.A. from the University of West Georgia and is a Certified Public Accountant
in the State of Georgia and the State of California.
Mario Ferrucci III, Vice
President – Aluminum Product Stream and General Counsel. Mr. Ferrucci
joined our Company in April 2006 as Vice President and Corporate Counsel, and
his current responsibilities include all aspects of the Company’s legal and
compliance affairs, driving our residential aluminum business and field service.
From 2001 to 2006, Mr. Ferrucci practiced law with the law firm of Skadden,
Arps, Slate, Meagher & Flom LLP.
David McCutcheon, Vice
President — Operations. Mr. McCutcheon joined our Company in 1997 and was
appointed Vice Presisent in 2001. His current responsibilities include all
aspects of operations and manufacturing. Previously, Mr. McCutcheon worked
for ten years for General Motors in management positions in manufacturing
operations and manufacturing engineering. Mr. McCutcheon holds a B.S.E.E.
from Purdue University and an M.B.A. from The Ohio State
University.
Deborah L. LaPinska, Vice
President — Sales and Marketing. Ms. LaPinska joined our Company in
1991. Ms. LaPinska is responsible for customer service, sales, and
marketing, as well as incorporating new tools and resources to improve order
processing cycle times and sales forecasting. Before she was appointed Vice
President in 2003, Ms. LaPinska held the position of Director, National and
International Sales. Ms. LaPinska holds a B.A. in business management from
Eckerd College.
C. Douglas Cross, Vice President
– Vinyl Product Stream. Mr. Cross joined PGT in March 2007 as a Vice President.
He oversees PGT’s vinyl product line. Located in the N.C. facility, he has over
25 years of manufacturing and leadership experience. Mr. Cross earned a B.S. in
Commerce, from the University of Virginia and attended the Young Executives
Institute, University of North Carolina at Chapel Hill.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
Common Stock has been traded on the NASDAQ Global Market ® under the symbol “PGTI”. On
February 27, 2009, the closing price of our Common Stock as reported on the
NASDAQ Global Market was $1.05. The approximate number of stockholders of record
of our Common Stock on that date was 100, although we believe that the number of
beneficial owners of our Common Stock is substantially
greater.
The table
below sets forth the price range of our Common Stock during the periods
indicated.
|
High
|
Low
|
|||||||
|
2008
1st
Quarter
|
$
|
5.00
|
$
|
2.59
|
||||
|
2nd
Quarter
|
$
|
4.25
|
$
|
2.18
|
||||
|
3rd
Quarter
|
$
|
5.95
|
$
|
3.00
|
||||
|
4th
Quarter
|
$
|
3.98
|
$
|
0.85
|
||||
|
2007
1st
Quarter
|
$
|
13.42
|
$
|
11.00
|
||||
|
2nd
Quarter
|
$
|
13.01
|
$
|
10.20
|
||||
|
3rd
Quarter
|
$
|
12.41
|
$
|
7.86
|
||||
|
4th
Quarter
|
$
|
8.71
|
$
|
4.69
|
||||
Dividends
We do not
pay a regular dividend. Any determination relating to dividend policy will be
made at the discretion of our board of directors. The terms of our senior
secured credit facility governing our notes currently restrict our ability to
pay dividends.
Unregistered
Sales of Equity Securities
During
the year ended January 3, 2009, we issued an aggregate of 479,417 shares of our
common stock to certain officers, employees and former employees upon the
exercise of options associated with the Rollover Stock Option Agreement included
as Exhibit 10.18 to Amendment No. 1 to the Registration Statement of the Company
on Form S-1, filed with the Securities and Exchange Commission on April 21,
2006, Registration No. 333-132365. We received aggregate proceeds
of $210,428 as a result of the exercise of these options. The
Company relied on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933 in reliance on, among other things, representations
and warranties obtained from the holders of such options. We did not
issue any shares of our common stock under our 2004 Stock Incentive Plan in
2008.
All of
the above option grants were made prior to our initial public
offering. Proceeds from the foregoing transactions were used for
general working capital purposes. None of the foregoing transactions
involved any underwriters, underwriting discounts or commissions, or any public
offering.
Performance
Graph
The
following graphs compare the percentage change in PGT, Inc.’s cumulative total
stockholder return on its Common Stock with the cumulative total stockholder
return of the Standard & Poor’s Building Products Index and the NASDAQ
Composite Index over the period from June 27, 2006 (the date we became a public
company) to January 3, 2009.
COMPARISON
OF 30 MONTH CUMULATIVE TOTAL RETURN*
AMONG
PGT, INC., THE NASDAQ COMPOSITE INDEX,
AND
THE S&P BUILDING PRODUCTS INDEX
|
06/27/06
|
6/06
|
9/06
|
12/06
|
3/07
|
6/07
|
||
|
PGT,
Inc.
|
100.00
|
112.86
|
100.43
|
90.36
|
85.71
|
78.07
|
|
|
S&P
Building Products
|
100.00
|
102.51
|
96.65
|
105.41
|
106.85
|
114.67
|
|
|
NASDAQ
Composite
|
100.00
|
103.42
|
107.53
|
115.00
|
115.30
|
123.95
|
|
|
9/07
|
12/07
|
3/08
|
6/08
|
9/08
|
01/03/09
|
||
|
PGT,
Inc.
|
56.64
|
34.50
|
21.21
|
22.71
|
23.29
|
8.43
|
|
|
S&P
Building Products
|
95.04
|
103.78
|
98.60
|
83.05
|
94.71
|
58.76
|
|
|
NASDAQ
Composite
|
128.63
|
126.28
|
108.52
|
109.18
|
99.60
|
75.09
|
|
* $100
invested on 06/27/2006 in stock or in index-including reinvestment of dividends
for 30 months ending January 3, 2009.
|
SELECTED
FINANCIAL DATA
|
The
following table sets forth selected historical consolidated financial
information and other data as of and for the periods indicated and have been
derived from our audited consolidated financial statements. Throughout this
report, we refer to PGT Holding Company as our Predecessor, the results of
operations for which are not comparable to the results of operations for other
periods presented herein.
All
information included in the following tables should be read in conjunction
with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” contained in Item 7, and with the consolidated financial statements
and related notes in Item 8. The year ended January 3, 2009 consisted
of 53 weeks. Except for the period ended January 1, 2005 and the predecessor
period, all prior years consisted of 52 weeks. We do not believe the impact
on comparability of results is significant.
|
Company
|
Predecessor
|
|||||||||||||||||||||||
|
January 30,
|
December 28,
|
|||||||||||||||||||||||
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
2004
to
|
2003
to
|
|||||||||||||||||||
|
Consolidated
Selected Financial Data
|
January
3,
|
December 29,
|
December 30,
|
December 31,
|
January 1,
|
January 29,
|
||||||||||||||||||
|
(in
thousands except per share data)
|
2009
|
2007
|
2006
|
2005
|
2005
|
2004
|
||||||||||||||||||
|
Net
sales
|
$ | 218,556 | $ | 278,394 | $ | 371,598 | $ | 332,813 | $ | 237,350 | $ | 19,044 | ||||||||||||
|
Cost
of sales
|
150,277 | 187,389 | 229,867 | 209,475 | 152,316 | 13,997 | ||||||||||||||||||
|
Gross
margin
|
68,279 | 91,005 | 141,731 | 123,338 | 85,034 | 5,047 | ||||||||||||||||||
|
Impairment
charges(1)
|
187,748 | 826 | 1,151 | 7,200 | - | - | ||||||||||||||||||
|
Stock
compensation expense(2)
|
- | - | 26,898 | 7,146 | - | - | ||||||||||||||||||
|
Selling,
general and administrative
|
||||||||||||||||||||||||
|
expenses
|
63,109 | 77,004 | 86,219 | 83,634 | 63,494 | 6,024 | ||||||||||||||||||
|
(Loss)
income from operations
|
(182,578 | ) | 13,175 | 27,463 | 25,358 | 21,540 | (977 | ) | ||||||||||||||||
|
Interest
expense
|
9,283 | 11,404 | 28,509 | 13,871 | 9,893 | 518 | ||||||||||||||||||
|
Other
(income) expense, net(3)
|
(40 | ) | 692 | (178 | ) | (286 | ) | 124 | - | |||||||||||||||
|
(Loss)
income before income taxes
|
(191,821 | ) | 1,079 | (868 | ) | 11,773 | 11,523 | (1,495 | ) | |||||||||||||||
|
Income
tax (benefit) expense
|
(28,789 | ) | 456 | 101 | 3,910 | 4,531 | (912 | ) | ||||||||||||||||
|
Net
(loss) income
|
$ | (163,032 | ) | $ | 623 | $ | (969 | ) | $ | 7,863 | $ | 6,992 | $ | (583 | ) | |||||||||
|
Net
(loss) income per common share:
|
||||||||||||||||||||||||
|
Basic
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | $ | 0.48 | $ | 0.43 | N/A | |||||||||||
|
Diluted
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | $ | 0.44 | $ | 0.39 | N/A | |||||||||||
|
Weighted
average shares outstanding:
|
||||||||||||||||||||||||
|
Basic(4)
|
30,687 | 28,375 | 22,043 | 16,345 | 16,342 | N/A | ||||||||||||||||||
|
Diluted(4)
|
30,687 | 29,418 | 22,043 | 17,921 | 17,843 | N/A | ||||||||||||||||||
|
Other
financial data:
|
||||||||||||||||||||||||
|
Depreciation
|
$ | 11,518 | $ | 10,418 | $ | 9,871 | $ | 7,503 | $ | 5,221 | $ | 484 | ||||||||||||
|
Amortization
|
5,570 | 5,570 | 5,742 | 8,020 | 9,289 | 44 | ||||||||||||||||||
|
As
Of
|
As
Of
|
As
Of
|
As
Of
|
As
Of
|
As
Of
|
|||||||||||||||||||
|
January
3,
|
December 29,
|
December 30,
|
December 31,
|
January 1,
|
January 29,
|
|||||||||||||||||||
|
2009
|
2007
|
2006
|
2005
|
2005
|
2004
|
|||||||||||||||||||
|
Balance
Sheet data:
|
||||||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 19,628 | $ | 19,479 | $ | 36,981 | $ | 3,270 | $ | 2,525 | $ | 12,191 | ||||||||||||
|
Total
assets
|
200,617 | 407,865 | 442,794 | 425,553 | 409,936 | 157,084 | ||||||||||||||||||
|
Total
debt, including current portion
|
90,366 | 130,000 | 165,488 | 183,525 | 168,375 | 61,683 | ||||||||||||||||||
|
Shareholders’
equity
|
74,185 | 210,472 | 205,206 | 156,571 | 166,107 | 68,187 | ||||||||||||||||||
|
(1)
|
In
2008, amount relates to intangible asset impairment charges. See Note 6 in
Item 8. In 2007 and 2006, amounts relate to write-down of the value of our
Lexington, North Carolina property. In 2005, amount relates to
write-down of a trademark in connection with the sale of the related
product line.
|
|
(2)
|
Represents
compensation expense paid to stock option holders (including applicable
payroll taxes) in lieu of adjusting exercise prices in connection with the
dividends paid to shareholders in September 2005 and February 2006 of $7.1
million, including expenses, and $26.9 million, respectively. These
amounts include amounts paid to stock option holders whose other
compensation is a component of cost of sales of $1.3 million and $5.1
million, respectively.
|
|
(3)
|
Relates
to derivative financial
instruments.
|
|
(4)
|
Weighted
average common shares outstanding for all periods prior to 2008 have been
restated to give effect to the bonus element in the rights
offering.
|
Item 7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We advise
you to read Management’s Discussion and Analysis of Financial Condition and
Results of Operations in conjunction with our Consolidated Financial Statements
and the Notes to the Consolidated Financial Statements included in Item 8. We
also advise you read the risk factors in Item 1A. You should consider
the information in these items, along with other information included in this
Annual Report on Form 10-K.
RECENT
DEVELOPMENTS
In the
first quarter of 2009, we implemented two restructurings of the Company as a
result of continued analysis of our target markets, internal structure,
projected run-rate, and efficiency. These restructurings resulted in
a decrease in our workforce of approximately 250 employees and included
employees in both Florida and North Carolina. As a result of the
restructuring, we expect to record estimated restructuring charges totaling
approximately $2.5 million in the first quarter of 2009. No amounts
related to these restructurings have been accrued in the accompanying
consolidated financial statements as of and for the year ended January 3,
2009.
EXECUTIVE
OVERVIEW
On
February 18, 2009, we issued a press release and held a conference call the next
day to review the results of operations of our Company for the fiscal year ended
January 3, 2009. We also discussed the current business environment
and our further actions to reduce our cost structure taken on January 13, 2009.
We took similar cost savings actions on March 11, 2009.
Our
results for 2008 were impacted by the following:
|
•
|
We
believe we have gained market share in Florida as the decrease in our
sales in 2008 of 22% was significantly lower than the 47% decrease in
single family housing starts over the same period as a result of an excess
supply of homes, tighter credit conditions, and an increase in
foreclosures, especially in our primary market of Florida.
|
|
|
•
|
The
sales decrease in 2008 compared to 2007 was driven by:
- Winguard
sales down 20%
- All
other product sales down 25%
|
|
|
•
|
Both
markets we sell into were down, which include:
- New
home construction down 36%
- Repair
and remodeling down 10%
|
|
|
•
|
The
decline in sales volume had an adverse impact on our gross margins, which
declined 25%, as we experienced an unfavorable deleveraging of our fixed
costs.
|
|
|
•
|
Aluminum
prices increased significantly in the second quarter before decreasing in
the third and fourth quarters to levels not seen since 2002. On
average though, the cash price for aluminum we paid during 2008 was $1.20
per pound and we were hedged for about 52% of our aluminum needs during
2008 at an average price of approximately $1.25 per pound. As a
result, our average cost of aluminum during 2008 was approximately $1.23
per pound compared to an average cost of aluminum during 2007 of
approximately $1.22 per pound.
|
|
•
|
The
weakness in the housing market, we believe, has resulted in the prolonged
decline in our market capitalization, which was significantly below our
Company’s book value in the second quarter of 2008. We updated
our impairment tests in the second quarter and performed our required
annual tests in the fourth quarter. As a result, we wrote-off
all goodwill, taking non-cash impairment charges totaling $169.6 million
and recorded non-cash impairment charges of $18.1 million against our
trademarks in 2008.
|
|
|
•
|
Driven
by the prolonged trend of decreasing sales, we again took action to cut
costs and restructure our operations in March 2008, after having done so
in October 2007. We recorded a total of $2.1 million in
restructuring costs in 2008, primarily related to employee separation
costs. However, these actions have provided us with substantial cost
savings that we estimate to be more than $8 million annually.
|
|
|
•
|
Through
effective working capital management and our successful rights offering,
coupled with cost reduction actions taken in 2007 and 2008, we ended the
year with as much cash on hand as at the beginning of the year and were
able to prepay $40 million of outstanding bank debt bringing our long-term
debt to $90 million. This has and will continue to provide us with savings
related to debt service costs.
|
We expect
the current challenging conditions in the housing market and in the overall
economy to remain difficult, and even worsen in 2009, or if the federal stimulus
package will have beneficial economic effects. Also, the timing of
any recovery in the housing industry and the overall economy is uncertain at
best. For these reasons, we believe that our financial performance
could continue to be negatively impacted for the foreseeable
future.
Restructurings
On
October 25, 2007, we announced a restructuring as a result of an in-depth
analysis of our target markets, internal structure, projected run-rate, and
efficiency. The restructuring resulted in a decrease in our workforce
of approximately 150 employees and included employees in both Florida and North
Carolina. The restructuring was undertaken in an effort to streamline
operations, as well as improve processes to drive new product development and
sales. As a result of the restructuring, we recorded a restructuring
charge of $2.4 million in 2007, of which $0.7 million was classified within cost
of goods sold and $1.7 million was classified within selling, general and
administrative expenses. The charge related primarily to employee
separation costs. Of the $2.4 million charge, $1.5 million was
disbursed in 2007 and $0.9 million was disbursed in 2008.
On March
4, 2008, we announced a second restructuring as a result of continued analysis
of our target markets, internal structure, projected run-rate, and
efficiency. The restructuring resulted in a decrease in our workforce
of approximately 300 employees and included employees in both Florida and North
Carolina. As a result of the restructuring, we recorded a
restructuring charge of $2.1 million in 2008, of which $1.1 million is
classified within cost of goods sold and $1.0 million is classified within
selling, general and administrative expenses in the accompanying consolidated
statement of operations for the year ended January 3, 2009. The
charge related primarily to employee separation costs. Of the $2.1
million, $1.8 million was disbursed in the first quarter of 2008. The
remaining $0.3 million is classified within accrued liabilities in the
accompanying consolidated balance sheet as of January 3, 2009 (Note 7) and is
expected to be disbursed in 2009.
The
following table provides information with respect to the accrual for
restructuring costs:
|
Beginning
of Year
|
Charged
to Expense
|
Disbursed
in Cash
|
End
of Year
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Year
ended January 3, 2009:
|
||||||||||||||||
|
2007
Restructuring
|
$ | 850 | $ | - | $ | (850 | ) | $ | - | |||||||
|
2008
Restructuring
|
- | 2,131 | (1,799 | ) | 332 | |||||||||||
|
For
the year ended January 3, 2009
|
$ | 850 | $ | 2,131 | $ | (2,649 | ) | $ | 332 | |||||||
|
Year
ended December 29, 2007:
|
||||||||||||||||
|
2007
Restructuring
|
$ | - | $ | 2,375 | $ | (1,525 | ) | $ | 850 | |||||||
Non-GAAP
Financial Measures – Items Affecting Comparability
Below is
a presentation of EBITDA, a non-GAAP measure, which we believe is useful
information for investors (in thousands):
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
Net
(loss) income
|
$ | (163,032 | ) | $ | 623 | $ | (969 | ) | ||||
|
Interest
expense
|
9,283 | 11,404 | 28,509 | |||||||||
|
Income
tax (benefit) expense
|
(28,789 | ) | 456 | 101 | ||||||||
|
Depreciation
|
11,518 | 10,418 | 9,871 | |||||||||
|
Amortization
|
5,570 | 5,570 | 5,742 | |||||||||
|
EBITDA
(1)(2)
|
$ | (165,450 | ) | $ | 28,471 | $ | 43,254 | |||||
|
(1)
Includes the impact of the following expenses:
|
||||||||||||
|
Restructuring
charges (a)
|
$ | (2,131 | ) | $ | (2,375 | ) | $ | - | ||||
|
Impairment
charges (b)
|
(187,748 | ) | (826 | ) | (1,151 | ) | ||||||
|
Management
fees (c)
|
- | - | (1,434 | ) | ||||||||
|
Stock
compensation (d)
|
- | - | (26,898 | ) | ||||||||
|
(a)
|
Represents
charges related to restructuring actions taken in 2008 and
2007. These charges relate primarily to employee separation
costs.
|
|
(b)
|
In
2008, represents goodwill and indefinite lived asset impairment charges.
In 2007 and 2006, represents the write-down of the value of the Lexington,
North Carolina property which had been classified as an asset held for
sale due to the relocation of our plant to Salisbury, North
Carolina.
|
|
(c)
|
Represents
management fees paid to our majority stockholder. The management services
agreement pursuant to which these fees were paid was terminated upon
consummation of the initial public offering in June
2006.
|
|
(d)
|
Represents
compensation expense related to amounts paid to option holders in lieu of
adjusting exercise prices in connection with the payment of dividends to
shareholders in February 2006.
|
|
(2)
EBITDA is defined as net income plus interest expense (net of interest
income), income taxes, depreciation, and amortization. EBITDA is a measure
commonly used in the window and door industry, and we present EBITDA to
enhance your understanding of our operating performance. We use EBITDA as
one criterion for evaluating our performance relative to that of our
peers. We believe that EBITDA is an operating performance measure that
provides investors and analysts with a measure of operating results
unaffected by differences in capital structures, capital investment
cycles, and ages of related assets among otherwise comparable companies.
While we believe EBITDA is a useful measure for investors, it is not a
measurement presented in accordance with United States generally accepted
accounting principles, or GAAP. You should not consider EBITDA in
isolation or as a substitute for net income, cash flows from operations,
or any other items calculated in accordance with
GAAP.
|
RESULTS
OF OPERATIONS
Analysis
of Selected Items from our Consolidated Statements of
Operations
|
Year
Ended
|
Percent
Change
|
|||||||||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
Increase
/ (Decrease)
|
|||||||||||||||||
|
2009
|
2007
|
2006
|
2008-2007
|
2007-2006
|
||||||||||||||||
|
(in
thousands, except per share amounts)
|
||||||||||||||||||||
|
Net
sales
|
$ | 218,556 | $ | 278,394 | $ | 371,598 |
(21.5%)
|
(25.1%) | ||||||||||||
|
Cost
of sales
|
150,277 | 187,389 | 229,867 |
(19.8%)
|
(18.5%) | |||||||||||||||
|
Gross
margin
|
68,279 | 91,005 | 141,731 |
(25.0%)
|
(35.8%) | |||||||||||||||
|
As
a percentage of sales
|
31.2 | % | 32.7 | % | 38.1 | % | ||||||||||||||
|
Impairment
charges
|
187,748 | 826 | 1,151 | |||||||||||||||||
|
Stock
compensation expense
|
- | - | 26,898 | |||||||||||||||||
|
SG&A
expenses
|
63,109 | 77,004 | 86,219 | (18.0%) | (10.7%) | |||||||||||||||
|
SG&A
expenses as a percentage of sales
|
28.9 | % | 27.7 | % | 23.2 | % | ||||||||||||||
|
(Loss)
income from operations
|
(182,578 | ) | 13,175 | 27,463 | ||||||||||||||||
|
Interest
expense, net
|
9,283 | 11,404 | 28,509 | |||||||||||||||||
|
Other
(income) expenses, net
|
(40 | ) | 692 | (178 | ) | |||||||||||||||
|
Income
tax (benefit) expense
|
(28,789 | ) | 456 | 101 | ||||||||||||||||
|
Net
(loss) income
|
$ | (163,032 | ) | $ | 623 | $ | (969 | ) | ||||||||||||
|
Net
(loss) income per common share:
|
||||||||||||||||||||
|
Diluted
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | ||||||||||||
2008
Compared with 2007
The year
ended January 3, 2009 consisted of 53 weeks. The year ended December 29, 2007
consisted of 52 weeks. We do not believe the impact on comparability of
results is significant.
