AMENDMENT NO. 5 TO FORM S-1
As filed with the Securities and Exchange Commission on
June 27, 2006
Registration
No. 333-132365
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
TO
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PGT, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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3442 |
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20-0634715 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
1070 Technology Drive
North Venice, Florida 34275
(941) 480-1600
(Address, including zip code, and telephone number,
including
area code, of registrants principal executive
offices)
Rodney Hershberger
President and Chief Executive Officer
PGT, Inc.
1070 Technology Drive
North Venice, Florida 34275
(941) 480-1600
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Robert B. Pincus, Esq. |
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Daniel J. Zubkoff, Esq. |
Allison Land Amorison, Esq. |
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Noah B. Newitz, Esq. |
Skadden, Arps, Slate, Meagher & Flom LLP |
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Cahill Gordon & Reindel
llp |
One Rodney Square, P.O. Box 636 |
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80 Pine Street |
Wilmington, Delaware 19899-0636 |
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New York, NY 10005 |
(302) 651-3000 |
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(212) 701-3000 |
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration number of the
earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Title of Each Class of |
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Aggregate Offering |
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Amount of |
Securities to be Registered |
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Price(1)(2) |
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Registration Fee(3) |
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Common Stock
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$182,647,044 |
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$19,550 |
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(1) |
Includes shares of common stock that the underwriters will have
the right to purchase to cover over-allotments, if any. |
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(2) |
Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act
of 1933. |
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(3) |
The Registrant previously paid $16,050 of this fee on
March 10, 2006. |
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The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.
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SUBJECT TO COMPLETION JUNE 9,
2006
PRELIMINARY PROSPECTUS
8,823,529 SHARES
COMMON STOCK
This is the initial public offering of shares of common stock of
PGT, Inc. No public market currently exists for our common
stock. We are offering 8,823,529 shares of our common
stock. We expect the public offering price to be between $16.00
and $18.00 per share.
We have applied to have our common stock approved for listing on
The Nasdaq National Market under the symbol PGTI.
Investing in our common stock involves a high degree of risk.
Before buying any shares, you should carefully read the
discussion of material risks of investing in our common stock in
Risk factors beginning on page 11 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
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Per Share | |
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Public offering price
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$ |
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Underwriting discounts and commissions
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Proceeds, before expenses, to us
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The underwriters may also purchase from us up to an additional
1,323,529 shares of our common stock at the public offering
price, less underwriting discounts and commissions, to cover
over-allotments, if any, within 30 days of the date of this
prospectus. If the underwriters exercise this option in full,
the total underwriting discounts and commissions will be
$ ,
our total proceeds, before expenses, will be
$ .
The underwriters are offering the common stock as set forth
under Underwriting. Delivery of the shares of common
stock will be made on or
about ,
2006.
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Deutsche Bank Securities |
JPMorgan |
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SunTrust Robinson Humphrey |
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You should rely only on the information contained in this
prospectus or in any related free writing prospectus filed with
the Securities and Exchange Commission and used or referred to
in an offering to you of the securities. We have not, and the
underwriters have not, authorized anyone to provide you with
additional information or information different from that
contained in this prospectus. We are offering to sell, and
seeking offers to buy, shares of our common stock only in
jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery
of this prospectus or of any sale of shares of our common stock.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
As used in this prospectus, unless the context requires
otherwise, we, us, our, or
the Company refers to PGT, Inc. and its consolidated
subsidiary. All references to fiscal years of the Company in
this prospectus refer to 52 or 53 weeks ending on the
Saturday nearest December 31. The period ended
January 1, 2005 consisted of 53 weeks. Unless
otherwise indicated, the information in this prospectus assumes
no exercise of the Underwriters over-allotment option.
i
Market data and other statistical information regarding the
window and door industry used throughout this prospectus are
based on independent industry publications, government
publications, reports by independent market research firms, or
other published independent sources. Some data, in particular
data with respect to the impact-resistant window and door market
and our market share, are based on our good faith estimates that
are derived from management estimates, our review of internal
surveys, information provided by certain suppliers and
independent sources. Unless otherwise indicated, statements as
to our market position relative to our competitors are based on
management estimates as of the end of fiscal year 2005.
Throughout this prospectus, references to impact-resistant
windows and doors refer to windows and doors for residential
applications that are specially designed to provide increased
protection from hurricane-force winds and wind-borne debris.
These windows and doors combine two sheets of glass that are
laminated together with an inner-layer of polyvinyl butyral and
are encased in heavy-duty aluminum or vinyl frames. Upon impact,
although the individual layers of glass may break, the polyvinyl
butyral inner-layer holds the broken glass particles together,
which prevents penetration by the impacting object. Unless the
context otherwise requires, such references do not include
windows utilizing shutters or other active forms of hurricane
protection.
WinGuard®
Impact-Resistant Windows and Doors;
PGT®
Aluminum and Vinyl Windows and Doors; and
Eze-Breeze®
Sliding Panels are the registered trademarks of PGT Industries,
Inc. This prospectus also contains trademarks and service marks
of other companies.
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PROSPECTUS SUMMARY
The following summary contains information about us and this
offering. It likely does not contain all the information that is
important to you. For a more complete understanding of us and
this offering, we encourage you to read this entire document
carefully, including the Risk factors section
beginning on page 11 and the financial statements that are
included elsewhere in this prospectus.
Our Company
We are the leading U.S. manufacturer and supplier of
residential impact-resistant windows and doors and pioneered the
U.S. impact-resistant window and door industry in the
aftermath of Hurricane Andrew in 1992. Our impact-resistant
products, which are marketed under the WinGuard brand name,
combine heavy-duty aluminum or vinyl frames with laminated glass
to provide protection from hurricane-force winds and wind-borne
debris by maintaining their structural integrity and preventing
penetration by impacting objects. Impact-resistant windows and
doors satisfy increasingly stringent building codes in
hurricane-prone coastal states and provide an attractive
alternative to shutters and other active forms of
hurricane protection that require installation and removal
before and after each storm. Our current market share in
Florida, the largest U.S. impact-resistant window and door
market, is significantly greater than that of any of our
competitors. WinGuard sales have increased at a compound annual
growth rate of 51% since 1999 and represented 56% of our 2005
net sales, as compared to 17% of our 1999 net sales. We expect
WinGuard sales to continue to represent an increasingly greater
percentage of our net sales. In addition to our core WinGuard
product line, we offer a complete range of premium,
made-to-order and fully
customizable aluminum and vinyl windows and doors primarily
targeting the non-impact-resistant market, which represented 44%
of our 2005 net sales. We manufacture these products in a wide
variety of styles, including single hung, horizontal roller,
casement, and sliding glass doors and we also manufacture
sliding panels used for enclosing screened-in porches. For the
year ended December 31, 2005, we generated net sales of
$332.8 million, resulting in a compound annual growth rate
of 23.7% since 1999. In the first quarter of 2006, we generated
net sales of $96.4 million, a 21.4% increase over net sales
generated in the first quarter of 2005.
The impact-resistant window and door market is growing faster
than any major segment of the overall window and door industry.
This growth has been driven primarily by increased adoption and
more active enforcement of stringent building codes that mandate
the use of impact-resistant products, as well as increased
penetration of impact-resistant windows and doors relative to
active forms of hurricane protection. An estimated 80% of the
U.S. impact-resistant market uses active forms of hurricane
protection. However, homeowners are increasingly choosing
impact-resistant windows and doors due to ease of use, superior
product performance, improved aesthetics, higher security
features, and resulting lower insurance premiums for homeowners
relative to standard windows. While offering all of these
benefits, our WinGuard products are comparably priced to the
combination of traditional windows and shutters. In addition,
awareness of the benefits provided by impact-resistant windows
and doors has increased dramatically due to media coverage of
recent hurricanes and the experience of coastal homeowners and
building contractors with these products. We have over one
million installed WinGuard units and, following the devastating
2004 and 2005 hurricane seasons, there were no reported impact
failures. According to the National Hurricane Center, we are
currently in a period of heightened hurricane activity that
could last another 10 to 20 years, which we expect to
further drive awareness of impact-resistant windows and doors.
The geographic regions in which we currently operate include the
Southeastern U.S., the Gulf Coast and the Caribbean.
Additionally, we expect increased demand along the Atlantic
coast, from Georgia to New York, as recently adopted building
codes are enforced and awareness of the PGT brand continues to
grow. We distribute our products through multiple channels,
including over 1,300 window distributors, building supply
distributors, window replacement dealers and enclosure
contractors. This broad distribution network provides us with
the flexibility to meet demand as it shifts between the
residential new construction and repair and remodeling end
markets. We operate strategically located manufacturing
facilities in North Venice, Florida and Lexington, North
Carolina, both capable of producing fully-customizable windows
and doors. Our North Venice plant is vertically integrated with
a glass tempering and laminating facility. Because of increased
demand for our products, we are moving our Lexington operations
to a larger facility in Salisbury, North Carolina. This facility
will increase our
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manufacturing capacity by over 160,000 square feet, include
glass laminating and tempering capabilities, and support the
expansion of our geographic footprint as the impact-resistant
market continues to grow.
Our Competitive Strengths
We believe our sales, earnings and cash flow will be driven by
the following competitive strengths:
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The leading position in the rapidly growing
U.S. impact-resistant window and door market with superior
products and strong brand awareness. |
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We have leading market share and brand awareness of our
impact-resistant windows and doors among contractors and
homeowners is significantly higher than that of any of our
competitors. |
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We have the manufacturing expertise and technical know-how to
develop and manufacture a complete line of impact-resistant
windows and doors that pass the most rigorous product tests and
are in compliance with stringent building code requirements. |
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Over the past decade, our management team has been actively
involved in the development of hurricane-protection building
codes, positioning us well for future market opportunities. |
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Diversified and loyal customer base across multiple distribution
channels and end markets. |
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Our broad distribution network effectively serves both the
residential new construction and repair and remodeling end
markets and provides us with the flexibility to meet demand as
it shifts between these end markets. |
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Over the past five years, the residential new construction and
repair and remodeling end markets have represented approximately
61% and 39% of our sales, respectively. |
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Our largest customer represents only 2.8% of our sales, and our
top ten customers represent only 16.8% of our sales. |
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Flexible and vertically-integrated manufacturing. |
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Our facilities are strategically located to maximize efficiency,
minimize lead times and cost-effectively serve several of the
nations fastest growing regional markets. |
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Our in-house glass tempering and laminating facility provides us
with a significant competitive advantage due to consistent
material sourcing, shorter lead times, lower costs, and greater
custom production capabilities. |
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Our finished goods are shipped within an average of
48 hours of completion, allowing us to carry minimal
finished product inventory. |
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Superior customer service before, during and after the sale. |
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Our manufacturing process provides an efficient flow of product
from order through delivery, allowing us to deliver
impact-resistant products from our Florida facility in an
average of three weeks, which we believe is below the industry
average. |
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Our cross-functional workforce and company-owned truck fleet
ensure timely fulfillment of customer orders, evidenced by our
on-time delivery rate of 99%. |
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We have provided training and product education to over 15,000
customers, installers, architects, and building code officials
through PGT University, increasing our customer loyalty and
strengthening our brand awareness. |
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Our well-trained sales team has outstanding technical knowledge,
ensuring that our products meet building code specifications and
are properly installed. |
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Experienced management team and continuous improvement culture. |
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Our senior management team has successfully demonstrated the
ability to grow our business by introducing new product lines,
expanding to new geographic markets and continuously improving
product quality and service levels. |
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Our senior management team, including our President, Chief
Executive Officer, and co-founder, Rodney Hershberger, has an
average of 20 years of manufacturing experience. |
Although we believe that the factors described above will drive
our sales, earnings, and cash flow and provide us with
opportunities to grow, we have a substantial amount of
indebtedness and there are a number of other risks and
uncertainties that may affect our financial condition, results
of operations, and cash flows. See Risk factors for
further information.
Our Strategy
Our strategy is to leverage our competitive strengths to grow
sales, earnings and cash flow and to expand our market positions
in the window and door industry.
