PGT Innovations, Inc. - Quarter Report: 2009 October (Form 10-Q)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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R
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended October 3, 2009
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OR
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£
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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
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PGT,
Inc.
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1070
Technology Drive
North
Venice, FL 34275
Registrant’s
telephone number: 941-480-1600
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State
of Incorporation
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IRS
Employer Identification No.
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Delaware
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20-0634715
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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 R
No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12months (or for such shorter period that the
registrant was required to submit and post such files).
Yes £
No £*
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting companyo
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(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No
R
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Common
Stock, $0.01 par value – 35,673,171 shares, as of October 31, 2009.
*
Registrant is not subject to the requirements of Rule 405 of Regulation S-T at
this time.
TABLE
OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
October
3,
|
September
27,
|
October
3,
|
September
27,
|
|||||||||||||
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2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||||||
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Net
sales
|
$ | 41,616 | $ | 54,330 | $ | 129,997 | $ | 169,266 | ||||||||
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Cost
of sales
|
30,752 | 38,132 | 94,618 | 115,506 | ||||||||||||
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Gross
margin
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10,864 | 16,198 | 35,379 | 53,760 | ||||||||||||
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Goodwill
and intangible impairment charges
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- | 1,600 | - | 93,600 | ||||||||||||
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Selling,
general and administrative expenses
|
12,642 | 14,475 | 40,194 | 46,909 | ||||||||||||
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Loss
(income) from operations
|
(1,778 | ) | 123 | (4,815 | ) | (86,749 | ) | |||||||||
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Interest
expense, net
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1,735 | 2,236 | 5,050 | 7,153 | ||||||||||||
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Other
expense (income), net
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27 | 18 | 33 | (38 | ) | |||||||||||
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Loss
before income taxes
|
(3,540 | ) | (2,131 | ) | (9,898 | ) | (93,864 | ) | ||||||||
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Income
tax benefit
|
(181 | ) | (502 | ) | (181 | ) | (13,799 | ) | ||||||||
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Net
loss
|
$ | (3,359 | ) | $ | (1,629 | ) | $ | (9,717 | ) | $ | (80,065 | ) | ||||
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Net
loss per common share:
|
||||||||||||||||
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Basic
and diluted
|
$ | (0.10 | ) | $ | (0.05 | ) | $ | (0.28 | ) | $ | (2.74 | ) | ||||
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Weighted
average shares outstanding:
|
||||||||||||||||
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Basic
and diluted
|
35,300 | 32,082 | 35,247 | 29,183 | ||||||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands except per share amounts)
|
October
3,
|
January
3,
|
|||||||
|
2009
|
2009
|
|||||||
|
(unaudited)
|
||||||||
|
ASSETS
|
||||||||
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Current
assets:
|
||||||||
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Cash
and cash equivalents
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$ | 3,094 | $ | 19,628 | ||||
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Accounts
receivable, net
|
17,044 | 17,321 | ||||||
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Inventories
|
11,236 | 9,441 | ||||||
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Deferred
income taxes
|
360 | 1,158 | ||||||
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Other
current assets
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4,213 | 5,569 | ||||||
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Total
current assets
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35,947 | 53,117 | ||||||
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Property,
plant and equipment, net
|
67,944 | 73,505 | ||||||
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Other
intangible assets, net
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69,019 | 72,678 | ||||||
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Other
assets, net
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1,430 | 1,317 | ||||||
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Total
assets
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$ | 174,340 | $ | 200,617 | ||||
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LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable and accrued liabilities
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$ | 15,441 | $ | 14,582 | ||||
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Current
portion of long-term debt and capital lease obligations
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103 | 330 | ||||||
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Total
current liabilities
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15,544 | 14,912 | ||||||
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Long-term
debt and capital lease obligations
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70,190 | 90,036 | ||||||
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Deferred
income taxes
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17,675 | 18,473 | ||||||
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Other
liabilities
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2,658 | 3,011 | ||||||
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Total
liabilities
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106,067 | 126,432 | ||||||
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Commitments
and contingencies (note 10)
|
||||||||
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Shareholders'
equity:
|
||||||||
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Preferred
stock; par value $.01 per share; 10,000 shares authorized; none
outstanding
|
- | - | ||||||
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Common
stock; par value $.01 per share; 200,000 shares authorized; 35,673
and
|
||||||||
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35,392
shares issued and 35,303 and 35,197 shares outstanding at
|
||||||||
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October
3, 2009 and January 3, 2009, respectively
|
353 | 352 | ||||||
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Additional
paid-in-capital
|
241,588 | 241,177 | ||||||
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Less: Treasury
shares at cost
|
(6 | ) | - | |||||
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Accumulated
other comprehensive loss
|
(567 | ) | (3,966 | ) | ||||
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Accumulated
deficit
|
(173,095 | ) | (163,378 | ) | ||||
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Total
shareholders' equity
|
68,273 | 74,185 | ||||||
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Total
liabilities and shareholders' equity
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$ | 174,340 | $ | 200,617 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
Nine
Months Ended
|
||||||||
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October
3,
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September
27,
|
|||||||
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2009
|
2008
|
|||||||
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(unaudited)
|
||||||||
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Cash
flows from operating activities:
|
||||||||
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Net
loss
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$ | (9,717 | ) | $ | (80,065 | ) | ||
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Adjustments
to reconcile net loss to net cash
|
||||||||
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used
in operating activities:
|
||||||||
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Depreciation
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7,858 | 8,575 | ||||||
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Amortization
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4,234 | 4,177 | ||||||
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Stock-based
compensation
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418 | 588 | ||||||
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Excess
tax benefits from stock-based compensation plans
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- | (458 | ) | |||||
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Deferred
taxes
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- | (13,686 | ) | |||||
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Amortization
of deferred financing costs
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472 | 624 | ||||||
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Derivative
financial instruments
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33 | (38 | ) | |||||
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Impairment
charges
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- | 93,600 | ||||||
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Loss
on disposal of assets
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83 | 6 | ||||||
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Change
in operating assets and liabilities:
|
||||||||
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Accounts
receivable
|
1,109 | 535 | ||||||
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Inventories
|
(1,713 | ) | (2,445 | ) | ||||
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Prepaid
expenses and other current assets
|
297 | 757 | ||||||
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Accounts
payable, accrued and other liabilities
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(50 | ) | 729 | |||||
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Net
cash provided by operating activities
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3,024 | 12,899 | ||||||
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Cash
flows from investing activities:
|
||||||||
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Purchases
of property, plant and equipment
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(1,835 | ) | (2,993 | ) | ||||
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Acquisition
of assets
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(1,452 | ) | - | |||||
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Proceeds
from sales of equipment
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78 | 58 | ||||||
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Net
change in margin account for derivative financial
instruments
|
3,736 | - | ||||||
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Net
cash provided by (used in) investing activities
|
527 | (2,935 | ) | |||||
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Cash
flows from financing activities:
|
||||||||
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Payments
of long-term debt
|
(20,000 | ) | (40,000 | ) | ||||
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Payments
of capital leases
|
(73 | ) | (17 | ) | ||||
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Purchases
of treasury stock
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(6 | ) | - | |||||
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Payments
of financing costs
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- | (634 | ) | |||||
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Adjustment
to and net proceeds from issuance of common stock
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(6 | ) | 29,362 | |||||
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Proceeds
from exercise of stock options
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- | 210 | ||||||
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Excess
tax benefits from stock-based compensation plans
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- | 458 | ||||||
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Net
cash used in financing activities
|
(20,085 | ) | (10,621 | ) | ||||
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Net
decrease in cash and cash equivalents
|
(16,534 | ) | (657 | ) | ||||
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Cash
and cash equivalents at beginning of period
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19,628 | 19,479 | ||||||
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Cash
and cash equivalents at end of period
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$ | 3,094 | $ | 18,822 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE
1. BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements include the
accounts of PGT, Inc. and its wholly-owned subsidiary (collectively the
“Company”) after elimination of intercompany accounts and transactions. These
statements have been prepared in accordance with the instructions to Form 10-Q
and do not include all of the information and footnotes required by United
States Generally Accepted Accounting Principles (“GAAP”) for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany accounts and transactions have been
eliminated in consolidation. Operating results for the interim period are not
necessarily indicative of the results that may be expected for the remainder of
the current year or for any future periods. Each of our Company’s
fiscal quarters ended October 3, 2009 and September 27, 2008 consisted of 13
weeks.
The
condensed consolidated balance sheet as of January 3, 2009 is derived from the
audited consolidated financial statements but does not include all disclosures
required by GAAP. This condensed consolidated balance sheet as of January 3,
2009 and the unaudited condensed consolidated financial statements included
herein should be read in conjunction with the more detailed audited consolidated
financial statements for the year ended January 3, 2009 included in the
Company’s most recent annual report on Form 10-K. Accounting
policies used in the preparation of these unaudited condensed consolidated
financial statements are consistent with the accounting policies described in
the Notes to Consolidated Financial Statements included in the Company’s
Form 10-K.
We have
evaluated the condensed consolidated financial statements for subsequent events
through November 12, 2009, the date of the filing of this Form
10-Q.
NOTE
2. RECENT DEVELOPMENTS
Acquisition
Pursuant
to an asset purchase agreement by and between Hurricane Window and Door Factory,
LLC (“Hurricane”) of Ft. Myers, Florida, and our operating subsidiary, PGT
Industries, Inc., effective on August 14, 2009, we acquired certain operating
assets of Hurricane for approximately $1.5 million in cash. Hurricane
designed and manufactured high-end vinyl impact products for the single- and
multi-family residential markets. The products provide long-term energy and
structural benefits, while qualifying homeowners for the government’s energy tax
credits through the American Recovery and Reinvestment Act of
2009. This product line was developed specifically for the hurricane
protection market and combines some of the highest structural ratings in the
industry with excellent energy efficiency. The acquisition of this
business expands our presence in the energy efficient vinyl impact-resistant
market, increases our ability to serve the multi-story condo market, and
enhances our ability to offer a complete line of impact products to the
customer.