Net
sales
Net sales
for 2008 were $218.6 million, a $59.8 million, or 21.5%, decrease in
sales from $278.4 million in the prior year.
The
following table shows net sales classified by major product category (in
millions):
|
Year
Ended
|
||||||||||||||||||||
|
January
3, 2009
|
December
29, 2007
|
|||||||||||||||||||
|
Sales
|
%
of sales
|
Sales
|
%
of sales
|
%
change
|
||||||||||||||||
|
Product
category:
|
||||||||||||||||||||
|
WinGuard
Windows and Doors
|
$ | 151.8 | 69.4 | % | $ | 189.7 | 68.1 | % |
(20.0%)
|
|||||||||||
|
Other
Window and Door Products
|
66.8 | 30.6 | % | 88.7 | 31.9 | % | (24.7%) | |||||||||||||
|
Total
net sales
|
$ | 218.6 | 100.0 | % | $ | 278.4 | 100.0 | % | (21.5%) | |||||||||||
Net sales
of WinGuard Windows and Doors were $151.8 million in 2008, a decrease of
$37.9 million, or 20.0%, from $189.7 million in net sales for the
prior year. Demand for WinGuard branded products is driven by, among other
things, increased enforcement of strict building codes mandating the use of
impact-resistant products, increased consumer and homebuilder awareness of the
advantages provided by impact-resistant windows and doors over “active” forms of
hurricane protection, and our successful marketing efforts. The decrease in
sales of our WinGuard branded products was driven mainly by the decline in new
home construction but also, to some extent, by the lack of storm activity during
the two most recent hurricane seasons in the coastal markets of Florida we
serve.
Net sales
of Other Window and Door Products were $66.8 million in 2008, a decrease of
$21.9 million, or 24.7%, from $88.7 million for the prior year. The
decrease was mainly due to the decline in new home construction. New
housing demand has historically impacted sales of our Other Window and Door
Products more than our WinGuard Window and Door Products.
The
decline in the housing industry began in the second half of 2006 and continued
and intensified throughout 2007 and 2008.
Gross
margin
Gross
margin was $68.3 million in 2008, a decrease of $22.7 million, or
25.0%, from $91.0 million in the prior year. The gross margin percentage
was 31.2% in 2008 compared to 32.7% in the prior year. This decrease was largely
due to lower sales volumes of all of our products, but most significantly of our
WinGuard branded windows and doors, sales of which decreased 20.0% compared to
the prior year. The decrease in sales as a result of the housing downturn has
negatively impacted our gross margin in total and as a percentage of sales and
reduced our ability to leverage fixed costs. Cost of goods sold includes charges
of $1.1 million in 2008 and $0.7 million in 2007 related to the restructuring
actions taken in each year.
In 2008,
we recognized a business interruption insurance recovery of $0.7 million,
classified as a reduction of cost of goods sold in the accompanying consolidated
statement of operations for the year ended January 3, 2009, of incremental
expenses we incurred relating to a November 2005 fire that idled a major
laminated glass manufacturing asset and which required us to purchase laminated
glass from an outside vendor at a price exceeding our cost to
manufacture. Such amount is included in other current assets in the
accompanying consolidated balance sheet at January 3, 2009 and was received in
cash shortly thereafter. The proceeds were used for general corporate
purposes.
Impairment
Charges
Impairment
charges totaled $187.7 million in 2008, of which $169.6 million related to
goodwill and $18.1 million related to our trademarks. In 2007, there
was an impairment charge of $0.8 million related to a then-idle manufacturing
facility which was held for sale.
Due to
the continued decline in the housing markets, during the second quarter of 2008,
we determined that the carrying value of goodwill exceeded its fair value,
indicating that it was impaired. Having made this determination, we
then began performing the second step of the goodwill impairment test which
involves calculating the implied fair value of our goodwill by allocating the
fair value to all of our assets and liabilities other than goodwill (including
both recognized and unrecognized intangible assets) and comparing it to the
carrying amount of goodwill. We recorded a $92.0 million estimated
goodwill impairment charge in the second quarter of 2008. During the
third quarter of 2008, we finalized the second step of the goodwill impairment
test and, as a result, recorded an additional $1.3 million goodwill impairment
charge.
We
performed our annual assessment of goodwill impairment as of January 3, 2009.
Given a further decline in housing starts and the overall tightening of the
credit markets, our revised forecasts indicated additional impairment of our
goodwill. After allocating our Company’s fair value to our assets and
liabilities other than goodwill, we concluded that goodwill had no implied fair
value and the remaining carrying value was written-off. After
recognizing these charges, we do not have any goodwill remaining on the
accompanying consolidated balance sheet as of January 3, 2009.
During
the third quarter of 2008, as part of finalizing our goodwill impairment test
discussed above, we made certain changes to the assumptions that affected the
previous estimate of fair value and, when compared to the carrying value of our
trademarks, resulted in a $0.3 million impairment charge in the third quarter of
2008. We performed our annual assessment of our trademarks as of
January 3, 2009, which indicated that further impairment was present resulting
in an additional impairment charge of $17.8 million in the fourth quarter of
2008.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were $63.1 million, a decrease of $13.9
million, or 18.0% from $77.0 million in the prior year. This
decrease was mainly due to decreases of $7.1 million in personnel related costs
due to lower employment levels, $3.9 million in marketing costs due to decreased
levels of general advertising and promotional costs, $1.4 million in warranty
expense primarily due to the lower sales volume, $0.8 million in public company
costs, primarily related to our compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 (“SOX”), $0.7 million in non-cash stock-based
compensation expense and $0.6 million in operating lease
expense. These decreases were partially offset by a $1.4 million
increase in bad debt expense primarily related to collection issues with two
customers and a $1.3 million increase in distribution costs related to the
increase in fuel prices during 2008. The remaining $2.2 million
decrease in selling, general and administrative expenses is volume related as
the general level of spending in this area has declined with
sales. As a percentage of sales, selling, general and administrative
expenses increased to 28.9% in 2008 compared to 27.7% for the prior year. This
increase was due to the fact that our ability to leverage certain fixed portions
of support and administrative costs did not decrease at the same rate as the
decrease in net sales.
Charges
of $1.0 million in 2008 and $1.7 million in 2007 related to the restructuring
actions taken in each year are included in selling, general and administrative
expenses.
Interest
expense
Interest
expense was $9.3 million in 2008, a decrease of $2.1 million from
$11.4 million in the prior year. During 2008, we prepaid $40.0
million of debt resulting in a lower average level of debt when compared to 2007
and the interest rate on our debt decreased from 8.38% at the end of 2007 to
6.25% at the end of 2008 due to a decrease in interest rates.
Other
expenses (income), net
There was
other income of less than $0.1 million in 2008 compared to other expenses of
$0.7 million in 2007. For 2008, the other income relates to effective
over-hedges of aluminum. The other expenses in 2007 relate to the
ineffective portions of interest and aluminum hedges.
Income
tax expense
Our
effective combined federal and state tax rate was 15.0% and 42.3% for the years
ended January 3, 2009 and December 29, 2007, respectively. The 15.0%
effective tax rate resulted from the tax effects totaling $41.3 million related
to the write-off of the non-deductible portion of goodwill and $4.6 million
related to the valuation allowance on deferred tax assets recorded in the fourth
quarter of 2008. Excluding the effects of these items, our 2008 effective tax
rate would have been 39.0%. The 42.3% tax rate in 2007 relates
primarily to non-deductible expenses.
2007
Compared with 2006
Net
sales
Net sales
for 2007 were $278.4 million, a $93.2 million, or 25.1%, decrease in
sales from $371.6 million in the prior year.
The
following table shows net sales classified by major product category (in
millions):
|
Year
Ended
|
||||||||||||||||||||
|
December
29, 2007
|
December
30, 2006
|
|||||||||||||||||||
|
Sales
|
%
of sales
|
Sales
|
%
of sales
|
%
change
|
||||||||||||||||
|
Product
category:
|
||||||||||||||||||||
|
WinGuard
Windows and Doors
|
$ | 189.7 | 68.1 | % | $ | 241.1 | 64.9 | % | (21.3%) | |||||||||||
|
Other
Window and Door Products
|
88.7 | 31.9 | % | 130.5 | 35.1 | % | (32.0%) | |||||||||||||
|
Total
net sales
|
$ | 278.4 | 100.0 | % | $ | 371.6 | 100.0 | % | (25.1%) | |||||||||||
Net sales
of WinGuard Windows and Doors were $189.7 million in 2007, a decrease of
$51.4 million, or 21.3%, from $241.1 million in net sales for the
prior year. The decrease was mainly due to the decline in new home
construction. Demand for WinGuard branded products is driven by,
among other things, increased enforcement of strict building codes mandating the
use of impact-resistant products, increased consumer and homebuilder awareness
of the advantage of impact-resistant windows and doors over “active” forms of
hurricane protection, and our successful marketing efforts.
Net sales
of Other Window and Door Products were $88.7 million in 2007, a decrease of
$41.8 million, or 32.0%, from $130.5 million for the prior year. The
decrease was mainly due to the decline in new home construction. New
housing demand has historically impacted sales of our Other Window and Door
Products more than our WinGuard Window and Door Products.
The
decline in the housing industry began in the second half of 2006 and continued
and intensified throughout all of 2007.
Gross
margin
Gross
margin was $91.0 million in 2007, a decrease of $50.7 million, or
35.8%, from $141.7 million in the prior year. The gross margin percentage
was 32.7% in 2007 compared to 38.1% in the prior year. This decrease was largely
due to lower sales volumes of all of our products, but most significantly of our
WinGuard branded windows and doors, sales of which decreased 21.3% compared to
the prior year. Cost of goods sold in 2007 also includes a $0.7
million charge related to the restructuring actions taken in the fourth
quarter. The decrease in sales as a result of the housing downturn has
negatively impacted our gross margin in total and as a percentage of sales and
reduced our ability to leverage fixed costs.
Impairment
Charges
We own a
225,000 square foot facility in Lexington, North Carolina which was vacant
and being marketed for sale as a result of the completion of our move to the
larger Salisbury facility. In 2007 and 2006, we recorded impairment
charges of $0.8 million and $1.2 million, respectively, to reduce the carrying
value of the assets comprising the Lexington facility to their then estimated
fair market value. In December 2007, we reclassified the real estate
as held and used when we made the decision to utilize the facility to produce a
special-order product to be used in large-scale commercial projects and resumed
depreciation of the assets that comprise the Lexington facility.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were $77.0 million, a decrease of $9.2
million, or 10.7%, from $86.2 million in the prior year. This
decrease was mainly due to decreases of $4.3 million in commissions, bonuses and
other personnel related costs, $3.7 million in distribution costs as the result
of the lower volume, $1.6 million in depreciation as assets from the 2004
acquisition become fully depreciated, $1.4 million in management fees as those
fees were eliminated with the 2006 IPO and a $0.5 million warranty accrual
adjustment related to a refinement of our warranty calculation to better reflect
the decline in sales volumes. These decreases were partially offset
by a $1.4 million increase in public company costs, including our compliance
with SOX and a $1.2 million increase in stock-based compensation
expense. The remaining overall decrease in selling, general and
administrative expenses relates to a lower level of spending due to the decline
in net sales. As a percentage of sales, selling, general and
administrative expenses increased to 27.7% in 2007 compared to 23.2% for the
prior year. This increase was due to the fact that certain fixed expenses, such
as support and administrative costs, did not decrease at a rate relative to the
decrease in net sales.
A charge
of $1.7 million in 2007 related to the restructuring action is included in
selling, general and administrative expenses.
Stock
compensation expense
Stock
compensation expense of $26.9 million was recorded in 2006 relating to payments
to option holders in lieu of adjusting exercise prices in connection with the
payment of a dividend to shareholders in February 2006.
Interest
expense
Interest
expense was $11.4 million in 2007, a decrease of $17.1 million from
$28.5 million in the prior year. In 2006, interest expense
includes non-recurring charges of $8.9 million related to termination penalties
and the write-off of unamortized debt issuance costs in connection with
prepayments of debt. In addition, there was an increase in our
average debt levels to $230.8 million for 2006 associated with our debt
financing on February 14, 2006 as described under the Liquidity and Capital
Resources section of this report. During 2007, we prepaid $35.5
million of debt resulting in a lower average level of debt when compared to 2006
but which also resulted in the write-off of $0.4 million of unamortized debt
issuance costs.
Other
expenses (income), net
There
were other expenses of $0.7 million in 2007 compared to other income of $0.2
million in 2006. The amounts in both periods relate to the ineffective portions
of interest and aluminum hedges.
Income
tax expense
Our
effective combined federal and state tax rate was 42.3% and 11.6% for the years
ended December 29, 2007 and December 30, 2006, respectively. The
11.6% effective tax rate resulted from a change in the recognition of state tax
credits in North Carolina. These credits are now recognized in the
year in which they are made available for deduction. Previously, we recognized
these credits in the year in which they were generated. This change
resulted in an unfavorable adjustment to our tax expense of $422,000 in
2006. Without this adjustment our tax rate would have been a benefit
of 37.0%.
We
adopted the provisions of FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, Accounting for Income
Taxes, on January 1, 2007. We did not recognize any material
liability for unrecognized tax benefits in conjunction with our FIN 48
implementation and there were no changes to our unrecognized tax benefits during
the current year. However, should we accrue for such liabilities when and if
they arise in the future we will recognize interest and penalties associated
with uncertain tax positions as part of our income tax provision.
LIQUIDITY
AND CAPITAL RESOURCES
Our
principal source of liquidity is cash flow generated by operations, supplemented
by borrowings under our credit facility. This cash generating
capability provides us with financial flexibility in meeting operating and
investing needs. In addition, we completed our IPO in June 2006 and
used the net proceeds, together with cash on hand, to repay a portion of our
long term debt. Our primary capital requirements are to fund working
capital needs, meet required debt payments, including debt service payments on
our credit facilities and fund capital expenditures.
Rights
Offering
On August
1, 2008, the Company filed Amendment No. 1 to the Registration Statement on Form
S-3 filed on March 28, 2008 relating to a previously announced offering of
rights to purchase 7,082,687 shares of the Company’s common stock with an
aggregate value of approximately $30 million. The registration
statement relating to the rights offering was declared effective by the United
States Securities and Exchange Commission on August 4, 2008 and the Company
distributed to each holder of record of the Company’s common stock as of close
of business on August 4, 2008, at no charge, one non-transferable subscription
right for every four shares of common stock held by such holder under the basic
subscription privilege. Each whole subscription right entitled its
holder to purchase one share of PGT’s common stock at the subscription price of
$4.20 per share. The rights offering also contained an
over-subscription privilege that permitted all basic subscribers to purchase
additional shares of the Company’s common stock up to an amount equal to the
amount available to each under the basic subscription
privilege. Shares issued to each participant in the over-subscription
were determined by calculating each subscribers’ percentage of the total shares
over-subscribed, times the number of shares available in the over-subscription
privilege. The rights offering expired on September 4,
2008.
The
rights offering was fully subscribed resulting in the Company distributing all
7,082,687 shares of its common stock available, including 6,157,586 shares under
the basic subscription privilege and 925,101 under the over-subscription
privilege, representing an 86.9% basic subscription participation
rate. There were requests for 4,721,763 shares under the
over-subscription privilege representing an allocation rate of 19.6% to each
over-subscriber for the 925,101 shares available in the over
subscription. Of the 7,082,687 shares issued, 4,295,158 shares were
issued to JLL Partners Fund IV (“JLL”) the Company’s majority shareholder,
including 3,615,944 shares issued under the basic subscription privilege and
679,214 shares issued under the over-subscription privilege. Prior to
the rights offering, JLL held 14,463,776 shares, or 51.1%, of the Company’s
outstanding common stock. With the completion of the rights offering,
the Company has 35,413,438 total shares of common stock outstanding of which JLL
holds 53.0%.
Net
proceeds of $29.3 million from the rights offering were used to repay a portion
of the outstanding indebtedness under our amended credit agreement.
Consolidated
Cash Flows
Operating activities. Cash
provided by operating activities were $19.9 million for 2008, compared to cash
provided by operating activities of $24.8 million for the prior year. This
decrease was mainly due to lower operating profitability in 2008 than in 2007
after adjusting for the effect on 2008 of non-cash impairment charges. In 2007,
cash provided by operating activities was down $5.4 million from $30.2 million
in 2006. This decrease was mainly due to lower operating profitability in 2007
than in 2006. Direct cash flows from operations for 2008, 2007 and 2006 are as
follows:
|
Direct
Operating Cash Flows
|
||||||||||||
|
(in
millions)
|
2008
|
2007
|
2006
|
|||||||||
|
Collections
from customers
|
$ | 224.5 | $ | 288.5 | $ | 398.9 | ||||||
|
Other
collections of cash
|
3.4 | 4.6 | 7.1 | |||||||||
|
Disbursements
to vendors
|
(122.5 | ) | (156.0 | ) | (206.6 | ) | ||||||
|
Personnel
related disbursements
|
(80.2 | ) | (100.0 | ) | (148.6 | ) | ||||||
|
Debt
service costs
|
(9.1 | ) | (12.0 | ) | (22.8 | ) | ||||||
|
Other
cash activity, net
|
3.8 | (0.3 | ) | 2.2 | ||||||||
|
Cash
from operations
|
$ | 19.9 | $ | 24.8 | $ | 30.2 | ||||||
The
majority of other cash collections is from scrap aluminum
sales. Other cash activity, net, in 2008 includes $3.3 million in
state and federal tax refunds.
Days
sales outstanding (DSO), which we calculate as accounts receivable divided by
average daily sales, was 39 days at January 3, 2009, compared to 37 days at
December 29, 2007. This increase in DSO was primarily due to
collection issues with two customers, as well as the effect on our customer base
of the decline in the housing market in Florida and the overall
economy. DSO was 37 days at December 29, 2007 compared to
46 days at December 30, 2006. However, this improvement in DSO was
offset by the lower level of operating profitability in 2007.
Investing activities. Cash
used in investing activities was $8.5 million for 2008, compared to $10.5
million for 2007. The decrease in cash used in investing activities was due to
our focused efforts to reduce capital spending in 2008, which resulted in a
decrease in capital expenditures of $6.1 million, to $4.5 million in 2008 from
$10.6 million in 2007. This decrease in capital spending was
partially offset by $4.1 million of net cash used for margin calls on forward
contracts on aluminum hedges as of January 3, 2009. Cash used in
investing activities decreased $16.1 million in 2007, from $26.6 million in
2006. The decrease was mainly due to the 2006 purchase of our 393,000 square
foot facility in Salisbury, North Carolina plus related building
improvements.
Financing activities. Cash
used in financing activities was $11.2 million in 2008. In June 2008,
we prepaid $10.0 million of our long-term debt with cash generated from
operations. Using proceeds from the rights offering, which resulted
in $29.3 million in net cash proceeds, we prepaid an additional $20.0 million of
our long-term debt in August 2008 and another $10.0 million in September 2008,
for a total of $40 million in debt prepayments in 2008. Cash proceeds
from stock option exercises in 2008 totaled $0.2 million. Payment of
deferred financing costs related to the effectiveness of the amendment of our
credit agreement totaled $0.6 million. Cash used in financing activities was
$31.8 million for 2007, compared to cash provided in financing activities of
$30.2 million for the prior year. In 2007, we made a total of $35.5 million of
debt payments including prepayments of $20.0 million in February 2007, $5.0
million in June 2007, $4.5 million in July 2007 and $6.0 million in September
2007. These financing cash uses were partially offset by proceeds
from option exercises of $1.9 million and the classification of $1.8 million of
related excess tax benefits within financing activities. In February
2006, we entered into a second amended and restated senior secured credit
facility and a second lien term loan, and received $320.0 million
proceeds. The proceeds were used to refinance our Company’s existing
debt facility, pay a cash dividend to stockholders of $83.5 million, make a cash
compensatory payment of approximately $26.9 million (including applicable
payroll taxes of $0.5 million) to stock option holders in lieu of adjusting
exercise prices in connection with such dividend, and pay certain financing
costs related to the amendment. In June 2006, we completed our IPO,
and received net proceeds of $129.5 million. We used the net proceeds from
the IPO, including the underwriter overallotment, together with cash generated
from operations to repay $154.0 million of our long term debt, including
full repayment of the second lien debt.
Capital Expenditures. Capital
expenditures vary depending on prevailing business factors, including current
and anticipated market conditions. For 2008, capital expenditures
were $4.5 million, compared to $10.6 million for 2007. In the fourth
quarter of 2007 and continuing into 2008, we reduced certain discretionary
capital spending to conserve cash. We anticipate that cash flows from
operations and liquidity from the revolving credit facility will be sufficient
to execute our business plans.
Capital Resources. On
February 14, 2006, we entered into a second amended and restated
$235 million senior secured credit facility and a $115 million second
lien term loan due August 14, 2012, with a syndicate of banks. The senior
secured credit facility is composed of a $30 million revolving credit
facility and, initially, a $205 million first lien term loan. As of January
3, 2009, there was $25.2 million available under the revolving credit
facility.