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Increase penetration of existing impact-resistant markets. |
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An estimated 80% of the U.S. impact-resistant market still
uses shutters and other forms of active hurricane
protection, providing us with a significant growth opportunity
as demand continues to shift toward impact-resistant windows and
doors. |
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We will continue to drive WinGuard sales by capitalizing on the
performance benefits provided by our impact-resistant windows
and doors, including ease of use, improved aesthetics, higher
security features, full egress, visibility, UV protection, and
noise reduction. |
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As a market leader, we influence consumer and builder demand
through our marketing and advertising campaigns, which further
increase brand awareness of our WinGuard products. |
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We will continue to develop our strong relationships with large
national homebuilders who are increasingly offering WinGuard
windows and doors as part of their standard package. |
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Leverage our
market-leading position
to continue to expand into new geographical markets. |
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The impact-resistant market spans the coastline from Mexico to
New York, and the market opportunity will continue to grow as
increasingly stringent building codes requiring
impact-resistant
products are adopted and enforced and product awareness
continues to grow. |
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Many of our WinGuard customers serve non-coastal areas, and we
are leveraging these existing relationships to expand sales of
our premium non-impact-resistant windows and doors. |
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Continue to develop new products to capitalize on high growth
opportunities. |
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Our recently introduced Vinyl WinGuard products are targeting
impact-resistant markets where vinyl is the material of choice
because of its thermal efficiencies. |
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We recently introduced our multi-story product line in high
density coastal areas, where developers and builders continue to
build mid- and high-rise condominiums. |
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We now offer a full range of customizable product colors and are
launching wood-grain aluminum products to enhance our premium
product offerings. |
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We are leveraging our laminated glass technology and
manufacturing expertise to expand into new markets, such as
noise abatement and bomb blast protection. |
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Continue to focus on productivity improvements and working
capital utilization. |
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We continue to drive increased output and manufacturing
efficiencies through investments in automation, workforce
training and development, process and product controls, and
re-engineering of assembly-line layouts. |
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We have successfully increased our sales per manufacturing
square foot from $210 in 1997 to $510 in 2005 and have reduced
our inventory as a percentage of sales from 8.5% in 1997 to 4.2%
in 2005. |
Our History
Our subsidiary, PGT Industries, Inc., was founded in 1980 as
Vinyl Technology, Inc. by Paul Hostetler and our current
President and Chief Executive Officer, Rodney Hershberger. The
PGT brand was established in 1987, and we introduced our
WinGuard product line in the aftermath of Hurricane Andrew in
1992.
On December 16, 2003, an affiliate of JLL Partners formed
PGT, Inc. as a Delaware corporation named JLL Window Holdings,
Inc., to acquire all of the outstanding stock of PGT Holding
Company (the then-parent company of PGT Industries, Inc.) for
approximately $318.4 million on January 29, 2004. In
connection with the acquisition, some of the officers and
employees of PGT Industries, Inc. rolled over their shares of
common stock of PGT Holding Company (and vested options to
acquire such shares) in exchange for shares of Company common
stock (and vested options to acquire such shares). The purchase
price consisted of $286.6 million in cash, net of cash
acquired, and $31.8 million, representing the fair value of
shares of our Companys common stock and shares subject to
vested stock options of PGT Holding Company held by officers and
employees that were rolled over to Company stock options. The
fair value of the stock and rollover options was determined
based on the price paid (net of debt) by the Company in the
acquisition. As a result of the transaction, PGT Holding Company
became our wholly-owned subsidiary, and on May 25, 2005,
PGT Holding Company was merged with and into the Company. The
acquisition, the related repayment of the Companys
then-existing debt, and transaction fees and expenses were
financed with a combination of debt financing from a new
$195.0 million credit facility entered into by the Company
and a $125.0 million equity contribution by an affiliate of
JLL Partners. On February 15, 2006, our name was changed to
PGT, Inc.
There were no significant changes to our management or
operations in connection with the acquisition, nor were there
any significant tax consequences to the Company. For more
information on the JLL acquisition, see Note 4 to our
audited consolidated financial statements included herein.
Only the Company is selling securities in this offering. Upon
completion of this offering, an affiliate of JLL Partners will
retain 14,463,776 shares of our common stock and our
directors and executive officers, as a group, will retain
1,043,911 shares. For further information on the
consideration to be paid for the shares to be sold in this
offering, as compared to the consideration paid by JLL
Partners affiliate and management investors in the
acquisition, see the section entitled Dilution.
Our Principal Investors
An affiliate of JLL Partners, Inc. owned 91.8% of our
outstanding common stock prior to this offering, and will own
58.9% following this offering. Founded in 1988, JLL Partners is
a private equity investment firm that has invested in a wide
variety of sectors, including the building products industry.
JLL Partners portfolio companies have included Builders
FirstSource, Inc., AdvancePCS, IASIS Healthcare, C.H.I. Overhead
Doors, Mosaic Sales Solutions, Education Affiliates, Medical
Card System, and J.G. Wentworth.
Recent Developments
On June 5, 2006, our board of directors and our
stockholders approved a 662.07889-for-1 stock split of our
common stock.
After the stock split, effective June 6, 2006, each holder
of record held 662.07889 shares of common stock for every
1 share held immediately prior to the effective date. As a
result of the stock split, the board of directors also exercised
its discretion under the anti-dilution provisions of our 2004
Stock Incentive Plan to adjust the number of shares underlying
stock options and the related exercise prices to reflect the
change in the per share value and outstanding shares on the date
of the stock split. The effect of fractional shares is not
material.
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Following the effective date of the stock split, the par value
of the common stock remained at $0.01 per share. As a result, we
have increased the common stock in our consolidated balance
sheets and statements of shareholders equity included
herein on a retroactive basis for all of our Companys
periods presented, with a corresponding decrease to additional
paid-in capital. All share and per share amounts and related
disclosures in this prospectus have also been retroactively
adjusted for all of our Companys periods presented to
reflect the 662.07889-for-1 stock split.
Our principal executive offices are located at 1070 Technology
Drive, North Venice, Florida 34275, our telephone number is
(941) 480-1600, and our website is www.pgtindustries.com.
We have not incorporated by reference into this prospectus the
information on our website, and you should not consider it to be
a part of this prospectus.
5
THE OFFERING
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Common stock offered |
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8,823,529 shares (10,147,058 shares if the
underwriters exercise their over-allotment option in full) |
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Common stock to be outstanding immediately after this offering |
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24,573,012 shares (25,896,541 shares if the
underwriters exercise their over-allotment option in full) |
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Use of Proceeds |
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We estimate that the net proceeds to us from this offering after
expenses will be approximately $138.0 million, or
approximately $158.9 million if the underwriters exercise
their over-allotment option in full, assuming an initial public
offering price of $17.00 per share. We intend to use the
net proceeds that we receive from this offering to repay a
portion of our outstanding debt under our credit facilities, and
for general corporate purposes. See Use of proceeds. |
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Proposed Nasdaq symbol |
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PGTI |
The number of shares of our common stock outstanding after this
offering is based on 15,749,483 shares outstanding as of
June 7, 2006. Unless otherwise indicated, all information
in this prospectus assumes the following:
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a 662.07889-for-1 split of our common stock, effective
June 6, 2006; and |
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the initial offering price will be $17.00, which is the midpoint
of the estimated price range shown on the cover page of this
prospectus. |
The number of shares of our common stock to be outstanding
immediately after this offering excludes:
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4,938,536 shares of our common stock issuable upon exercise
of options outstanding as of June 7, 2006, at a weighted
average exercise price of $4.39 per share, of which options
to purchase 3,452,729 shares were exercisable as of that
date; |
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1,323,529 shares of our common stock that may be purchased
by the underwriters to cover over-allotments, if any; and |
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3,000,000 shares of our common stock reserved for issuance
under our 2006 Equity Incentive Plan. |
Unless we specifically state otherwise, the information in this
prospectus assumes that the underwriters do not exercise their
option to purchase up to 1,323,529 shares of our common
stock to cover over-allotments, if any.
6
SUMMARY HISTORICAL FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth a summary of consolidated
financial information and other data of the periods or at each
date indicated. The summary historical financial data as of and
for the first quarters ended April 1, 2006 and
April 2, 2005, have been derived from our unaudited
condensed consolidated financial statements and related notes
thereto included in this prospectus. The summary historical
financial data as of December 31, 2005 and January 1,
2005 and for the year ended December 31, 2005, and the
period January 30, 2004 to January 1, 2005, have been
derived from our audited consolidated financial statements and
related notes thereto included in the prospectus, which have
been audited by Ernst & Young LLP, independent
registered public accounting firm. The summary historical
financial data for the period December 28, 2003 to
January 29, 2004 and the year ended December 27, 2003,
have been derived from PGT Holding Companys audited
consolidated financial statements and related notes thereto
included in this prospectus, which have been audited by
Ernst & Young LLP, independent registered public
accounting firm. Throughout this prospectus, we refer to PGT
Holding Company as our Predecessor. The summary historical
financial data as of December 27, 2003 and
December 28, 2002 and for the year ended December 28,
2002, have been derived from our Predecessors audited
consolidated financial statements and related notes thereto not
included in this prospectus.
On January 29, 2004, we were acquired by an affiliate of
JLL Partners in a purchase business combination. This
acquisition was accounted for using purchase accounting in
accordance with SFAS No. 141, Business
Combinations. The post-acquisition periods of our Company
have been impacted by the application of purchase accounting
resulting in incremental, non-cash depreciation expense and
non-cash amortization of intangible assets. Accordingly, the
results of operation for the periods of our Company are not
comparable to the results of operation for the Predecessor
periods.
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All information included in the following tables should be read
in conjunction with Managements discussion and
analysis of financial condition and results of operations
and with the consolidated financial statements and related notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
First Quarter | |
|
First Quarter | |
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Ended | |
|
Ended | |
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
Year Ended | |
Consolidated Summary |
|
April 1, | |
|
April 2, | |
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
December 28, | |
Financial Data |
|
2006 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
96,355 |
|
|
$ |
79,364 |
|
|
$ |
332,813 |
|
|
$ |
237,350 |
|
|
$ |
19,044 |
|
|
$ |
222,594 |
|
|
$ |
160,627 |
|
Cost of sales
|
|
|
60,634 |
|
|
|
49,636 |
|
|
|
209,475 |
|
|
|
152,316 |
|
|
|
13,997 |
|
|
|
135,285 |
|
|
|
96,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
35,721 |
|
|
|
29,728 |
|
|
|
123,338 |
|
|
|
85,034 |
|
|
|
5,047 |
|
|
|
87,309 |
|
|
|
64,300 |
|
|
Selling, general and administrative expenses(1)
|
|
|
21,868 |
|
|
|
19,492 |
|
|
|
83,634 |
|
|
|
63,494 |
|
|
|
6,024 |
|
|
|
55,655 |
|
|
|
40,761 |
|
|
Write-off of trademark
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense(2)
|
|
|
26,898 |
|
|
|
|
|
|
|
7,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(13,045 |
) |
|
|
10,236 |
|
|
|
25,358 |
|
|
|
21,540 |
|
|
|
(977 |
) |
|
|
31,654 |
|
|
|
23,539 |
|
Other (income) expense, net(3)
|
|
|
(409 |
) |
|
|
(81 |
) |
|
|
(286 |
) |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
10,359 |
|
|
|
3,143 |
|
|
|
13,871 |
|
|
|
9,893 |
|
|
|
518 |
|
|
|
7,292 |
|
|
|
7,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(22,995 |
) |
|
|
7,174 |
|
|
|
11,773 |
|
|
|
11,523 |
|
|
|
(1,495 |
) |
|
|
24,362 |
|
|
|
15,909 |
|
Income tax expense (benefit)
|
|
|
(8,919 |
) |
|
|
2,382 |
|
|
|
3,910 |
|
|
|
4,531 |
|
|
|
(912 |
) |
|
|
9,397 |
|
|
|
6,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(14,076 |
) |
|
$ |
4,792 |
|
|
$ |
7,863 |
|
|
$ |
6,992 |
|
|
$ |
(583 |
) |
|
$ |
14,965 |
|
|
$ |
9,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic(4)(6)
|
|
$ |
(0.89 |
) |
|
$ |
0.30 |
|
|
$ |
0.50 |
|
|
$ |
0.44 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Net income (loss) per common and common equivalent
share diluted(4)(6)
|
|
$ |
(0.89 |
) |
|
$ |
0.28 |
|
|
$ |
0.45 |
|
|
$ |
0.41 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average shares outstanding basic(5)(6)
|
|
|
15,749 |
|
|
|
15,720 |
|
|
|
15,723 |
|
|
|
15,720 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average shares outstanding diluted(5)(6)
|
|
|
15,749 |
|
|
|
17,221 |
|
|
|
17,299 |
|
|
|
17,221 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Unaudited pro forma net income (loss) per common
share basic
|
|
$ |
(0.64 |
) |
|
|
|
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net income (loss) per common share and
common equivalent share diluted
|
|
$ |
(0.64 |
) |
|
|
|
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
20,642 |
|
|
$ |
2,295 |
|
|
$ |
3,270 |
|
|
$ |
2,525 |
|
|
$ |
12,191 |
|
|
$ |
8,536 |
|
|
$ |
9,399 |
|
|
Total assets
|
|
|
461,329 |
|
|
|
410,871 |
|
|
|
425,553 |
|
|
|