The
acquisition was accounted for as the purchase of a business in accordance with
GAAP. The assets acquired included Hurricane’s inventory, comprised
almost entirely of raw materials, and property and equipment, primarily
comprised of machinery and other manufacturing equipment. We also
acquired the right to use Hurricane’s design technology through the end of 2010
and the option to purchase the technology at any time through the end of 2010
and, if desired, we can extend the right to use and the option to purchase
Hurricane’s design technology for an additional one year period through the end
of 2011. The allocation of the $1.5 million cash purchase price to
the fair value of the assets acquired as of the August 14, 2009 acquisition date
is as follows:
|
(in
thousands)
|
Fair Values
|
|||
|
Inventory
|
$ | 254 | ||
|
Property
and equipment
|
623 | |||
|
Identifiable
intangibles
|
575 | |||
|
Net
assets acquired
|
1,452 | |||
|
Purchase
price
|
1,452 | |||
|
Goodwill
|
$ | - | ||
The value
of inventory was established based on then current purchase prices of identical
materials available from Hurricane’s existing vendors. The value of
property and equipment was established based on Hurricane’s net carrying values
which we determined to approximate fair value due to, among other things, their
having been in service for less than one year. We engaged a
third-party valuation specialist to assist us in estimating the fair value of
the identifiable intangible assets consisting of the right to use Hurricane’s
design technology and the related purchase option. The fair value of
the identifiable intangible assets was estimated using an income approach based
on projections provided by management, which we consider to be Level 3 inputs.
The carrying value of the intangible assets of $0.6 million is included in other
intangible assets, net, in the accompanying condensed consolidated balance sheet
at October 3, 2009. The intangible assets are being amortized on the
straight-line basis over their estimated lives of approximately 1.3 years
through the end of 2010. Amortization expense of less than $0.1
million is included in selling, general and administrative expenses in the
accompanying condensed consolidated statement of operations for the three months
ended October 3, 2009. Acquisition costs of less than $0.1 million
are included in selling, general and administrative expenses in the accompanying
condensed consolidated statement of operations for the three months ended
October 3, 2009. Hurricane’s operating results prior to the
acquisition and in the third quarter of 2009 were insignificant.
Restructurings
On
January 13, 2009, March 11, 2009 and September 24, 2009, we announced further
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 an aggregate decrease in our workforce of
approximately 325 employees and included employees at both our Venice, Florida
and Salisbury, North Carolina locations. As a result of the
restructurings, we recorded restructuring charges totaling $0.9 million in the
third quarter of 2009, of which $0.5 million is classified within cost of goods
sold and $0.4 million is classified within selling, general and administrative
expenses, and $3.9 million in the first nine months of 2009, of which $1.9
million is classified within cost of sales and $2.0 million is classified within
selling, general and administrative expenses in the accompanying condensed
consolidated statement of operations for the three and nine months ended October
3, 2009. The charges related primarily to employee separation
costs.
The total
costs incurred for the restructurings in 2008 and 2007 were $2.1 million and
$2.4 million, respectively.
The
following table provides information with respect to our accrual for
restructuring costs:
|
Accrued
Restructuring Costs
|
Beginning
of Period
|
Charged
to Expense
|
Disbursed
in Cash
|
End
of Period
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Three
months ended October 3, 2009:
|
||||||||||||||||
|
2008
Restructuring
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
2009
Restructurings
|
81 | 903 | (406 | ) | 578 | |||||||||||
|
For
the three months ended October 3, 2009
|
$ | 81 | $ | 903 | $ | (406 | ) | $ | 578 | |||||||
|
Three
months ended September 27, 2008:
|
||||||||||||||||
|
2007
Restructuring
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
2008
Restructuring
|
- | - | - | - | ||||||||||||
|
For
the three months ended September 27, 2008
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Nine
months ended October 3, 2009:
|
||||||||||||||||
|
2008
Restructuring
|
$ | 332 | $ | - | $ | (332 | ) | $ | - | |||||||
|
2009
Restructurings
|
- | 3,905 | (3,327 | ) | 578 | |||||||||||
|
For
the nine months ended October 3, 2009
|
$ | 332 | $ | 3,905 | $ | (3,659 | ) | $ | 578 | |||||||
|
Nine
months ended September 27, 2008:
|
||||||||||||||||
|
2007
Restructuring
|
$ | 850 | $ | - | $ | (850 | ) | $ | - | |||||||
|
2008
Restructuring
|
- | 1,752 | (1,752 | ) | - | |||||||||||
|
For
the nine months ended September 27, 2008
|
$ | 850 | $ | 1,752 | $ | (2,602 | ) | $ | - | |||||||
NOTE
3. WARRANTY
We have
warranty obligations with respect to most of our manufactured products. Warranty
periods, which vary by product component, generally 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 our warranty history and estimating our
future warranty obligations.
The
following table provides information with respect to our warranty
accrual:
|
Beginning
|
Charged
to
|
End
of
|
||||||||||||||||||
|
Accrued
Warranty
|
of Period
|
Expense
|
Adjustments
|
Settlements
|
Period
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Three
months ended October 3, 2009
|
$ | 4,086 | $ | 666 | $ | 50 | $ | (655 | ) | $ | 4,147 | |||||||||
|
Three
months ended September 27, 2008
|
$ | 4,710 | $ | 540 | $ | (34 | ) | $ | (790 | ) | $ | 4,426 | ||||||||
|
Nine
months ended October 3, 2009
|
$ | 4,224 | $ | 2,080 | $ | (75 | ) | $ | (2,082 | ) | $ | 4,147 | ||||||||
|
Nine
months ended September 27, 2008
|
$ | 4,986 | $ | 2,539 | $ | (485 | ) | $ | (2,614 | ) | $ | 4,426 | ||||||||
NOTE
4. INVENTORIES
Inventories
consist principally of raw materials purchased for the manufacture of our
products. We have limited finished goods inventory since all products are
custom, made-to-order products and usually ship upon completion. 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 value. Inventories consisted of the following at:
|
October
3,
|
January
3,
|
|||||||
|
2009
|
2009
|
|||||||
|
(in
thousands)
|
||||||||
|
Finished
goods
|
$ | 1,383 | $ | 905 | ||||
|
Work
in progress
|
217 | 342 | ||||||
|
Raw
materials
|
9,636 | 8,194 | ||||||
|
Inventories
|
$ | 11,236 | $ | 9,441 | ||||
NOTE
5. STOCK COMPENSATION EXPENSE
We record
compensation expense over an award’s vesting period based on the award’s fair
value at the date of grant. We recorded compensation expense for
stock based awards of less than $0.1 million for the third quarter of 2009
and $0.2 million for the third quarter of 2008. We recorded
compensation expense for stock based awards of $0.4 million for the first
nine months of 2009 and $0.6 million for the first nine months of
2008. As of October 3, 2009, there was $0.2 million and $0.3 million
of total unrecognized compensation cost related to non-vested stock option
agreements and non-vested restricted share awards, respectively. These costs are
expected to be recognized in earnings on a straight-line basis over the weighted
average remaining vesting period of 1.6 years.
NOTE
6. NET LOSS PER COMMON SHARE
Basic
earnings per share (“EPS”) is computed using the weighted average number of
common shares outstanding during the period. Diluted EPS is computed using the
weighted average number of common shares outstanding during the period, plus the
dilutive effect of common stock equivalents.
Due to
the net losses in all periods presented herein, the dilutive effect of
stock-based compensation plans is anti-dilutive. There were shares of
common stock of 1,357,230 for the third quarter and 1,690,184 for the first nine
months of 2009 relating to stock option agreements excluded from the computation
of diluted EPS in each period as their effect would have been
anti-dilutive.
The table
below presents the calculation of EPS and a reconciliation of weighted average
common shares used in the calculation of basic and diluted EPS for our
Company:
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
October
3,
|
September
27,
|
October
3,
|
September
27,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(in
thousands, except per share amounts)
|
||||||||||||||||
|
Net
loss
|
$ | (3,359 | ) | $ | (1,629 | ) | $ | (9,717 | ) | $ | (80,065 | ) | ||||
|
Weighted-average
common shares - Basic
|
35,300 | 32,082 | 35,247 | 29,183 | ||||||||||||
|
Add: Dilutive
effect of stock compensation plans
|
- | - | - | - | ||||||||||||
|
Weighted-average
common shares - Diluted
|
35,300 | 32,082 | 35,247 | 29,183 | ||||||||||||
|
Net
loss per common share:
|
||||||||||||||||
|
Basic
and diluted
|
$ | (0.10 | ) | $ | (0.05 | ) | $ | (0.28 | ) | $ | (2.74 | ) | ||||
NOTE
7. OTHER INTANGIBLE ASSETS
Other
intangible assets are as follows:
|
Original
|
||||||||||||
|
October
3,
|
January
3,
|
Useful
Life
|
||||||||||
|
2009
|
2009
|
(in
years)
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Other
intangible assets:
|
||||||||||||
|
Trademarks
|
$ | 44,400 | $ | 44,400 |
indefinite
|
|||||||
|
Customer
relationships
|
55,700 | 55,700 | 10 | |||||||||
|
Technology
license and option
|
575 | - | 1.3 | |||||||||
|
Less: Accumulated
amortization
|
(31,656 | ) | (27,422 | ) | ||||||||
|
Subtotal
|
24,619 | 28,278 | ||||||||||
|
Other
intangible assets, net
|
$ | 69,019 | $ | 72,678 | ||||||||
Indefinite Lived Intangible
Asset
The
impairment evaluation for indefinite lived intangible assets, which for the
Company are its trademarks, is conducted at the end of each fiscal year, or more
frequently if events or changes in circumstances indicate that an asset might be
impaired. The determination of fair value used in the impairment
evaluation is based on discounted estimates of future projected cost savings
attributable to ownership of the trademarks. The assumptions used in
the estimate of fair value are generally consistent with past performance and
are also consistent with the projections and assumptions used in current
operating plans. Such assumptions are subject to change as a result
of changing economic and competitive conditions. The determination of
fair value is highly sensitive to changes in estimated future cash flows and
changes in the discount rate used to evaluate the fair value of the trademarks.