On April
30, 2008, we announced that we entered into an amendment to the credit
agreement. The amendment, among other things, relaxes certain
financial covenants through the first quarter of 2010, increases the applicable
rate on loans and letters of credit, and sets a LIBOR floor. The
effectiveness of the amendment was conditioned, among other things, on the
repayment of at least $30 million of loans under the credit agreement no later
than August 14, 2008, of which no more than $15 million was permitted to come
from cash on hand. In June 2008, we used cash generated from
operations to prepay $10 million of outstanding borrowings under the credit
agreement. Using proceeds from the rights offering, we made an
additional prepayment of $20 million on August 11, 2008, bringing total
prepayments of debt at that time to $30 million as required under the amended
credit agreement. Having made the total required prepayment and
having satisfied all other conditions to bring the amendment into effect,
including the payment of the fees and expenses of the administrative agent and a
consent fee to participating lenders of 25 basis points of the then outstanding
balance under the credit agreement of $100 million, the amendment became
effective on August 11, 2008.
Under the
amendment, the first lien term loan bears interest at a rate equal to an
adjusted LIBOR rate plus a margin ranging from 3.5% per annum to 5% per annum or
a base rate plus a margin ranging from 2.5% per annum to 4.0% per annum, at our
option. The margin in either case is dependent on our leverage
ratio. The loans under the revolving credit facility bear interest at
a rate equal to an adjusted LIBOR rate plus a margin depending on our leverage
ratio ranging from 3.0% per annum to 4.75% per annum or a base rate plus a
margin ranging from 2.0% per annum to 3.75% per annum, at our
option. The amendment established a floor of 3.25% for adjusted
LIBOR. Prior to the effectiveness of the amendment, the first lien
term loan bore interest at a rate equal to an adjusted LIBOR rate plus
3.0% per annum or a base rate plus 2.0% per annum, at our option. The
loans under the revolving credit facility bore interest initially, at our
option, at a rate equal to an adjusted LIBOR rate plus 2.75% per annum or a
base rate plus 1.75% per annum, and the margins above LIBOR and base rate
could have declined to 2.00% for LIBOR loans and 1.00% for base rate loans if
certain leverage ratios were met.
Based on
our ability to generate cash flows from operations and our borrowing capacity
under the revolver under the senior secured credit facility, we believe we will
have sufficient capital to meet our short-term and long-term needs, including
our capital expenditures and our debt obligations in 2009.
Long-term
debt consisted of the following:
|
January
3,
|
December
29,
|
||||||||
|
2009
|
2007
|
||||||||
|
(in
thousands)
|
|||||||||
|
Tranche A2
term note payable to a bank in quarterly installments of
$331,632
|
|||||||||
|
beginning
November 14, 2008 through November 14, 2011. A lump sum
payment
|
|||||||||
|
of
$125.7 million is due on February 14, 2012. Interest is payable quarterly
at
|
|||||||||
|
LIBOR
or the prime rate plus an applicable margin. At December 29, 2007,
the
|
|||||||||
|
rate
was 5.38% plus a margin of 3.00%.
|
$ | - | $ | 130,000 | |||||
|
Tranche A2
term note payable to a bank in quarterly installments of
$231,959
|
|||||||||
|
beginning
November 14, 2009 through November 14, 2011. A lump sum
payment
|
|||||||||
|
of
$87.9 million is due on February 14, 2012. Interest is payable quarterly
at
|
|||||||||
|
LIBOR
or the prime rate plus an applicable margin. At January 3, 2009,
the
|
|||||||||
|
rate
was 4.00% plus a margin of 2.25%.
|
90,000 | - | |||||||
| $ | 90,000 | $ | 130,000 | ||||||
DISCLOSURES
OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The
following summarizes the contractual obligations of our Company as of January 3,
2009 (in thousands):
|
Payments
Due by Period
|
||||||||||||||||||||||||
|
Contractual Obligations
|
Total
|
Current
|
2-3 Years
|
4 Years
|
5 Years
|
Thereafter
|
||||||||||||||||||
|
Long-term
debt and capital leases (1)
|
$ | 108,024 | $ | 6,043 | $ | 13,331 | $ | 88,650 | $ | - | $ | - | ||||||||||||
|
Operating
leases
|
4,049 | 1,777 | 1,706 | 299 | 210 | 57 | ||||||||||||||||||
|
Supply
agreements
|
1,266 | 1,266 | - | - | - | - | ||||||||||||||||||
|
Equipment
purchase commitments
|
818 | 818 | - | - | - | - | ||||||||||||||||||
|
Total
contractual cash obligations
|
$ | 114,157 | $ | 9,904 | $ | 15,037 | $ | 88,949 | $ | 210 | $ | 57 | ||||||||||||
|
(1)
- Includes estimated future interest expense on our long-term debt
assuming the weighted average interest rate of 6.25% as of January 3, 2009
does not change.
|
||||||||||||||||||||||||
The
amounts reflected in the table above for operating leases represent future
minimum lease payments under noncancelable operating leases with an initial or
remaining term in excess of one year at January 3, 2009. Purchase orders entered
into in the ordinary course of business are excluded from the above table.
Amounts for which we are liable under purchase orders are reflected on our
consolidated balance sheet as accounts payable and accrued
liabilities.
Our
Company is obligated to purchase certain raw materials used in the production of
our products from certain suppliers pursuant to stocking programs. If
these programs were cancelled by our Company, we would be required to pay $1.3
million for various materials.
At
January 3, 2009, our Company had $4.8 million in standby letters of credit
related to its worker’s compensation insurance coverage and commitments to
purchase equipment of $0.8 million.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
In
preparing our consolidated financial statements, we follow U.S. generally
accepted accounting principles. These principles require us to make certain
estimates and apply judgments that affect our financial position and results of
operations. We continually review our accounting policies and financial
information disclosures. Following is a summary of our more significant
accounting policies that require the use of estimates and judgments in preparing
the financial statements.
Revenue
recognition
We
recognize sales when all of the following criteria have been met: a valid
customer order with a fixed price has been received; the product has been
delivered and accepted by the customer; and collectibility is reasonably
assured. All sales recognized are net of allowances for discounts and estimated
returns, which are estimated using historical experience.
Allowances
for doubtful accounts and notes receivable and related reserves
We record
provisions against gross revenues for estimated returns in the period when the
related revenue is recorded. These estimates are based on factors that include,
but are not limited to, analysis of credit memorandum activity, and customer
demand. We also evaluate the allowances for doubtful accounts and notes
receivable based on specific identification of troubled balances
and historical collection experience adjusted for current conditions
such as the economic climate. Actual collections can differ from our estimates,
requiring adjustments to the allowances.
Goodwill
The
impairment evaluation of goodwill is conducted annually, or more frequently, if
events or changes in circumstances indicate that an asset might be impaired. The
annual goodwill impairment test is a two-step process. First, we
determine if the carrying value of our related reporting unit exceeds fair value
determined using a discounted cash flow model, which might indicate that
goodwill may be impaired. Second, if we determine that goodwill may
be impaired, we compare the implied fair value of the goodwill determined by
allocating our reporting unit’s fair value to all of its assets and liabilities
other than goodwill (including any unrecognized intangible assets) to its
carrying amount to determine if there is an impairment loss. As of January 3,
2009, we had no goodwill on our consolidated balance sheet.
Other
intangibles
The
impairment evaluation of the carrying amount of intangible assets with
indefinite lives is conducted annually or more frequently if events or changes
in circumstances indicate that an asset might be impaired. The evaluation is
performed by comparing the carrying amount of these assets to their estimated
fair value. If the estimated fair value is less than the carrying amount of the
intangible assets with indefinite lives, then an impairment charge is recorded
to reduce the asset to its estimated fair value. The estimated fair value is
generally determined on the basis of discounted projected cost savings
attributable to ownership of the intangible assets with indefinite lives which,
for us, are our trademarks. The fair values of trademarks are highly sensitive
to differences between estimated and actual cash flows and changes in the
related discount rate used. Estimates made by management are subject to change
and include such things as future growth assumptions and the rate of projected
estimated cost savings, and other factors, changes in which could materially
impact the results of the impairment test
Long-lived
assets
We review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of long-lived assets to future undiscounted net cash flows
expected to be generated, based on management estimates. Estimates made by
management are subject to change and include such things as future growth
assumptions, operating and capital expenditure requirements, asset useful lives
and other factors, changes in which could materially impact the results of the
impairment test. If such assets are considered to be impaired, the impairment
recognized is the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less cost to sell, and depreciation is no
longer recorded.
Warranties
We have
warranty obligations with respect to most of our manufactured products.
Obligations vary by product components. The reserve for warranties is based on
our assessment of the costs that will have to be incurred to satisfy warranty
obligations on recorded net sales. The reserve is determined after assessing our
warranty history and specific identification of our estimated future warranty
obligations. Changes to actual warranty claims incurred and interest rates could
have a material impact on our estimated warranty obligations.
Self-Insurance
Reserves
We are
primarily self-insured for employee health benefits and workers’ compensation.
Our workers’ compensation reserves are accrued based on third party actuarial
valuations of the expected future liabilities. Health benefits are self-insured
by us up to pre-determined stop loss limits. These reserves, including incurred
but not reported claims, are based on internal computations. These computations
consider our historical claims experience, independent statistics, and trends.
Changes to actual workers’ compensation or health benefit claims incurred and
interest rates could have a material impact on our estimated self-insurance
reserves.
Derivative
financial instruments
We
utilize derivative financial instruments from time-to-time to hedge the exposure
to variability in expected future cash flows that is attributable to a
particular risk. The effective portion of the gain or loss on a derivative
instrument designated and qualifying as a cash flow hedge is reported as a
component of other comprehensive income and reclassified into earnings in the
same period which the transaction affects earnings. The remaining gain or loss,
if any, is recognized in earnings currently.
We enter
into aluminum forward contracts to hedge the fluctuations in the purchase price
of aluminum extrusion we use in production. These contracts are designated as
cash flow hedges since they are highly effective in offsetting changes in the
cash flows attributable to forecasted purchases of aluminum. We maintain a line
of credit with our commodities broker to cover the liability position of open
contracts for the purchase of aluminum in the event that the price of aluminum
falls. Should the price of aluminum fall to a level which causes our
liability for open aluminum contracts to exceed $0.4 million, we are required to
fund daily margin calls to cover the excess. We believe this
mitigates non-performance risk as it places a limit on the amount of the
liability for open contracts such that an impact, if any, on the fair value of
the liability due to consideration of non-performance risk would not be
significant. We assess our risk of non-performance when measuring the fair value
of our financial instruments in a liability position by evaluating our current
liquidity including cash on hand and availability under our revolving credit
facility as compared to the maturities of the financial
liabilities. In addition, we and our commodities broker have entered
into a master netting arrangement (MNA) that provides for, among other things,
the close-out netting of exchange-traded transactions in the event of the
insolvency of either party to the MNA.
As of
January 3, 2009, we had $4.1 million of cash on deposit with our commodities
broker related to funding of margin calls on open forward contracts for the
purchase of aluminum in a liability position. We net cash collateral
from payments of margin calls on deposit with our commodities broker against the
liability position of open contracts for the purchase of aluminum on a first-in,
first-out basis.
Our
aluminum hedges qualify as highly effective for reporting
purposes. Effectiveness of aluminum forward contracts is determined
by comparing the change in the fair value of the forward contract to the change
in the expected cash to be paid for the hedged item.
Aluminum
forward contracts identical to those held by us trade on the London Metals
Exchange (“LME”). The LME provides a transparent forum and is the
world's largest center for the trading of futures contracts for non-ferrous
metals and plastics. The trading is highly liquid and, therefore, the
metals industry has a high degree of confidence that the trade pricing properly
reflects current supply and demand. The prices are used by the metals
industry worldwide as the basis for contracts for the movement of physical
material throughout the production cycle. Based on this high degree
of volume and liquidity in the LME and the transparency of the market
participants, the valuation price at any measurement date for contracts with
identical terms as to prompt date, trade date and trade price as those we hold
at any time we believe represents a contract's exit price to be used for
purposes of SFAS No. 157. Trade pricing is based on valuation model
inputs that can generally be verified but which require some degree of judgment.
Therefore, we categorize these aluminum forward contracts as being valued using
Level 2 inputs.
Stock-Based
Compensation
We
utilize a fair-value based approach for measuring stock-based compensation to
recognize the cost of employee services received in exchange for our company’s
equity instruments. We record compensation expense over an award’s vesting
period based on the award’s fair value at the date of grant. Our awards vest
based only on service conditions and compensation expense is recognized on a
straight-line basis for each separately vesting portion of an award. Share-based
compensation expense is recognized only for those awards that are ultimately
expected to vest, and we have applied an estimated forfeiture rate to unvested
awards for the purpose of calculating compensation cost. These estimates will be
revised in future periods if actual forfeitures differ from the estimates.
Changes in forfeiture estimates impact compensation cost in the period in which
the change in estimate occurs.
Income
and Other Taxes
We
account for income taxes utilizing the liability method. Deferred income taxes
are recorded to reflect consequences on future years of differences between
financial reporting and the tax basis of assets and liabilities measured using
the enacted statutory tax rates and tax laws applicable to the periods in which
differences are expected to affect taxable earnings. We have no material
liability for unrecognized tax benefits. However, should we accrue for such
liabilities when and if they arise in the future we will recognize interest and
penalties associated with uncertain tax positions as part of our income tax
provision.
In
assessing the realizability of deferred tax assets, we consider whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. We consider the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
In 2008,
we established a valuation allowance with respect to our net deferred tax
assets, excluding the deferred tax liability related to
trademarks. Driven by the goodwill and other intangible impairment
charges recorded in 2008, our cumulative losses over the last three fiscal
years, in addition to the significant downturn in our primary industry of home
construction, lead us to conclude that sufficient negative evidence exists that
it is deemed more likely than not future taxable income will not be sufficient
to realize the related income tax benefits.
Sales
taxes collected from customers have been recorded on a net basis.
RECENTLY
ISSUED ACCOUNTING STANDARDS
See Note
3 in the notes to the consolidated financial statements in Item 8.
FORWARD
OUTLOOK
The
following section contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. The forward-looking
statements are based on the beliefs and assumptions of management, together with
information available to us when the statements were made. Future results could
differ materially from those included in such forward-looking statements as a
result of, among other things, the factors set forth in Item 1A., “Risk Factors”
and certain economic and business factors which may be beyond our control.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties.
Net
sales
We
experienced sales decreases across most of our product lines and in both
the new construction and repair and remodeling markets we serve. Although we
believe we have gained market share in Florida as the decrease in our sales has
been significantly lower than the decrease in single family housing starts over
the same period, we believe the decreasing trend in single family housing starts
in Florida will continue through 2009. Certain agencies that report
housing start information project that single family housing starts in the U.S.
will be down a further 40% or more in 2009.
Gross
margin
We
believe the following factors, which are not all inclusive, may impact our gross
margin in 2009:
|
•
|
Further
sales declines may result in a decrease in our gross margin as a result of
lower variable contributions to gross margin and lower capacity
utilization.
|
|
|
•
|
During
the third and fourth quarters of 2008, we entered into forward contracts
for the purchase of aluminum as prices fell to levels not seen since
2002. Some of these contracts mature in 2009. For
contracts that mature in 2009, our hedged price of aluminum on average is
$1.04 per pound and at times during the first quarter of 2009, the cash
price of aluminum has been as low as $0.60 per pound. Our
average cost of aluminum during 2008 was approximately $1.23 per
pound. This may result in our paying a lower average price per
pound for aluminum in 2009 than in 2008, but a higher price than if we
were not hedged.
|
|
|
•
|
Planned
cost reductions, some of which will benefit cost of goods, announced in
early 2009, are designed to improve profitability and lessen the negative
effect on operating results of decreasing
sales.
|
Selling,
general and administrative expenses
Planned
cost reductions, some of which will benefit selling, general and administrative
expenses, announced in early 2009, are designed to improve profitability and
lessen the effect of decreasing sales. However, at times during 2008, the cost
of diesel fuel was nearly $5.00 per gallon compared to less than $2.50 per
gallon at times in early 2007. If the cost of diesel fuel were to
increase again, our selling, general and administrative costs would increase. In
addition, economic and credit conditions may significantly impact our bad debt
expense. We continue to monitor our customer’s credit profiles carefully and
make changes in our terms where necessary in response to this heightened
risk.
Interest
expense
We
prepaid $40 million in outstanding borrowings during June, August and September
2008. We believe this decrease in debt levels for the full year of
2009 will result in our paying significantly less interest in 2009 than in
2008.
Liquidity
and capital resources
We had
$19.6 million of cash on hand as of January 3, 2009. While we are confident in
our ability to continue to generate cash flow in this unprecedented downturn in
the housing market and the economy, it is possible that we may use this cash to
pay-down debt to maintain compliance with the leverage ratio covenant included
in our credit facility or to fund further margin calls related to our forward
contracts for aluminum if the price of aluminum continues to fall. Our
credit facility includes a $30 million revolving credit facility of which
$25.2 million was available as of January 3, 2009. Although we could
borrow against this revolving credit facility, we have not experienced the
operating need to do so.
Management
expects to spend nearly $5 million on capital expenditures in 2009,
including capital expenditures related to product line expansions targeted at
increasing sales. We expect depreciation to be approximately $11
million and amortization to be approximately $5.6 million in 2009. On
January 3, 2009, we had outstanding purchase commitments on capital projects of
approximately $0.8 million.
Summary
We expect
the current challenging conditions in the housing market and in the overall
economy to remain difficult, or even worsen in 2009, or if the federal stimulus
package will have beneficial economic effects. Also, the timing of
any recovery in the housing industry and the overall economy is uncertain at
best. For these reasons, we believe that our financial performance
could continue to be negatively affected for the foreseeable
future.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We
experience changes in interest expense when market interest rates
change. We are exposed to changes in LIBOR or the base rate of our
credit facility’s administrative agent. We do not currently use
interest rate swaps, caps or futures contracts to mitigate this risk. Changes in
our debt could also increase these risks. Based on debt outstanding at January
3, 2009, a 1% increase in interest rates would result in approximately $1.0
million of additional interest costs annually.
We
utilize derivative financial instruments to hedge price movements in our
aluminum materials. We are exposed to changes in the price of
aluminum as set by the trades on the London Metals Exchange. We have entered
into aluminum hedging instruments that settle at various times through the end
of 2010 that cover approximately 73% of our anticipated needs during 2009 at an
average price of $1.04 per pound and 43% during 2010 at an average price of
$0.95 per pound. Short-term changes in the cost of aluminum, which
can be significant, are sometimes passed on to our customers through price
increases, however, there can be no guarantee that we will be able to continue
to pass on such price increases to our customers or that price increases will
not negatively impact sales volume, thereby adversely impacting operating
margins.
For
forward contracts for the purchase of aluminum at January 3, 2009, a 10%
decrease in the price of aluminum would decrease the fair value of our forward
contacts of aluminum by $1.2 million.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Report of Independent Registered
Public Accounting Firm
|
32
|
|||
|
Consolidated Statements of
Operations for the years ended January 3, 2009, December 29, 2007 and
December 30, 2006
|
33
|
|||
|
Consolidated Balance Sheets at
January 3, 2009 and December 29, 2007
|
34
|
|||
|
Consolidated Statements of Cash
Flows for the years ended January 3, 2009, December 29, 2007 and
December 30, 2006
|
35
|
|||
|
Consolidated
Statements of Shareholders’ Equity for the years ended January 3, 2009,
December 29, 2007 and December 30, 2006
|
36
|
|||
|
Notes to Consolidated Financial
Statements
|
37
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of
PGT,
Inc.
We have
audited the accompanying consolidated balance sheets of PGT, Inc. and Subsidiary
(the Company) as of January 3, 2009 and December 29, 2007, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
the years ended January 3, 2009, December 29, 2007 and December 30, 2006. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of PGT, Inc. and
Subsidiary at January 3, 2009 and December 29, 2007, and the consolidated
results of their operations and their cash flows for each of the three years
ended January 3, 2009, December 29, 2007 and December 30, 2006, in conformity
with U.S. generally accepted accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), PGT, Inc.'s internal control over financial
reporting as of January 3, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 17, 2009 expressed an
unqualified opinion thereon.
|
/s/
ERNST & YOUNG LLP
|
|
|
Certified
Public Accountants
|
Tampa,
Florida
March 17,
2009
PGT,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share
amounts)
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
Net
sales
|
$ | 218,556 | $ | 278,394 | $ | 371,598 | ||||||
|
Cost
of sales
|
150,277 | 187,389 | 229,867 | |||||||||
|
Gross
margin
|
68,279 | 91,005 | 141,731 | |||||||||
|
Impairment
charges
|
187,748 | 826 | 1,151 | |||||||||
|
Stock
compensation expense (includes expenses
|
||||||||||||
|
related
to cost of sales and selling, general and
|
||||||||||||
|
administrative
expenses of $5,069 and $21,829,
|
||||||||||||
|
respectively)
|
- | - | 26,898 | |||||||||
|
Selling,
general and administrative expenses
|
63,109 | 77,004 | 86,219 | |||||||||
|
(Loss)
income from operations
|
(182,578 | ) | 13,175 | 27,463 | ||||||||
|
Interest
expense, net
|
9,283 | 11,404 | 28,509 | |||||||||
|
Other
(income) expense, net
|
(40 | ) | 692 | (178 | ) | |||||||
|
(Loss)
income before income taxes
|
(191,821 | ) | 1,079 | (868 | ) | |||||||
|
Income
tax (benefit) expense
|
(28,789 | ) | 456 | 101 | ||||||||
|
Net
(loss) income
|
$ | (163,032 | ) | $ | 623 | $ | (969 | ) | ||||
|
Net
(loss) income per common share:
|
||||||||||||
|
Basic
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | ||||
|
Diluted
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | ||||
|
Weighted
average shares outstanding:
|
||||||||||||
|
Basic
|
30,687 | 28,375 | 22,043 | |||||||||
|
Diluted
|
30,687 | 29,418 | 22,043 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PGT,
INC.