409,936 |
|
|
|
157,084 |
|
|
|
154,505 |
|
|
|
138,658 |
|
|
Total debt, including current portion
|
|
|
320,000 |
|
|
|
160,375 |
|
|
|
183,525 |
|
|
|
168,375 |
|
|
|
61,683 |
|
|
|
61,641 |
|
|
|
66,803 |
|
|
Shareholders equity
|
|
|
58,943 |
|
|
|
171,065 |
|
|
|
156,571 |
|
|
|
166,107 |
|
|
|
68,187 |
|
|
|
68,731 |
|
|
|
52,169 |
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$ |
2,255 |
|
|
$ |
1,637 |
|
|
$ |
7,503 |
|
|
$ |
5,221 |
|
|
$ |
484 |
|
|
$ |
5,075 |
|
|
$ |
4,099 |
|
|
Amortization
|
|
|
1,564 |
|
|
|
2,005 |
|
|
|
8,020 |
|
|
|
9,289 |
|
|
|
44 |
|
|
|
458 |
|
|
|
458 |
|
|
Capital expenditures (excluding acquisitions)
|
|
|
10,736 |
|
|
|
2,829 |
|
|
|
15,864 |
|
|
|
12,635 |
|
|
|
150 |
|
|
|
7,523 |
|
|
|
4,356 |
|
|
|
(1) |
Includes management fees paid to our majority stockholder. The
management services agreement pursuant to which these fees were
paid will terminate upon consummation of this offering. |
|
(2) |
Represents amounts paid to stock option holders (including
applicable payroll taxes) in lieu of adjusting exercise prices
in connection with the dividends paid to shareholders in
September 2005 and February 2006 of $6.6 million and
$26.9 million, respectively. These amounts include amounts
paid to stock option holders whose other compensation is a
component of cost of sales of $1.3 million and
$5.1 million, respectively. Also includes stock issuance
expense of $0.5 million in 2005. |
|
(3) |
Includes the amortization of our interest rate cap. |
8
|
|
(4) |
Basic net income per share represents net income divided by
weighted average common shares outstanding, and diluted net
income per share represents net income divided by weighted
average common and common equivalent shares outstanding. Due to
the significant change in our capital structure on
January 29, 2004, the Predecessor amount has not been
presented because it is not considered comparable to our
Companys amount. |
|
(5) |
Weighted average shares outstanding basic represents
the weighted average number of shares of common stock
outstanding and is determined by measuring (a) the shares
outstanding during each portion of the respective reporting
period that shares of common stock have been outstanding
relative to (b) the total amount of time in such reporting
period. Weighted average shares outstanding diluted
represents the basic weighted average shares outstanding,
adjusted to include the number of additional shares of common
stock that would have been outstanding if the dilutive shares of
common stock issuable upon exercise of our stock options had
been issued. |
|
(6) |
Reflects the impact of the
662.07889-for-1 stock
split as discussed in Note 9 to the unaudited condensed
consolidated financial statements included elsewhere herein. |
Below is a presentation of EBITDA, a non-GAAP measure, which we
believe is useful information for investors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
First Quarter | |
|
First Quarter | |
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Ended | |
|
Ended | |
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
Year Ended | |
|
|
April 1, | |
|
April 2, | |
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
December 28, | |
|
|
2006 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) | |
Net Income (loss)
|
|
$ |
(14,076 |
) |
|
$ |
4,792 |
|
|
$ |
7,863 |
|
|
$ |
6,992 |
|
|
$ |
(583 |
) |
|
$ |
14,965 |
|
|
$ |
9,622 |
|
Interest expense
|
|
|
10,359 |
|
|
|
3,143 |
|
|
|
13,871 |
|
|
|
9,893 |
|
|
|
518 |
|
|
|
7,292 |
|
|
|
7,630 |
|
Income tax expense (benefit)
|
|
|
(8,919 |
) |
|
|
2,382 |
|
|
|
3,910 |
|
|
|
4,531 |
|
|
|
(912 |
) |
|
|
9,397 |
|
|
|
6,287 |
|
Depreciation
|
|
|
2,255 |
|
|
|
1,637 |
|
|
|
7,503 |
|
|
|
5,221 |
|
|
|
484 |
|
|
|
5,075 |
|
|
|
4,099 |
|
Amortization
|
|
|
1,564 |
|
|
|
2,005 |
|
|
|
8,020 |
|
|
|
9,289 |
|
|
|
44 |
|
|
|
458 |
|
|
|
458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)(2)
|
|
$ |
(8,817 |
) |
|
$ |
13,959 |
|
|
$ |
41,167 |
|
|
$ |
35,926 |
|
|
$ |
(449 |
) |
|
$ |
37,187 |
|
|
$ |
28,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes the impact of the following items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees(a)
|
|
$ |
461 |
|
|
$ |
238 |
|
|
$ |
1,840 |
|
|
$ |
1,362 |
|
|
$ |
67 |
|
|
$ |
800 |
|
|
$ |
800 |
|
Write-off of NatureScape trademark(b)
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation(c)
|
|
|
26,898 |
|
|
|
|
|
|
|
7,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NatureScape exit costs(d)
|
|
|
|
|
|
|
|
|
|
|
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refinancing fees(e)
|
|
|
|
|
|
|
|
|
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Represents management fees paid to our majority stockholder.
Such fees will not be paid following consummation of this
offering. |
|
|
|
|
(b) |
Represents a write-down of our NatureScape trademark in
connection with the sale of our NatureScape business. |
|
|
|
|
(c) |
Represents compensation expense related to amounts paid to
option holders in lieu of adjusting exercise prices in
connection with the payment of dividends to shareholders in
September 2005 and February 2006. Also includes stock issuance
expense in 2005. |
|
|
|
|
(d) |
Represents exit costs related to the sale of our NatureScape
business, such as the write-off of raw materials and equipment. |
|
|
|
|
(e) |
Represents legal fees related to refinancing our senior secured
credit facility in September 2005. |
|
|
(2) |
EBITDA is defined as net income plus interest expense (net of
interest income), income taxes, depreciation, and amortization.
EBITDA is a measure commonly used in the window and door
industry, and we present EBITDA to enhance your understanding of
our operating performance. We use EBITDA as one criterion for
evaluating our performance relative to that of our peers. We
believe that EBITDA is an operating performance measure that
provides investors and analysts with a measure of operating
results unaffected by |
9
|
|
|
differences in capital structures, capital investment cycles,
and ages of related assets among otherwise comparable companies.
Further, we believe that EBITDA is a useful measure because it
improves comparability of predecessor and successor results of
operations, since purchase accounting renders depreciation and
amortization non-comparable between predecessor and successor
periods. While we believe EBITDA is a useful measure for
investors, it is not a measurement presented in accordance with
United States generally accepted accounting principles, or GAAP.
You should not consider EBITDA in isolation or as a substitute
for net income, cash flows from operations, or any other items
calculated in accordance with GAAP. In addition, EBITDA has
inherent material limitations as a performance measure. It does
not include interest expense and, because we have borrowed
money, interest expense is a necessary element of our costs. In
addition, EBITDA does not include depreciation and amortization
expense. Because we have capital and intangible assets,
depreciation and amortization expense is a necessary element of
our costs. Moreover, EBITDA does not include taxes, and payment
of taxes is a necessary element of our operations. Accordingly,
since EBITDA excludes these items, it has material limitations
as a performance measure. To compensate for the limitations of
EBITDA, the Companys management separately monitors
capital expenditures, which impact depreciation expense, as well
as amortization expense, interest expense, and income tax
expense. Because not all companies use identical calculations,
our presentation of EBITDA may not be comparable to other
similarly titled measures of other companies. We strongly urge
you to review the reconciliation information contained in this
prospectus and our financial statements. |
10
RISK FACTORS
An investment in shares of our common stock involves risks.
You should consider carefully the following information about
these risks, together with the other information contained in
this prospectus, before deciding to buy shares of our common
stock. If any of the following risks actually occurs, our
business, financial condition, results of operations, and future
growth prospects could be materially and adversely affected. In
these circumstances, the market price of our common stock could
decline, and you may lose all or part of the money you paid to
buy shares of our common stock.
Risks Relating to Our Business and Industry
|
|
|
Our operating results are substantially dependent on sales
of our WinGuard line of products. |
A majority of our net sales are, and are expected to continue to
be, derived from the sales of our WinGuard line of products.
Accordingly, our future operating results will depend on the
demand for WinGuard products by current and future customers,
including additions to this product line that are subsequently
introduced. If our competitors release new products that are
superior to WinGuard products in performance or price, or if we
fail to update WinGuard products with any technological advances
that are developed by us or our competitors or introduce new
products in a timely manner, demand for our products may
decline. A decline in demand for WinGuard products as a result
of competition, technological change or other factors could have
a material adverse effect on our ability to generate sales,
which would negatively affect our financial condition, results
of operation, and cash flow.
|
|
|
Changes in building codes could lower the demand for our
impact-resistant windows and doors. |
The market for our impact-resistant windows and doors depends in
large part on our ability to satisfy state and local building
codes that require protection from wind-borne debris. If the
standards in such building codes are raised, we may not be able
to meet their requirements, and demand for our products could
decline. Conversely, if the standards in such building codes are
lowered or are not enforced in certain areas, demand for our
impact-resistant products may decrease. Further, if states and
regions that are affected by hurricanes but do not currently
have such building codes fail to adopt and enforce hurricane
protection building codes, our ability to expand our business in
such markets may be limited.
|
|
|
We may be unable to successfully implement our expansion
plans included in our business strategy. |
Our business strategy includes expansion into new geographic
markets in additional coastal states as those states adopt or
enforce building codes that require protection from wind-borne
debris. Should these regions fail to adopt or enforce such
building codes, our ability to expand geographically may be
limited. In addition, if these regions do adopt or enforce
building codes that require protection from wind-borne debris
but our competitors enter those markets with products superior
to ours in performance or price, demand for our products in such
markets may not develop. Our business plan also provides for our
introduction of new product lines, such as our new vinyl
WinGuard products, and our new multi-story product line. If our
competitors release new products that are superior to ours in
performance or price, or if we cannot develop products that meet
customers demands or introduce our products in a timely
manner, we may be unable to generate sales of such new products.
We are also expanding our business by moving our operations in
North Carolina to a larger facility, which we acquired in
February 2006. This new facility will significantly increase our
manufacturing capacity. However, we may not be able to expand
our operations in North Carolina in an efficient and
cost-effective manner or without significant disruption to our
existing operations, including the diversion of
managements attention and resources from existing
operations. Our failure to successfully expand our North
Carolina facility could prevent us from remaining competitive or
adversely affect our ability to expand into new geographic
markets.
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Our industry is competitive, and competition may increase
as our markets grow as more states adopt or enforce building
codes that require impact-resistant products. |
The window and door industry is highly competitive. We face
significant competition from numerous small, regional producers,
as well as a small number of national producers. Some of these
competitors make products from alternative materials, including
wood. Any of these competitors may (i) foresee the course
of market development more accurately than do we,
(ii) develop products that are superior to our products,
(iii) have the ability to produce similar products at a
lower cost, (iv) develop stronger relationships with window
distributors, building supply distributors, and window
replacement dealers, or (v) adapt more quickly to new
technologies or evolving customer requirements than do we. As a
result, we may not be able to compete successfully with them.
In addition, while we are skilled at creating finished
impact-resistant and other window and door products, the
materials we use can be purchased by any existing or potential
competitor. New competitors can enter our industry, and existing
competitors may increase their efforts in the impact-resistant
market. Furthermore, if the market for impact-resistant windows
and doors continues to expand, larger competitors could enter,
or expand their presence in, the market and may be able to
compete more effectively. Finally, we may not be able to
maintain our costs at a level sufficiently low for us to compete
effectively. If we are unable to compete effectively, demand for
our products and our profitability may decline.
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Our business is currently concentrated in one
state. |
Our business is concentrated geographically in Florida. In
fiscal year 2005, approximately 88% of our sales were generated
from sales in Florida. A decline in the economy of the state of
Florida or of the coastal regions of Florida, a change in state
and local building code requirements for hurricane protection,
or any other adverse condition in the state could cause a
decline in the demand for our products in Florida, which could
decrease our sales and profitability.
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Declines in the new construction or repair and remodeling
markets could lower the demand for, and the pricing of, our
products, which could adversely affect our results. |
The window and door industry is subject to the cyclical market
pressures of the larger new construction and repair and
remodeling markets, which in turn may be significantly affected
by adverse changes in economic conditions such as demographic
trends, employment levels, and consumer confidence. Production
of new homes and home repair and remodeling projects may also
decline because of shortages of qualified tradesmen, and
shortages of materials. In addition, the homebuilding industry
and the home repair and remodeling sector are subject to various
local, state, and federal statutes, ordinances, rules, and
regulations concerning zoning, building design and safety,
construction, and similar matters, including regulations that
impose restrictive zoning and density requirements in order to
limit the number of homes that can be built within the
boundaries of a particular area. Increased regulatory
restrictions could limit demand for new homes and home repair
and remodeling products and could negatively affect our sales
and earnings. Declines in our customers construction
levels could decrease demand for our products, which would have
a significant adverse impact on our sales and results of
operations.
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We depend on
third-party suppliers,
and the prices we pay for our raw materials are subject to rapid
fluctuations. |
Our ability to offer a wide variety of products to our customers
is dependent upon our ability to obtain adequate material
supplies from manufacturers and other suppliers. Generally, our
raw materials and supplies are obtainable from various sources
and in sufficient quantities. However, it is possible that our
competitors or other suppliers may create laminates or products
based on new technologies that are not available to us or are
more effective than our products at surviving hurricane-force
winds and wind-borne debris or that they may have access to
products of a similar quality at lower prices.