Estimated cash flows are sensitive to changes in the Florida housing market and
changes in the economy, among other things. The discount rate is
sensitive to changes in interest rates and, among other things, company-specific
and other risk factors.
As a
result of impairment indicators related to the weakness in the housing market we
identified during the second quarter of 2008, the Company evaluated its
trademarks for impairment and compared the estimated fair value of its
trademarks to their carrying value and preliminarily determined that there was
no impairment. During the third quarter of 2008, as part of
finalizing its second quarter impairment tests, the Company made certain changes
to its projections that affected the previous estimate of fair value and, when
compared to the carrying value of indefinite lived intangibles, 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. Due to the prolonged and continued challenging
economic factors impacting the housing industry and our recent actual results,
we evaluated our trademarks for impairment as of October 3, 2009 and determined
that there was no impairment. Intangible assets not subject to
amortization totalled $44.4 million at October 3, 2009. We will
continue to evaluate the recoverability of our trademarks as continued declines
in housing activity could result in additional impairment.
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 and October 3, 2009, we tested 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. We will continue to evaluate the
recoverability of our customer relationships intangible asset as continued
declines in housing activity could result in additional impairment.
Effective
August 14, 2009, we acquired certain operating assets of Hurricane. In addition
to Hurricane’s inventory and property and equipment, we also acquired the right
to use Hurricane’s design technology through the end of 2010 and the option to
purchase the technology at any time through the end of 2010. See Note
2.
NOTE
8. LONG-TERM DEBT
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. The second lien term loan was fully repaid with proceeds from
our IPO in 2006. The outstanding balance of the first lien term loan
on October 3, 2009 was $70.0 million, a decrease of $20.0 million since the
beginning of 2009 due to the prepayments as discussed below.
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.
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 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. 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.
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. 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 $0.3 million is included in other
assets on the accompanying condensed consolidated balance sheet as of October 3,
2009. Such fees are being amortized on a straight-line basis, which
approximates the effective interest method, 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.
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 subject to such 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 subsidiary to (i) dispose of assets;
(ii) change our business; (iii) engage in mergers or consolidations;
(iv) make certain acquisitions; (v) pay dividends; (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 and capital leases as of October 3, 2009 are
as follows (in thousands):
|
Remainder
of 2009
|
$ | 25 | ||
|
2010
|
288 | |||
|
2011
|
842 | |||
|
2012
|
69,138 | |||
|
Total
|
$ | 70,293 |
During
June 2009, we prepaid $8.0 million of long-term debt using cash generated
from operations during the second quarter of 2009 and cash on
hand. During September 2009, we prepaid $12.0 million of
long-term debt from cash on hand but also cash generated from operations during
the third quarter of 2009. During 2008, we prepaid $40.0 million
of long-term debt with cash generated from operations and the net proceeds of
the rights offering, which totaled $29.3 million.
Under our
credit agreement, as amended, our Company is required to maintain compliance
with certain financial covenants, one of which requires our Company to maintain
a total leverage ratio of not greater than certain predetermined
amounts. As discussed above, we made a $12.0 million prepayment of
outstanding bank debt and we were in compliance with all covenants required by
our credit agreement, as amended, as of October 3, 2009.
As of
October 3, 2009, there was $26.0 million available under our $30.0 million
revolving credit facility. However, on October 6, 2009, after the
close of the 2009 third quarter, we drew down $12.0 million under the revolving
credit facility for working capital and general corporate purposes, including
growth initiatives such as new product offerings and our expanding presence in
the vinyl impact-resistant market. Borrowings under our revolving
credit facility have a future contractual maturity in February
2011.
As a
result of the draw-down under the revolving credit facility, and based on
management’s current forecasts of profitability for the fourth quarter of 2009,
we expect to be required to make an additional debt repayment before the end of
our 2009 fiscal year, which ends on January 2, 2010. As of the date
of the filing of this Quarterly Report on Form 10-Q, we estimate that we will
have adequate cash on hand to make any required debt repayment and maintain
compliance with the maximum allowed leverage ratio for the fourth quarter of
2009 as defined in our credit agreement, as amended. However, we have
continued to experience a significant deterioration in the various markets in
which we compete. Any further deterioration in these markets may
adversely impact our ability to meet our leverage ratio in the fourth quarter of
2009. We will continue to evaluate what action, if any, might be
necessary to maintain compliance with our financial covenants, including further
cost saving actions and raising additional capital.
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 or
the nine months ended October 3, 2009.
NOTE
9. COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE
(LOSS) INCOME
The
following table shows the components of comprehensive income (loss) for the
three and nine months ended October 3, 2009 and September 27, 2008:
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
October
3,
|
September
27,
|
October
3,
|
September
27,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(in
thousands)
|
(in
thousands)
|
|||||||||||||||
|
Net
loss
|
$ | (3,359 | ) | $ | (1,629 | ) | $ | (9,717 | ) | $ | (80,065 | ) | ||||
|
Other
comprehensive income (loss), net of taxes:
|
||||||||||||||||
|
Change
related to interest rate swap, net of
|
||||||||||||||||
|
tax
expense of $28 for the nine months
|
||||||||||||||||
|
ended
September 27, 2008
|
- | - | - | 46 | ||||||||||||
|
Change
related to forward contracts for
|
||||||||||||||||
|
aluminum,
net of tax expense of $0 and tax
|
||||||||||||||||
|
benefit
of $234 for the three month periods ended
|
||||||||||||||||
|
October
3, 2009 and September 27, 2008, respectively,
|
||||||||||||||||
|
and
net of tax expense of $0 and $77 for the nine
|
||||||||||||||||
|
month
periods ended October 3, 2009 and
|
||||||||||||||||
|
September
27, 2008, respectively
|
846 | (366 | ) | 249 | 119 | |||||||||||
|
Total
comprehensive loss
|
$ | (2,513 | ) | $ | (1,995 | ) | $ | (9,468 | ) | $ | (79,900 | ) | ||||
The
following table shows the components of accumulated other comprehensive loss for
the three and nine months periods ended October 3, 2009 and September 27,
2008:
|
Aluminum
|
||||||||||||||||
|
Forward
|
Valuation
|
|||||||||||||||
|
(in
thousands)
|
Contracts
|
Allowance
|
Total
|
|||||||||||||
|
Balance
at July 4, 2009
|
$ | (1,571 | ) | $ | (498 | ) | $ | (2,069 | ) | |||||||
|
Changes
in fair value
|
846 | - | 846 | |||||||||||||
|
Reclassification
to earnings
|
656 | - | 656 | |||||||||||||
|
Tax
(expense) benefit
|
(470 | ) | 470 | - | ||||||||||||
|
Balance
at October 3, 2009
|
$ | (539 | ) | $ | (28 | ) | $ | (567 | ) | |||||||
|
Aluminum
|
||||||||||||||||
|
Interest
Rate
|
Forward
|
Valuation
|
||||||||||||||
|
(in
thousands)
|
Swap
|
Contracts
|
Allowance
|
Total
|
||||||||||||
|
Balance
at June 28, 2008
|
$ | - | $ | 109 | $ | - | $ | 109 | ||||||||
|
Changes
in fair value
|
- | (521 | ) | - | (521 | ) | ||||||||||
|
Reclassification
to earnings
|
- | (79 | ) | - | (79 | ) | ||||||||||
|
Tax
benefit
|
- | 234 | - | 234 | ||||||||||||
|
Balance
at September 27, 2008
|
$ | - | $ | (257 | ) | $ | - | $ | (257 | ) | ||||||
|
Aluminum
|
||||||||||||||||
|
Forward
|
Valuation
|
|||||||||||||||
|
(in
thousands)
|
Contracts
|
Allowance
|
Total
|
|||||||||||||
|
Balance
at January 3, 2009
|
$ | (2,584 | ) | $ | (1,382 | ) | $ | (3,966 | ) | |||||||
|
Changes
in fair value
|
249 | - | 249 | |||||||||||||
|
Reclassification
to earnings
|
3,150 | - | 3,150 | |||||||||||||
|
Tax
(expense) benefit
|
(1,354 | ) | 1,354 | - | ||||||||||||
|
Balance
at October 3, 2009
|
$ | (539 | ) | $ | (28 | ) | $ | (567 | ) | |||||||
|
Aluminum
|
||||||||||||||||
|
Interest
Rate
|
Forward
|
Valuation
|
||||||||||||||
|
(in
thousands)
|
Swap
|
Contracts
|
Allowance
|
Total
|
||||||||||||
|
Balance
at December 29, 2007
|
$ | (46 | ) | $ | (376 | ) | $ | - | $ | (422 | ) | |||||
|
Changes
in fair value
|
74 | 609 | - | 683 | ||||||||||||
|
Reclassification
to earnings
|
- | (413 | ) | - | (413 | ) | ||||||||||
|
Tax
expense
|
(28 | ) | (77 | ) | - | (105 | ) | |||||||||
|
Balance
at September 27, 2008
|
$ | - | $ | (257 | ) | $ | - | $ | (257 | ) | ||||||
NOTE
10. COMMITMENTS AND CONTINGENCIES
Litigation
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 in the aggregate, will not have a
materially adverse effect on our operations, financial position or cash
flows.
NOTE
11. INCOME TAXES
No
liabilities for unrecognized tax benefits were recognized in conjunction with
our FIN 48 implementation, and there have been no changes to our
unrecognized tax benefits. However, should we accrue for such
liabilities 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 2008,
we established a valuation allowance to reduce to zero our net deferred tax
assets, excluding the $17.3 million deferred tax liability related to
trademarks. Driven by the goodwill and other intangible impairment
charges recorded in 2008 totalling $187.7 million, our cumulative losses over
the last three fiscal years, as well as the significant downturn in our primary
industry of home construction, we concluded that sufficient negative evidence
existed that it was deemed more likely than not that future taxable income will
not be sufficient to realize the related income tax benefits. Of the
$8.3 million valuation allowance at October 3, 2009, less than $0.1 million was
allocated to accumulated other comprehensive loss in the accompanying
consolidated balance sheet at that date to offset the tax benefit that is
recorded in accumulated other comprehensive loss.