CONSOLIDATED
BALANCE SHEETS
(in thousands, except per share
amounts)
|
January
3,
|
December
29,
|
|||||||
|
2009
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 19,628 | $ | 19,479 | ||||
|
Accounts
receivable, net
|
17,321 | 20,956 | ||||||
|
Inventories
|
9,441 | 9,223 | ||||||
|
Deferred
income taxes, net
|
1,158 | 3,683 | ||||||
|
Other
current assets
|
5,569 | 7,080 | ||||||
|
Total
current assets
|
53,117 | 60,421 | ||||||
|
Property,
plant and equipment, net
|
73,505 | 80,184 | ||||||
|
Other
intangible assets, net
|
72,678 | 96,348 | ||||||
|
Goodwill
|
- | 169,648 | ||||||
|
Other
assets, net
|
1,317 | 1,264 | ||||||
|
Total
assets
|
$ | 200,617 | $ | 407,865 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 5,730 | $ | 3,730 | ||||
|
Accrued
liabilities
|
8,852 | 11,505 | ||||||
|
Current
portion of long-term debt and capital lease obligations
|
330 | 332 | ||||||
|
Total
current liabilities
|
14,912 | 15,567 | ||||||
|
Long-term
debt and capital lease obligations
|
90,036 | 129,668 | ||||||
|
Deferred
income taxes
|
18,473 | 48,927 | ||||||
|
Other
liabilities
|
3,011 | 3,231 | ||||||
|
Total
liabilities
|
126,432 | 197,393 | ||||||
|
Commitments
and contingencies (Note 12)
|
- | - | ||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred
stock; par value $.01 per share; 10,000 shares authorized; none
outstanding
|
- | - | ||||||
|
Common
stock; par value $.01 per share; 200,000 shares authorized; 35,392
and
|
||||||||
|
27,732
shares issued and 35,197 and 27,620 shares outstanding at
|
||||||||
|
January
3, 2009 and December 29, 2007, respectively
|
352 | 276 | ||||||
|
Additional
paid-in-capital
|
241,177 | 210,964 | ||||||
|
Accumulated
other comprehensive loss
|
(3,966 | ) | (422 | ) | ||||
|
Accumulated
deficit
|
(163,378 | ) | (346 | ) | ||||
|
Total
shareholders' equity
|
74,185 | 210,472 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 200,617 | $ | 407,865 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PGT,
INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
(loss) income
|
$ | (163,032 | ) | $ | 623 | $ | (969 | ) | ||||
|
Adjustments
to reconcile net (loss) income
|
||||||||||||
|
to
net cash provided by operating activities:
|
||||||||||||
|
Depreciation
|
11,518 | 10,418 | 9,871 | |||||||||
|
Amortization
|
5,570 | 5,570 | 5,742 | |||||||||
|
Stock-based
compensation
|
798 | 1,479 | 592 | |||||||||
|
Excess
tax benefits from stock-based compensation plans
|
- | (1,762 | ) | (5,375 | ) | |||||||
|
Amortization
and write-offs of deferred financing costs
|
724 | 724 | 7,205 | |||||||||
|
Derivative
financial instruments
|
(40 | ) | 692 | (176 | ) | |||||||
|
Deferred
income taxes
|
(27,929 | ) | (1,423 | ) | 3,715 | |||||||
|
Impairment
charges
|
187,748 | 826 | 1,151 | |||||||||
|
Loss
on disposal of assets
|
22 | 226 | 103 | |||||||||
|
Change
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
5,428 | 4,393 | 16,376 | |||||||||
|
Inventories
|
(218 | ) | 1,874 | 2,820 | ||||||||
|
Prepaid
expenses and other current assets
|
(309 | ) | 4,243 | (748 | ) | |||||||
|
Accounts
payable and accrued liabilities
|
(408 | ) | (3,063 | ) | (10,128 | ) | ||||||
|
Net
cash provided by operating activities
|
19,872 | 24,820 | 30,179 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchases
of property, plant and equipment
|
(4,485 | ) | (10,569 | ) | (26,753 | ) | ||||||
|
Net
payments of margin calls on derivative financial
instruments
|
(4,098 | ) | - | - | ||||||||
|
Proceeds
from sales of equipment and intangibles
|
58 | 43 | 109 | |||||||||
|
Net
cash used in investing activities
|
(8,525 | ) | (10,526 | ) | (26,644 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from exercise of stock options
|
210 | 1,930 | 1,311 | |||||||||
|
Excess
tax benefits from stock-based compensation plans
|
- | 1,762 | 5,375 | |||||||||
|
Proceeds
from initial public offering
|
- | - | 129,471 | |||||||||
|
Proceeds
from issuance of long-term debt
|
- | - | 320,000 | |||||||||
|
Net
proceeds from issuance of common stock
|
29,281 | - | - | |||||||||
|
Payments
of long-term debt
|
(40,000 | ) | (35,488 | ) | (338,038 | ) | ||||||
|
Payments
of capital leases
|
(55 | ) | - | - | ||||||||
|
Payments
of financing costs
|
(634 | ) | - | (4,459 | ) | |||||||
|
Payments
of dividends
|
- | - | (83,484 | ) | ||||||||
|
Net
cash (used in) provided by financing activities
|
(11,198 | ) | (31,796 | ) | 30,176 | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
149 | (17,502 | ) | 33,711 | ||||||||
|
Cash
and cash equivalents at beginning of period
|
19,479 | 36,981 | 3,270 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 19,628 | $ | 19,479 | $ | 36,981 | ||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Interest
paid
|
$ | 9,102 | $ | 12,034 | $ | 22,827 | ||||||
|
Income
taxes (refunded) paid
|
$ | (3,270 | ) | $ | 2,798 | $ | 1,242 | |||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PGT,
INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in
thousands except share amounts)
|
Accumulated
|
||||||||||||||||||||||||
|
Additional
|
Other
|
|||||||||||||||||||||||
|
Common
stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
|||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
(Loss)
|
Total
|
|||||||||||||||||||
|
Balance
at December 31, 2005
|
15,749,483 | $ | 157 | $ | 152,647 | $ | - | $ | 3,767 | $ | 156,571 | |||||||||||||
|
Dividends
paid
|
(83,484 | ) | (83,484 | ) | ||||||||||||||||||||
|
Initial
public offering, net
|
||||||||||||||||||||||||
|
of
offering costs
|
10,147,058 | 102 | 129,369 | 129,471 | ||||||||||||||||||||
|
Stock-based
compensation
|
592 | 592 | ||||||||||||||||||||||
|
Exercise
of stock options, including
|
||||||||||||||||||||||||
|
tax
benefit of $5,375 from the
|
||||||||||||||||||||||||
|
exercise
of stock options
|
1,102,510 | 11 | 6,675 | 6,686 | ||||||||||||||||||||
|
Comprehensive
income, net of tax effect:
|
||||||||||||||||||||||||
|
Amortization
of ineffective
|
||||||||||||||||||||||||
|
interest
rate swap
|
(191 | ) | (191 | ) | ||||||||||||||||||||
|
Change
related to interest rate swap
|
(53 | ) | (53 | ) | ||||||||||||||||||||
|
Change
related to aluminum
|
||||||||||||||||||||||||
|
forward
contracts
|
(3,417 | ) | (3,417 | ) | ||||||||||||||||||||
|
Net
loss
|
(969 | ) | (969 | ) | ||||||||||||||||||||
|
Total
comprehensive loss
|
(4,630 | ) | ||||||||||||||||||||||
|
Balance
at December 30, 2006
|
26,999,051 | $ | 270 | $ | 205,799 | $ | (969 | ) | $ | 106 | $ | 205,206 | ||||||||||||
|
Exercise
of stock options, including
|
||||||||||||||||||||||||
|
tax
benefit of $1,762 from the
|
||||||||||||||||||||||||
|
exercise
of stock options
|
609,837 | 6 | 3,686 | 3,692 | ||||||||||||||||||||
|
Vesting
of restricted stock
|
11,208 | |||||||||||||||||||||||
|
Stock-based
compensation
|
1,479 | 1,479 | ||||||||||||||||||||||
|
Comprehensive
income, net of tax effect:
|
||||||||||||||||||||||||
|
Amortization
of ineffective
|
||||||||||||||||||||||||
|
interest
rate swap
|
(159 | ) | (159 | ) | ||||||||||||||||||||
|
Change
related to interest rate swap
|
8 | 8 | ||||||||||||||||||||||
|
Change
related to aluminum
|
||||||||||||||||||||||||
|
forward
contracts
|
(377 | ) | (377 | ) | ||||||||||||||||||||
|
Net
income
|
623 | 623 | ||||||||||||||||||||||
|
Total
comprehensive income
|
95 | |||||||||||||||||||||||
|
Balance
at December 29, 2007
|
27,620,096 | $ | 276 | $ | 210,964 | $ | (346 | ) | $ | (422 | ) | $ | 210,472 | |||||||||||
|
Exercise
of stock options, including
|
||||||||||||||||||||||||
|
tax
benefit of $0 from the
|
||||||||||||||||||||||||
|
exercise
of stock options
|
479,417 | 5 | 205 | 210 | ||||||||||||||||||||
|
Vesting
of restricted stock
|
15,149 | |||||||||||||||||||||||
|
Stock-based
compensation
|
798 | 798 | ||||||||||||||||||||||
|
Issuance
of common stock
|
7,082,687 | 71 | 29,210 | 29,281 | ||||||||||||||||||||
|
Comprehensive
loss, net of tax effect:
|
||||||||||||||||||||||||
|
Change
related to interest rate swap
|
74 | 74 | ||||||||||||||||||||||
|
Change
related to aluminum
|
||||||||||||||||||||||||
|
forward
contracts
|
(3,618 | ) | (3,618 | ) | ||||||||||||||||||||
|
Net
loss
|
(163,032 | ) | (163,032 | ) | ||||||||||||||||||||
|
Total
comprehensive loss
|
(166,576 | ) | ||||||||||||||||||||||
|
Balance
at January 3, 2009
|
35,197,349 | $ | 352 | $ | 241,177 | $ | (163,378 | ) | $ | (3,966 | ) | $ | 74,185 | |||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
PGT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
Description
of Business
|
PGT, Inc.
(“PGTI” or the “Company”) is a leading manufacturer of impact-resistant aluminum
and vinyl-framed windows and doors and offers a broad range of fully
customizable window and door products. The majority of our Company’s sales are
to customers in the state of Florida; however, our Company also sells its
products in over 40 states, the Caribbean and in South and Central America.
Products are sold through an authorized dealer and distributor network, which
our Company approves.
Our
Company was incorporated in the state of Delaware on December 16, 2003, as
JLL Window Holdings, Inc. On February 15, 2006, our Company was renamed
PGT, Inc. On January 29, 2004, our Company acquired 100% of the outstanding
stock of PGT Holding Company, based in North Venice, Florida. Our Company has
one manufacturing operation and one glass tempering and laminating plant in
North Venice, Florida with additional manufacturing operations located in
Salisbury, North Carolina and Lexington, North Carolina.
All
references to PGTI or our Company apply to the consolidated financial statements
of both PGT, Inc. and PGT Holding Company, unless otherwise noted.
|
2.
|
Summary
of Significant Accounting Policies
|
Fiscal
period
Our
Company’s fiscal year consists of 52 or 53 weeks ending on the Saturday
nearest December 31 of the related year. The period ended January 3, 2009
consisted of 53 weeks. The periods ended December 29, 2007 and December 30, 2006
consisted of 52 weeks.
Principles
of consolidation
The
consolidated financial statements present the results of the operations,
financial position and cash flows of PGTI and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Segment
information
Our
Company operates in one operating segment, the manufacture and sale of windows
and doors.
Use
of estimates
The
preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Critical accounting estimates involved in applying
our Company’s accounting policies are those that require management to make
assumptions about matters that are uncertain at the time the accounting estimate
is made and those for which different estimates reasonably could have been used
for the current period. Critical accounting estimates are also those which are
reasonably likely to change from period to period and would have a material
impact on the presentation of PGTI’s financial condition, changes in financial
condition or results of operations. Actual results could materially differ from
those estimates.
Revenue
recognition
PGTI
recognizes revenue when a valid customer order with a fixed price has been
received, the product has been delivered and accepted by the customer and
collectibility is reasonably assured. Revenues are recognized net of allowances
for discounts and estimated returns, which are estimated using historical
experience.
Cost
of sales
Cost of
sales represents costs directly related to the production of our Company’s
products. Primary costs include raw materials, direct labor, and manufacturing
overhead. Manufacturing overhead and related expenses primarily include
salaries, wages, employee benefits, utilities, maintenance, engineering and
property taxes.
In 2008,
we recognized a business interruption insurance recovery of $0.7 million,
classified as a reduction of cost of goods sold in the accompanying consolidated
statement of operations for the year ended January 3, 2009, of incremental
expenses we incurred relating to a November 2005 fire that idled a major
laminated glass manufacturing asset and which required us to purchase laminated
glass from an outside vendor at a price exceeding our cost to
manufacture. Such amount is included in other current assets in the
accompanying consolidated balance sheet at January 3, 2009 and was received in
cash shortly thereafter.
Shipping
and handling costs
Shipping
and handling costs incurred in the purchase of materials used in the
manufacturing process are included in cost of sales. Costs relating to shipping
and handling or our finished products are included in selling, general and
administrative expenses and total $17.7 million, $17.3 million and
$22.2 million for the years ended January 3, 2009, December 29, 2007 and
December 30, 2006, respectively.
Advertising
Our
Company expenses advertising costs as incurred. Advertising expense included in
selling, general and administrative expenses were $0.6 million, $1.8
million and $3.9 million for the years ended January 3, 2009, December 29,
2007 and December 30, 2006, respectively.
Research
and development costs
Our
Company expenses research and development costs as incurred. Research and
development costs included in selling, general and administrative expenses were
$1.4 million, $2.2 million and $1.9 million for the years ended January 3,
2009, December 29, 2007 and December 30, 2006, respectively.
Cash
and cash equivalents
Cash and
cash equivalents consist of cash on hand or highly liquid investments with an
original maturity date of three months or less.
Accounts
and notes receivable and allowance for doubtful accounts
Our
Company extends credit to qualified dealers and distributors, generally on a
non-collateralized basis. Accounts receivable are recorded at their gross
receivable amount, reduced by an allowance for doubtful accounts that results in
the receivable being recorded at its net realizable value. The allowance for
doubtful accounts is based on management’s assessment of the amount which may
become uncollectible in the future and is determined through consideration of
Company write-off history, specific identification of uncollectible accounts,
and consideration of prevailing economic and industry conditions. Uncollectible
accounts are written off after repeated attempts to collect from the customer
have been unsuccessful.
Accounts
receivable consist of the following:
|
January
3,
|
December
29,
|
|||||||||||||||
|
2009
|
2007
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Accounts
receivable
|
$ | 18,545 | $ | 21,372 | ||||||||||||
|
Less: Allowance
for doubtful accounts
|
(1,224 | ) | (416 | ) | ||||||||||||
| $ | 17,321 | $ | 20,956 | |||||||||||||
|
Balance
at
|
Balance
at
|
|||||||||||||||
|
Beginning
|
Costs
and
|
End
of
|
||||||||||||||
|
Allowance for Doubtful
Accounts
|
of
Period
|
expenses
|
Deductions(1)
|
Period
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Year
ended January 3, 2009
|
$ | 416 | $ | 1,244 | $ | (436 | ) | $ | 1,224 | |||||||
|
Year
ended December 29, 2007
|
$ | 943 | $ | (160 | ) | $ | (367 | ) | $ | 416 | ||||||
|
Year
ended December 30, 2006
|
$ | 2,450 | $ | 373 | $ | (1,880 | ) | $ | 943 | |||||||
|
(1)
|
Represents
uncollectible accounts charged against the allowance for doubtful
accounts.
|
As of
January 3, 2009 there were $1.1 million and as of December 29, 2007 there were
$0.3 million of trade notes receivable for which there was an allowance of $0.2
million and $0.2 million, respectively, included in other current assets in the
accompanying consolidated balance sheet.
Self-Insurance
Reserves
We are
primarily self-insured for employee health benefits and workers’ compensation.
Our workers’ compensation reserves are accrued based on third party actuarial
valuations of the expected future liabilities. Health benefits are self-insured
by us up to pre-determined stop loss limits. These reserves, including incurred
but not reported claims, are based on internal computations. These computations
consider our historical claims experience, independent statistics, and
trends.
Warranty
expense
Our
Company has warranty obligations with respect to most of our manufactured
products. Warranty periods, which vary by product components, range from
1 to 10 years. However, the majority of the products sold have
warranties on components which range from 1 to 3 years. The reserve
for warranties is based on management’s assessment of the cost per service call
and the number of service calls expected to be incurred to satisfy warranty
obligations on recorded net sales. The reserve is determined after assessing
company history and specific identification. Expected future obligations are
discounted to a current value using a risk-free rate for obligations with
similar maturities which, at January 3, 2009, was 2.5%. The undiscounted
aggregate of accrued warranty at January 3, 2009 is $4.4 million. In 2007, we
refined our warranty calculation by adding certain data inputs to better reflect
the decrease in sales. This change resulted in a decrease in our
estimated warranty obligations as of December 29, 2007 of $0.5 million, which
had an approximate $0.3 million effect on net income, or $0.01 per diluted
share. The following provides information with respect to our
Company’s warranty accrual.
|
Accrued Warranty
|
Beginning of
Period
|
Charged
to Expense
|
Adjustments
|
Settlements
|
End
of Period
|
|||||||||
|
(in
thousands)
|
||||||||||||||
|
Year
ended January 3, 2009
|
$ |
4,986
|
$ |
3,278
|
$ |
(575)
|
$ |
(3,465)
|
$ |
4,224
|
||||
|
Year
ended December 29, 2007
|
$ |
4,934
|
$ |
5,568
|
$ |
(409)
|
$ |
(5,107)
|
$ |
4,986
|
||||
|
Year
ended December 30, 2006
|
$ |
4,501
|
$ |
5,581
|
$ |
111
|
$ |
(5,259)
|
$ |
4,934
|
||||
Inventories
Inventories
consist principally of raw materials purchased for the manufacture of our
products. PGTI has limited finished goods inventory as all products are custom,
made-to-order products. Finished goods inventory costs include direct materials,
direct labor, and overhead. All inventories are stated at the lower of cost
(first-in, first-out method) or market. The reserve for obsolescence is based on
management’s assessment of the amount of inventory that may become obsolete in
the future and is determined through company history, specific identification
and consideration of prevailing economic and industry conditions.
Inventories
consist of the following:
|
January
3,
|
December
29,
|
|||||||
|
2009
|
2007
|
|||||||
|
(in
thousands)
|
||||||||
|
Finished
goods
|
$ | 905 | $ | 717 | ||||
|
Work
in progress
|
342 | 654 | ||||||
|
Raw
materials
|
8,194 | 7,852 | ||||||
| $ | 9,441 | $ | 9,223 | |||||
Property,
plant and equipment
Property,
plant and equipment are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets. Depreciable assets
are assigned estimated lives as follows:
|
Building
and improvements
|
5
to 40 years
|
|
|
Furniture
and equipment
|
3
to 10 years
|
|
|
Vehicles
|
3
to 10 years
|
|
|
Computer
software
|
3
years
|
|
Maintenance
and repair expenditures are charged to expense as incurred. During
the second quarter of 2008, the Company entered into capital leases totaling
approximately $0.4 million for the acquisition of equipment representing a
non-cash financing and investing activity. Amortization of assets under capital
leases is included in depreciation expense and was not material in
2008.
Long-lived
assets
Our
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of long-lived assets to future undiscounted
net cash flows expected to be generated. If such assets are
considered to be impaired, the impairment recognized is the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
cost to sell, and depreciation is no longer recorded.
We
recorded impairment charges of $1.2 million in 2006 and $0.8 million in
2007 to adjust the carrying value of a then idle manufacturing facility to its
estimated fair value, less reasonable estimated direct selling
costs. In December 2007 we reclassified the real estate as held and
used when we made the decision to utilize the facility, and began depreciating
the assets. The cost basis for depreciation purposes is the carrying
value of $1.5 million, its fair value when reclassified as held and used, and is
classified within property, plant and equipment in the accompanying consolidated
balance sheets as of January 3, 2009 and December 29, 2007.
Computer
software
Our
Company capitalizes costs associated with software developed or obtained for
internal use when both the preliminary project stage is completed and it is
probable that computer software being developed will be completed and placed in
service. Capitalized costs include:
|
(i) external
direct costs of materials and services consumed in developing or obtaining
computer software,
|
|
|
(ii) payroll
and other related costs for employees who are directly associated with and
who devote time to the software project, and
|
|
|
(iii) interest
costs incurred, when material, while developing internal-use
software.
|
Capitalization
of such costs ceases no later than the point at which the project is
substantially complete and ready for its intended purpose.
Capitalized
software as of January 3, 2009 and December 29, 2007 was $10.6 million and
$10.2 million, respectively. Accumulated amortization of capitalized
software was $9.0 million and $7.9 million as of January 3, 2009 and
December 29, 2007, respectively.
Depreciation
expense for capitalized software was $1.1 million, $1.0 million and
$2.5 million for the years ended January 3, 2009, December 29, 2007 and
December 30, 2006, respectively.
Our
Company reviews the carrying value of software and development costs for
impairment in accordance with our policy pertaining to the impairment of
long-lived assets.