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Our most significant raw materials include aluminum extrusion
and glass, each of which is subject to periods of rapid and
significant fluctuations in price. Our cost of aluminum
extrusion and glass increased by 10% and 12%, respectively, over
the last three years, and the total cost of our raw materials in
2005 constituted approximately 57% of our total cost of goods
sold. Although in many instances we have agreements with our
suppliers, these agreements are generally terminable by either
party on limited notice. Moreover, other than with our suppliers
of polyvinyl butyral and aluminum, we do not have long-term
contracts with the majority of the suppliers of our raw
materials. In addition, our current forward contracts for
aluminum run through October of 2006. In the event that severe
shortages of such materials occur, or if we are unable to enter
into a new hedge agreement on favorable terms for the purchase
of aluminum, we may experience increases in the cost of, or
delay in the shipment of, our products, which may result in
lower margins on the sales of our products. While historically
we have been able to substantially pass on significant cost
increases through to our customers, our results between periods
may be negatively impacted by a delay between the cost increases
and price increases in our products. Failure by our suppliers to
continue to supply us with materials on commercially reasonable
terms, or in our ability to pass on any future price increases
could result in significantly lower margins.
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Our level of indebtedness could adversely affect our
ability to raise additional capital to fund our operations,
limit our ability to react to changes in the economy or our
industry, and prevent us from meeting our obligations under our
debt instruments. |
As of April 1, 2006, after giving effect to the application
of the net proceeds of this offering, our total indebtedness
would have been $182.0 million, and our annual debt service
payments for 2006 would have been $14.8 million (consisting
of $14.8 million of interest and no principal). At this
level of debt, a 1% increase in LIBOR would result in an
increase in interest expense of $1.8 million, without
giving effect to our hedging arrangements.
Our debt could have important consequences for you, including:
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increasing our vulnerability to general economic and industry
conditions; |
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requiring a substantial portion of our cash flow from operations
to be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures, and future
business opportunities; |
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exposing us to the risk of increased interest rates because
certain of our borrowings, including borrowings under our credit
facilities, will be at variable rates of interest; |
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limiting our ability to obtain additional financing for working
capital, capital expenditures, debt service requirements,
acquisitions, and general corporate or other purposes; and |
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limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our
competitors who have less debt. |
In addition, some of our debt instruments, including those
governing our credit facilities, contain cross-default
provisions that could result in multiple tranches of our debt
being declared immediately due and payable. In such event, it is
unlikely that we would be able to satisfy our obligations under
all of such accelerated indebtedness simultaneously.
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We may incur additional indebtedness. |
We may incur additional indebtedness under our credit
facilities, which provide for up to $30 million of
revolving credit borrowings. In addition, we and our subsidiary
may be able to incur substantial additional indebtedness in the
future, including secured debt, subject to the restrictions
contained in the agreements governing our credit facilities. If
new debt is added to our current debt levels, the related risks
that we now face could intensify.
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Our debt instruments contain various covenants that limit
our ability to operate our business. |
Our credit facilities contain various provisions that limit our
ability to, among other things:
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transfer or sell assets, including the equity interests of our
subsidiary, or use asset sale proceeds; |
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incur additional debt; |
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pay dividends or distributions on our capital stock or
repurchase our capital stock; |
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make certain restricted payments or investments; |
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create liens to secure debt; |
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enter into transactions with affiliates; |
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merge or consolidate with another company; and |
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engage in unrelated business activities. |
In addition, our credit facilities require us to meet specified
financial ratios. These covenants may restrict our ability to
expand or fully pursue our business strategies. Our ability to
comply with these and other provisions of our credit facilities
may be affected by changes in our operating and financial
performance, changes in general business and economic
conditions, adverse regulatory developments, or other events
beyond our control. The breach of any of these covenants,
including those contained in our credit facilities, could result
in a default under our indebtedness, which could cause those and
other obligations to become due and payable. If any of our
indebtedness is accelerated, we may not be able to repay it.
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Our continued success will depend on our ability to retain
our key employees and to attract and retain new qualified
employees. |
Our success depends to a significant extent on the continued
service of our senior management team, which has an average of
20 years of manufacturing experience, including our
President, Chief Executive Officer, and
co-founder, Rodney
Hershberger. Although we have employment agreements with key
members of our senior management team, each of our employees,
subject to applicable notice requirements, may terminate his
employment at any time. Our industry is highly specialized, and
the pool of individuals with relevant experience in the window
and door industry, especially the
impact-resistant window
and door industry, is limited, and retaining and training
employees with the skills necessary to operate our business
effectively is challenging, costly, and time-consuming.
Accordingly, should we lose the services of any member of our
senior management team, our board of directors would have to
conduct a search for a qualified replacement. This search may be
prolonged, and we may not be able to locate and hire a qualified
replacement. The loss of any member of our senior management
team or other experienced, senior employees could impair our
ability to execute our business plan and growth strategy, cause
us to lose customers and reduce our net sales, or lead to
employee morale problems and the loss of other key employees. In
addition, we may be unsuccessful in attracting and retaining the
personnel we require to expand our operations successfully,
including the expansion of our facilities in North Carolina.
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We may be adversely affected by any disruption in our
information technology systems. |
Our operations are dependent upon our information technology
systems, which encompass all of our major business functions.
For example, our Expert Configuration Order Fulfillment System
enables us to synchronize the scheduling of the manufacturing
processes of multiple feeder and assembly operations to serve
our make-to-order needs and ship in geographical sequence, and
our Web Weaver web-based order entry system extends
the Expert Configuration technology to the dealer, allowing
configuration and price-quoting from the field. A substantial
disruption in our information technology systems for any
prolonged period could result in delays in
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receiving inventory and supplies or filling customer orders and
adversely affect our customer service and relationships.
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We may be adversely affected by any disruptions to our
manufacturing facilities or disruptions to our customer,
supplier, or employee base. |
Any serious disruption to our facilities resulting from
hurricanes and other
weather-related events,
fire, an act of terrorism, or any other cause could damage a
significant portion of our inventory, affect our distribution of
products, and materially impair our ability to distribute our
products to customers. We could incur significantly higher costs
and longer lead times associated with distributing our products
to our customers during the time that it takes for us to reopen
or replace a damaged facility. In addition, if there are
disruptions to our customer and supplier base or to our
employees caused by hurricanes, as we experienced during the
2004 hurricane season, our business could be temporarily
adversely affected by higher costs for materials, increased
shipping and storage costs, increased labor costs, increased
absentee rates, and scheduling issues. Furthermore, some of our
direct and indirect suppliers have unionized work forces, and
strikes, work stoppages, or slowdowns experienced by these
suppliers could result in slowdowns or closures of their
facilities. Any interruption in the production or delivery of
our supplies could reduce sales of our products and increase our
costs.
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The nature of our business exposes us to product liability
and warranty claims. |
We are involved in product liability and product warranty claims
relating to the products we manufacture and distribute that, if
adversely determined, could adversely affect our financial
condition, results of operations, and cash flows. In addition,
we may be exposed to potential claims arising from the conduct
of homebuilders and home remodelers and their sub-contractors.
Although we currently maintain what we believe to be suitable
and adequate insurance in excess of our self-insured amounts, we
may not be able to maintain such insurance on acceptable terms
or such insurance may not provide adequate protection against
potential liabilities. Product liability claims can be expensive
to defend and can divert the attention of management and other
personnel for significant periods, regardless of the ultimate
outcome. Claims of this nature could also have a negative impact
on customer confidence in our products and our company.
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We are subject to potential exposure to environmental
liabilities and are subject to environmental regulation. |
We are subject to various federal, state, and local
environmental laws, ordinances, and regulations. Although we
believe that our facilities are in material compliance with such
laws, ordinances, and regulations, as owners and lessees of real
property, we can be held liable for the investigation or
remediation of contamination on such properties, in some
circumstances, without regard to whether we knew of or were
responsible for such contamination. Remediation may be required
in the future as a result of spills or releases of petroleum
products or hazardous substances, the discovery of unknown
environmental conditions, or more stringent standards regarding
existing residual contamination. More burdensome environmental
regulatory requirements may increase our general and
administrative costs and may increase the risk that we may incur
fines or penalties or be held liable for violations of such
regulatory requirements.
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A range of factors may make our quarterly net sales and
earnings variable. |
We have historically experienced, and in the future will
continue to experience, variability in net sales and earnings on
a quarterly basis. The factors expected to contribute to this
variability include, among others, (i) the cyclical nature
of the homebuilding industry and the home repair and remodeling
sector, (ii) general economic conditions in the various
local markets in which we compete, (iii) the distribution
schedules of our customers, (iv) the effects of the
weather, and (v) the volatility of prices of aluminum,
glass and vinyl. These factors, among others, make it difficult
to project our operating results on a consistent basis.
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We conduct all of our operations through our subsidiary,
and rely on dividends and other payments from our subsidiary to
meet all of our obligations. |
We are a holding company and derive all of our operating income
from our subsidiary, PGT Industries, Inc. All of our assets are
held by our subsidiary, and we rely on the earnings and cash
flows of our subsidiary, which are paid to us by our subsidiary
in the form of dividends and other payments, to meet our debt
service obligations. The ability of our subsidiary to pay
dividends or make other payments to us will depend on its
respective operating results and may be restricted by, among
other things, the laws of its jurisdiction of organization
(which may limit the amount of funds available for the payment
of dividends and other distributions to us), the terms of
existing and future indebtedness and other agreements of our
subsidiary, including our credit facilities, and the covenants
of any future outstanding indebtedness we or our subsidiary
incur.
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We may be adversely affected by uncertainty in the economy
and financial markets, including as a result of
terrorism. |
The window and door market is subject to the cyclical market
pressures of the larger new construction and repair and
remodeling markets, which in turn are significantly affected by
changes in the economy, including demographic trends, employment
levels, and consumer confidence. Instability in the economy and
financial markets, including as a result of terrorism, may
result in a decrease in residential construction activity, which
would adversely affect our business. In addition, war or other
adverse developments, including a retaliatory military strike or
terrorist attack, may cause unpredictable or unfavorable
economic conditions and could have a material adverse effect on
our operating results and financial condition and on our ability
to raise capital. Terrorist attacks similar to the ones
committed on September 11, 2001, may also directly affect
our ability to keep our operations and services functioning
properly.
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Being a public company will increase our administrative
costs. |
As a public company, we will incur significant legal,
accounting, and other expenses that we did not incur as a
private company. In addition, our management team will be
required to spend valuable time on administrative matters that
it would otherwise devote to our business. Under the rules and
regulations of the SEC, as well as those of Nasdaq, our
financial compliance costs will increase. Such rules may also
make it more difficult and more expensive to obtain director and
officer liability insurance, and we may be forced to accept
reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. These rules and
regulations could also make it more difficult for us to attract
and retain qualified members of our board of directors,
particularly to serve on our audit committee, and qualified
executive officers.
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Investor confidence and the price of our common stock may
be adversely affected if we are unable to comply with
Section 404 of the Sarbanes-Oxley Act of 2002. |
Upon completion of this offering, we will become an SEC
reporting company. As a reporting company, we will be subject to
rules adopted by the SEC pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, which require us to include in our
annual report on
Form 10-K our
managements report on, and assessment of, the
effectiveness of our internal controls over financial reporting.
In addition, our independent auditors must attest to and report
on managements assessment of the effectiveness of our
internal controls over financial reporting and the effectiveness
of such internal controls. These requirements will first apply
to our annual report for the fiscal year ending
December 31, 2007. If we fail to properly assess and/or
achieve and maintain the adequacy of our internal controls,
there is a risk that we will not comply with all of the
requirements imposed by Section 404. Moreover, effective
internal controls are necessary for us to produce reliable
financial reports and are important to help prevent financial
fraud. Any failure in our development of internal controls could
result in an adverse reaction in the financial marketplace due
to a loss of investor confidence in the reliability of our
financial statements, which ultimately could harm our business
and could negatively impact the market price of our securities.
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Risks Related to Our Common Stock and the Offering
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There has been no prior public market for our common
stock, and an active trading market may not develop. |
Prior to this offering, there has been no public market for our
common stock. An active trading market may not develop following
completion of this offering or, if developed, may not be
sustained. The lack of an active market may impair your ability
to sell your shares at the time you wish to sell them or at a
price that you consider reasonable. The lack of an active market
may also reduce the fair market value of your shares. An
inactive market may also impair our ability to raise capital by
selling shares of capital stock and may impair our ability to
acquire other companies by using our shares as consideration.