We had an
effective tax rate of a benefit of 5.1% for the third quarter and a benefit of
1.8% for the nine months of 2009. The benefits result from certain
adjustments relating to the amendment of a prior year tax
return. Changes in deferred tax assets and liabilities during the
third quarter and first nine months of 2009 were offset by changes in the
valuation allowance for deferred tax assets. Excluding the change in
the valuation allowance, the effective tax rates in the third quarter and first
nine months of 2009 would have been 42.5% and 38.0%, respectively.
We had an
effective tax rate of 23.6% for the third quarter and 14.7% for the first nine
months of 2008. Excluding the deferred tax benefits totaling $0.3
million related to the $1.6 million of impairment charges recorded in the
quarter and $13.8 million related to the $93.6 million of impairment charges and
a $0.1 million valuation allowance recorded against the deferred tax assets for
North Carolina state tax credits recorded in the nine months ended September 29,
2008, we would have had an effective tax rate of 36.5% for the quarter and 36.4%
for the first nine months ended September 27, 2008.
NOTE
12. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL
INSTRUMENTS
Financial
Instruments
Our
financial instruments, not including derivative financial instruments discussed
below, include cash, accounts receivable, accounts payable and capital leases
whose carrying amounts approximate their fair values due to their short-term
nature. Our financial instruments also include long-term
debt. Based on bid prices for prices for our debt, the fair value of
our long-term debt was approximately $51 million at October 3, 2009 and $63
million at January 3, 2009.
Derivative Financial
Instruments
As of
October 3, 2009, we had $0.4 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. For statement of cash flows presentation, we present
net cash receipts from and payments to the margin account as investing
activities.
The fair
value of our aluminum hedges are classified in the accompanying condensed
consolidated balance sheets as follows (in thousands):
|
October
3,
|
January
3,
|
||||||||
|
2009
|
2009
|
||||||||
|
Derivatives in a net liability
position
|
Balance Sheet Location
|
||||||||
|
Hedging
instruments:
|
|||||||||
|
Aluminum
forward contracts
|
Accrued
liabilities
|
$ | (657 | ) | $ | (3,251 | ) | ||
|
Aluminum
forward contracts
|
Other
liabilities
|
(106 | ) | (985 | ) | ||||
|
Cash
on deposit related to payments of margin calls
|
Accrued
liabilities
|
362 | 3,251 | ||||||
|
Cash
on deposit related to payments of margin calls
|
Other
liabilities
|
- | 847 | ||||||
|
Total
hedging instruments
|
$ | (401 | ) | $ | (138 | ) | |||
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 aluminum extrusion. At October 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 three and nine months
ended October 3, 2009 and September 27, 2008, there were no amounts reclassified
to earnings due to a forecasted transaction being deemed improbable of
occurring. The ending accumulated balance for the aluminum forward contracts
included in accumulated other comprehensive loss is $0.8 million ($0.6
million net of tax effects) as of October 3, 2009, of which $0.7 million is
expected to be reclassified to earnings in the next twelve months based on
scheduled settlement dates of the related contracts. The following represents
the gains (losses) on derivative financial instruments for the three and nine
months ended October 3, 2009 and September 27, 2008, and their classifications
within the accompanying condensed consolidated financial statements (in
thousands):
|
Derivatives
in Cash Flow Hedging Relationships
|
||||||||||||||||||||||||||
|
Amount
of Gain or (Loss) Recognized in OCI on Derivatives (Effective
Portion)
|
Location
of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
Amount
of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective
Portion)
|
Location
of Gain or (Loss) Recognized in Income on Derivatives (Ineffective
Portion)
|
Amount
of Gain or (Loss) Recognized in Income on Derivatives (Ineffective
Portion)
|
||||||||||||||||||||||
|
Three
Months Ended
|
Three
Months Ended
|
Three
Months Ended
|
||||||||||||||||||||||||
|
Oct.
3,
|
Sept.
27,
|
Oct.
3,
|
Sept.
27,
|
Oct.
3,
|
Sept.
27,
|
|||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||
|
Aluminum
contracts
|
$ | 846 | $ | (287 | ) |
Cost
of sales
|
$ | (656 | ) | $ | 79 |
Other
income or other expense
|
$ | (27 | ) | $ | (18 | ) | ||||||||
|
Interest
rate swap
|
- | - | - | - | - | - | ||||||||||||||||||||
| $ | 846 | $ | (287 | ) | $ | (656 | ) | $ | 79 | $ | (27 | ) | $ | (18 | ) | |||||||||||
|
Nine
Months Ended
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||||||||||||||||||||
|
Oct.
3,
|
Sept.
27,
|
Oct.
3,
|
Sept.
27,
|
Oct.
3,
|
Sept.
27,
|
|||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||
|
Aluminum
contracts
|
$ | 249 | $ | 532 |
Cost
of sales
|
$ | (3,150 | ) | $ | 413 |
Other
income or other expense
|
$ | (33 | ) | $ | 38 | ||||||||||
|
Interest
rate swap
|
- | 46 | - | - | - | - | ||||||||||||||||||||
| $ | 249 | $ | 578 | $ | (3,150 | ) | $ | 413 | $ | (33 | ) | $ | 38 | |||||||||||||
Aluminum
forward contracts identical to those held by the Company trade on the London
Metals Exchange (“LME”). The prices are used by the metals industry
as the basis for contracts for the movement of physical material throughout the
production cycle. We categorize these aluminum forward contracts as
being valued using Level 2 inputs as follows:
|
Fair
Value Measurements at Reporting Date
|
||||||||||||||||
|
of
Asset (Liability) Using:
|
||||||||||||||||
|
Quoted
|
Significant
|
Significant
|
||||||||||||||
|
Prices
in
|
Other
Observable
|
Unobservable
|
||||||||||||||
|
October
3,
|
Active
Markets
|
Inputs
|
Inputs
|
|||||||||||||
|
Description
|
2009
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Forward
contracts for aluminum
|
$ | (763 | ) | $ | - | $ | (763 | ) | $ | - | ||||||
|
Cash
on deposit related to payments of margin calls
|
362 | |||||||||||||||
|
Forward
contracts for aluminum, net liability
|
$ | (401 | ) | |||||||||||||
NOTE
13. RECENTLY ADOPTED AND ISSUED ACCOUNTING
PRONOUNCEMENTS
In
September 2006, the FASB issued guidance under the Fair Value Measurements and
Disclosures topic of the Codification which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. We partially adopted the guidance on January 1,
2008, as required for our financial assets and financial liabilities. However,
the FASB deferred the effective date of the guidance for one year as it relates
to fair value measurement requirements for non-financial assets and
non-financial liabilities that are not recognized or disclosed at fair value on
a recurring basis. We adopted these remaining provisions of the guidance on
January 4, 2009. The adoption of the guidance did not have a material
impact on our consolidated financial statements.
The
guidance under the Business
Combinations topic of the Codification was issued in December 2007. The
guidance 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. It 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. The guidance was effective for us in our
fiscal year beginning January 4, 2009. We applied the provisions of the
guidance to a recent acquisition and will apply the provisions to
future acquisitions, if any. See Note 2.
In March
2008, the FASB issued guidance under the Derivatives and Hedging topic
of the Codification. The guidance 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. It also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of the guidance have been applied, and
the impact that hedges have on an entity’s financial position, financial
performance, and cash flows. The guidance was effective for fiscal
years and interim periods beginning after November 15, 2008. We
adopted the guidance effective on January 4, 2009 and have provided the required
information in Note 12.
In April
2008, the FASB issued guidance under the Intangibles – Goodwill and
Other topic of the Codification which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The guidance was effective for
fiscal years beginning after December 15, 2008. We adopted the
guidance effective on January 4, 2009 with no impact on our consolidated
financial position and results of operations.
In May
2009, the FASB issued guidance under the Subsequent Events topic of
the Codification. The guidance
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. We adopted the guidance during the second quarter of
2009 on a prospective basis. The adoption did not materially impact
our consolidated financial statements. See Note 1 for our evaluation of
subsequent events.
In April
2009, the FASB issued guidance under the Financial Instruments topic
of the Codification that is intended to provide additional application guidance
and enhance disclosures about fair value measurements and impairments of
securities. The guidance clarifies the objective and method of fair value
measurement even when there has been a significant decrease in market activity
for the asset being measured and establishes a new model for measuring
other-than-temporary impairments for debt securities, including establishing
criteria for when to recognize a write-down through earnings versus other
comprehensive income. The guidance expands the fair value disclosures required
for all financial instruments to interim periods. The adoption of the guidance
did not impact our consolidated financial statements but rather resulted in
increased interim disclosures related to our financial instruments.
In
June 2009, the FASB announced that the FASB Accounting Standards
Codification was the new source of authoritative U.S. generally accepted
accounting principles (“GAAP”) recognized by the FASB for nongovernmental
entities. On the effective date of this guidance, the Codification superseded
all existing non-SEC accounting and reporting standards. This guidance became
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The adoption of these provisions during the
current quarter did not have an impact on our financial position or results of
operations.
NOTE
14. COLLABORATIVE ARRANGEMENT
In view
of the risks and costs associated with developing new products and our desire to
expand our markets by providing quality unitized curtain wall solutions to the
commercial building industry, we entered into a collaborative arrangement with
another company with extensive experience in sales, marketing, engineering and
project management of unitized curtain wall solutions and in which costs,
revenues and risks are shared. During the third quarter of 2009, this
arrangement was terminated. We were not the principal participant in
this arrangement. Our obligation under this arrangement was to provide
manufacturing expertise, including providing the operating entity with labor for
assembly and fabrication of the unitized curtain wall units. We
earned revenues and incurred costs of sales and expenses from this activity
based on the number of hours of labor provided in the production of materials
used in the arrangement. We also recorded a percentage of the joint
operating activity’s profit or loss into revenue based on our percentage
interest in the arrangement, which was insignificant in the third quarter and
first nine months of 2009. Each collaborator’s interest was 50
percent.