Goodwill
and other intangible assets
Our
Company accounts for goodwill and other intangible assets in accordance with
SFAS No. 142,
Goodwill and Other Intangible Assets. Other intangible assets primarily
consist of trademarks and customer-related intangible assets. The useful lives
of trademarks were determined to be indefinite and, therefore, these assets are
not being amortized. Customer-related intangible assets are being amortized over
their estimated useful lives of ten years.
Goodwill
The
impairment evaluation of goodwill is conducted annually, or more frequently, if
events or changes in circumstances indicate that an asset might be impaired. The
annual goodwill impairment test is a two-step process. First, we
determine if the carrying value of our related reporting unit exceeds fair value
determined using a discounted cash flow model, which might indicate that
goodwill may be impaired. Second, if we determine that goodwill may
be impaired, we compare the implied fair value of the goodwill determined by
allocating our reporting unit’s fair value to all of its assets and liabilities
other than goodwill (including any unrecognized intangible assets) to its
carrying amount to determine if there is an impairment loss. We have one
reporting unit. See Note 6.
Other
intangibles
The
impairment evaluation of intangible assets with indefinite lives is conducted
annually, or more frequently, if events or changes in circumstances indicate
that an asset might be impaired. The evaluation is performed by comparing the
carrying amount of these assets to their estimated fair value. If the estimated
fair value is less than the carrying amount of the indefinite-lived intangible
assets, then an impairment charge is recorded to reduce the asset to its
estimated fair value. The estimated fair value is generally determined on the
basis of discounted future projected cost savings attributable to ownership of
the intangible assets with indefinite lives which, for us, are our
trademarks. See Note 6.
The
assumptions used in the estimate of fair value are generally consistent with
past performance and are also consistent with the projections and assumptions
that are used in our Company’s current operating plans. Such assumptions are
subject to change as a result of changing economic and competitive
conditions.
The
determination of fair value used in that assessment is highly sensitive to
differences between estimated and actual cash flows and changes in the related
discount rate used to evaluate fair value. Estimated cash flows are sensitive to
changes in the Florida housing market and changes in the economy among other
things.
Deferred
financing costs
Deferred
financing costs are amortized using the effective interest method over the life
of the debt instrument to which they relate. Unamortized deferred financing
costs, included in other assets on the accompanying consolidated balance sheets,
totaled $1.2 million at both January 3, 2009 and December 29,
2007. In the year ended January 3, 2009, an additional $0.6 million
of financing costs were deferred and are being amortized related to an amendment
of our credit facility (Note 8). Amortization of deferred financing
costs is included in interest expense in the accompanying consolidated
statements of operations. There was $0.7 million of amortization for the years
ended January 3, 2009 and December 29, 2007. There was $7.2
million of amortization for the year December 30, 2006. Included in
amortization expense for the years ended January 3, 2009 and December 29, 2007
is $0.3 million and $0.4 million, respectively, related to the prepayments of
portions of our long-term debt during 2008 and 2007 (Note
8). Included in amortization expense for the year ended December 30,
2006 is $4.6 million related to our February 2006 refinancing and $2.0 million
related to the repayment of a portion of our long term debt in the third quarter
of 2006 (Note 8). There was $10.8 million and $10.1 million in
accumulated amortization related to these costs at January 3, 2009 and December
29, 2007, respectively.
Estimated
amortization of deferred financing costs is as follows for future fiscal
years:
|
(in
thousands)
|
||||
|
2009
|
$ | 373 | ||
|
2010
|
370 | |||
|
2011
|
366 | |||
|
2012
|
44 | |||
|
Total
|
$ | 1,153 | ||
Derivative
financial instruments
Our
Company utilizes certain derivative instruments, from time to time, including
forward contracts and interest rate swaps to manage variability in cash flow
associated with commodity market price risk exposure in the aluminum market and
interest rates. Our Company does not enter into derivatives for speculative
purposes. Additional information with regard to derivative
instruments is contained in Note 10, Fair Value Measurements.
PGTI
accounts for derivative instruments in accordance with SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities, as amended
(“SFAS No. 133”). SFAS No. 133 requires our Company to
recognize all of its derivative instruments as either assets or liabilities in
the consolidated balance sheet at fair value. The accounting for changes in the
fair value (i.e., gains or losses) of a derivative instrument depends on whether
it has been designated and qualifies as part of a hedging relationship based on
its effectiveness in hedging against the exposure and further, on the type of
hedging relationship. For those derivative instruments that are designated and
qualify as hedging instruments, our Company must designate the hedging
instrument, based upon the exposure being hedged, as a fair value hedge or a
cash flow hedge.
Our
Company’s forward contracts are designated and accounted for as cash flow hedges
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk). SFAS No. 133 provides that the
effective portion of the gain or loss on a derivative instrument designated and
qualifying as a cash flow hedging instrument be reported as a component of other
comprehensive income and be reclassified into earnings in the same line item in
the income statement as the hedged item in the same period or periods during
which the transaction affects earnings. The ineffective portion of the gain or
loss on these derivative instruments, if any, is recognized in other
income/expense in current earnings during the period of
change.
For
derivative instruments not designated as hedging instruments, the gain or loss
is recognized in other income/expense in current earnings during the period of
change. When a cash flow hedge is terminated, if the forecasted hedged
transaction is still probable of occurrence, amounts previously recorded in
other comprehensive income remain in other comprehensive income and are
recognized in earnings in the period in which the hedged transaction affects
earnings.
As of
January 3, 2009, we had $4.1 million of cash on deposit with our commodities
broker related to funding of margin calls on open forward contracts for the
purchase of aluminum in a liability position. We net cash collateral
from payments of margin calls on deposit with our commodities broker against the
liability position of open contracts for the purchase of aluminum on a first-in,
first-out basis. The net liability position of $0.1 million on January 3, 2009
is included in other liabilities in the accompanying consolidated balance sheet
as of that date as it relates to open contracts with scheduled prompt dates in
November and December 2010. For statement of cash flows presentation, we present
net cash receipts from and payments to the margin account as investing
activities.
Financial
instruments
Our
Company’s financial instruments include cash, accounts receivable, and accounts
payable, whose carrying amounts approximate their fair values due to their
short-term nature and long-term debt excluding capital lease obligations, the
fair value of which is approximately $63 million based on recently observed
transactions.
Concentrations
of credit risk
Financial
instruments, which potentially subject our Company to concentrations of credit
risk, consist principally of cash and cash equivalents and trade accounts
receivable. Accounts receivable are due primarily from companies in the
construction industry located in Florida and the eastern half of the United
States. Credit is extended based on an evaluation of the customer’s financial
condition and credit history, and generally collateral is not
required.
Our
Company maintains its cash with a single financial institution. The balance
exceeds federally insured limits. At January 3, 2009 and December 29, 2007, such
balance exceeded the insured limit by $19.3 million and $20.0 million,
respectively.
Comprehensive
income (loss)
Comprehensive
income (loss) is reported on the Consolidated Statements of Shareholders’ Equity
and accumulated other comprehensive income (loss) is reported on the
Consolidated Balance Sheets.
Gains and
losses on cash flow hedging derivatives, to the extent effective, are included
in other comprehensive income (loss). Reclassification adjustments reflecting
such gains and losses are ratably recorded in income in the same period as the
hedged items affect earnings. Additional information with regard to accounting
policies associated with derivative instruments is contained in Note 10,
Fair Value Measurements.
Stock
compensation
Our
Company uses a fair-value based approach for measuring stock-based compensation
and, therefore, records compensation expense over an award’s vesting period
based on the award’s fair value at the date of grant. Our Company’s awards vest
based only on service conditions and compensation expense is recognized on a
straight-line basis for each separately vesting portion of an
award. We recorded compensation expense for stock based awards of
$0.8 million before income tax, or $0.03 per diluted share after tax effect, in
the year ended January 3, 2009 and $1.5 million before tax, or $0.03 per
diluted share after-tax effect, in the year ended December 29,
2007.
Income
and other taxes
Our
Company accounts for income taxes utilizing the liability method. Deferred
income taxes are recorded to reflect consequences on future years of differences
between financial reporting and the tax basis of assets and liabilities measured
using the enacted statutory tax rates and tax laws applicable to the periods in
which differences are expected to affect taxable earnings. We have no material
liability for unrecognized tax benefits. However, should we accrue for such
liabilities when and if they arise in the future we will recognize interest and
penalties associated with uncertain tax positions as part of our income tax
provision.
Sales
taxes collected from customers have been recorded on a net basis.
Net
income (loss) per common share
We
present basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed using the weighted average
number of common shares outstanding during the period, plus the dilutive effect
of common stock equivalents. Our Company’s weighted average shares outstanding
excludes underlying options of 1.6 million, 2.0 million and 1.8 million for
the years ended January 3, 2009, December 29, 2007 and December 30, 2006,
respectively, because their effects were anti-dilutive. Weighted average shares
in periods prior to fiscal 2008 have been restated to give effect to the bonus
element in the rights offering. The table below presents the calculation of
basic and diluted earnings per share, including a reconciliation of weighted
average common shares:
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
(in
thousands, except per share amounts)
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Net
(loss) income
|
$ | (163,032 | ) | $ | 623 | $ | (969 | ) | ||||
|
Denominator:
|
||||||||||||
|
Weighted-average
common shares - Basic
|
30,687 | 28,375 | 22,043 | |||||||||
|
Add: Dilutive
effect of stock compensation plans
|
- | 1,043 | - | |||||||||
|
Weighted-average
common shares - Diluted
|
30,687 | 29,418 | 22,043 | |||||||||
|
Net
(loss) income per common share:
|
||||||||||||
|
Basic
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | ||||
|
Diluted
|
$ | (5.31 | ) | $ | 0.02 | $ | (0.04 | ) | ||||
Reclassification
A
restructuring charge of $1.7 million, which in our Annual Report on Form 10-K
for the year ended December 29, 2007 was reported as a separate line item in the
consolidated statement of operations for that year, has been reclassified to
selling, general and administrative expenses in the accompanying consolidated
statement of operations for the same period because a discussion of the
classification of the 2007 restructuring charge is included in Note
4.
|
3.
|
Recently
Issued Accounting Pronouncements
|
In March
2008, the Financial Accounting Standards Board (FASB) issued Statement No. 161,
“Disclosures about Derivative Instruments and Hedging Activities—an amendment of
FASB Statement No. 133” (SFAS 161). SFAS 161 requires entities that
utilize derivative instruments to provide qualitative disclosures about their
objectives and strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within
derivatives. SFAS 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133 have been applied, and the
impact that hedges have on an entity’s financial position, financial
performance, and cash flows. SFAS 161 is effective for fiscal years
and interim periods beginning after November 15, 2008, with early application
encouraged. We currently provide information about our hedging
activities and use of derivatives in our annual filings with the SEC, including
many of the disclosures required by SFAS 161. We currently anticipate
the adoption of SFAS 161 will not have a material impact on our
disclosures.
In April
2008, the FASB issued Financial Staff Position
(FSP) 142-3, “Determination of the Useful Life of Intangible Assets”,
(FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible
Assets”. FSP 142-3 is effective for fiscal years beginning after December 15,
2008. We are currently assessing the impact of FSP 142-3, if any, on
our consolidated financial position and results of operations.
SFAS 141
(revised 2007), “Business Combinations” was issued in December 2007.
SFAS 141R establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141R is
effective for us in our fiscal year beginning January 4, 2009. We will
apply the provisions of SFAS 141R to future acquisitions, if
any.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 was effective for our Company
beginning in fiscal year 2008. We chose not to elect the fair value
option provided under SFAS 159 for financial instruments that existed as of
December 30, 2007, the first day of our 2008 fiscal year.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No.
157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally accepted
in the United States, and expands disclosures about fair value
measurements. We partially adopted the provisions of SFAS No. 157 as
of December 30, 2007 (the first day of our 2008 fiscal year) for financial
instruments pursuant to the deferral allowed for under FSP No. SFAS 157-2,
“Effective Date of FASB Statement No. 157.” As such, we did not apply the
provisions of SFAS No. 157 to property, plant and equipment, indefinite-lived
and amortizable intangible assets, other assets, long-term debt and capital
lease obligations and other liabilities. The partial adoption of SFAS
No. 157 did not impact our financial condition, results of operations, or cash
flows. See Note 10, Fair Value Measurements.
|
4.
|
Restructurings
|
On
October 25, 2007, we announced a restructuring as a result of an in-depth
analysis of our target markets, internal structure, projected run-rate, and
efficiency. The restructuring resulted in a decrease in our workforce
of approximately 150 employees and included employees in both Florida and North
Carolina. As a result of the restructuring, we recorded a
restructuring charge of $2.4 million in 2007, of which $0.7 million was
classified within cost of goods sold and $1.7 million was classified within
selling, general and administrative expenses. The charge related
primarily to employee separation costs. Of the $2.4 million charge,
$1.5 million was disbursed in 2007 and $0.9 million was disbursed in
2008.
On March
4, 2008, we announced a second restructuring as a result of continued analysis
of our target markets, internal structure, projected run-rate, and
efficiency. The restructuring resulted in a decrease in our workforce
of approximately 300 employees and included employees in both Florida and North
Carolina. As a result of the restructuring, we recorded a
restructuring charge of $2.1 million in 2008, of which $1.1 million is
classified within cost of goods sold and $1.0 million is classified within
selling, general and administrative expenses in the accompanying consolidated
statement of operations for the year ended January 3, 2009. The
charge related primarily to employee separation costs. Of the $2.1
million, $1.8 million was disbursed in the first quarter of 2008. The
remaining $0.3 million is classified within accrued liabilities in the
accompanying consolidated balance sheet as of January 3, 2009 (Note 7) and is
expected to be disbursed in 2009.
The
following table provides information with respect to the accrual for
restructuring costs:
|
Beginning
of Year
|
Charged
to Expense
|
Disbursed
in Cash
|
End
of Year
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Year
ended January 3, 2009:
|
||||||||||||||||
|
2007
Restructuring
|
$ | 850 | $ | - | $ | (850 | ) | $ | - | |||||||
|
2008
Restructuring
|
- | 2,131 | (1,799 | ) | 332 | |||||||||||
|
For
the year ended January 3, 2009
|
$ | 850 | $ | 2,131 | $ | (2,649 | ) | $ | 332 | |||||||
|
Year
ended December 29, 2007:
|
||||||||||||||||
|
2007
Restructuring
|
$ | - | $ | 2,375 | $ | (1,525 | ) | $ | 850 | |||||||
|
5.
|
Property,
Plant and Equipment
|
The
following table presents the composition of property, plant and equipment as
of:
|
January
3,
|
December
29,
|
|||||||
|
2009
|
2007
|
|||||||
|
(in
thousands)
|
||||||||
|
Land
|
$ | 4,029 | $ | 4,029 | ||||
|
Buildings
and improvements
|
48,243 | 48,132 | ||||||
|
Machinery
and equipment
|
45,644 | 41,275 | ||||||
|
Vehicles
|
6,310 | 5,334 | ||||||
|
Software
|
10,635 | 10,205 | ||||||
|
Construction
in progress
|
1,989 | 3,122 | ||||||
| 116,850 | 112,097 | |||||||
|
Less
accumulated depreciation
|
(43,345 | ) | (31,913 | ) | ||||
| $ | 73,505 | $ | 80,184 | |||||
|
6.
|
Goodwill
and Other Intangible Assets
|
Goodwill
and other intangible assets are as follows as of:
|
January
3,
|
December
29,
|
Useful
Life
|
|||||||||||
|
2009
|
2007
|
(in
years)
|
|||||||||||
|
(in
thousands)
|
|||||||||||||
|
Goodwill
|
$ | - | $ | 169,648 |
indefinite
|
||||||||
|
Other
intangible assets:
|
|||||||||||||
|
Trademarks
|
$ | 44,400 | $ | 62,500 |
indefinite
|
||||||||
|
Customer
relationships
|
55,700 | 55,700 |
10
|
||||||||||
|
Less: Accumulated
amortization
|
(27,422 | ) | (21,852 | ) | |||||||||
|
Subtotal
|
28,278 | 33,848 | |||||||||||
|
Other
intangible assets, net
|
$ | 72,678 | $ | 96,348 | |||||||||
|
Goodwill
at December 29, 2007
|
$ | 169,648 | |||||||||||
|
Impairment
charges - year ended January 3, 2009
|
(169,648 | ) | |||||||||||
|
Goodwill
at January 3, 2009
|
$ | - | |||||||||||
|
Trademarks
at December 29, 2007
|
$ | 62,500 | |||||||||||
|
Impairment
charges - year ended January 3, 2009
|
(18,100 | ) | |||||||||||
|
Trademarks
at January 3, 2009
|
$ | 44,400 | |||||||||||
Goodwill
As a
result of the impairment indicators related to the weakness in the housing
market, which we concluded has resulted in the prolonged decline in our market
capitalization as compared to our book value, during the second quarter of 2008,
we updated the first step of our goodwill impairment test and determined that
its carrying value exceeded its fair value, indicating that goodwill was
impaired. Having determined that goodwill was impaired, we then began
performing the second step of the goodwill impairment test which involves
calculating the implied fair value of our goodwill by allocating the fair value
of the Company to all of our assets and liabilities, other than goodwill
(including both recognized and unrecognized intangible assets), and comparing it
to the carrying amount of goodwill. We recorded a $92.0 million
estimated goodwill impairment charge in the second quarter of 2008. During the
third quarter of 2008, we completed the second step of the goodwill impairment
test and, as a result, recorded an additional $1.3 million goodwill impairment
charge.
We
performed our annual assessment of goodwill impairment as of January 3, 2009.
Given a further decline in housing starts and the overall tightening of the
credit markets, our revised forecasts indicated additional impairment of
goodwill. After allocating our Company’s fair value to our assets and
liabilities other than goodwill, we concluded that goodwill had no implied fair
value and the remaining carrying value was written-off. After
impairment charges totaling $169.6 million in 2008, goodwill has no carrying
value as of January 3, 2009.
The
amount of goodwill deductible for tax purposes was $63.8 million at the
time of the 2004 acquisition, of which $37.5 million was unamortized as of
January 3, 2009.
Indefinite Lived Intangible
Asset
As a
result of the impairment indicators described above, during the second quarter
of 2008, we evaluated our trademarks for impairment and compared their estimated
fair value to their carrying value and preliminarily determined that there was
no impairment. During the third quarter of 2008, as part of
finalizing its goodwill impairment test discussed above, we made certain changes
to our assumptions that affected the previous estimate of fair value and, when
compared to the carrying value of our trademarks, resulted in a $0.3 million
impairment charge in the third quarter of 2008. We performed our
annual assessment of our trademarks as of January 3, 2009. Given a further
decline in housing starts and the overall tightening of the credit markets, our
revised forecasts indicated additional impairment was present, resulting in an
additional impairment charge of $17.8 million in the fourth quarter of 2008.
After impairment charges totaling $18.1 million in 2008, intangible assets not
subject to amortization totaled $44.4 million at January 3, 2009.
Amortizable Intangible
Asset
As a
result of the impairment indicators described above, during the second quarter
of 2008 and again as of January 3, 2009, we tested our amortizable intangible
asset, which is our customer relationships intangible asset, for impairment by
comparing the estimated future undiscounted net cash flows expected to be
generated by the asset group containing this asset to its carrying value and
determined that there was no impairment.
Estimated
amortization of our customer relationships intangible asset is as
follows for future fiscal years:
|
(in
thousands)
|
||||
|
2009
|
$ | 5,570 | ||
|
2010
|
5,570 | |||
|
2011
|
5,570 | |||
|
2012
|
5,570 | |||
|
2013
|
5,570 | |||
|
Thereafter
|
428 | |||
|
Total
|
$ | 28,278 | ||
|
7.
|
Accrued
Liabilities
|
Accrued
liabilities consisted of the following:
|
January
3,
|
December
29,
|
|||||||
|
2009
|
2007
|
|||||||
|
(in
thousands)
|
||||||||
|
Accrued
warranty
|
$ | 2,734 | $ | 3,376 | ||||
|
Accrued
interest
|
61 | 490 | ||||||
|
Accrued
payroll and benefits
|
3,905 | 3,686 | ||||||
|
Accrued
restructuring costs
|
332 | 850 | ||||||
|
Fair
value of derivative financial instruments
|
- | 730 | ||||||
|
Accrued
health claims insurance payable
|
779 | 995 | ||||||
|
Other
|
1,041 | 1,378 | ||||||
| $ | 8,852 | $ | 11,505 | |||||
Other
accrued liabilities are comprised primarily of unearned revenue related to
customer deposits and non-income tax accruals, primarily payroll and state sales
tax.
|
8.
|
Long-Term
Debt
|
Long-term
debt consists of the following:
|
January
3,
|
December
29,
|
|||||||
|
2009
|
2007
|
|||||||
|
(in
thousands)
|
||||||||
|
Tranche
A2 term note payable to a bank in quarterly installments
|
||||||||
|
of
$331,633 beginning November 14, 2008 through November 14,
|
||||||||
|
2011. A
lump sum payment of $125.7 million is due on February
|
||||||||
|
14,
2012. Interest is payable quarterly at LIBOR or the prime
rate
|
||||||||
|
plus
an applicable margin. At December 29, 2007, the
average
|
||||||||
|
rate
was 5.38% plus a margin of 3.00%.
|
$ | - | $ | 130,000 | ||||
|
Tranche
A2 term note payable to a bank in quarterly installments
|
||||||||
|
of
$231,959 beginning November 14, 2009 through November 14,
|
||||||||
|
2011. A
lump sum payment of $87.9 million is due on February
|
||||||||
|
14,
2012. Interest is payable quarterly at LIBOR or the prime
rate
|
||||||||
|
plus
an applicable margin. At January 3, 2009, the
average
|
||||||||
|
rate
was 4.00% plus a margin of 2.25%.
|
90,000 | - | ||||||
|
Obligations
under capital leases
|
366 | - | ||||||
| 90,366 | 130,000 | |||||||
|
Less
current portion of long-term debt
|
(330 | ) | (332 | ) | ||||
| $ | 90,036 | $ | 129,668 | |||||
On
February 14, 2006, we entered into a second amended and restated
$235 million senior secured credit facility and a $115 million second
lien term loan due August 14, 2012, with a syndicate of banks. The senior
secured credit facility is composed of a $30 million revolving credit
facility and, initially, a $205 million first lien term loan. As of January
3, 2009, there was $25.2 million available under the revolving credit
facility.