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Our stock price may be volatile, and you may lose all or
part of your investment. |
The initial public offering price for the shares of our common
stock sold in this offering has been determined by negotiation
among the representatives of the underwriters and us. This price
may not reflect the market price of our common stock following
this offering and the price of our common stock may decline. In
addition, the market price of our common stock could be highly
volatile and may fluctuate substantially as a result of many
factors, including:
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actual or anticipated fluctuations in our results of operations; |
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variance in our financial performance from the expectations of
market analysts; |
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announcements by us or our competitors of significant business
developments, changes in customer relationships, acquisitions or
expansion plans; |
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changes in the prices of our raw materials or the products we
sell; |
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our involvement in litigation; |
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our sale of common stock or other securities in the future; |
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market conditions in our industry; |
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changes in key personnel; |
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the trading volume of our common stock; |
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changes in the estimation of the future size and growth rate of
our markets; and |
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general economic and market conditions. |
In addition, the stock markets have experienced extreme price
and volume fluctuations. Broad market and industry factors may
materially harm the market price of our common stock, regardless
of our operating performance. In the past, following periods of
volatility in the market price of a companys securities,
securities class action litigation has often been instituted
against that company. If we were involved in any similar
litigation we could incur substantial costs and our
managements attention and resources could be diverted.
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Investors in this offering will suffer immediate and
substantial dilution relative to our net tangible book
value. |
The initial public offering price of our common stock is
substantially higher than the net tangible book value per share
of our common stock. Purchasers of our common stock in this
offering will experience immediate and
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substantial dilution, which means that, assuming that all
options issued prior to this offering are exercised:
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you will pay a price per share that substantially exceeds the
per share book value of our assets immediately following the
offering after subtracting our liabilities; and |
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the purchasers in this offering will have contributed 48.8% of
the total amount to fund us but will own only 29.9% of our
outstanding shares. |
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The market price of our common stock could be negatively
affected by future sales of our common stock. |
Sales by us or our stockholders of a substantial number of
shares of our common stock in the public market following this
offering, or the perception that these sales might occur, could
cause the market price of our common stock to decline or could
impair our ability to raise capital through a future sale of, or
pay for acquisitions using, our equity securities. The shares
held by our executive officers, our directors, and our majority
stockholder following this offering will be subject to
lock-up agreements and
may not be sold to the public during the
180-day period
following the date of this prospectus without the consent of the
underwriters. Deutsche Bank Securities Inc. and J.P. Morgan
Securities Inc. may, in their sole discretion and at any time
without notice, release all or any portion of the shares subject
to these lock-up
agreements. Shares held by our officers, directors, and
principal stockholder will be considered restricted
securities within the meaning of Rule 144 under the
Securities Act and, after the
lock-up period, will be
eligible for resale subject to certain limitations of
Rule 144.
Upon the closing of this offering, the holders of an aggregate
of 14,463,776 shares of our common stock, or their
permitted transferees, are entitled to rights with respect to
the registration of these shares under the Securities Act of
1933. In addition to outstanding shares eligible for future
sale, shares of our common stock are issuable under currently
outstanding stock options granted to several officers, directors
and employees. Following this offering, we intend to file a
registration statement on
Form S-8 under the
Securities Act registering 5,239,812 shares under our stock
incentive plans. Shares included in such registration statement
will be available for sale in the public market immediately
after such filing except for shares held by affiliates who will
have certain restrictions on their ability to sell.
The
controlling position of an affiliate of JLL Partners will
limit your ability to influence corporate matters.
An affiliate of JLL Partners owned 91.8% of our outstanding
common stock prior to this offering and, after this offering,
will own 58.9% of our outstanding common stock. Accordingly,
following this offering, such affiliate of JLL Partners
will have significant influence over our management and affairs
and over all matters requiring stockholder approval, including
the election of directors and significant corporate
transactions, such as a merger or other sale of our company or
its assets, for the foreseeable future. This concentration of
ownership may have the effect of delaying or preventing a
transaction such as a merger, consolidation, or other business
combination involving us, or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain
control, even if such a transaction or change of control would
benefit you or other minority stockholders. In addition, this
concentrated control will limit your ability to influence
corporate matters, and such affiliate of JLL Partners, as a
controlling stockholder, could approve certain actions,
including a going-private transaction, without approval of
minority stockholders, subject to obtaining any required
approval of our board of directors for such transaction. As a
result, the market price of our common stock could be adversely
affected.
The
controlling position of an affiliate of JLL Partners will permit
us to be exempt from certain Nasdaq corporate governance
requirements.
Although we intend to satisfy all applicable Nasdaq corporate
governance rules, for so long as an affiliate of
JLL Partners continues to own more than 50% of our
outstanding shares after the consummation of the offering, we
intend to avail ourselves of the Nasdaq Rule 4350(c)
controlled company exemption that applies to
companies in which more than 50% of the stockholder voting power
is held by an individual, a group, or another company. This rule
will grant us an exemption from the requirements that we have a
majority of independent
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directors on our board of directors and that we have independent
directors determine the compensation of executive officers and
the selection of nominees to the board of directors. However, we
intend to comply with such requirements in the event that such
affiliate of JLL Partners ownership falls to or below
50%. In addition, although we intend to increase the size of the
board following completion of this offering to appoint
independent directors to satisfy the requirements of the
Sarbanes-Oxley Act, we currently intend that a majority of
the members of our board of directors will continue to be
associated with JLL Partners for so long as an affiliate of
JLL Partners owns more than 50% of our outstanding shares.
Our
directors and officers who are affiliated with JLL Partners will
not have any obligation to report corporate opportunities to
us.
Because some individuals may serve as our directors or officers
and as directors, officers, partners, members, managers, or
employees of JLL Partners or its affiliates or investment funds
and because such affiliates or investment funds may engage in
similar lines of business to those in which we engage, our
amended and restated certificate of incorporation allocates
corporate opportunities between us and JLL Partners and its
affiliates and investment funds. Specifically, for so long as
JLL Partners and its affiliates and investment funds own at
least 15% of our shares of common stock, none of JLL Partners,
nor any of its affiliates or investment funds, or their
respective directors, officers, partners, members, managers, or
employees has any duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines
of business as do we. In addition, if any of them acquires
knowledge of a potential transaction that may be a corporate
opportunity for the Company and for JLL Partners or its
affiliates or investment funds, subject to certain exceptions,
we will not have any expectancy in such corporate opportunity,
and they will not have any obligation to communicate such
opportunity to us. By becoming our stockholder, you will be
deemed to have notice of and have consented to these provisions
of our amended and restated certificate of incorporation that
will be in effect at the completion of this offering.
Provisions
in our charter documents could discourage a takeover that
stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws, as
amended and restated upon the closing of this offering, may have
the effect of delaying or preventing a change of control or
changes in our management, even if it would benefit you or other
minority stockholders. These provisions include the following:
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Our stockholders may not remove a director without cause, and
our certificate of incorporation provides for a classified board
of directors with staggered, three-year terms. As a result, it
could take up to three years for stockholders to replace the
entire board. |
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Our board of directors has the exclusive right to elect
directors to fill a vacancy created by the expansion of the
board of directors or the resignation, death, or removal of a
director, which prevents stockholders from being able to fill
vacancies on our board of directors. |
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Our stockholders may not act by written consent. As a result,
holders of our capital stock will be able to take actions only
at a stockholders meeting. |
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No stockholder may call a special meeting of stockholders. This
may make it more difficult for stockholders to take certain
actions. |
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We do not have cumulative voting in the election of directors.
This limits the ability of minority stockholders to elect
director candidates. |
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Stockholders must provide advance notice to nominate individuals
for election to the board of directors or to propose matters
that can be acted upon at a stockholders meeting. These
provisions may discourage or deter a potential acquirer from
conducting a solicitation of proxies to elect the
acquirers own slate of directors or otherwise attempting
to obtain control of our company. |
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Amendments to some provisions of our certificate of
incorporation and bylaws require a supermajority vote of our
stockholders. |
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Our board of directors may issue, without stockholder approval,
shares of undesignated preferred stock. The ability to authorize
undesignated preferred stock makes it possible for our board of
directors to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to
acquire us. |
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If we fail to meet the requirements of The Nasdaq National
Market, our stock could be delisted, and the market for our
stock could be less liquid. |
We have applied to list our common stock on The Nasdaq National
Market under the symbol PGTI. There are continuing
eligibility requirements of companies listed on The Nasdaq
National Market. If we are not able to continue to satisfy the
eligibility requirements for The Nasdaq National Market, then
our stock may be delisted.
The failure to maintain our listing on the Nasdaq National
Market would harm the liquidity of our common stock and would
have an adverse effect on the market price of our common stock.
As a result, the liquidity of our common stock would be
impaired, not only in the number of shares that could be bought
or sold, but also through delays in the timing of transactions,
reduction in security analysts and news medias
coverage and lower prices for our common stock than might
otherwise be attained. In addition, our common stock would
become subject to the penny stock rules that impose
additional sales practice requirements on broker-dealers who
sell such securities.
|
|
|
If securities or industry analysts do not publish research
or reports about our business, our stock price and trading
volume could decline. |
The trading market for our common stock will likely be
significantly influenced by the research and reports that
securities or industry analysts publish about us and our
business. We do not have any control over these analysts. If one
or more of the analysts who cover us downgrade our stock, our
stock price would likely decline. In addition, if one or more of
these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which could cause our stock price or trading
volume to decline.
20
FORWARD-LOOKING STATEMENTS
This prospectus 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 prospectus, including, without
limitation, statements under the headings Prospectus
summary, Risk factors, Managements
discussion and analysis of financial condition and results of
operations, and Business, and located
elsewhere in this prospectus regarding the prospects of our
industry and our prospects, plans, financial position, and
business strategy may constitute forward-looking statements. 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 prove to be correct.
Important factors that could cause actual results to differ
materially from our expectations are disclosed in this
prospectus, including in conjunction with the forward-looking
statements included in this prospectus and under the heading
Risk factors. 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
prospectus. We undertake no obligation to publicly revise any
forward-looking statement to reflect circumstances or events
after the date of this prospectus or to reflect the occurrence
of unanticipated events except as may be required by applicable
securities laws. Factors, risks, and uncertainties that could
cause actual outcomes and results to be materially different
from those projected include, among others:
|
|
|
|
|
Our dependence on one line of products for the majority of our
net sales; |
|
|
|
Changes in building codes or the failure to adopt or enforce
building codes; |
|
|
|
Our ability to execute our strategic plans; |
|
|
|
Competition in the highly fragmented window and door industry; |
|
|
|
The concentration of our business in one state; |
|
|
|
Declines in the new construction and repair and remodeling end
markets; |
|
|
|
Prices we pay for raw materials and receive for finished
products fluctuate rapidly; |
|
|
|
Our level of indebtedness; |
|
|
|
Our incurrence of additional indebtedness; |
|
|
|
Our inability to take certain actions because of restrictions in
our debt agreements; |
|
|
|
Dependence on key personnel; |
|
|
|
Disruptions in our information technology systems; |
21
|
|
|
|
|
Disruptions at our manufacturing facilities or in our customer,
supplier, or employee base; |
|
|
|
Exposure to product liability and warranty claims; |
|
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|
Exposure to environmental liabilities and regulation; |
|
|
|
Variability of our quarterly revenues and earnings; |
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|
Our reliance on our subsidiary; |
|
|
|
Economic and financial uncertainty resulting from terrorism; |
|
|
|
Costs incurred as a result of becoming a public company; and |
|
|
|
Our ability to meet the requirements of the Sarbanes-Oxley Act
of 2002. |
22
USE OF PROCEEDS
We expect to receive approximately $138.0 million in net
proceeds from this offering based on the sale of
8,823,529 shares at an initial offering price of
$17.00 per share (which represents the midpoint of the
range on the cover of this prospectus) after deducting estimated
underwriting discounts and commissions and fees and expenses
payable by us in connection with this offering. If the
underwriters exercise their over-allotment option in full, we
expect to receive approximately $158.9 million in net
proceeds from this offering based on the sale of
10,147,058 shares at an initial offering price of
$17.00 per share after deducting estimated underwriting
discounts and commissions and fees and expenses payable by us in
connection with this offering.
We intend to use the net proceeds of this offering:
|
|
|
|
|
to repay up to $115.0 million of indebtedness under our
second lien credit facility; |
|
|
|
to repay up to $23.0 million of indebtedness under our
first lien credit facility; and |
|
|
|
for working capital and general corporate purposes. |
On February 14, 2006, we entered into an amended and
restated $235 million senior secured credit facility and
entered into our new $115 million second lien credit
facility. The proceeds of such amended and restated senior
secured credit facility and second lien credit facility were
used to refinance our then-existing indebtedness; pay an
approximately $83.5 million dividend to our stockholders;
make an approximately $26.9 million cash payment to holders
of our stock options (including applicable payroll taxes of
$0.5 million) in lieu of adjusting exercise prices; pay the
fees and expenses associated with our credit facilities, and for
working capital and general corporate purposes.
Throughout this prospectus we refer to such amendment and
restatement of our senior secured credit facility in February
2006, entrance into the new second lien credit facility, and the
use of proceeds from the term borrowings under each such
facility, including the payment of a dividend of
$83.5 million, and the payment to holders of our stock
options of $26.9 million in lieu of adjusting exercise
prices as the recapitalization transactions.