The
following table illustrates the income statement classification and amounts
attributable to transactions arising from the collaborative arrangements between
participants for each period presented (in thousands):
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
October
3,
|
September
27,
|
October
3,
|
September
27,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
(unaudited)
|
(unaudited)
|
|||||||||||||||
|
Net
sales
|
$ | - | $ | 387 | $ | 1,449 | $ | 439 | ||||||||
|
Cost
of sales
|
- | (581 | ) | (1,093 | ) | (581 | ) | |||||||||
|
Selling,
general and administrative
|
- | (33 | ) | (215 | ) | (33 | ) | |||||||||
In
November 2007, the EITF issued guidance under the Broad Transactions – Collaborative
Arrangements topic of the Codification. This guidance is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years, and must be applied
retrospectively to all prior periods presented for all collaborative
arrangements existing as of the effective date. This Issue requires that
participants in a collaborative arrangement report costs incurred and revenues
generated on a gross or net basis and in the appropriate line items in each
company’s financial statements. This guidance also requires
disclosure of the nature and purpose of the participant’s collaborative
arrangements, the participant’s rights and obligations under these arrangements,
the accounting policy for collaborative arrangements, the income statement
classification and amounts attributable to transactions arising from
collaboration arrangements between participants, and the disclosure related to
individually significant collaborative arrangements. We adopted the guidance in
the second quarter of 2008.
In the
fourth quarter of 2009, we implemented a restructuring of the Company 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 150 employees and included employees
in both Florida and North Carolina. As a result of the restructuring,
we expect to record an estimated restructuring charge of approximately $1.3
million in the fourth quarter of 2009. No amounts related to this
restructuring have been accrued in the accompanying condensed consolidated
financial statements as of and for the three and nine month periods ended
October 3, 2009.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should
be read in conjunction with the Management’s Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated financial
statements and notes thereto for the year ended January 3, 2009 included in our
most recent annual report on Form 10-K.
Special
Note Regarding Forward-Looking Statements
This
document includes forward-looking statements regarding, among other things, our
financial condition and business strategy. Forward-looking statements provide
our current expectations and projections about future events. Forward-looking
statements include statements about our expectations, beliefs, plans,
objectives, intentions, assumptions, and other statements that are not
historical facts. As a result, all statements other than statements of
historical facts included in this discussion and analysis and located elsewhere
in this document regarding the prospects of our industry and our prospects,
plans, financial position, and business strategy may constitute forward-looking
statements within the meaning of Section 21E of the Exchange Act. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “could,” “expect,” “intend,”
“estimate,” “anticipate,” “plan,” “foresee,” “believe,” or “continue,” or the
negatives of these terms or variations of them or similar terminology, but the
absence of these words does not necessarily mean that a statement is not
forward-looking.
Forward-looking
statements are subject to known and unknown risks and uncertainties and are
based on potentially inaccurate assumptions that could cause actual results to
differ materially from those expected or implied by the forward-looking
statements. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will occur as predicted. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements included
in this document. These forward-looking statements speak only as of the date of
this report. We undertake no obligation to publicly update or revise any
forward-looking statement to reflect circumstances or events after the date of
this report or to reflect the occurrence of unanticipated events, except as may
be required by applicable securities laws.
Risks
associated with our business, an investment in our securities, and with
achieving the forward-looking statements contained in this report or in our news
releases, Web sites, public filings, investor and analyst conferences or
elsewhere, include, but are not limited to, the risk factors described in our
most recent Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Any of the risk factors described therein could cause our actual
results to differ materially from expectations and could have a material adverse
effect on our business, financial condition or results of operations. We may not
succeed in addressing these challenges and risks.
Current
Operating Conditions and Outlook
In the
third quarter of 2009, new housing permits in Florida decreased 42% compared to
the third quarter of 2008, but were up 10% from the second quarter of
2009. Recently there have been signs that there is a recovery in the
homebuilding industry taking place, but the recovery continues to be hampered by
other economic factors. In Florida, home sales increased 34% in
September compared to the prior month as a more confident home buyer moved to
take advantage of sales incentives, improved affordability and tax
breaks. However, the ongoing impact of increased foreclosures and
mortgage delinquencies, higher unemployment and tight credit standards make
predicting the timing and extent of a turn-around, or even stability,
difficult. Several of the nation’s largest home builders continued to
report increases in new home orders and decreases in cancellation rates during
the third quarter, but these improvements have not yet reversed the trend of
steadily declining sales in the homebuilding industry.
Difficult
economic conditions persisted in the United States during the third quarter of
2009, and the housing industry, most notably in the Company’s
primary market of Florida, has been in a period of prolonged deterioration.
These conditions may persist and remain depressed for the foreseeable future.
Economic conditions have been negatively impacted by slowing growth
and the mortgage crisis ultimately causing liquidity and credit concerns.
Continuing adverse economic conditions in our markets could negatively impact
our business, which could result in reduced demand for our products, increased
price competition, increased risk in the collectability of cash from our
customers potentially resulting in increased reserves for doubtful accounts and
write-offs of accounts receivable, and higher operating costs. If economic
conditions deteriorate further, we may experience adverse impacts on our
business, operating results and financial condition.
In
response to the deterioration in the housing market, we have taken a number of
steps to enhance profitability and conserve capital. As
discussed in “Recent Developments – Restructurings” below, we adjusted our
operating cost structure to more closely align with current
demand. In addition, we decreased our capital spending in 2008 and
have further restricted capital spending in the first nine months of
2009. However, we also view this market downturn as an opportunity to
gain market share from our competitors. For instance, as discussed in
“Recent Developments – Acquisition” below, we acquired certain operating assets
and the exclusive right to use the technology of Hurricane Window and Door
Factory (“Hurricane”), a former manufacturer of energy efficient vinyl impact
resistant windows and doors. We acquired Hurricane to give us an
expanded presence in the energy-efficient vinyl impact resistant marketplace and
position us for growth. We increased marketing and sales efforts in
areas outside of our dominant markets, including northern Florida, the Gulf
Coast and the Carolinas and other southeastern states resulting in incremental
sales outside of Florida compared to last year. Also, we introduced
new products in 2009 and expanded product lines to broaden our product
offering. As a result of these actions, we continue to
outperform the underlying market. However, gross margins have declined to 26.1%
in the third quarter of 2009 from 29.8% in the third quarter of 2008, and to
27.2% in the first nine months of 2009 from 31.8% in the first nine months of
2008 due, mainly, to the impact of the loss of operating leverage against fixed
costs from a decline in sales and restructuring costs.
While the
homebuilding industry is in a down cycle, we still believe the long-term outlook
for the industry is positive. At this point, it appears as though the housing
market has not yet hit bottom. Despite these unfavorable market conditions, we
still believe that, in the long-term, we can grow organically by gaining market
share and outperforming our underlying markets. However, we believe difficult
market conditions affecting our business will continue, and the recent downturn
in the economy as a result of the mortgage crisis may further negatively affect
our operating results and year-over-year comparisons.
Recent
Developments
Acquisition
Pursuant
to an asset purchase agreement by and between Hurricane Window and Door Factory,
LLC (“Hurricane”) of Ft. Myers, Florida, and our operating subsidiary, PGT
Industries, Inc., effective on August 14, 2009, we acquired certain operating
assets of Hurricane, for approximately $1.5 million in
cash. Hurricane designed and manufactured high-end vinyl impact
products for the single- and multi-family residential markets. The products
provide long-term energy and structural benefits, while qualifying homeowners
for the government’s energy tax credits through the American Recovery and
Reinvestment Act of 2009. This product line was developed
specifically for the hurricane protection market and combines some of the
highest structural ratings in the industry with excellent energy
efficiency. The acquisition of this business expands our presence in
the energy efficient vinyl impact-resistant market, increases our ability to
serve the multi-story condo market, and enhances our ability to offer a complete
line of impact products to the customer.
The
acquisition was accounted for as the purchase of a business in accordance with
GAAP. The assets acquired included Hurricane’s inventory, comprised
almost entirely of raw materials, and property and equipment, primarily
comprised of machinery and other manufacturing equipment. We also
acquired the right to use Hurricane’s design technology through the end of 2010
and the option to purchase the technology at any time through the end of 2010
and, if desired, we can extend the right to use and the option to purchase
Hurricane’s design technology for an additional one year period through the end
of 2011. The allocation of the $1.5 million cash purchase price to
the fair value of the assets acquired as of the August 14, 2009 acquisition date
is as follows:
|
(in
thousands)
|
Fair Values
|
|||
|
Inventory
|
$ | 254 | ||
|
Property
and equipment
|
623 | |||
|
Identifiable
intangibles
|
575 | |||
|
Net
assets acquired
|
1,452 | |||
|
Purchase
price
|
1,452 | |||
|
Goodwill
|
$ | - | ||
The value
of inventory was established based on then current purchase prices of identical
materials available from Hurricane’s existing vendors. The value of
property and equipment was established based on Hurricane’s net carrying values
which we determined to approximate fair value due to, among other things, their
having been in service for less than one year. We engaged a
third-party valuation specialist to assist us in estimating the fair value of
the identifiable intangible assets consisting of the right to use Hurricane’s
design technology and the related purchase option. The fair value of
the identifiable intangible assets was estimated using an income approach based
on projections provided by management, which we consider to be Level 3 inputs.
The carrying value of the intangible asset of $0.6 million is included in other
intangible assets, net, in the accompanying condensed consolidated balance sheet
at October 3, 2009. The intangible assets are being amortized on the
straight-line basis over their estimated lives of approximately 1.3 years
through the end of 2010. Amortization expense of less than $0.1
million is included in selling, general and administrative expenses in the
accompanying condensed consolidated statement of operations for the three months
ended October 3, 2009. Acquisition costs of less than $0.1 million
are included in selling, general and administrative expenses in the accompanying
condensed consolidated statement of operations for the three months ended
October 3, 2009. Hurricane’s operating results prior to the
acquisition and in the third quarter of 2009 were insignificant.