On April
30, 2008, we announced that we entered into an amendment to the credit
agreement. The amendment, among other things, relaxed certain
financial covenants through the first quarter of 2010, increased the applicable
rate on loans and letters of credit, and set a LIBOR floor. The
effectiveness of the amendment was conditioned, among other things, on the
repayment of at least $30 million of loans under the credit agreement no later
than August 14, 2008, of which no more than $15 million was permitted to come
from cash on hand. In June 2008, the Company used cash generated from
operations to prepay $10 million of outstanding borrowings under the credit
agreement. Using proceeds from the rights offering, the Company made
an additional prepayment of $20 million on August 11, 2008, bringing total
prepayments of debt at that time to $30 million as required under the amended
credit agreement. See Note 15 for a discussion of the rights offering. Having
made the total required prepayment and having satisfied all other conditions to
bring the amendment into effect, including the payment of the fees and expenses
of the administrative agent and a consent fee to participating lenders of 25
basis points of the then outstanding balance under the credit agreement of $100
million, the amendment became effective on August 11, 2008. Fees paid
to the administrative agent and lenders totaled $0.6 million and have been
deferred and the unamortized balance of $0.5 million is included in other assets
on the accompanying condensed consolidated balance sheet as of January 3,
2009. Such fees are being amortized on a straight-line basis over the
remaining term of the credit agreement..
Under the
amendment, the first lien term loan bears interest at a rate equal to an
adjusted LIBOR rate plus a margin ranging from 3.5% per annum to 5% per annum or
a base rate plus a margin ranging from 2.5% per annum to 4.0% per annum, at our
option. The margin in either case is dependent on our leverage
ratio. The loans under the revolving credit facility bear interest at
a rate equal to an adjusted LIBOR rate plus a margin depending on our leverage
ratio ranging from 3.0% per annum to 4.75% per annum or a base rate plus a
margin ranging from 2.0% per annum to 3.75% per annum, at our
option. The amendment established a floor of 3.25% for adjusted
LIBOR. Prior to the effectiveness of the amendment, the first lien
term loan bore interest at a rate equal to an adjusted LIBOR rate plus
3.0% per annum or a base rate plus 2.0% per annum, at our option. The
loans under the revolving credit facility bore interest initially, at our
option, at a rate equal to an adjusted LIBOR rate plus 2.75% per annum or a
base rate plus 1.75% per annum, and the margins above LIBOR and base rate
could have declined to 2.00% for LIBOR loans and 1.00% for base rate loans if
certain leverage ratios were met.
A
commitment fee equal to 0.50% per annum accrues on the average daily unused
amount of the commitment of each lender under the revolving credit facility and
such fee is payable quarterly in arrears. We are also required to pay certain
other fees with respect to the senior secured credit facility including
(i) letter of credit fees on the aggregate undrawn amount of outstanding
letters of credit plus the aggregate principal amount of all letter of credit
reimbursement obligations, (ii) a fronting fee to the letter of credit
issuing bank and (iii) administrative fees.
The first
lien term loan is secured by a perfected first priority pledge of all of the
equity interests of our subsidiary and perfected first priority security
interests in and mortgages on substantially all of our tangible and intangible
assets and those of the guarantors, except, in the case of the stock of a
foreign subsidiary, to the extent such pledge would be prohibited by applicable
law or would result in materially adverse tax consequences, and subject to such
other exceptions as are agreed. The senior secured credit facility contains a
number of covenants that, among other things, restrict our ability and the
ability of our subsidiaries to (i) dispose of assets; (ii) change our
business; (iii) engage in mergers or consolidations; (iv) make certain
acquisitions; (v) pay dividends or repurchase or redeem stock;
(vi) incur indebtedness or guarantee obligations and issue preferred and
other disqualified stock; (vii) make investments and loans;
(viii) incur liens; (ix) engage in certain transactions with
affiliates; (x) enter into sale and leaseback transactions; (xi) issue
stock or stock options under certain conditions; (xii) amend or prepay
subordinated indebtedness and loans under the second lien secured credit
facility; (xiii) modify or waive material documents; or (xiv) change
our fiscal year. In addition, under the senior secured credit facility, we are
required to comply with specified financial ratios and tests, including a
minimum interest coverage ratio, a maximum leverage ratio, and maximum capital
expenditures.
Contractual
future maturities of long-term debt outstanding as of January 3, 2009 are as
follows (in thousands):
|
2009
|
$ | 330 | ||
|
2010
|
1,033 | |||
|
2011
|
1,041 | |||
|
2012
|
87,962 | |||
|
2013
|
- | |||
|
Total
|
$ | 90,366 |
During
2007, we prepaid $35.5 million of long-term debt with cash on
hand. During 2008, we prepaid $40.0 million of long-term debt
with cash generated from operations and from the net proceeds of the rights
offering, which totaled $29.3 million. See Note 15.
On an
annual basis, our Company is required to compute excess cash flow, as defined in
our credit and security agreement with the bank. In periods where there is
excess cash flow, our Company is required to make prepayments in an aggregate
principal amount determined through reference to a grid based on the leverage
ratio. No such prepayments were required for the year ended January 3, 2009. The
term note and line of credit require that our Company also maintain compliance
with certain restrictive financial covenants, the most restrictive of which
requires our Company to maintain a total leverage ratio, as defined in the
credit agreement, as amended, of not greater than certain predetermined amounts.
Our Company believes that we were in compliance with all restrictive financial
covenants as of January 3, 2009.
|
9.
|
Interest
Expense
|
Interest
expense, net consisted of the following (in thousands):
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Long-term
debt
|
$ | 8,394 | $ | 11,291 | $ | 22,141 | ||||||
|
Debt
fees
|
444 | 425 | 781 | |||||||||
|
Amortization
of deferred financing costs
|
724 | 724 | 7,205 | |||||||||
|
Short-term
debt
|
- | - | - | |||||||||
|
Interest
income
|
(165 | ) | (807 | ) | (1,054 | ) | ||||||
|
Interest
expense
|
9,397 | 11,633 | 29,073 | |||||||||
|
Capitalized
interest
|
(114 | ) | (229 | ) | (564 | ) | ||||||
|
Interest
expense, net
|
$ | 9,283 | $ | 11,404 | $ | 28,509 | ||||||
|
10.
|
Fair
Value Measurements
|
Aluminum Forward
Contracts
We enter
into aluminum forward contracts to hedge the fluctuations in the purchase price
of aluminum extrusion we use in production. At January 3, 2009, we had 71
outstanding forward contracts for the purchase of 16.1 million pounds of
aluminum at an average price of $1.01 per pound with maturity dates of between
less than one month and 24 months through December 2010. These
contracts are designated as cash flow hedges since they are highly effective in
offsetting changes in the cash flows attributable to forecasted purchases of
aluminum. These aluminum hedges were in a liability position at January 3, 2009
and had a fair value of $4.2 million. We maintain a line of
credit of up to $0.4 million with our commodities broker to cover the liability
position of open contracts for the purchase of aluminum in the event that the
price of aluminum falls. Should the price of aluminum fall to a level
which causes our liability for open aluminum contracts to exceed $0.4 million,
we are required to fund daily margin calls to cover the excess. We
believe this mitigates non-performance risk as it places a limit on the amount
of the liability for open contracts such that an impact, if any, on the fair
value of the liability due to consideration of non-performance risk would not be
significant. We assess our risk of non-performance when measuring the fair value
of our financial instruments in a liability position by evaluating our current
liquidity including cash on hand and availability under our revolving credit
facility as compared to the maturities of the financial
liabilities. In addition, we entered into a master netting
arrangement (MNA) with our commodities broker that provides for, among other
things, the close-out netting of exchange-traded transactions in the event of
the insolvency of either party to the MNA.
As of
January 3, 2009, we had $4.1 million of cash on deposit with our commodities
broker related to funding of margin calls on open forward contracts for the
purchase of aluminum in a liability position. We net cash collateral
from payments of margin calls on deposit with our commodities broker against the
liability position of open contracts for the purchase of aluminum on a first-in,
first-out basis. The net liability position of $0.1 million on
January 3, 2009 is included in other liabilities in the accompanying
consolidated balance sheet as of that date as it relates to open contracts with
scheduled prompt dates in November and December 2010. For statement of cash
flows presentation, we present net cash receipts from and payments to the margin
account as investing activities.
Our
aluminum hedges qualify as highly effective for reporting
purposes. For the years ended January 3, 2009, December 29, 2007 and
December 30, 2006, the ineffective portion of the hedging instruments was not
significant. Effectiveness of aluminum forward contracts is determined by
comparing the change in the fair value of the forward contract to the change in
the expected cash to be paid for the hedged item. At January 3, 2009,
these contracts were designated as effective. The effective portion of the gain
or loss on our aluminum forward contracts is reported as a component of other
comprehensive income and is reclassified into earnings in the same line item in
the income statement as the hedged item in the same period or periods during
which the transaction affects earnings. For the years ended January 3, 2009,
December 29, 2007 and December 30, 2006, no amounts were reclassified to
earnings because it was probable that the original forecasted transaction would
not occur. The ending accumulated balance for the aluminum forward contracts
included in accumulated other comprehensive loss, net of tax, is
$4.0 million as of January 3, 2009, of which $3.1 million is expected to be
reclassified to earnings in 2009 based on scheduled settlement dates of the
related contracts.
Aluminum
forward contracts identical to those held by us trade on the London Metals
Exchange (“LME”). The LME provides a transparent forum and is the
world's largest center for the trading of futures contracts for non-ferrous
metals and plastics. The trading is highly liquid and, therefore, the
metals industry has a high degree of confidence that the trade pricing properly
reflects current supply and demand. The prices are used by the metals
industry worldwide as the basis for contracts for the movement of physical
material throughout the production cycle. Based on this high degree
of volume and liquidity in the LME and the transparency of the market
participants, the valuation price at any measurement date for contracts with
identical terms as to prompt date, trade date and trade price as those we hold
at any time we believe represents a contract's exit price to be used for
purposes of SFAS No. 157. Trade pricing is based on valuation model
inputs that can generally be verified but which require some degree of
judgment. Therefore, we categorize these aluminum forward contracts
as being valued using Level 2 inputs as follows:
|
Fair
Value Measurements
|
||||||||
|
Asset
(Liability)
|
||||||||
|
Significant
|
||||||||
|
Other
Observable
|
||||||||
|
January
3,
|
Inputs
|
|||||||
|
Description
|
2009
|
(Level
2)
|
||||||
|
(in
thousands)
|
||||||||
|
Forward
contracts for aluminum
|
$ | (4,236 | ) | $ | (4,236 | ) | ||
|
Cash
on deposit related to payments of margin calls
|
4,098 | |||||||
|
Forward
contracts for aluminum, net
|
$ | (138 | ) | |||||
Interest Rate Swap
Agreements
On
October 29, 2004, our Company entered into a three-year interest rate swap
agreement with a notional amount of $33.5 million that was designated as a
cash flow hedge and effectively converted a portion of the floating rate debt to
a fixed rate of 3.53%. Also on October 29, 2004, our Company entered into a
three-year interest rate cap agreement with a notional amount of
$33.5 million that protected an additional portion of the variable rate
debt from an increase in the floating rate to greater than 4.5%.
On
September 19, 2005, the hedging relationships involving the interest rate
swap and cap agreements were terminated as a result of changes made to the terms
of our then existing credit agreement. Accordingly, the changes in fair value of
the swap and cap from that point were recorded in other (income) expense, net,
and the accumulated balance for the interest rate swap agreement included in
other comprehensive income at the time of ineffectiveness of $0.7 million
was being amortized into earnings over the remaining life of the agreement.
Changes in the intrinsic value of the swap and cap totaled $0.1 million in 2006
and are recorded as other expenses in the accompanying consolidated statement of
operations for the year ended December 30, 2006. The fair value of the interest
rate swap agreement of $0.6 million and the fair value of the interest rate cap
of $0.3 million as of December 30, 2006, recorded in other assets in the
accompanying consolidated balance sheet as of December 30, 2006, was recognized
as other expense in the accompanying consolidated statement of operations in
2007. Amortization of the accumulated balance for the interest rate swap
agreement included in other comprehensive income at the time of ineffectiveness
totaled $0.3 million in 2006 and is recorded as other income in the accompanying
consolidated statement of operations for the year ended December 30, 2006. At
December 30, 2006, there was $0.2 million remaining to be amortized,
in accumulated other comprehensive income, which was recognized as other income
in the accompanying consolidated statement of operations in 2007.
These
interest rate swap and cap agreements expired in October 2007.
On April
14, 2006, we entered into a two-year interest rate swap agreement with a
notional amount of $61.0 million that was designated as a cash flow hedge
and effectively converted a portion of the floating rate debt to a fixed rate of
5.345%. Since all of the critical terms of the swap exactly matched those of the
hedged debt, no ineffectiveness was identified in the hedging relationship.
Consequently, all changes in fair value are recorded as a component of other
comprehensive income. We periodically determined the effectiveness of the swap
by determining that the critical terms still match, determining that the future
interest payments are still probable of occurrence, and evaluating the
likelihood of the counterparty’s compliance with the terms of the swap. The fair
value of the interest rate swap agreement of $0.1 million as of December
29, 2007, is recorded in accrued liabilities in the accompanying
consolidated balance sheet. This interest rate swap expired in February
2008.
|
11.
|
Income Taxes |
Deferred
income taxes reflect the net tax effects of temporary difference between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of our
Company’s net deferred tax liability are as follows as of:
|
January
3, 2009
|
December
29, 2007
|
|||||||||||||||
|
Current
|
Non-current
|
Current
|
Non-current
|
|||||||||||||
|
(in
thousands)
|
(in
thousands)
|
|||||||||||||||
|
Deferred
tax assets (liabilities):
|
||||||||||||||||
|
Accrued
warranty
|
$ | 1,066 | $ | 581 | $ | 1,316 | $ | 628 | ||||||||
|
Allowance
for doubtful accounts
|
723 | - | 579 | - | ||||||||||||
|
Compensation
expense
|
- | 978 | - | 745 | ||||||||||||
|
Derivative
financial instruments
|
1,268 | 384 | 285 | - | ||||||||||||
|
Goodwill
|
- | 14,617 | - | (8,179 | ) | |||||||||||
|
Other
indefinite lived intangible assets
|
- | (17,315 | ) | - | (24,373 | ) | ||||||||||
|
Amortizable
intangible assets
|
- | (11,010 | ) | - | (13,179 | ) | ||||||||||
|
Other
accruals
|
496 | 714 | 674 | 722 | ||||||||||||
|
Property,
plant and equipment
|
- | (6,349 | ) | - | (5,946 | ) | ||||||||||
|
Obsolete
inventory
|
622 | - | 829 | - | ||||||||||||
|
State
and federal net operating loss carryforwards
|
- | 1,620 | - | 423 | ||||||||||||
|
State
tax credits
|
- | 330 | - | 232 | ||||||||||||
|
Total
deferred tax asset (liability)
|
4,175 | (15,450 | ) | 3,683 | (48,927 | ) | ||||||||||
|
Valuation
allowance
|
(3,017 | ) | (3,023 | ) | - | - | ||||||||||
|
Net
deferred tax asset (liability)
|
$ | 1,158 | $ | (18,473 | ) | $ | 3,683 | $ | (48,927 | ) | ||||||
The
components of income tax expense (benefit) are as follows (in
thousands):
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | (897 | ) | $ | 1,729 | $ | (3,604 | ) | ||||
|
State
|
37 | 150 | (10 | ) | ||||||||
| (860 | ) | 1,879 | (3,614 | ) | ||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(24,064 | ) | (1,337 | ) | 3,157 | |||||||
|
State
|
(3,865 | ) | (86 | ) | 558 | |||||||
| (27,929 | ) | (1,423 | ) | 3,715 | ||||||||
|
Income
tax (benefit) expense
|
$ | (28,789 | ) | $ | 456 | $ | 101 | |||||
A
reconciliation of the statutory federal income tax rate to our Company’s
effective rate is provided below:
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
Statutory
federal income tax rate
|
35.0% | 35.0% | (35.0% | ) | ||||||||
|
State
income taxes, net of federal income tax benefit
|
4.0% | 4.0% | (4.0% | ) | ||||||||
|
Impairment
of non-deductible goodwill
|
(21.5% | ) | - | - | ||||||||
|
Valuation
allowance on deferred tax assets
|
(2.4% | ) | - | - | ||||||||
|
Non-deductible
expenses
|
- | 7.1% | 7.6% | |||||||||
|
State
tax credits
|
0.1% | (4.9% | ) | 48.7% | ||||||||
|
Manufacturing
deduction
|
- | (1.5% | ) | - | ||||||||
|
Other
|
(0.2% | ) | 2.6% | (5.7% | ) | |||||||
| 15.0% | 42.3% | 11.6% | ||||||||||
Our
effective combined federal and state tax rate was 15.0%, 42.3% and 11.6% for the
years ended January 3, 2009, December 29, 2007 and December 30, 2006,
respectively. The 15.0% effective tax rate resulted from the tax
effects totaling $41.3 million related to the write-off of the non-deductible
portion of goodwill and $4.6 million related to the valuation allowance on
deferred tax assets recorded in the fourth quarter of 2008. Excluding the
effects of these items, our 2008 effective tax rate would have been 39.0%. The
11.6% effective tax rate on a loss of $0.9 million in the year ended December
30, 2006 resulted from a change in the recognition of state tax credits in North
Carolina. These credits are now recognized in the year in which they
are made available for deduction. Previously, we recognized these credits in the
year in which they were generated. This change resulted in an
unfavorable adjustment to our tax expense of $0.4 million. Without
this adjustment our tax rate would have been a benefit of 37.0% for
2006.
In
assessing the realizability of deferred tax assets, we consider whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. We consider the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. After consideration of all the evidence,
both positive and negative, our Company determined in 2007 that a valuation
allowance was not necessary.
In 2008,
we established a valuation allowance with respect to the net deferred tax
assets, excluding the $17.3 million deferred tax liability related to
trademarks, totaling $6.0 million at January 3, 2009. Driven by the
goodwill and other intangible impairment charges recorded in 2008 totaling
$187.7 million, our cumulative losses over the last three fiscal years, in
addition to the significant downturn in our primary industry of home
construction, lead us to conclude that sufficient negative evidence exists that
it is deemed more likely than not future taxable income will not be sufficient
to realize the related income tax benefits. Of the $6.0 million
valuation allowance at January 3, 2009, $1.4 million has been allocated to other
comprehensive loss in the accompanying consolidated balance sheet at that date
to offset the tax benefit that was recorded in other comprehensive loss for
fiscal 2008. The remaining $4.6 million of the valuation allowance at
January 3, 2009 was recorded as deferred tax expense in the accompanying
consolidated statement of operations for the year ended January 3,
2009.
Our
Company estimates that it has $4.1 million of federal net operating loss
carryforwards and $15.9 million of state operating loss carryforwards
expiring at various dates through 2028.
We
adopted the provisions of FIN 48 on January 1, 2007. We did not
recognize any material liability for unrecognized tax benefits in conjunction
with our FIN 48 implementation and there were no changes to our
unrecognized tax benefits during 2007 or 2008. However, should we accrue for
such liabilities when and if they arise in the future we will recognize interest
and penalties associated with uncertain tax positions as part of our income tax
provision.
|
12.
|
Commitments and Contingencies |
Our
Company leases production equipment, vehicles, computer equipment, storage units
and office equipment under operating leases expiring at various times through
2014. Lease expense was $2.6 million, $3.3 million and $3.0 million for the
years ended January 3, 2009, December 29, 2007 and December 30, 2006,
respectively. Future minimum lease commitments for non-cancelable operating
leases are as follows at January 3, 2009 (in thousands):
|
2009
|
$ | 1,777 | ||
|
2010
|
1,089 | |||
|
2011
|
617 | |||
|
2012
|
299 | |||
|
Thereafter
|
267 | |||
|
Total
|
$ | 4,049 |
Our
Company, through the terms of certain of our leases, has the option to purchase
the leased equipment for cash in an amount equal to its then fair market value
plus all applicable taxes.
Our
Company is obligated to purchase certain raw materials used in the production of
our products from certain suppliers pursuant to stocking programs. If
these programs were cancelled by our Company, we would be required to pay $1.3
million for various materials. During the years ended January 3,
2009, December 29, 2007 and December 30, 2006, we made purchases under these
programs totaling $76.3 million, $92.1 million and $127.7 million,
respectively.
At
January 3, 2009, our Company had $4.8 million in standby letters of credit
related to our worker’s compensation insurance coverage and commitments to
purchase equipment of $0.8 million.