The term loans under our senior secured credit facility have a
maturity of six years and bear interest, at our option, at a
rate equal to an adjusted LIBOR rate plus 3.0% per annum or
a base rate plus 2.0% per annum. The revolving loans under
our senior secured credit facility have a maturity of five years
and bear interest initially, at our option (provided, that all
swingline loans shall be base rate loans), at a rate equal to an
adjusted LIBOR rate plus 2.75% per annum or a base rate
plus 1.75% per annum, and, may decline to 2.00% for LIBOR
loans and 1.00% for base rate loans if certain leverage ratios
are met. The term loans under our second lien credit facility
have a maturity of six and one half years and bear interest, at
our option, at a rate equal to an adjusted LIBOR rate plus
7.0% per annum or a base rate plus 6.0% per annum. For
further information on our credit facilities, see
Description of certain indebtedness.
An increase (or decrease) in the initial public offering price
from the assumed initial public offering price of
$17.00 per share by $1.00 would increase (or decrease) the
net proceeds to us from this offering by approximately
$8.2 million, after deducting estimated underwriting
discounts and commissions and estimated fees and expenses
associated with this offering payable by us, assuming no
exercise of the underwriters over-allotment option and no
other change to the number of shares offered by us as set forth
on the cover page of this prospectus. An increase (or decrease)
of 1,000,000 shares from the expected number of shares to
be sold in the offering, assuming no change in the assumed
initial public offering price, would increase (or decrease) the
net proceeds to us from this offering by approximately
$15.8 million, after deducting estimated underwriting
discounts and commissions and estimated fees and expenses
associated with this offering. Any such increase (or decrease)
will result in a corresponding increase (or decrease) in the
amount of our indebtedness that is repaid.
23
DIVIDEND POLICY
We have not paid regular dividends in the past, and any future
determination relating to our dividend policy will be made at
the discretion of our board of directors and will depend on a
number of factors, including restrictions in our debt
instruments, our future earnings, capital requirements,
financial condition, future prospects, and other factors that
our board of directors may deem relevant. The terms of our
credit facilities restrict our ability to pay dividends, and we
currently do not intend to pay dividends.
In the third quarter of 2005, we paid a dividend to our
stockholders and accrued a compensation-based payment to all
holders of our outstanding stock options (including vested and
unvested options) in lieu of adjusting exercise prices in
connection with the payment of such dividend. The aggregate
dividend to stockholders was approximately $20.0 million,
and the aggregate amount payable to option holders was
approximately $6.6 million (including applicable payroll
taxes of $0.5 million), which was recognized as stock
compensation expense.
On February 17, 2006, with a portion of the net proceeds of
our second amended and restated senior secured credit facility
and our new second lien credit facility, we paid a dividend to
our stockholders and a compensation-based payment to all holders
of our outstanding stock options (including vested and unvested
options) in lieu of adjusting exercise prices in connection with
the payment of such dividend. The aggregate dividend to
stockholders was approximately $83.5 million, and the
aggregate payment to option holders was approximately
$26.9 million (including applicable payroll taxes of
$0.5 million), which will be recognized as stock
compensation expense.
24
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and capitalization as of April 1, 2006, (i) on
an actual basis and (ii) as adjusted to give effect to this
offering and the application of the net proceeds therefrom, as
if each had occurred on April 1, 2006. You should read this
table in conjunction with Use of proceeds,
Managements discussion and analysis of financial
condition and results of operations, and our consolidated
financial statements and the notes thereto, each included
elsewhere in this prospectus.
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|
|
|
|
|
|
|
|
|
|
|
April 1, 2006 | |
|
|
| |
|
|
|
|
As Adjusted | |
|
|
|
|
for this | |
|
|
Actual | |
|
Offering | |
|
|
| |
|
| |
|
|
(In millions) | |
Cash and cash equivalents
|
|
$ |
20.6 |
|
|
$ |
17.3 |
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
First lien credit facility
|
|
|
205.0 |
|
|
|
182.0 |
|
|
Second lien credit facility
|
|
|
115.0 |
|
|
|
|
|
|
Revolving credit facility(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt(2)
|
|
|
320.0 |
|
|
|
182.0 |
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock ($0.01 par value, 200.0 million shares
authorized, 15.7 million and 24.6 million issued and
outstanding Actual and As Adjusted at April 1, 2006,
respectively)
|
|
|
0.2 |
|
|
|
0.2 |
|
|
Additional paid-in capital(2)
|
|
|
69.1 |
|
|
|
207.1 |
|
|
Retained earnings (accumulated deficit)
|
|
|
(14.1 |
) |
|
|
(15.5 |
) |
|
Accumulated other comprehensive income
|
|
|
3.7 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
58.9 |
|
|
|
195.5 |
|
|
|
|
|
|
|
|
|
|
Total capitalization(2)
|
|
$ |
378.9 |
|
|
$ |
377.5 |
|
|
|
|
|
|
|
|
|
|
(1) |
As of the date hereof, there are no borrowings outstanding under
our $30 million Revolving Credit Facility, although
$5.4 million of letters of credit are outstanding
thereunder. See Description of certain indebtedness. |
|
(2) |
To the extent we change the number of shares of common stock we
sell in this offering from the shares we expect to sell, or we
change the initial public offering price from the
$17.00 per share assumed initial public offering price, or
any combination of these events occurs, our net proceeds from
this offering, As Adjusted total debt and As Adjusted additional
paid-in capital may increase or decrease correspondingly. An
increase (or decrease) of $1.00 from the assumed initial public
offering price, assuming no change in the number of shares of
common stock to be sold and no exercise of the
underwriters over-allotment option, would increase (or
decrease) our net proceeds from this offering and our As
Adjusted additional paid-in capital by approximately
$8.2 million and decrease (or increase) our As Adjusted
total debt by approximately $8.2 million. An increase (or
decrease) of 1,000,000 shares from the expected number of
shares to be sold in the offering, assuming no change in the
assumed initial public offering price and no exercise of the
underwriters over-allotment option, would increase (or
decrease) our net proceeds from this offering and our As
Adjusted additional paid-in capital by approximately
$15.8 million and decrease (or increase) our As Adjusted
total debt by approximately $15.8 million. |
25
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the public offering
price per share of our common stock and the pro forma net
tangible book value per share of our common stock after giving
effect to this offering. Our net tangible book value as of April
1, 2006, was approximately $(221.2) million, or
approximately $(14.04) per share of common stock. Net tangible
book value per share is equal to our total tangible assets minus
total liabilities all divided by the number of shares of common
stock outstanding as of April 1, 2006. After giving effect to
the sale of 8,823,529 shares of our common stock in this
offering at an assumed initial public offering price of
$17.00 per share, and after deducting estimated
underwriting discounts and commissions, our estimated offering
expenses, and expenses to pay down debt, our pro forma as
adjusted net tangible book value as of April 1, 2006, would have
been approximately $(84.6) million, or approximately
$(3.44) per share of common stock. The difference
represents an immediate increase in pro forma net tangible book
value of approximately $10.60 per share to our existing
stockholders and an immediate dilution in pro forma net tangible
book value of approximately $20.44 per share to new
investors.
The following table illustrates the per share dilution to the
new investors:
|
|
|
|
|
|
|
Per Share | |
|
|
| |
Assumed initial public offering price
|
|
$ |
17.00 |
|
Net tangible book value as of April 1, 2006
|
|
|
(14.04 |
) |
Increase in net tangible book value attributable to this offering
|
|
|
10.60 |
|
Pro forma as adjusted net tangible book value after this offering
|
|
|
(3.44 |
) |
Dilution to new investors in this offering
|
|
$ |
20.44 |
|
If the underwriters exercise their over-allotment option in
full, pro forma as adjusted net tangible book value would
increase to approximately $(2.46) per share, representing
an increase to existing stockholders of approximately
$11.58 per share, and there would be an immediate dilution
of approximately $19.46 per share to new investors.
An increase (or decrease) in the initial public offering price
from the assumed initial public offering price of
$17.00 per share by $1.00 would increase (or decrease) our
pro forma as adjusted net tangible book value after giving
effect to this offering by approximately $8.2 million, our
pro forma as adjusted net tangible book value per share after
giving effect to this offering by $0.33 per share and the
dilution in net tangible book value per share to new investors
in this offering by $0.67 per share, after deducting the
estimated underwriting discounts and commissions and estimated
aggregate offering expenses payable by us and assuming no
exercise of the underwriters over-allotment option and no
other change to the number of shares offered by us as set forth
on the cover page of this prospectus. An increase of
1,000,000 shares from the expected number of shares to be
sold in the offering, assuming no change in the initial public
offering price per share from the price assumed above, would
increase our pro forma as adjusted net tangible book value after
giving effect to this offering by approximately
$15.8 million, our pro forma as adjusted net tangible book
value per share after giving effect to this offering by
$0.75 per share and the dilution in net tangible book value
per share to new investors in this offering by $(0.75) per
share, after deducting the estimated underwriting discounts and
commissions and estimated aggregate offering expenses payable by
us and assuming no exercise of the underwriters
over-allotment option. A decrease of 1,000,000 shares from
the expected number of shares to be sold in the offering,
assuming no change in the initial public offering price per
share from the price assumed above, would decrease our pro forma
as adjusted net tangible book value after giving effect to this
offering by approximately $15.8 million, our pro forma as
adjusted net tangible book value per share after giving effect
to this offering by $(0.82) per share, and the dilution in
net tangible book value per share to new investors in this
offering by $0.82 per share, after deducting the estimated
underwriting discounts and commissions and estimated aggregate
offering expenses payable by us and assuming no exercise of the
underwriters over-allotment option.
26
The following table summarizes the differences between our
existing stockholders (and option holders) and investors in this
offering with respect to the total number of shares of common
stock held by such stockholders (or subject to outstanding
options), the total consideration paid to us (or payable upon
exercise of outstanding options), and the average price per
share paid by our existing stockholders (or payable by option
holders upon exercise of outstanding options) and the price per
share paid by investors in this offering before deducting
estimated underwriting discounts and commissions and our
estimated offering expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average | |
|
|
Shares or Options | |
|
|
|
Price | |
|
|
Purchased | |
|
Total Consideration | |
|
Per | |
|
|
| |
|
| |
|
Share or | |
|
|
Number | |
|
Percent | |
|
Amount | |
|
Percent | |
|
Option | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Shares issued and outstanding
|
|
|
15,749,483 |
|
|
|
53.4% |
|
|
$ |
135,858,698 |
|
|
|
44.2% |
|
|
$ |
8.63 |
|
Shares issuable upon exercise of outstanding options
|
|
|
4,938,536 |
|
|
|
16.7% |
|
|
|
21,696,595 |
|
|
|
7.0% |
|
|
|
4.39 |
|
Shares issued in this offering
|
|
|
8,823,529 |
|
|
|
29.9% |
|
|
|
150,000,000 |
|
|
|
48.8% |
|
|
|
17.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29,511,548 |
|
|
|
100.0% |
|
|
$ |
307,555,293 |
|
|
|
100.0% |
|
|
$ |
10.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the underwriters exercise their over-allotment option in
full, the following will occur, assuming exercise of all
outstanding options:
|
|
|
|
|
the pro forma as adjusted percentage of shares of our common
stock held by existing stockholders will decrease to
approximately 51.1% of the total number of pro forma as adjusted
shares of our common stock outstanding after this offering; and |
|
|
|
the pro forma as adjusted number of shares of our common stock
held by new public investors will increase to 10,147,058, or
approximately 32.9% of the total pro forma as adjusted number of
shares of our common stock outstanding after this offering. |
An increase (or decrease) in the initial public offering price
from the assumed initial public offering price of
$17.00 per share by $1.00 would increase (or decrease)
total consideration paid by new investors purchasing stock from
us in this offering, total consideration paid by all investors
described above, and the total average price per share paid by
all such investors by $8.8 million, $8.8 million, and
$0.30, respectively, assuming no change to the number of shares
offered by us as set forth on the cover page of this prospectus
and without deducting underwriting discounts and commissions and
other expenses of this offering. An increase (or decrease) of
1,000,000 shares from the expected number of shares to be
sold in the offering, assuming no change in the initial public
offering price per share from the price assumed above, would
increase (or decrease) total consideration paid by new investors
purchasing stock from us in this offering, total consideration
paid by all investors described above, and the total average
price per share paid by all such investors by
$17.0 million, $17.0 million, and $0.22, respectively,
without deducting underwriting discounts and commissions and
other expenses of this offering.
The discussion and tables above exclude 3.0 million shares
of our common stock available for future grant or issuance under
our 2006 Equity Incentive Plan.
Based on the estimated initial public offering price of $17.00,
the intrinsic value of options outstanding at June 7, 2006
was $62.3 million, of which $50.6 million related to
vested options and $11.7 million related to unvested
options.