Restructurings
On
January 13, 2009, March 11, 2009 and September 24, 2009, we announced further
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 an aggregate decrease in our workforce of
approximately 325 employees and included employees at both our Venice, Florida
and Salisbury, North Carolina locations. As a result of the
restructurings, we recorded restructuring charges totaling $0.9 million in the
third quarter of 2009, of which $0.5 million is classified within cost of goods
sold and $0.4 million is classified within selling, general and administrative
expenses, and $3.9 million in the first nine months of 2009, of which $1.9
million is classified within cost of sales and $2.0 million is classified within
selling, general and administrative expenses in the accompanying condensed
consolidated statement of operations for the three and nine months ended October
3, 2009. The charges related primarily to employee separation
costs.
Other
Developments
Indefinite Lived Intangible
Asset
The
impairment evaluation for indefinite lived intangible assets, which for the
Company are its trademarks, is conducted at the end of each fiscal year, or more
frequently if events or changes in circumstances indicate that an asset might be
impaired. The determination of fair value used in the impairment
evaluation is based on discounted estimates of future projected cost savings
attributable to ownership of the trademarks. The assumptions used in
the estimate of fair value are generally consistent with past performance and
are also consistent with the projections and assumptions used in current
operating plans. Such assumptions are subject to change as a result
of changing economic and competitive conditions. The determination of
fair value is highly sensitive to changes in estimated future cash flows and
changes in the discount rate used to evaluate the fair value of the trademarks.
Estimated cash flows are sensitive to changes in the Florida housing market and
changes in the economy, among other things. The discount rate is
sensitive to changes in interest rates and, among other things, company-specific
and other risk factors.
As a
result of impairment indicators related to the weakness in the housing market we
identified during the second quarter of 2008, the Company evaluated its
trademarks for impairment and compared the estimated fair value of its
trademarks to their carrying value and preliminarily determined that there was
no impairment. During the third quarter of 2008, as part of
finalizing its second quarter impairment tests, the Company made certain changes
to its projections that affected the previous estimate of fair value and, when
compared to the carrying value of indefinite lived intangibles, 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. Due to the prolonged and continued challenging economic factors
impacting the housing industry and our recent actual results, we evaluated our
trademarks for impairment as of October 3, 2009 and determined that there was no
impairment. Intangible assets not subject to amortization totaled
$44.4 million at October 3, 2009. We will continue to evaluate the
recoverability of our trademarks as continued declines in housing activity could
result in additional impairment.
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 and October 3, 2009, we tested 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. We will continue to evaluate the
recoverability of our customer relationships intangible asset as continued
declines in housing activity could result in additional impairment.
Effective
August 14, 2009, we acquired certain operating assets of Hurricane. In addition
to Hurricane’s inventory and property and equipment, we also acquired the right
to use Hurricane’s design technology through the end of 2010, including the
option to purchase the technology at any time through the end of
2010. We engaged a third-party valuation specialist to assist us in
estimating the fair value of the identifiable intangible assets consisting of
the right to use Hurricane’s design technology and the
related purchase option, which was determined to total $0.6 million
at the date of the acquisition. The carrying value of the intangible
assets of $0.6 million is included in other intangible assets, net, in the
accompanying condense consolidated balance sheet at October 3,
2009. The intangible assets are being amortized on the straight-line
basis over their estimated lives of approximately 1.3 years through the end of
2010. Amortization expense of less than $0.1 million is included in
selling, general and administrative expenses in the accompanying condensed
consolidated statement of operations for the three months ended October 3,
2009.
Selected
Financial Data
The
following table presents financial data derived from our unaudited statements of
operations as a percentage of total revenues for the periods
indicated.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
October
3,
|
September
27,
|
October
3,
|
September
27,
|
|||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Net
sales
|
100.0% | 100.0% | 100.0% | 100.0% | ||||||||||||
|
Cost
of sales
|
73.9% | 70.2% | 72.8% | 68.2% | ||||||||||||
|
Gross
margin
|
26.1% | 29.8% | 27.2% | 31.8% | ||||||||||||
|
Goodwill
and intangible impairment charges
|
- | 2.9% | - | 55.3% | ||||||||||||
|
Selling,
general and administrative expenses
|
30.4% | 26.6% | 30.9% | 27.7% | ||||||||||||
|
Loss
(income) from operations
|
(4.3% | ) | 0.3% | (3.7% | ) | (51.2% | ) | |||||||||
|
Interest
expense, net
|
4.2% | 4.1% | 3.9% | 4.2% | ||||||||||||
|
Other
expense (income), net
|
0.1% | - | - | - | ||||||||||||
|
Loss
before income taxes
|
(8.6% | ) | (3.8% | ) | (7.6% | ) | (55.4% | ) | ||||||||
|
Income
tax benefit
|
(0.4% | ) | (0.9% | ) | (0.1% | ) | (8.2% | ) | ||||||||
|
Net
loss
|
(8.2% | ) | (2.9% | ) | (7.5% | ) | (47.2% | ) | ||||||||
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 3, 2009 AND SEPTEMBER 27,
2008
Net
sales
Net sales
decreased $12.7 million, or 23.4%, in the third quarter of 2009, compared to the
2008 third quarter. Net sales for the third quarter of 2009 were
$41.6 million, compared with net sales of $54.3 million for the third quarter of
2008. The following table shows net sales classified by major product
category (sales in millions):
|
Three
Months Ended
|
||||||||||||||||||||
|
October
3, 2009
|
September
27, 2008
|
|||||||||||||||||||
|
Sales
|
%
of sales
|
Sales
|
%
of sales
|
%
change
|
||||||||||||||||
|
Product
category:
|
||||||||||||||||||||
|
WinGuard
Windows and Doors
|
$ | 26.2 | 63.0% | $ | 37.7 | 69.4% | (30.5%) | |||||||||||||
|
Other
Window and Door Products
|
15.4 | 37.0% | % | 16.6 | 30.6% | (7.2%) | ||||||||||||||
|
Total
net sales
|
$ | 41.6 | 100.0% | $ | 54.3 | 100.0% | (23.4%) | |||||||||||||
Net sales
of WinGuard branded products were $26.2 million for the third quarter of 2009, a
decrease of $11.5 million, or 30.5%, from $37.7 million in net sales for the
2008 third quarter. The decrease in sales of our WinGuard branded
products was driven mainly by the decline in new home and repair and remodeling
construction, but also, to some extent, by the lack of storm activity during the
three most recent hurricane seasons in the coastal markets of Florida served by
the Company.
Net sales
of Other Window and Door Products were $15.4 million for the third quarter of
2009, a decrease of $1.2 million, or 7.2%, from $16.6 million in net sales for
the 2008 third quarter. The decrease was mainly due to the decline in
the housing industry, partially offset by increases due to new product
introductions, the sales related to unitized curtain wall, and increased sales
in markets outside of the state of Florida.
Gross
margin
Gross
margin was $10.9 million, or 26.1% of sales, for the third quarter of 2009, a
decrease of $5.3 million, or 32.9%, from $16.2 million, or 29.8% of sales, for
the third quarter of 2008. This decrease was largely due to lower sales volumes
of most of our products and the resulting loss of operating leverage
against fixed costs, a change in mix and slight decrease in pricing, partially
offset by spending reductions as a result of our cost savings
initiatives. There were restructuring charges in cost of goods sold
in the third quarter of 2009 $0.5 million. Adjusting for these
charges, gross margin was $11.4 million, or 27.4% of sales, for the third
quarter of 2009.
Impairment
Charges
During
the second quarter of 2008, the Company concluded that the weakness in the
housing sector was likely to persist longer than previously anticipated by the
Company based on its review of, among other things, sequential quarter housing
starts in the second quarter of 2008 compared to the first quarter of 2008, the
then recent turmoil surrounding the nation’s largest mortgage lenders and the
resulting negative impact on the availability of mortgage financing and housing
start forecasts published by national home builder associations pushing recovery
in the new home construction market further out. The Company then
concluded that this weakness in the housing market resulted in the prolonged
decline in its market capitalization as compared to its then book
value.
As a
result of those impairment indicators, the Company updated the first step of its
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 began performing the second step of the goodwill
impairment test which involved 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 then carrying amount of
goodwill. As of the date of the filing of the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 28, 2008, the Company estimated
that the implied fair value of our goodwill was less than its carrying value by
approximately $92.0 million, which the Company recognized as a goodwill
impairment charge in the second quarter ended June 28, 2008. We
completed our impairment test in the third quarter of 2008, which resulted in an
additional non-cash goodwill impairment charge of $1.3 million.
During
the second quarter of 2008, also as a result of the impairment indicators
described above, the Company evaluated its intangible assets with indefinite
lives for impairment and compared the estimated fair value of its trademarks to
their carrying value and preliminarily determined that there was no
impairment. During the third quarter of 2008, as part of finalizing
the goodwill impairment test discussed above, the Company made certain changes
to its projections that affected the previous estimate of fair value and, when
compared to the carrying value of indefinite lived intangibles, resulted in a
$0.3 million impairment charge in the third quarter of 2008.
Selling,
general and administrative expenses
Selling,
general and administrative expenses were $12.6 million for the third quarter of
2009, a decrease of $1.8 million, from $14.5 million for the 2008 third
quarter. There were restructuring charges in selling, general and
administrative expenses in the third quarter of 2009 of $0.4
million. Adjusting for these charges, selling, general and
administrative expenses were $12.2 million for the third quarter of 2009, a
decrease of $2.3 million. This decrease was mainly due to a $1.4 million
decrease in personnel related costs as the result of the cost saving actions, a
$0.5 million decrease in fuel costs and approximately $0.6 million of overall
lower spending in other categories. These cost savings were partially
offset by a $0.2 million increase in bad debt expense. As a
percentage of sales, adjusted selling, general and administrative expenses were
29.5% the third quarter of 2009, compared to 26.6% for the third quarter of
2008, mainly due to the loss of leverage from the decrease in
sales.