Our
Company is a party to various legal proceedings in the ordinary course of
business. Although the ultimate disposition of those proceedings cannot be
predicted with certainty, management believes the outcome of any claim that is
pending or threatened, either individually or on a combined basis, will not have
a materially adverse effect on the operations, financial position or cash flows
of our Company.
|
13.
|
Employee Benefit Plans |
Our
Company has a 401(k) plan covering substantially all employees 18 years of
age or older who have at least three months of service. Employees may contribute
up to 100% of their annual compensation subject to Internal Revenue Code maximum
limitations. Through the end of 2007, our Company agreed to make matching
contributions of 100% of the employee’s contribution up to 3% of the employee’s
salary. Effective the first day of our Company’s 2008 fiscal year, we suspended
the matching contributions portion of the 401(k) plan until such time that
management of the Company having the authority to do so determined to reinstate
some or all of the matching contribution. For the year ended January
3, 2009, based on certain performance metrics of our Company evaluated by
management, the Company’s management determined to match employee contributions
made in 2008 at a rate of approximately 0.5%. Company contributions and earnings
thereon vest at the rate of 20% per year of service with our Company when
at least 1,000 hours are worked within the Plan year. We recognized expense
of $0.2 million for the year ended January 3, 2009 and $1.9 million in each of
the years ended December 29, 2007 and December 30, 2006.
As a
result of the March 2008 restructuring and its combined effect on employee
levels due to both restructurings as discussed in Note 4, the Company’s 401(k)
plan was deemed to have been partially terminated according to IRS rules. These
rules require 100% vesting of terminated participants who are no longer eligible
to participate in the plan. In 2008, we recorded an adjustment of $0.1 million
to reestablish amounts related to Company matching previously considered to be
forfeited upon termination. This amount is included in the total expense of $0.2
million for the year ended January 3, 2009 discussed above.
|
14.
|
Related Parties |
Prior to
our Initial Public Offering, the Company paid a management fee to JLL Partners,
Inc., which is related to our Company’s majority shareholder, JLL Partners
Fund IV L.P., of approximately $1.4 million for the year ended December 30,
2006. This amount is recorded in selling, general, and administrative
expenses in the accompanying consolidated statement of operations for the year
then ended. The management fee was terminated in
mid-2006.
In the
ordinary course of business, we sell windows to Builders FirstSource, Inc., a
company controlled by affiliates of JLL Partners, Inc. One of our directors,
Floyd F. Sherman, is the president, chief executive officer, and a director of
Builders FirstSource, Inc. In addition, Ramsey A. Frank, Brett
N. Milgrim, and Paul S. Levy are directors of Builders FirstSource,
Inc. Total net sales to Builders FirstSource, Inc. were $2.7 million, $2.7
million and $4.7 million for the years ended January 3, 2009, December 29, 2007
and December 30, 2006, respectively. As of January 3, 2009 and
December 29, 2007 there was $0.2 million and $0.3 million due from Builders
FirstSource, Inc. included in accounts receivable in the accompanying
consolidated balance sheets.
|
15.
|
Shareholders' Equity |
Rights
Offering
On August
1, 2008, we filed Amendment No. 1 to the Registration Statement on Form S-3
filed on March 28, 2008 relating to a previously announced offering of rights to
purchase 7,082,687 shares of the Company’s common stock with an aggregate value
of approximately $30 million. The registration statement relating to
the rights offering was declared effective by the United States Securities and
Exchange Commission on August 4, 2008 and we distributed to each holder of
record of the Company’s common stock as of close of business on August 4, 2008,
at no charge, one non-transferable subscription right for every four shares of
common stock held by such holder under the basic subscription
privilege. Each whole subscription right entitled its holder to
purchase one share of PGT’s common stock at the subscription price of $4.20 per
share. The rights offering also contained an over-subscription
privilege that permitted all basic subscribers to purchase additional shares of
the Company’s common stock up to an amount equal to the amount available to each
under the basic subscription privilege. Shares issued to each
participant in the over-subscription were determined by calculating each
subscriber’s percentage of the total shares over-subscribed, times the number of
shares available in the over-subscription privilege. The rights
offering expired on September 4, 2008.
The
rights offering was fully subscribed resulting in the Company distributing all
7,082,687 shares of its common stock available, including 6,157,586 shares under
the basic subscription privilege and 925,101 under the over-subscription
privilege, representing an 86.9% basic subscription participation
rate. There were requests for 4,721,763 shares under the
over-subscription privilege representing an allocation rate of 19.6% to each
over-subscriber for the 925,101 shares available in the over
subscription. Of the 7,082,687 shares issued, 4,295,158 shares were
issued to JLL, the Company’s majority shareholder, including 3,615,944 shares
issued under the basic subscription privilege and 679,214 shares issued under
the over-subscription privilege. Prior to the rights offering, JLL
held 14,463,776 shares, or 51.1%, of the Company’s outstanding common
stock. With the completion of the rights offering, we have 35,413,438
total shares of common stock outstanding of which JLL holds 53.0%.
Net
proceeds of $29.3 million from the rights offering were used to repay a portion
of the outstanding indebtedness under our amended credit
agreement. See Note 8, Long-Term Debt.
Special
Cash Dividend
In
February 2006, our Company paid a special cash dividend to our stockholders of
$83.5 million, or $5.30 per share. In connection with the payment of this
dividend, our Company also made a compensatory cash payment of
$26.9
million to stock option holders (including applicable payroll taxes of $0.5
million) in-lieu of adjusting exercise prices that was recorded as stock
compensation expense in the accompanying consolidated statement of operations
for the year ended December 30, 2006.
|
16.
|
Employee Stock-Based Compensation |
On
January 29, 2004, our Company adopted the JLL Window Holdings, Inc. 2004 Stock
Incentive Plan (the “2004 Plan”), whereby stock-based awards may be granted by
the Board of Directors (the Board) to officers, key employees, consultants and
advisers of our Company.
In
conjunction with the acquisition of PGT Holding Company, our Company rolled over
2.9 million option shares belonging to option holders of the acquired entity.
These options have a ten year term and are fully vested. Of these options, 1.1
million have an exercise price of $0.38 per share, and 1.8 million have an
exercise price of $1.51 per share.
Also in
conjunction with the acquisition, our Company granted 1.6 million option shares
to key employees. These options have a ten-year life, fully vest after five
years and have an accelerated vesting based on achievement of certain financial
targets over three years, with an exercise price of $8.64 per share. On July 5,
2005, and November 30, 2005, our Company granted to key employees 0.5 million
and 0.2 million option shares, respectively. These options have a ten-year life,
fully vest after five years, and have accelerated vesting based on certain
financial targets over three years, with an exercise price of $8.64 and $12.84
per share, respectively. There were 36,413 shares of restricted stock granted
under the 2004 Plan during 2006. There were 137,095 shares available for grant
under the 2004 Plan at December 30, 2006. No options or restricted
share awards were granted under the 2004 Plan during 2007. There were
332,275 shares available for grant under the 2004 Plan at December 29,
2007. No options or restricted share awards were granted under the
2004 Plan during 2008. There were 838,887 shares available for grant
under the 2004 Plan at January 3, 2009.
On June
5, 2006, our Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”)
whereby equity-based awards may be granted by the Board to eligible non-employee
directors, selected officers and other employees, advisors and consultants of
our Company. There were 172,138 options and 42,623 shares of restricted stock
granted under the 2006 Plan during 2006. There were 2,785,239 shares available
for grant under the 2006 Plan at December 30, 2006. There were
161,071 options and 46,503 restricted shares granted under the 2006 Plan during
2007. There were 2,622,125 shares available for grant under the 2006
Plan at December 29, 2007. There were 225,460 options (including
115,863 options issued to Jeffrey T. Jackson that replaced the same number of
options initially issued under the 2004 Plan in the repricing discussed below)
and 129,445 restricted shares granted under the 2006 Plan during
2008. There were 2,423,294 shares available for grant under the 2006
Plan at January 3, 2009.
The
compensation cost that was charged against income for stock compensation plans
was $0.8 million, $1.5 million and $0.6 million for the years ended January 3,
2009, December 29, 2007 and December 30, 2006 and is included in selling,
general and administrative expenses in the accompanying consolidated statements
of operations. There was no income tax benefit recognized for share-based
compensation for the year ended January 3, 2009 as a result of the valuation
allowance on deferred taxes. The total income tax benefit recognized for
share-based compensation arrangements was $0.6 million and $0.2 million for the
years ended December 29, 2007 and December 30, 2006, respectively. We currently
expect to satisfy share-based awards with registered shares available to be
issued.
The fair
value of each stock option grant was estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants under the 2006 Plan in the following
years:
2008:
dividend yield of 0%, expected volatility of 49.9%, risk-free interest rate of
2.6%, and expected life of 5 years.
2007:
dividend yield of 0%, expected volatility of 36.0%, risk-free interest rate of
4.7%, and expected life of 5 years.
2006:
dividend yield of 0%, expected volatility of 44.3%, risk-free interest rate of
5.2%, and expected life of 7 years.
The
expected life of options granted represents the period of time that options
granted are expected to be outstanding and was determined based on historical
experience. Prior to 2008, expected volatility was based on the average
historical volatility of a peer group of nine public companies over the past
seven years, which were selected on the basis of operational and economic
similarity with the principal business operations of our Company. In 2008, we
changed our measure of expected volatility to be based solely on the Company’s
common stock as we believe due to current market conditions implied volatility
is no longer a reasonable indicator of future volatility of our common stock.
The risk-free rate for periods within the contractual term of the options is
based on the U.S. Treasury yield curve with a maturity equal to the life of
the option in effect at the time of grant.
Stock
Options
A summary
of the status of our Company’s stock options as of January 3, 2009, and the
changes during fiscal 2008 is presented below:
|
Number
of Shares
|
Weighted
Average Exercise
Price
|
|||||||
|
Outstanding
at December 29, 2007
|
3,322,141 | $ | 6.21 | |||||
|
Granted
|
109,597 | $ | 3.38 | |||||
|
Exercised
|
(479,417 | ) | $ | 0.44 | ||||
|
Forfeited/Expired
|
(515,023 | ) | $ | 9.67 | ||||
|
Outstanding
at January 3, 2009
|
2,437,298 | $ | 5.18 | |||||
|
Exercisable
at January 3, 2009
|
1,741,604 | $ | 5.04 | |||||
Options
granted in 2008 have a seven-year life and vest on a straight-line basis over
three years.
The
following table summarizes information about employee stock options outstanding
at January 3, 2009 (dollars in thousands, except per share
amounts):
|
Exercise Price
|
Remaining
Contractual Life
|
Outstanding
|
Outstanding
Intrinsic Value
|
Exercisable
|
Exercisable
Intrinsic Value
|
||||||||||||||
| $ | 0.38 |
5.1
Years
|
75,596 | $ | 61 | 75,596 | $ | 61 | |||||||||||
| $ | 1.51 |
5.1
Years
|
790,742 | - | 790,742 | - | |||||||||||||
| $ | 8.64 |
5.4
Years
|
1,178,643 | - | 875,266 | - | |||||||||||||
| $ | 3.09 |
6.3
Years
|
300,706 | - | - | - | |||||||||||||
| $ | 3.10 |
6.3
Years
|
75,000 | - | - | - | |||||||||||||
| $ | 4.00 |
6.3
Years
|
16,611 | - | - | - | |||||||||||||
| 2,437,298 | $ | 61 | 1,741,604 | $ | 61 | ||||||||||||||
The
weighted-average fair value of options granted during the fiscal years ended
January 3, 2009 and December 29, 2007 was $1.35 and $5.00,
respectively. The aggregate intrinsic value of options outstanding
and of options exercisable as of January 3, 2009 was $0.1 million and $0.1
million, respectively. The aggregate intrinsic value of options
outstanding and of options exercisable as of December 29, 2007 was $5.1 million
and $5.1 million, respectively. The total fair value of options
vested during the fiscal years ended January 3, 2009 and December 29, 2007 was
$0.2 million and $0.4 million, respectively.
For the
fiscal year ended January 3, 2009, we received $0.2 million in proceeds from the
exercise of 479,417 stock options for which there was no tax benefit
realized. The aggregate intrinsic value of stock options exercised
during the fiscal year ended January 3, 2009 was $1.2 million. For
the fiscal year ended December 29, 2007, we received $1.9 million in proceeds
from the exercise of 609,837 stock options for which the tax benefit realized
was $1.8 million. The aggregate intrinsic value of stock options
exercised during the fiscal year ended December 29, 2007 was $4.5
million. For the fiscal year ended December 30, 2006, we received
$1.3 million in proceeds from the exercise of 1,102,510 stock options for which
the tax benefit realized was $5.4 million. The aggregate intrinsic
value of stock options exercised during the fiscal year ended December 30, 2006
was $12.6 million.
As of
January 3, 2009, there was $0.3 million of total unrecognized compensation cost
related to non-vested stock option compensation arrangements granted which is
expected to be recognized in earnings straight-line over a weighted-average
period of 1.3 years.
The
Repricing
On March
6, 2008, the board of directors of the Company approved the cancellation and
termination of the option agreements of certain employees of the Company,
including Jeffrey T. Jackson, Executive Vice President and Chief Financial
Officer of the Company, and Mario Ferrucci III, Vice President and General
Counsel of the Company and the grant of replacement options under our 2006
Equity Incentive Plan.
The board
of directors of the Company determined that, as a result of economic conditions
that have adversely affected us and the industry in which we compete, the
options held by the Designated Employees had exercise prices that were
significantly above the current market price of our common stock and that the
grants of replacement options would help us to retain and provide additional
incentive to certain employees and align their interests with those of our
stockholders.
The
replacement options have an exercise price of $3.09 per share, which is the
closing price on the NASDAQ Global Market of the Company’s common stock on March
5, 2008, the day before the date on which the board of directors of the Company
granted the replacement options and the designated employees executed the
replacement option agreements. The replacement options are
exercisable with respect to one third of the shares (rounded to the nearest
whole share) on each of the first, second, and third anniversaries of March 6,
2008. The replacement options expire on March 6, 2015.
During 2008, incremental compensation cost totaling $0.2 million was recognized
related to the repriced options.
Mr.
Jackson was granted options to purchase an aggregate of 152,675 shares of the
Company’s common stock at an exercise price of $3.09 per share. In
connection therewith, Mr. Jackson’s option to purchase 115,863 shares of the
Company’s common stock at an exercise price of $12.84 per share and his option
to purchase 36,812 shares of the Company’s common stock at an exercise price of
$12.77 per share were cancelled and terminated.
Mr.
Ferrucci was granted options to purchase an aggregate of 53,984 shares of the
Company’s common stock at an exercise price of $3.09 per share. In
connection therewith, Mr. Ferrucci’s option to purchase 36,414 shares of the
Company’s common stock at an exercise price of $14.00 per share and his option
to purchase 17,570 shares of the Company’s common stock at an exercise price of
$12.77 per share were cancelled and terminated.
Non-Vested
Restricted Share Awards
On June
27, 2006, our Company granted non-vested restricted stock to three employees and
three directors. The directors’ awards vest in equal annual installments over
three years and the employees’ awards fully vest in three years, each assuming
continued service to the Company. The fair market value of the award at the time
of the grant is amortized as expense over the period of vesting. Recipients of
non-vested restricted shares possess all incidents of ownership of such
restricted shares, including the right to receive dividends with respect to such
shares and the right to vote such shares. The fair value of
non-vested restricted share awards is determined based on the market value of
our Company’s shares on the grant date. During the year ended December 30, 2006,
we granted 79,036 non-vested restricted share awards (of which 33,623 shares
were granted to non-employee directors) at a weighted average fair value of
$14.01 per share. During the year ended December 29, 2007, we granted
46,503 non-vested restricted share awards (of which 11,823 shares were granted
to a non-employee director) at a weighted average fair value of $11.99 per
share. During the year ended January 3, 2009, we granted 129,445 non-vested
restricted share awards at a weighted average fair value of $3.52 per
share.
A summary
of the status of non-vested restricted share awards as of January 3, 2009 and
changes during the year then ended are presented below:
|
Number
of Shares
|
Weighted
Average Fair
Value
|
|||||||
|
Outstanding
at December 29, 2007
|
111,949 | $ | 14.01 | |||||
|
Granted
|
129,445 | $ | 3.52 | |||||
|
Vested
|
(15,149 | ) | $ | 13.25 | ||||
|
Forfeited/Expired
|
(31,800 | ) | $ | 10.04 | ||||
|
Outstanding
at January 3, 2009
|
194,445 | $ | 7.25 | |||||
Of the
non-vested restricted share awards granted in 2008, 103,876 vest in equal
amounts over two years and the remainder have a three-year cliff vesting
period.
As of
January 3, 2009, there was $0.4 million of total unrecognized compensation cost
related to non-vested restricted share awards. That cost is expected
to be recognized in earnings straight-line over a weighted average period of 1.0
year.
|
17.
|
Accumulated Other Comprehensive (Loss) Income |
The
following table shows the components of accumulated other comprehensive (loss)
income for 2008, 2007 and 2006:
|
Ineffective
|
Aluminum
|
|||||||||||||||||||||
|
Interest
Rate
|
Interest
Rate
|
Forward
|
Valuation
|
|||||||||||||||||||
|
(in
thousands)
|
Swap
|
Swap
|
Contracts
|
Allowance
|
Total
|
|||||||||||||||||
|
Balance
at December 31, 2005
|
$ | 350 | $ | - | $ | 3,417 | $ | - | $ | 3,767 | ||||||||||||
|
Changes
in fair value
|
- | (87 | ) | 2,815 | - | 2,728 | ||||||||||||||||
|
Reclassification
to earnings
|
(313 | ) | - | (8,417 | ) | - | (8,730 | ) | ||||||||||||||
|
Tax
effect
|
122 | 34 | 2,185 | - | 2,341 | |||||||||||||||||
|
Balance
at December 30, 2006
|
159 | (53 | ) | - | - | 106 | ||||||||||||||||
|
Changes
in fair value
|
- | 13 | (1,059 | ) | - | (1,046 | ) | |||||||||||||||
|
Reclassification
to earnings
|
(261 | ) | - | 441 | - | 180 | ||||||||||||||||
|
Tax
effect
|
102 | (5 | ) | 241 | - | 338 | ||||||||||||||||
|
Balance
at December 29, 2007
|
- | (45 | ) | (377 | ) | - | (422 | ) | ||||||||||||||
|
Changes
in fair value
|
- | 74 | (3,938 | ) | - | (3,864 | ) | |||||||||||||||
|
Reclassification
to earnings
|
- | - | 320 | - | 320 | |||||||||||||||||
|
Tax
effect
|
- | (29 | ) | 1,411 | (1,382 | ) | - | |||||||||||||||
|
Balance
at January 3, 2009
|
$ | - | $ | - | $ | (2,584 | ) | $ | (1,382 | ) | $ | (3,966 | ) | |||||||||
|
18.
|
Sales by Product Group |
SFAS 131,
“Disclosures about Segments of an Enterprise and Related Information,” requires
us to disclose certain information about our operating segments. Operating
segments are defined as components of an enterprise with separate financial
information which are evaluated regularly by the chief operating decision maker
and are used in resource allocation and performance assessments.
We
operate as a single business that manufactures windows and doors. Our chief
operating decision maker evaluates performance by reviewing a few major
categories of product sales and then considering costs on a total company
basis.
Sales by
product group are as follows:
|
Year
Ended
|
||||||||||||
|
January
3,
|
December
29,
|
December
30,
|
||||||||||
|
2009
|
2007
|
2006
|
||||||||||
|
(in
millions)
|
||||||||||||
|
Product
category:
|
||||||||||||
|
WinGuard
Windows and Doors
|
$ | 151.8 | $ | 189.7 | $ | 241.1 | ||||||
|
Other
Window and Door Products
|
66.8 | 88.7 | 130.5 | |||||||||
|
Total
net sales
|
$ | 218.6 | $ | 278.4 | $ | 371.6 | ||||||
|
19.
|
Unaudited Quarterly Financial Data |
The
following tables summarize the consolidated quarterly results of operations for
2008 and 2007 (in thousands, except per share amounts):
|
2008
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
Net
sales
|
$ | 54,836 | $ | 60,100 | $ | 54,330 | $ | 49,290 | ||||||||
|
Gross
profit
|
16,071 | 21,491 | 16,198 | 14,519 | ||||||||||||
|
Net
loss
|
(1,787 | ) | (76,649 | ) | (1,629 | ) | (82,967 | ) | ||||||||
|
Net
loss per share – basic
|
$ | (0.06 | ) | $ | (2.65 | ) | $ | (0.05 | ) | $ | (2.36 | ) | ||||
|
Net
loss per share – diluted
|
$ | (0.06 | ) | $ | (2.65 | ) | $ | (0.05 | ) | $ | (2.36 | ) | ||||
|
Items included in the determination of net
loss
|
||||||||||||||||
|
that may affect comparability, before tax
effect:
|
||||||||||||||||
|
Impairment
charges
|
$ | - | $ | (92,000 | ) | $ | (1,600 | ) | $ | (94,148 | ) | |||||
|
Restructuring
charge
|
(1,752 | ) | - | - | (379 | ) | ||||||||||
|
2007
|
||||||||||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
Net
sales
|
$ | 72,602 | $ | 79,403 | $ | 72,054 | $ | 54,335 | ||||||||
|
Gross
profit
|
24,699 | 28,719 | 22,877 | 14,710 | ||||||||||||
|
Net
income (loss)
|
801 | 2,785 | 1,069 | (4,032 | ) | |||||||||||
|
Net
income (loss) per share – basic
|
$ | 0.03 | $ | 0.10 | $ | 0.04 | $ | (0.14 | ) | |||||||
|
Net
income (loss) per share – diluted
|
$ | 0.03 | $ | 0.09 | $ | 0.04 | $ | (0.14 | ) | |||||||
|
Items included in the determination of net income
(loss)
|
||||||||||||||||
|
that may affect comparability, before tax
effect:
|
||||||||||||||||
|
Impairment
charge
|
$ | - | $ | (826 | ) | $ | - | $ | - | |||||||
|
Restructuring
charge
|
- | - | - | (2,375 | ) | |||||||||||
Earnings
per share is computed independently for each of the quarters presented;
therefore, the sum of the quarterly earnings per share may not equal the annual
earnings per share. Except for the fourth quarter of 2008, which
consisted of 14 weeks and ended on the last Saturday of the period, each of our
Company’s fiscal quarters above consists of 13 weeks and ended on the last
Saturday of the period.
|
20.
|
Recent Developments (Unaudited) |
In the
first quarter of 2009, we implemented two restructurings of the Company as a
result of continued analysis of our target markets, internal structure,
projected run-rate, and efficiency. The restructurings resulted in a
decrease in our workforce of approximately 250 employees and included employees
in both Florida and North Carolina. As a result of the restructuring,
we expect to record estimated restructuring charges totaling approximately $2.5
million in the first quarter of 2009. No amounts related to these
restructurings have been accrued in the accompanying consolidated financial
statements as of and for the year ended January 3, 2009.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Our
principal executive officer and principal financial officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
January 3, 2009, including controls and procedures to timely alert management to
material information relating to the Company and its subsidiaries required to be
included in our periodic SEC filings. Based on such evaluation, they have
concluded that, as of such date, our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in our
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in applicable SEC rules and forms.