27
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected historical consolidated
financial information and other data of the periods or at each
date indicated. The selected historical financial data as of and
for the first quarters ended April 1, 2006 and
April 2, 2005, have been derived from our unaudited
condensed consolidated financial statements and related noted
thereto included in this prospectus. The selected historical
financial data as of December 31, 2005 and January 1,
2005 and for the year ended December 31, 2005, and the
period January 30, 2004 to January 1, 2005, have been
derived from our audited consolidated financial statements and
related notes thereto included in the prospectus, which have
been audited by Ernst & Young LLP, independent
registered public accounting firm. The selected historical
financial data for the period December 28, 2003 to
January 29, 2004, and the year ended December 27,
2003, have been derived from PGT Holding Companys audited
consolidated financial statements and related notes thereto
included in this prospectus, which have been audited by
Ernst & Young LLP, independent registered public
accounting firm. Throughout this prospectus, we refer to PGT
Holding Company as our Predecessor. The selected historical
financial data as of December 27, 2003, and
December 28, 2002, and for the year ended December 28,
2002 and the period January 29, 2001 to December 29,
2001, have been derived from our Predecessors audited
consolidated financial statements and related notes thereto not
included in this prospectus.
On January 29, 2004, we were acquired by an affiliate of
JLL Partners in a purchase business combination. This
acquisition was accounted for using purchase accounting in
accordance with SFAS No. 141, Business
Combinations. The post-acquisition periods of our Company
have been impacted by the application of purchase accounting
resulting in incremental,
non-cash depreciation
expense and non-cash
amortization of intangible assets. Accordingly, the results of
operation for the periods of our Company are not comparable to
the results of operation for the Predecessor periods.
All information included in the following tables should be read
in conjunction with Managements discussion and
analysis of financial condition and results of operations
and with the consolidated financial statements and related
notes, included elsewhere in this prospectus.
28
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|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
First | |
|
First | |
|
|
|
|
|
|
Quarter | |
|
Quarter | |
|
|
|
January 30, | |
|
December 28, | |
|
|
|
January 29, | |
|
|
Ended | |
|
Ended | |
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
Year Ended | |
|
2001 to | |
Consolidated Selected |
|
April 1, | |
|
April 2, | |
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
December 28, | |
|
December 29, | |
Financial Data |
|
2006 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
96,355 |
|
|
$ |
79,364 |
|
|
$ |
332,813 |
|
|
$ |
237,350 |
|
|
$ |
19,044 |
|
|
$ |
222,594 |
|
|
$ |
160,627 |
|
|
$ |
124,957 |
|
|
Cost of sales
|
|
|
60,634 |
|
|
|
49,636 |
|
|
|
209,475 |
|
|
|
152,316 |
|
|
|
13,997 |
|
|
|
135,285 |
|
|
|
96,327 |
|
|
|
75,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
35,721 |
|
|
|
29,728 |
|
|
|
123,338 |
|
|
|
85,034 |
|
|
|
5,047 |
|
|
|
87,309 |
|
|
|
64,300 |
|
|
|
49,886 |
|
|
Selling, general and administrative expenses(1)
|
|
|
21,868 |
|
|
|
19,492 |
|
|
|
83,634 |
|
|
|
63,494 |
|
|
|
6,024 |
|
|
|
55,655 |
|
|
|
40,761 |
|
|
|
34,461 |
|
|
Write off of trademark
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense(2)
|
|
|
26,898 |
|
|
|
|
|
|
|
7,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(13,045 |
) |
|
|
10,236 |
|
|
|
25,358 |
|
|
|
21,540 |
|
|
|
(977 |
) |
|
|
31,654 |
|
|
|
23,539 |
|
|
|
15,425 |
|
Other (income) expense, net(3)
|
|
|
(409 |
) |
|
|
(81 |
) |
|
|
(286 |
) |
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
10,359 |
|
|
|
3,143 |
|
|
|
13,871 |
|
|
|
9,893 |
|
|
|
518 |
|
|
|
7,292 |
|
|
|
7,630 |
|
|
|
7,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(22,995 |
) |
|
|
7,174 |
|
|
|
11,773 |
|
|
|
11,523 |
|
|
|
(1,495 |
) |
|
|
24,362 |
|
|
|
15,909 |
|
|
|
7,858 |
|
Income tax expense (benefit)
|
|
|
(8,919 |
) |
|
|
2,382 |
|
|
|
3,910 |
|
|
|
4,531 |
|
|
|
(912 |
) |
|
|
9,397 |
|
|
|
6,287 |
|
|
|
2,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(14,076 |
) |
|
$ |
4,792 |
|
|
$ |
7,863 |
|
|
$ |
6,992 |
|
|
$ |
(583 |
) |
|
$ |
14,965 |
|
|
$ |
9,622 |
|
|
$ |
4,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic(4)(6)
|
|
$ |
(0.89 |
) |
|
$ |
0.30 |
|
|
$ |
0.50 |
|
|
$ |
0.44 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Net income (loss) per common and common equivalent
share diluted(4)(6)
|
|
$ |
(0.89 |
) |
|
$ |
0.28 |
|
|
$ |
0.45 |
|
|
$ |
0.41 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average shares outstanding basic(5)(6)
|
|
|
15,749 |
|
|
|
15,720 |
|
|
|
15,723 |
|
|
|
15,720 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average shares outstanding diluted(5)(6)
|
|
|
15,749 |
|
|
|
17,221 |
|
|
|
17,299 |
|
|
|
17,221 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Unaudited pro forma net income (loss) per common
share basic
|
|
$ |
(0.64 |
) |
|
|
|
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net income (loss) per common share and
common equivalent share diluted
|
|
$ |
(0.64 |
) |
|
|
|
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
20,642 |
|
|
$ |
2,295 |
|
|
$ |
3,270 |
|
|
$ |
2,525 |
|
|
$ |
12,191 |
|
|
$ |
8,536 |
|
|
$ |
9,399 |
|
|
$ |
6,493 |
|
|
Total assets
|
|
|
461,329 |
|
|
|
410,871 |
|
|
|
425,553 |
|
|
|
409,936 |
|
|
|
157,084 |
|
|
|
154,505 |
|
|
|
138,658 |
|
|
|
128,305 |
|
|
Total debt, including current portion
|
|
|
320,000 |
|
|
|
160,375 |
|
|
|
183,525 |
|
|
|
168,375 |
|
|
|
61,683 |
|
|
|
61,641 |
|
|
|
66,803 |
|
|
|
70,354 |
|
|
Shareholders equity
|
|
|
58,943 |
|
|
|
171,065 |
|
|
|
156,571 |
|
|
|
166,107 |
|
|
|
68,187 |
|
|
|
68,731 |
|
|
|
52,169 |
|
|
|
43,095 |
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$ |
2,255 |
|
|
$ |
1,637 |
|
|
$ |
7,503 |
|
|
$ |
5,221 |
|
|
$ |
484 |
|
|
$ |
5,075 |
|
|
$ |
4,099 |
|
|
$ |
3,036 |
|
|
Amortization
|
|
|
1,564 |
|
|
|
2,005 |
|
|
|
8,020 |
|
|
|
9,289 |
|
|
|
44 |
|
|
|
458 |
|
|
|
458 |
|
|
|
2,894 |
|
|
|
(1) |
Includes management fees paid to our majority stockholder. The
management services agreement pursuant to which these fees were
paid will terminate upon consummation of this offering. |
|
(2) |
Represents amounts paid to stock option holders (including
applicable payroll taxes) in lieu of adjusting exercise prices
in connection with the dividends paid to shareholders in
September 2005 and February 2006 of $6.6 million and
$26.9 million, respectively. These amounts include amounts
paid to stock option holders whose other compensation is a
component of cost of sales of $1.3 million and
$5.1 million, respectively. Also includes stock issuance
expense of $0.5 million in 2005. |
|
(3) |
Includes the amortization of our interest rate cap. |
|
(4) |
Basic net income per share represents net income divided by
weighted average common shares outstanding, and diluted net
income per share represents net income divided by weighted
average common and common equivalent shares outstanding. Due to
the significant change in our capital structure on
January 29, 2004, the Predecessor amount has not been
presented because it is not considered comparable to our
Companys amount. |
29
|
|
(5) |
Weighted average shares outstanding basic represents
the weighted average number of shares of common stock
outstanding and is determined by measuring (a) the shares
outstanding during each portion of the respective reporting
period that shares of common stock have been outstanding
relative to (b) the total amount of time in such reporting
period. Weighted average shares outstanding diluted
represents the basic weighted average shares outstanding,
adjusted to include the number of additional shares of common
stock that would have been outstanding if the dilutive shares of
common stock issuable upon exercise of our stock options had
been issued. |
|
(6) |
Reflects the impact of the 662.07889-for-1 stock split as
discussed in Note 9 to the unaudited condensed consolidated
financial statements included elsewhere herein. |
30
MANAGEMENTS 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 all of
the consolidated historical financial statements and the notes
thereto included elsewhere in this prospectus. This discussion
contains forward-looking statements. Please see Risk
factors and Forward-looking statements for a
discussion of certain of the uncertainties, risks and
assumptions associated with these statements.
Basis of Presentation
On January 29, 2004, our predecessor, PGT Holding Company,
was acquired by an affiliate of JLL Partners. The consolidated
results of operations for the year ended December 27, 2003
as well as the period from December 28, 2003 to
January 29, 2004 represent periods of PGT Holding Company,
referred to as our Predecessor. The consolidated
results of operations for the period from January 30, 2004
to January 1, 2005, and the year ended December 31,
2005, as well as the consolidated balance sheets at the end of
each period, represent periods of our company.
In accordance with GAAP, we have separated our historical
financial results for the Predecessor and our company. Purchase
accounting requires that the historical carrying value of assets
acquired and liabilities assumed be adjusted to fair value,
which may yield results that are not comparable on a
period-to-period basis
due to the different, and sometimes higher, cost basis
associated with the allocation of the purchase price. There were
no material changes to the operations or customer relationships
of the business as a result of the acquisition of the
Predecessor.
In evaluating our results of operations and financial
performance, our management has compared our full year results
for 2005 and of our Predecessor for 2003 to our eleven-month
period from January 30, 2004 to January 1, 2005. The
one-month period of our Predecessor from December 28, 2003
to January 29, 2004 is not included in such comparisons
because it does not reflect the purchase accounting that
resulted from our acquisition by an affiliate of JLL Partners on
January 29, 2004, and accordingly is not comparable to our
eleven-month period from January 30, 2004 to
January 1, 2005.
Overview
We are the leading U.S. manufacturer and supplier of
residential impact-resistant windows and doors and pioneered the
U.S. impact-resistant window and door industry in the
aftermath of Hurricane Andrew in 1992. Our impact-resistant
products, which are marketed under the WinGuard brand name,
combine heavy-duty aluminum or vinyl frames with laminated glass
to provide protection from hurricane-force winds and wind-borne
debris by maintaining their structural integrity and preventing
penetration by impacting objects. Impact-resistant windows and
doors satisfy increasingly stringent building codes in
hurricane-prone coastal states and provide an attractive
alternative to shutters and other active forms of
hurricane protection that require installation and removal
before and after each storm. Our current market share in
Florida, which is the largest U.S. impact-resistant window
and door market, is significantly greater than that of any of
our competitors. WinGuard sales have increased at a compound
annual growth rate of 51% since 1999 and represented 56% of our
2005 net sales, as compared to 17% of our 1999 net sales. We
expect WinGuard sales to continue to represent an increasingly
greater percentage of our net sales. In addition to our core
WinGuard product line, we offer a complete range of premium,
made-to-order and fully
customizable aluminum and vinyl windows and doors primarily
targeting the non-impact-resistant market, which represented 44%
of our 2005 net sales. We manufacture these products in a wide
variety of styles, including single hung, horizontal roller,
casement, and sliding glass doors and we also manufacture
sliding panels used for enclosing screened-in porches. Our
products are sold to both the residential new construction and
home repair and remodeling end markets. For the year ended
December 31, 2005, we generated net sales of
$332.8 million, resulting in a compound annual growth rate
of 23.7% since 1999. In the first quarter of 2006, we
generated net sales of $96.4 million, a 21.4% increase over
net sales generated in the first quarter of 2005.
31
The impact-resistant window and door market is growing faster
than any major segment of the overall window and door industry.
This growth has been driven primarily by increased adoption and
more active enforcement of stringent building codes that mandate
the use of impact-resistant products and increased penetration
of impact-resistant windows and doors relative to active forms
of hurricane protection. An estimated 80% of the U.S.
impact-resistant market uses active forms of hurricane
protection. However, homeowners are increasingly choosing
impact-resistant windows and doors due to ease of use, superior
product performance, improved aesthetics, higher security
features, and resulting lower insurance premiums for homeowners
relative to standard windows. While offering all of these
benefits, our WinGuard products are comparably priced to the
combination of traditional windows and shutters. In addition,
awareness of the benefits provided by impact-resistant windows
and doors has increased dramatically due to media coverage of
recent hurricanes and the experience of coastal homeowners and
building contractors with these products. We have over
one million installed WinGuard units and, following the
devastating 2004 and 2005 hurricane seasons, there were no
reported impact failures. According to the National Hurricane
Center, we are currently in a period of heightened hurricane
activity that could last another 10 to 20 years, which we
expect to further drive awareness of impact-resistant windows
and doors.