Interest
expense, net
Interest
expense, net was $1.7 million in the third quarter of 2009, a decrease of $0.5
million, from $2.2 million for the third quarter of 2008. The
decrease was due to a lower level of debt during the third quarter of 2009
compared to the third quarter of 2008, partially offset by a higher interest
rate on our debt during the third quarter of 2009 compared to the third quarter
of 2008.
Other
expense (income), net
There was
other expense of less than $0.1 million in both the third quarters of 2009 and
2008. The amounts in each quarter relate to the ineffective portions
of aluminum hedges.
Income
tax benefit
We had an
effective tax rate of a benefit of 5.1% for the third quarter of
2009. The benefit results from certain adjustments relating to the
amendment of a prior year tax return. Changes in deferred tax assets
and liabilities during the third quarter of 2009 were offset by changes in the
valuation allowance for deferred tax assets. Excluding the change in
the valuation allowance, the effective tax rate in the third quarter of 2009
would have been a tax benefit of 42.5%.
We had an
effective tax rate of a benefit of 23.6% for the third quarter of
2008. Excluding deferred tax benefits totaling $0.3 million related
to the $1.6 million of impairment charges recorded in the quarter, we would have
had an effective tax rate of 36.5% for the third quarter of 2008.
RESULTS
OF OPERATIONS FOR FIRST NINE MONTHS ENDED OCTOBER 3, 2009 AND SEPTEMBER 27,
2008
Net
sales
Net sales
decreased $39.3 million, or 23.2%, in the first nine months of 2009, compared to
the first nine months of 2008. Net sales for the first nine months of
2009 were $130.0 million, compared with net sales of $169.3 million for the
first nine months of 2008. The following table shows net sales
classified by major product category (sales in millions):
|
Nine
Months Ended
|
||||||||||||||||||||
|
October
3, 2009
|
September
27, 2008
|
|||||||||||||||||||
|
Sales
|
%
of sales
|
Sales
|
%
of sales
|
%
change
|
||||||||||||||||
|
Product
category:
|
||||||||||||||||||||
|
WinGuard
Windows and Doors
|
$ | 86.2 | 66.3% | $ | 118.2 | 69.8% | (27.1%) | |||||||||||||
|
Other
Window and Door Products
|
43.8 | 33.7% | 51.1 | 30.2% | (14.3%) | |||||||||||||||
|
Total
net sales
|
$ | 130.0 | 100.0% | $ | 169.3 | 100.0% | (23.2%) | |||||||||||||
Net sales
of WinGuard branded products were $86.2 million for the first nine months of
2009, a decrease of $32.0 million, or 27.1%, from $118.2 million in net sales
for the first nine months of 2008. The decrease in sales of our
WinGuard branded products was driven mainly by the decline in new home and
repair and remodeling construction, but also, to some extent, by the lack of
storm activity during the three most recent hurricane seasons in the coastal
markets of Florida served by the Company.
Net sales
of Other Window and Door Products were $43.8 million for the first nine months
of 2009, a decrease of $7.3 million, or 14.3%, from $51.1 million in net sales
for the first nine months of 2008. The decrease was mainly due to the
decline in the housing industry, partially offset by increases due to new
product introductions, the sales related to unitized curtain wall, and increased
sales in markets outside of the state of Florida.
Gross
margin
Gross
margin was $35.4 million, or 27.2% of sales, for the first nine months of 2009,
a decrease of $18.4 million, or 34.2%, from $53.8 million, or 31.8% of sales,
for the first nine months of 2008. This decrease was largely due to lower sales
volumes of most of our products and the resulting loss of operating leverage
against fixed costs, a change in mix and slight decrease in pricing, partially
offset by spending reductions as a result of our cost savings
initiatives. There were restructuring charges in cost of goods sold
in each period of $1.9 million in the first nine months of 2009 and $1.1 million
in the first nine months of 2008. Adjusting for these charges, gross
margin was $37.3 million, or 28.7% of sales, for the first nine months of 2009,
compared to $54.8 million, or 32.4% of sales, for the first nine months of 2008,
mainly due to the loss of leverage from the decrease in sales.
Impairment
Charges
During
the second quarter of 2008, the Company concluded that the weakness in the
housing sector was likely to persist longer than previously anticipated by the
Company based on its review of, among other things, sequential quarter housing
starts in the second quarter of 2008 compared to the first quarter of 2008, the
then recent turmoil surrounding the nation’s largest mortgage lenders and the
resulting negative impact on the availability of mortgage financing and housing
start forecasts published by national home builder associations pushing recovery
in the new home construction market further out. The Company then
concluded that this weakness in the housing market resulted in the prolonged
decline in its market capitalization as compared to its then book
value.
As a
result of those impairment indicators, the Company updated the first step of its
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 began performing the second step of the goodwill
impairment test which involved 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 then carrying amount of
goodwill. As of the date of the filing of the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 28, 2008, the Company estimated
that the implied fair value of our goodwill was less than its carrying value by
approximately $92.0 million, which the Company recognized as a goodwill
impairment charge in the accompanying condensed consolidated results of
operations for the second quarter ended June 28, 2008. The $92.0
million goodwill impairment charge was an estimate based on the results of the
preliminary allocation of fair value in the second step. We completed
our impairment test in the third quarter of 2008, which resulted in an
additional non-cash goodwill impairment charge of $1.3 million.
During
the second quarter of 2008, also as a result of the impairment indicators
described above, the Company evaluated its intangible assets with indefinite
lives for impairment and compared the estimated fair value of its trademarks to
their carrying value and preliminarily determined that there was no
impairment. During the third quarter of 2008, as part of finalizing
the goodwill impairment test discussed above, the Company made certain changes
to its projections that affected the previous estimate of fair value and, when
compared to the carrying value of indefinite lived intangibles, resulted in a
$0.3 million impairment charge in the third quarter of 2008.
Selling,
general and administrative expenses
Selling,
general and administrative expenses were $40.2 million for the first nine months
of 2009, a decrease of $6.7 million, from $46.9 million for the first nine
months of 2008. There were restructuring charges in selling, general
and administrative expenses in each period of $2.0 million in the first nine
months of 2009 and $0.7 million in the first nine months of
2008. Adjusting for these charges, selling, general and
administrative expenses were $38.2 million for the first nine months of 2009,
compared to $46.2 million for the first nine months of 2008, a decrease of $8.0
million. This decrease was mainly due to a $6.1 million decrease in personnel
related costs as the result of the cost saving actions, a $1.5 million decrease
in fuel costs, a $0.8 million decrease in marketing and advertising costs and
approximately $0.6 million of overall lower spending in other
categories. These cost savings were partially offset by a $1.0
million increase in bad debt expense. As a percentage of sales,
adjusted selling, general and administrative expenses increased during the first
nine months of 2009 to 29.4% compared to 27.3% for the first nine months of
2008, mainly due to the loss of leverage from the decrease in
sales.
Interest
expense, net
Interest
expense, net was $5.1 million in the first nine months of 2009, a decrease of
$2.1 million, from $7.2 million for the first nine months of
2008. The decrease was due to a lower level of debt during the first
nine months of 2009 compared to the first nine months of 2008, partially offset
by a higher interest rate on our debt during the first nine months of 2009
compared to the first nine months of 2008.
Other
expense (income), net
There was
other expense of less than $0.1 million for the first nine months of 2009,
compared to other income of less than $0.1 million for the first nine months of
2008. The amounts in each quarter relate to ineffective portions of aluminum
hedges.
Income
tax benefit
We had an
effective tax rate of a benefit of 1.8% for the first nine months of
2009. The benefit results from certain adjustments relating to the
amendment of a prior year tax return. Changes in deferred tax assets
and liabilities during the first nine months of 2009 were offset by changes in
the valuation allowance for deferred tax assets. Excluding the change
in the valuation allowance, the effective tax rate in the first nine months of
2009 would have been a tax benefit of 38.0%.
We had an
effective tax rate of a benefit of 14.7% for the first nine months of
2008. Excluding deferred tax benefits totaling $13.8 million related
to the $93.6 million of impairment charges and a $0.1 million valuation
allowance recorded against the deferred tax assets for North Carolina state tax
credits recorded in the nine months ended September 29, 2008, we would have had
an effective tax rate of 36.4% for the first nine months ended September 27,
2008.
Liquidity
and Capital Resources
Our
principal source of liquidity is cash flow generated by operations, supplemented
by borrowings under our credit facilities. This cash generating
capability provides us with financial flexibility in meeting operating and
investing needs. 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.
Consolidated
Cash Flows
Operating activities. Cash
provided by operating activities was $3.0 million in the first nine months of
2009 compared to $12.9 million in the first nine months of 2008. This
decrease was mainly due to lower operating profitability in the first nine
months of 2009 than 2008. Direct cash flows from operations for the first nine
months of 2009 and 2008 are as follows:
|
Direct
Cash Flows
|
||||||||
|
Nine
Months Ended
|
||||||||
|
October
3,
|
September
27,
|
|||||||
|
(in
millions)
|
2009
|
2008
|
||||||
|
Collections
from customers
|
$ | 130.8 | $ | 171.4 | ||||
|
Other
collections of cash
|
2.1 | 3.2 | ||||||
|
Disbursements
to vendors
|
(77.4 | ) | (97.0 | ) | ||||
|
Personnel
related disbursements
|
(48.8 | ) | (60.5 | ) | ||||
|
Debt
service costs
|
(4.6 | ) | (6.6 | ) | ||||
|
Other
cash activity, net
|
0.9 | 2.4 | ||||||
|
Cash
provided by operations
|
$ | 3.0 | $ | 12.9 | ||||
Other
collections of cash in both the first nine months of 2009 and 2008 primarily
represent scrap aluminum sales. The first nine months of 2009 also
includes $0.7 million of proceeds from an insurance recovery. Other
cash activity, net, in both periods is primarily composed of federal tax
refunds.