Internal
Control over Financial Reporting
|
a.
|
Management's
annual report on internal control over financial
reporting.
|
Internal
control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) refers to the process designed by, or
under the supervision of, our Chief Executive Officer and Chief Financial
Officer, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Management is responsible for
establishing and maintaining adequate internal control over our financial
reporting.
We have
evaluated the effectiveness of our internal control over financial reporting as
of January 3, 2009. The evaluation was performed using the internal control
evaluation framework developed by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on such evaluation, management concluded that, as
of such date, our internal control over financial reporting was
effective
|
b.
|
Attestation
report of the registered public accounting
firm.
|
Ernst
& Young LLP has issued an attestation report on our internal control over
financial reporting. Their report follows this Item 9A.
|
c.
|
Changes
in internal control over financial
reporting
|
There has
been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of
PGT,
Inc.
We have
audited PGT, Inc.’s internal control over financial reporting as of January 3,
2009, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). PGT, Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, PGT, Inc. maintained, in all material respects, effective internal
control over financial reporting as of January 3, 2009, based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of January
3, 2009 and December 29, 2007, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years ended January 3,
2009, December 29, 2007 and December 30, 2006 of PGT, Inc. and our report dated
March 17, 2009 expressed an unqualified opinion thereon.
|
/s/
ERNST & YOUNG LLP
|
|
|
Certified
Public Accountants
|
Tampa,
Florida
March 17,
2009
Item 9B. OTHER
INFORMATION
None.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
information required by this item appears in our definitive proxy statement for
our annual meeting of stockholders under the captions
“Proposal 1 — Election of Directors,” “Information Regarding the
Board and its Committees,” “Corporate Governance — Director Nomination
Process,” “Corporate Governance — Code of Business Conduct and
Ethics,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and
“Executive Officers of the Registrant,” which information is incorporated herein
by reference to Item 4 of this Annual Report on Form 10-K.
Code
of Business Conduct and Ethics
PGT, Inc.
and its subsidiary endeavor to do business according to the highest ethical and
legal standards, complying with both the letter and spirit of the law. Our board
of directors has approved a Code of Business Conduct and Ethics that applies to
our directors, officers (including our principal executive officer, principal
financial officer and controller) and employees. Our Code of Business Conduct
and Ethics is administered by a Compliance Committee made up of representatives
from our legal, human resources and accounting departments.
Our
employees are encouraged to report any suspected violations of laws, regulations
and the Code of Business Conduct and Ethics, and all unethical business
practices. We provide continuously monitored hotlines for anonymous reporting by
employees.
Our board
of directors has also approved a Supplemental Code of Ethics for the chief
executive officer, president, and senior financial officers of PGT, Inc., which
is administered by our general counsel.
Both of
these policies can be found on the governance section of our corporate website
at: http://pgtinc.com.
Stockholders
may request a free copy of these policies by contacting the Corporate Secretary,
PGT, Inc., 1070 Technology Drive, North Venice, Florida, 34275, United States of
America.
In
addition, within five business days of:
|
•
|
Any
amendment to a provision of our Code of Business Conduct and Ethics or our
Supplemental Code of Ethics that applies to our chief executive officer,
our chief financial Officer; or
|
|
|
•
|
The
grant of any waiver, including an implicit waiver, from a provision of one
of these policies to one of these officers that relates to one or more of
the items set forth in Item 406(b) of
Regulation S-K
|
|
we will
provide information regarding any such amendment or waiver (including the nature
of any waiver, the name of the person to whom the waiver was granted and the
date of the waiver) on our Web site at the Internet address above, and such
information will be available on our Web site for at least a 12-month period. In
addition, we will disclose any amendments and waivers to our Code of Business
Conduct and Ethics or our Supplemental Code of Ethics as required by the listing
standards of the NASDAQ Global Market.
|
EXECUTIVE
COMPENSATION
|
The
information required by this item appears in our definitive proxy statement for
our annual meeting of stockholders under the captions “Executive Compensation,”
“Employment Agreements”, and “Change in Control Agreements,” “Information
Regarding the Board and its Committees — Information on the
Compensation of Directors,” “Compensation Committee Report,” and “Compensation
Committee Interlocks and Insider Participation,” which information is
incorporated herein by reference.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information required by this item appears in our definitive proxy statement for
our annual meeting of stockholders under the caption “Security Ownership of
Certain Beneficial Owners and Management” and “Equity Compensation Plan
Information,” which information is incorporated herein by
reference.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information required by this item appears in our definitive proxy statement for
our annual meeting of stockholders under the caption “Certain Relationships and
Related Transactions,” which information is incorporated herein by
reference.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The
information required by this item appears in our definitive proxy statement for
our annual meeting of stockholders under the caption “Audit Committee Report —
Fees Paid to the Principal Accountant,” which information is incorporated herein
by reference.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a)
(1) See the index to consolidated financial statements and schedule
provided in Item 8 for a list of the financial statements filed as part of
this report.
(2) Financial
statement schedules are omitted because they are either not applicable or not
material.
(3) The
following documents are filed, furnished or incorporated by reference as
exhibits to this report as required by Item 601 of
Regulation S-K.
Exhibit
Number Description
|
3.1
|
Form
of Amended and Restated Certificate of Incorporation of PGT, Inc.
(incorporated herein by reference to Exhibit 3.1 to Amendment No. 3 to the
Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
3.2
|
Form
of Amended and Restated By-Laws of PGT, Inc. (incorporated herein by
reference to Exhibit 3.1 to Current Report on Form 8-K of the Company,
filed with the Securities and Exchange Commission on December 6, 2007,
File No. 000-52059)
|
|
4.1
|
Form
of Specimen Certificate (incorporated herein by reference to Exhibit 4.1
to Amendment No. 2 to the Registration Statement of the Company on Form
S-1, filed with the Securities and Exchange Commission on May 26, 2006,
Registration No. 333-132365)
|
|
4.2
|
Amended
and Restated Security Holders’ Agreement, by and among PGT, Inc., JLL
Partners Fund IV, L.P., and the stockholders named therein, dated as of
June 27, 2006 (incorporated herein by reference to Exhibit 4.2 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 11, 2006, Registration No.
000-52059)
|
|
4.3
|
PGT
Savings Plan (incorporated herein by reference to Exhibit 4.5 to the
Company’s Form S-8 Registration Statement, filed with the Securities and
Exchange Commission on October 15, 2007, Registration No.
000-52059)
|
|
10.1
|
Second
Amended and Restated Credit Agreement dated as of February 14, 2006 among
PGT Industries, Inc., as Borrower, JLL Window Holdings, Inc. and the other
Guarantors party thereto, as Guarantors, the lenders party thereto, UBS
Securities LLC, as Arranger, Bookmanager, Co-Documentation Agent and
Syndication Agent, UBS AG, Stamford Branch, as Issuing Bank,
Administrative Agent and Collateral Agent, UBS Loan Finance LLC, as
Swingline Lender and General Electric Capital Corporation, as
Co-Documentation Agent (incorporated herein by reference to Exhibit 10.1
to Amendment No. 1 to the Registration Statement of the Company on Form
S-1, filed with the Securities and Exchange Commission on April 21, 2006,
Registration No. 333-132365)
|
|
10.2
|
Amendment
No. 2 to Second Amended and Restated Credit Agreement dated as of April
30, 2008 among PGT Industries, Inc., UBS AG, Stamford Branch, as
administrative agent and the Lenders, as defined therein, amending the
Second Amended and Restated Credit Agreement dated as of February 14, 2006
(incorporated herein by reference to Exhibit 10.1 to Current Report on
Form 8-K dated May 1, 2008 filed with the Securities and Exchange
Commission on May I, 2008, Registration No. 000-52059)
|
|
10.3
|
Amended
and Restated Pledge and Security Agreement dated as of February 14, 2006,
by PGT Industries, Inc., JLL Window Holdings, Inc. and the other
Guarantors party thereto in favor of UBS AG, Stamford Branch, as First
Lien Collateral Agent (incorporated herein by reference to Exhibit 10.3 to
Amendment No. 1 to the Registration Statement of the Company on Form S-1,
filed with the Securities and Exchange Commission on April 21, 2006,
Registration No. 333-132365)
|
|
10.5
|
PGT,
Inc. 2004 Stock Incentive Plan, as amended (incorporated herein by
reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement
of the Company on Form S-1, filed with the Securities and Exchange
Commission on April 21, 2006, Registration No.
333-132365)
|
|
10.6
|
Form
of PGT, Inc. 2004 Stock Incentive Plan Stock Option Agreement
(incorporated herein by reference to Exhibit 10.6 to Amendment No. 1 to
the Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on April 21, 2006, Registration No.
333-132365)
|
|
10.7
|
Form
of PGT, Inc. 2006 Equity Incentive Plan (incorporated herein by reference
to Exhibit 10.7 to Amendment No. 3 to the Registration Statement of the
Company on Form S-1, filed with the Securities and Exchange Commission on
June 8, 2006, Registration No. 333-132365)
|
|
10.8
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Non-qualified Stock Option
Agreement (incorporated herein by reference to Exhibit 10.8 to Amendment
No. 3 to the Registration Statement of the Company on Form S-1, filed with
the Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.9
|
Form
of Employment Agreement, dated February 20, 2009, between PGT Industries,
Inc. and, individually, Rodney Hershberger, Jeffery T. Jackson, C.
Douglas Cross, Mario Ferrucci III, Deborah L. LaPinska and David B.
McCutcheon (incorporated herein by reference to Exhibit 10.1 to
Current Report on Form 8-K dated February 20, 2009, filed with the
Securities and Exchange Commission on February 26, 2009, Registration No.
000-52059)
|
|
10.10
|
Form
of Director Indemnification Agreement (incorporated herein by reference to
Exhibit 10.17 to Amendment No. 3 to the Registration Statement of the
Company on Form S-1, filed with the Securities and Exchange Commission on
June 8, 2006, Registration No. 333-132365)
|
|
10.11
|
Form
of PGT, Inc. Rollover Stock Option Agreement (incorporated herein by
reference to Exhibit 10.18 to Amendment No. 1 to the Registration
Statement of the Company on Form S-1, filed with the Securities and
Exchange Commission on April 21, 2006, Registration No.
333-132365)
|
|
10.12
|
Market
Alliance Agreement between PGT Industries, Inc. and E.I. du Pont de
Nemours and Company, dated February 27, 2009 (incorporated herein by
reference to Exhibit 10.1 to Current Report on Form 8-K dated February 27,
2009, filed with the Securities and Exchange Commission on March 5, 2009,
Registration No. 000-52059)
|
|
10.13
|
Form
of PGT, Inc. 2006 Management Incentive Plan (incorporated herein by
reference to Exhibit 10.23 to Amendment No. 3 to the Registration
Statement of the Company on Form S-1, filed with the Securities and
Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.14
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Restricted Stock Award Agreement
(incorporated herein by reference to Exhibit 10.24 to Amendment No. 3 to
the Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.15
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Restricted Stock Unit Award
Agreement (incorporated herein by reference to Exhibit 10.25 to Amendment
No. 3 to the Registration Statement of the Company on Form S-1, filed with
the Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.16
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit 10.26 to Amendment No. 3 to
the Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
21.1*
|
Subsidiaries
of the Registrant
|
|
23.1*
|
Consent
of Ernst & Young LLP, Independent Registered Public Accounting
Firm
|
|
31.1*
|
Certification
of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2*
|
Certification
of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1**
|
Certification
of chief executive officer and chief financial officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
____________
* Filed
herewith.
** Furnished
herewith.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
PGT, INC.
|
|
|
(Registrant)
|
|
|
Date:
March 18, 2009
|
/s/ RODNEY HERSHBERGER
|
|
Rodney
Hershberger
|
|
|
President
and Chief Executive Officer
|
|
|
Date:
March 18, 2009
|
/s/ JEFFERY T.
JACKSON
|
|
Jeffery
T. Jackson
|
|
|
Executive
Vice President and Chief Financial
Officer
|
The
undersigned hereby constitute and appoint Mario Ferrucci, III and his
substitutes our true and lawful attorneys-in-fact with full power to execute in
our name and behalf in the capacities indicated below any and all amendments to
this report and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, and hereby
ratify and confirm all that such attorney-in-fact or his substitutes shall
lawfully do or cause to be done by virtue thereof. Pursuant to the
requirements of the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
|||||
|
/s/
RODNEY HERSHBERGER
Rodney
Hershberger
|
President
and Chief Executive Officer (Principal Executive Officer and
Director)
|
March 18,
2009
|
|||||
|
/s/
JEFFREY T. JACKSON
Jeffrey
T. Jackson
|
Executive
Vice President and Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
March 18,
2009
|
|||||
|
/s/
PAUL S. LEVY
Paul
S. Levy
|
Chairman
and Director
|
March 18,
2009
|
|||||
|
/s/
ALEXANDER R. CASTALDI
Alexander
R. Castaldi
|
Director
|
March 18,
2009
|
|||||
|
/s/
RICHARD D. FEINTUCH
Richard
D. Feintuch
|
Director
|
March 18,
2009
|
|||||
|
/s/
RAMSEY A. FRANK
Ramsey
A. Frank
|
Director
|
March 18,
2009
|
|||||
|
/s/
M. JOSEPH MCHUGH
M.
Joseph McHugh
|
Director
|
March 18,
2009
|
|||||
|
/s/
FLOYD F. SHERMAN
Floyd
F. Sherman
|
Director
|
March 18,
2009
|
|||||
|
/s/
RANDY L. WHITE
Randy
L. White
|
Director
|
March 18,
2009
|
|||||
|
/s/
BRETT N. MILGRIM
Brett
N. Milgrim
|
Director
|
March 18,
2009
|
|||||
|
/s/
WILLIAM J. MORGAN
William
J. Morgan
|
Director
|
March 18,
2009
|
|||||
|
/s/
DANIEL AGROSKIN
Daniel
Agroskin
|
Director
|
March 18,
2009
|
|||||
Table of
Contents
EXHIBIT
INDEX
Exhibit
Number Description
|
3.1
|
Form
of Amended and Restated Certificate of Incorporation of PGT, Inc.
(incorporated herein by reference to Exhibit 3.1 to Amendment No. 3 to the
Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
3.2
|
Form
of Amended and Restated By-Laws of PGT, Inc. (incorporated herein by
reference to Exhibit 3.1 to Current Report on Form 8-K of the Company,
filed with the Securities and Exchange Commission on December 6, 2007,
File No. 000-52059)
|
|
4.1
|
Form
of Specimen Certificate (incorporated herein by reference to Exhibit 4.1
to Amendment No. 2 to the Registration Statement of the Company on Form
S-1, filed with the Securities and Exchange Commission on May 26, 2006,
Registration No. 333-132365)
|
|
4.2
|
Amended
and Restated Security Holders’ Agreement, by and among PGT, Inc., JLL
Partners Fund IV, L.P., and the stockholders named therein, dated as of
June 27, 2006 (incorporated herein by reference to Exhibit 4.2 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 11, 2006, Registration No.
000-52059)
|
|
4.3
|
PGT
Savings Plan (incorporated herein by reference to Exhibit 4.5 to the
Company’s Form S-8 Registration Statement, filed with the Securities and
Exchange Commission on October 15, 2007, Registration No.
000-52059)
|
|
10.1
|
Second
Amended and Restated Credit Agreement dated as of February 14, 2006 among
PGT Industries, Inc., as Borrower, JLL Window Holdings, Inc. and the other
Guarantors party thereto, as Guarantors, the lenders party thereto, UBS
Securities LLC, as Arranger, Bookmanager, Co-Documentation Agent and
Syndication Agent, UBS AG, Stamford Branch, as Issuing Bank,
Administrative Agent and Collateral Agent, UBS Loan Finance LLC, as
Swingline Lender and General Electric Capital Corporation, as
Co-Documentation Agent (incorporated herein by reference to Exhibit 10.1
to Amendment No. 1 to the Registration Statement of the Company on Form
S-1, filed with the Securities and Exchange Commission on April 21, 2006,
Registration No. 333-132365)
|
|
10.2
|
Amendment
No. 2 to Second Amended and Restated Credit Agreement dated as of April
30, 2008 among PGT Industries, Inc., UBS AG, Stamford Branch, as
administrative agent and the Lenders, as defined therein, amending the
Second Amended and Restated Credit Agreement dated as of February 14, 2006
(incorporated herein by reference to Exhibit 10.1 to Current Report on
Form 8-K dated May 1, 2008 filed with the Securities and Exchange
Commission on May I, 2008, Registration No. 000-52059)
|
|
10.3
|
Amended
and Restated Pledge and Security Agreement dated as of February 14, 2006,
by PGT Industries, Inc., JLL Window Holdings, Inc. and the other
Guarantors party thereto in favor of UBS AG, Stamford Branch, as First
Lien Collateral Agent (incorporated herein by reference to Exhibit 10.3 to
Amendment No. 1 to the Registration Statement of the Company on Form S-1,
filed with the Securities and Exchange Commission on April 21, 2006,
Registration No. 333-132365)
|
|
10.5
|
PGT,
Inc. 2004 Stock Incentive Plan, as amended (incorporated herein by
reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement
of the Company on Form S-1, filed with the Securities and Exchange
Commission on April 21, 2006, Registration No.
333-132365)
|
|
10.6
|
Form
of PGT, Inc. 2004 Stock Incentive Plan Stock Option Agreement
(incorporated herein by reference to Exhibit 10.6 to Amendment No. 1 to
the Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on April 21, 2006, Registration No.
333-132365)
|
|
10.7
|
Form
of PGT, Inc. 2006 Equity Incentive Plan (incorporated herein by reference
to Exhibit 10.7 to Amendment No. 3 to the Registration Statement of the
Company on Form S-1, filed with the Securities and Exchange Commission on
June 8, 2006, Registration No. 333-132365)
|
|
10.8
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Non-qualified Stock Option
Agreement (incorporated herein by reference to Exhibit 10.8 to Amendment
No. 3 to the Registration Statement of the Company on Form S-1, filed with
the Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.9
|
Form
of Employment Agreement, dated February 20, 2009, between PGT Industries,
Inc. and, individually, Rodney Hershberger, Jeffery T. Jackson, C.
Douglas Cross, Mario Ferrucci III, Deborah L. LaPinska and David B.
McCutcheon (incorporated herein by reference to Exhibit 10.1 to
Current Report on Form 8-K dated February 20, 2009, filed with the
Securities and Exchange Commission on February 26, 2009, Registration No.
000-52059)
|
|
10.10
|
Form
of Director Indemnification Agreement (incorporated herein by reference to
Exhibit 10.17 to Amendment No. 3 to the Registration Statement of the
Company on Form S-1, filed with the Securities and Exchange Commission on
June 8, 2006, Registration No. 333-132365)
|
|
10.11
|
Form
of PGT, Inc. Rollover Stock Option Agreement (incorporated herein by
reference to Exhibit 10.18 to Amendment No. 1 to the Registration
Statement of the Company on Form S-1, filed with the Securities and
Exchange Commission on April 21, 2006, Registration No.
333-132365)
|
|
10.12
|
Market
Alliance Agreement between PGT Industries, Inc. and E.I. du Pont de
Nemours and Company, dated February 27, 2009 (incorporated herein by
reference to Exhibit 10.1 to Current Report on Form 8-K dated February 27,
2009, filed with the Securities and Exchange Commission on March 5, 2009,
Registration No. 000-52059)
|
|
10.13
|
Form
of PGT, Inc. 2006 Management Incentive Plan (incorporated herein by
reference to Exhibit 10.23 to Amendment No. 3 to the Registration
Statement of the Company on Form S-1, filed with the Securities and
Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.14
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Restricted Stock Award Agreement
(incorporated herein by reference to Exhibit 10.24 to Amendment No. 3 to
the Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.15
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Restricted Stock Unit Award
Agreement (incorporated herein by reference to Exhibit 10.25 to Amendment
No. 3 to the Registration Statement of the Company on Form S-1, filed with
the Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
10.16
|
Form
of PGT, Inc. 2006 Equity Incentive Plan Incentive Stock Option Agreement
(incorporated herein by reference to Exhibit 10.26 to Amendment No. 3 to
the Registration Statement of the Company on Form S-1, filed with the
Securities and Exchange Commission on June 8, 2006, Registration No.
333-132365)
|
|
21.1*
|
Subsidiaries
of the Registrant
|
|
23.1*
|
Consent
of Ernst & Young LLP, Independent Registered Public Accounting
Firm
|
|
31.1*
|
Certification
of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2*
|
Certification
of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1**
|
Certification
of chief executive officer and chief financial officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
____________
* Filed
herewith.
** Furnished
herewith.