Days
sales outstanding (DSO), which we calculate as accounts receivable divided by
average daily sales, was 44 days at October 4, 2009, and 39 days at January 3,
2009, compared to 41 days at September 27, 2008 and 37 days at December 29,
2007.
Investing activities. Cash
provided by investing activities was $0.5 million for the first nine months of
2009, compared to cash used of $2.9 million for the first nine months of 2008.
The increase of $3.4 million in cash from investing activities was mainly due to
$3.7 million of net cash received from our margin account with our commodities
broker related to returns of previously funded margin calls and settlements of
forward contracts for aluminum, which we classify as investing activities, and a
$1.2 million decrease in capital expenditures due to a lower level of capital
spending in the first nine months of 2009 than in 2008. We used $1.5
million in cash for investing activities for the Hurricane acquisition in the
third quarter of 2009.
Financing activities. Cash
used in financing activities was $20.1 million in the first nine months of 2009,
compared to cash used of $10.6 million in the first nine months of
2008. In September 2009, we prepaid $12.0 million and in June 2009,
we prepaid $8.0 million of our long-term debt. We paid an additional
$0.1 million in debt under capital lease obligations. 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 $29.4 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 the first nine
months of 2008 totaled $0.2 million with related excess tax benefits of $0.5
million. There were no options exercised in the first nine months of
2009. Payment of deferred financing costs related to the
effectiveness of the amendment of our credit agreement totaled $0.6
million.
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. The second lien term loan was fully repaid with proceeds from
our IPO in 2006. The outstanding balance of the first lien
term loan on October 3, 2009 was $70.0 million, a decrease of $20.0 million
since the beginning of 2009 due to the prepayments as discussed
below.
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.
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 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. 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.
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. 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 $0.3 million is included in other
assets on the accompanying condensed consolidated balance sheet as of October 3,
2009. Such fees are being amortized on a straight-line basis, which
approximates the effective interest method, over the remaining term of the
credit agreement.
During
June 2009, we prepaid an additional $8.0 million of long-term debt using
cash generated from operations during the second quarter of 2009 and cash on
hand. During September 2009, we prepaid $12.0 million of
long-term debt primarily from cash on hand but also cash generated from
operations during the third quarter of 2009.
As of
October 3, 2009, there was $26.0 million available under our $30.0 million
revolving credit facility. However, on October 6, 2009, after the
close of the 2009 third quarter, we drew down $12.0 million under the revolving
credit facility for working capital and general corporate purposes, including
growth initiatives such as new product offerings and our expanding presence in
the vinyl and impact-resistant markets.
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.
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 subject to such 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 subsidiary to (i) dispose of assets;
(ii) change our business; (iii) engage in mergers or consolidations;
(iv) make certain acquisitions; (v) pay dividends; (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.
As
discussed above, we made a $12 million prepayment of outstanding bank debt using
primarily cash on hand and we were in compliance with all covenants required by
our credit agreement, as amended, as of October 3, 2009. As a result
of the draw-down under the revolving credit facility as described above, and
based on management’s current forecasts of profitability for the fourth quarter
of 2009, we expect to be required to make an additional debt repayment before
the end of our 2009 fiscal year, which ends on January 2, 2010. As of
the date of the filing of this Quarterly Report on Form 10-Q, we estimate that
we will have adequate cash on hand to make any required debt repayment and
maintain compliance with the maximum allowed leverage ratio for the fourth
quarter of 2009 as defined in our credit agreement, as
amended. However, we have continued to experience a significant
deterioration in the various markets in which we compete. Any further
deterioration in these markets may adversely impact our ability to meet our
leverage ratio in the fourth quarter of 2009. We will continue to
evaluate what action, if any, might be necessary to maintain compliance with our
financial covenants, including further cost saving actions and raising
additional capital.
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.
Capital Expenditures. Capital
expenditures vary depending on prevailing business factors, including current
and anticipated market conditions. For the first nine months of 2009,
capital expenditures were $1.8 million, compared to $3.0 million for the first
nine months of 2008. During 2008 and continuing into 2009, we reduced
certain discretionary capital spending to conserve cash. We
anticipate that cash flows from operations and liquidity from the revolving
credit facility, if needed, will be sufficient to execute our business
plans.
Hedging. We enter
into aluminum forward contracts to hedge the fluctuations in the purchase price
of aluminum extrusion we use in production. The Company enters into
these contracts by trading on the London Metals Exchange (“LME”). The
Company trades on the LME using an international commodities broker that offers
global access to all major markets. The Company maintains a $0.4
million line of credit with its 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 the Company’s liability for open aluminum contracts to exceed $0.4
million, the Company is required to fund daily margin calls to cover the excess.
As of October 3, 2009, the amount on deposit with our commodities broker of $0.4
million was less than the liability position of our aluminum forward contracts
by $0.4 million. As such, the full $0.4 million line of credit was
used as of October 3, 2009.
Contractual
Obligations
Other
than the debt payments and draw down under the revolving credit facility as
described in “Liquidity and Capital Resources” above, there have been no
significant changes to our “Disclosures of Contractual Obligations and
Commercial Commitments” table in Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of our Annual
Report on Form 10-K for the year ended January 3, 2009 as filed with the
Securities and Exchange Commission on March 19, 2009. Amounts
borrowed under the revolving credit facility have a contractual maturity of
February 2011.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles. Critical accounting policies are
those that are both important to the accurate portrayal of a Company’s financial
condition and results and require subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain. We make estimates and assumptions that affect
the amounts reported in our financial statements and accompanying notes. Certain
estimates are particularly sensitive due to their significance to the financial
statements and the possibility that future events may be significantly different
from our expectations.
We
identified our critical accounting policies in our Annual Report on Form 10-K
for the year ended January 3, 2009 as filed with the Securities and Exchange
Commission on March 19, 2009. There have been no changes to our
critical accounting policies during the first nine months of 2009.
Related
Party Transactions
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 both our Company and
Builders FirstSource, Inc. Mr. Levy is also chairman of the board of
directors of our Company. Total net sales to Builders FirstSource,
Inc. were $0.7 million and $2.2 million for the third quarter and first nine
months of 2009, respectively, and $0.6 million and $2.2 million for the third
quarter and first nine months of 2008, respectively. As of October 3,
2009 and January 3, 2009 there was $0.4 million and $0.2 million due from
Builders FirstSource, Inc. included in accounts receivable in the accompanying
consolidated balance sheets.
Subsequent
Event
In the
fourth quarter of 2009, we implemented a restructuring of the Company 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 150 employees and included employees
in both Florida and North Carolina. As a result of the restructuring,
we expect to record an estimated restructuring charge of approximately $1.3
million in the fourth quarter of 2009. No amounts related to this
restructuring have been accrued in the accompanying condensed consolidated
financial statements as of and for the three and nine month periods ended
October 3, 2009.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We
experience changes in interest expense when market interest rates change.
Changes in our debt could also increase these risks. Based on debt outstanding
at October 3, 2009, a one percentage-point increase (decrease) in interest rates
would result in approximately $0.7 million of additional (reduced) interest
costs annually. However, having drawn down $12.0 million under our
revolving credit facility after the close of the third quarter of 2009, based on
debt outstanding as of the filing of the Current Report on Form 10-Q, a one
percentage-point increase (decrease) in interest rates would result in
approximately $0.8 million of additional (reduced) interest costs
annually. As of October 3, 2009, we had no interest rate swaps or
caps in place which means our debt is all adjustable-rate debt.
We
utilize derivative financial instruments to hedge price movements in aluminum
materials used in our manufacturing process. We entered into aluminum
hedging instruments that settle at various times through the end of 2010 and
cover approximately 47% of our anticipated needs during the remainder
of 2009 at an average price of $0.98 per pound and 45% during 2010 at
an average price of $0.94 per pound.
For
forward contracts for the purchase of aluminum at October 3, 2009, a 10%
decrease in the price of aluminum would decrease the fair value of our forward
contacts of aluminum by $0.5 million.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Company’s reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
A control
system, however, no matter how well conceived and operated, can at best provide
reasonable, not absolute, assurance that the objectives of the control system
are met. Additionally, a control system reflects the fact that there are
resource constraints, and the benefits of controls must be considered relative
to costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of error or fraud, if any, within our Company have been detected,
and due to these inherent limitations, misstatements due to error or fraud may
occur and not be detected.
Our chief
executive officer and chief financial officer, with the assistance of
management, evaluated the design, operation and effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report (the
“Evaluation Date”). Based on that evaluation, our chief executive officer and
chief financial officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective for the purposes of ensuring
that information required to be disclosed in our reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control over
Financial Reporting. During the period covered by this report, there have
been no changes in our internal control over financial reporting identified in
connection with the evaluation described above that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART II — OTHER INFORMATION
ITEM 1. 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 to claims and lawsuits. We do not believe that the ultimate resolution
of these matters will have a material adverse impact on our financial position
or results of operations.
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. We believe that our facilities are in material
compliance with such laws 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. Our current
expenditures with respect to environmental investigation and remediation at our
facilities are minimal, although no assurance can be provided that more
significant remediation may not be required in the future as a result of spills
or releases of petroleum products or hazardous substances or the discovery of
previously unknown environmental conditions.
ITEM 1A. RISK FACTORS
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part 1, “Item 1A. Risk Factors” in
our Annual Report on Form 10-K for the year ended January 3, 2009, which
could materially affect our business, financial condition or future results. The
risks described in our Annual Report on Form 10-K are not the only risks
facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating
results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
Unregistered
Sales of Equity Securities
None.
Use
of Proceeds
Not
applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The
following items are attached or incorporated herein by reference:
|
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 the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
PGT, INC.
|
|
|
(Registrant)
|
|
|
Date:
November 12, 2009
|
/s/ Rodney
Hershberger
|
|
Rodney
Hershberger
|
|
|
President
and Chief Executive Officer
|
|
|
Date:
November 12, 2009
|
/s/ Jeffrey T.
Jackson
|
|
Jeffrey
T. Jackson
|
|
|
Executive
Vice President and Chief Financial
Officer
|
EXHIBIT
INDEX
|
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.