The geographic regions in which we currently operate include the
Southeastern U.S., the Gulf Coast and the Caribbean. According
to The Freedonia Group, the Southeastern U.S. and the Gulf Coast
comprise 41% of the total U.S. window and door market and
are benefiting from population growth rates above the national
average and from growing second home ownership. Additionally, we
expect increased demand along the Atlantic coast, from Georgia
to New York, as recently adopted building codes are enforced and
awareness of the PGT brand continues to grow. We distribute our
products through multiple channels, including over 1,300 window
distributors, building supply distributors, window replacement
dealers and enclosure contractors. This broad distribution
network provides us with the flexibility to meet demand as it
shifts between the residential new construction and repair and
remodeling end markets. We offer a compelling value proposition
to our customers centered on our high quality and fully
customizable products, industry-leading lead times with 99%
on-time delivery, and superior after-sale support. We believe
our reputation for outstanding service and quality, strong brand
awareness, leading market position and building code expertise
provide us with sustainable competitive advantages.
We operate strategically located manufacturing facilities in
North Venice, Florida and Lexington, North Carolina, both
capable of producing fully-customizable windows and doors. Our
North Venice plant is vertically integrated with a glass
tempering and laminating facility, which provides us with a
consistent source of impact-resistant laminated glass, shorter
lead times, and substantially lower costs relative to
third-party sourcing. Because of increased demand for our
products, we are moving our Lexington operations to a larger
facility in Salisbury, North Carolina that we acquired in
February 2006. This facility will increase our manufacturing
capacity by over 160,000 square feet, include glass
laminating and tempering capabilities, and support the expansion
of our geographic footprint as the impact-resistant market
continues to grow.
Our History
Our subsidiary, PGT Industries, Inc., was founded in 1980 as
Vinyl Technology, Inc. by Paul Hostetler and our current
President and Chief Executive Officer, Rodney Hershberger. The
PGT brand was established in 1987, and we introduced our
WinGuard product line in the aftermath of Hurricane Andrew in
1992.
PGT Industries acquired Triple Diamond Glass of Venice, Florida
in December 2001 and in 2002 acquired Binnings Building
Products, Inc. of Lexington, North Carolina. These acquisitions
were effected to acquire additional manufacturing capacity.
PGT, Inc. is a Delaware corporation formed on December 16,
2003, as JLL Window Holdings, Inc. by an affiliate of JLL
Partners in connection with its acquisition of PGT Industries.
In connection with the acquisition, PGT Holding Company (the
then-parent corporation of PGT Industries) was merged with and
into JLL Window Holdings, Inc. For more information about such
acquisition, see Note 4 to our audited consolidated
financial statements included herein. On February 15, 2006,
our name was changed to PGT, Inc.
32
Factors influencing future
results of operations
Our future results of operations will be affected by the
following factors, some of which are beyond our control.
Residential
new construction
Our business is driven in part by residential new construction
activity. According to the U.S. Census Bureau, U.S. housing
starts were 1.96 million in 2004 and 2.07 million in
2005. According to The Freedonia Group and the Joint Center for
Housing Studies of Harvard University, strong housing demand
will continue to be supported over the next decade by new
household formations, increasing homeownership rates, the size
and age of the population, an aging housing stock (approximately
35% of existing homes were built before 1960), improved
financing options for buyers and immigration trends.
Home
repair and remodeling expenditures
Our business is also driven by the home repair and remodeling
market. According to the U.S. Census Bureau, national home
repair and remodeling expenditures have increased in 36 of the
past 40 years. This growth is mainly the result of the
aging U.S. housing stock, increasing homeownership rates
and older homeowners electing to upgrade their existing
residences rather than moving into a new home. The repair and
remodeling component of window and door demand tends to be less
cyclical than residential new construction and partially
insulates overall window and door sales from the impact of
residential construction cycles.
Adoption
and Enforcement of Building Codes
In addition to the hurricane-prone coastal states that already
have adopted building codes requiring wind-borne debris
protection, we expect additional states to adopt and enforce
similar building codes, which will further expand the market
opportunity for WinGuard. The speed with which new states adopt
and enforce these building codes may impact our growth
opportunities in new geographical markets.
Cyclical
market pressures
Our financial performance will be impacted by economic
conditions nationally and locally in the markets we serve. Our
operating results are subject to fluctuations arising from
changes in supply and demand, as well as labor costs,
demographic trends, interest rates, single family and
multi-family housing starts, employment levels, consumer
confidence, and the availability of credit to homebuilders,
contractors and homeowners.
Sale
of NatureScape
On February 20, 2006, we sold our NatureScape product line,
which constituted approximately $18.8 million of sales in 2005.
Cost
of materials
The prices of our primary raw materials, including aluminum,
laminate and glass, are subject to volatility and affect our
results of operations when prices rapidly rise or fall within a
relatively short period of time. We have a hedging program in
place for aluminum, which represented 44% of our raw material
purchases in the fourth quarter of 2005. This program requires
us to anticipate our needs in order to minimize the impact of
cyclical market pressures.
Recapitalization
transactions
On February 14, 2006, we entered into an amended and
restated $235 million senior secured credit facility and
entered into a $115 million second lien senior secured
credit facility. With the proceeds from those facilities, we
refinanced $183.5 million under our prior credit facility,
paid an $83.5 million dividend to shareholders, and made a
$26.9 million cash payment to option holders (including
applicable payroll taxes of $0.5 million) in lieu of
adjusting exercise prices. We wrote off approximately
$4.6 million of unamortized deferred financing costs
33
related to the prior credit facility that was recorded as
interest expense in the first quarter ended April 1, 2006.
The $4.5 million of costs incurred in connection with the
refinancing are included as a component of other assets, net and
amortized over the terms of the new senior secured credit
facility.
Selling,
general and administrative expense
Following consummation of this offering, we will incur certain
incremental costs and expenses as a result of being a public
company, including costs associated with our reporting
requirements.
Critical Accounting Policies and Estimates
Critical accounting policies are those that both are important
to the accurate portrayal of a companys 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.
In order to prepare financial statements that conform to
accounting principles generally accepted in the U.S., commonly
referred to as GAAP, 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 have identified the following accounting policies that
require us to make the most subjective or complex judgments in
order to fairly present our consolidated financial position and
results of operations.
Revenue recognition
We recognize sales when all of the following criteria have been
met: a valid customer order with a fixed price has been
received; the product has been delivered and accepted by the
customer; and collectibility is reasonably assured. All sales
recognized are net of allowances for cash discounts and
estimated returns, which are estimated using historical
experience.
Allowance for doubtful
accounts and related reserves
We extend credit to qualified dealers and distributors,
generally on a non-collateralized basis. Accounts receivable are
recorded at their gross receivable amount, reduced by an
allowance for doubtful accounts that results in the receivable
being recorded at estimated net realizable value. The allowance
for doubtful accounts is based on managements assessment
of the amount which may become uncollectible in the future and
is determined based on our write-off history, aging of
receivables, specific identification of uncollectible accounts,
and consideration of prevailing economic and industry
conditions. Uncollectible accounts are charged off after
repeated attempts to collect from the customer have been
unsuccessful. The difference between actual write-offs and
estimated reserves has not been material.
Over the three-year period ending December 31, 2005, we
recorded an expense averaging $1.1 million per year for
potential uncollectible accounts. During this period, allowance
for doubtful accounts has ranged from $0.4 million to
$2.5 million, and write-off of uncollectible accounts, net
of recoveries, averaged approximately $0.4 million.
Long-lived assets
We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of long-lived assets to future undiscounted net cash
flows expected to be generated, based on management estimates,
in accordance with Statements of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Estimates made by management
are subject to change and include such things as future growth
assumptions, operating and capital expenditure requirements,
asset useful lives and other factors, changes in which could
materially impact the results of the impairment test. If such
assets are considered to be impaired, the impairment recognized
is the
34
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less cost to
sell, and depreciation is no longer recorded.
Goodwill
The impairment evaluation for goodwill 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
evaluation is performed by using a two-step process. In the
first step, which is used to screen for potential impairment,
the fair value of the reporting unit is compared with the
carrying amount of the reporting unit, including goodwill. The
estimated fair value of the reporting unit is determined using
the discounted future cash flows method, based on management
estimates. If the estimated fair value of the reporting unit is
less than the carrying amount of the reporting unit, then a
second step, which determines the amount of the goodwill
impairment to be recorded must be completed. In the second step,
the implied fair value of the reporting units goodwill is
determined by allocating the reporting units fair value to
all of its assets and liabilities other than goodwill (including
any unrecognized intangible assets). The resulting implied fair
value of the goodwill that results from the application of this
second step is then compared to the carrying amount of the
goodwill and an impairment charge is recorded for the
difference. Estimation of fair value is dependent on a number of
factors, including, but not limited to, interest rates, future
growth assumptions, operations and capital expenditure
requirements and other factors which are subject to change and
could materially impact the results of the impairment tests.
Unless our actual results differ significantly from those in our
estimation of fair value, it would not result in an impairment
of goodwill.
Warranties
We have warranty obligations with respect to most of our
manufactured products. Obligations vary by product components.
The reserve for warranties is based on our assessment of the
costs that will have to be incurred to satisfy warranty
obligations on recorded net sales. The reserve is determined
after assessing our warranty history and specific identification
of our estimated future warranty obligations.
Over the three-year period ending December 31, 2005, we
recorded a warranty expense averaging $3.5 million per year
for costs related to warranties on our products. During this
period, the accrual for warranties as a percentage of net sales
has ranged from 1.0% in 2003 and 2004 to 1.7% in 2005. This
increase in warranty accrual in 2005 resulted from a change in
sales mix toward products that carry a higher replacement cost
of materials and additional labor cost to service the product in
the field.
Derivative
instruments
We account for derivative instruments in accordance with
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended (SFAS No. 133).
SFAS No. 133 requires us to recognize all of our
derivative instruments as either assets or liabilities in the
consolidated balance sheet at fair value. The accounting for
changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and further, on
the type of hedging relationship. For those derivative
instruments that are designated and qualify as hedging
instruments, we must designate the hedging instrument, based
upon the exposure being hedged, as a fair value hedge, a cash
flow hedge or a hedge of a net investment in a foreign operation.
All derivative instruments currently utilized by us are
designated and accounted for as cash flow hedges (i.e., hedging
the exposure to variability in expected future cash flows that
is attributable to a particular risk). SFAS No. 133
provides that the effective portion of the gain or loss on a
derivative instrument designated and qualifying as a cash flow
hedging instrument be reported as a component of other
comprehensive income and be reclassified into earnings in the
same period or periods during which the transaction affects
earnings. The remaining gain or loss on the derivative
instrument, if any, must be recognized currently in earnings.
35
Stock compensation
We adopted Statement of Financial Accounting Standards
No. 123R, Share-Based Payment (SFAS 123R), on
January 1, 2006. This statement is a fair-value approach
for measuring stock-based compensation and requires us to
recognize the cost of employee services received in exchange for
our Companys equity instruments. Under SFAS 123R, we are
required to record compensation expense over an awards
vesting period based on the awards fair value at the date
of grant. We have elected to adopt SFAS 123R on a prospective
basis; accordingly, our financial statements for periods prior
to January 1, 2006, do not include compensation costs
calculated under the fair value method. The results of prior
periods have not been restated.
Prior to January 1, 2006, we applied Accounting Principles
Board Opinion 25, Accounting for Stock Issued to Employees (APB
25), and therefore recorded the intrinsic value of stock-based
compensation as expense.
On July 5, 2005 and November 30, 2005, we granted
employees stock options to acquire 0.5 million and
0.2 million shares of our common stock, with an exercise
price of $8.64 and $12.84, respectively. The exercise price of
such options was determined by our Board of Directors, members
of which have expertise in the industry and in valuation of
securities, with input from management. Subsequently, we
performed a retrospective valuation to estimate the fair value
of the underlying common stock as of June 30, 2005 and
November 30, 2005, respectively, to confirm the exercise
price of the stock options set by the Board of Directors was at
or above the fair value of the underlying common stock. With
respect to the July 5, 2005 grant, the value of the
underlying common stock was determined as of June 30, 2005,
which was the nearest month end.
We used (i) the market multiple and comparable transaction
methodologies to estimate the fair value of our common stock as
of June 30, 2005 and (ii) the market multiple,
comparable transaction and discounted cash flow methodologies to
estimate the fair value of our common stock as of
November 30, 2005. The discounted cash flow methodology was
used in the valuation as of November 30, 2005 because we
had developed long-term projections permitting use of this
methodology. The inclusion of this methodology had no material
impact on the valuation. The significant factors and assumptions
underlying the methodologies used to estimate the fair value of
our common stock as of June 30, 2005 and November 30,
2005 are as follows:
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|
Market Multiple Methodology |
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|
Multiples used in this methodology were determined through an
analysis of certain publicly traded companies, which were
selected on the basis of operational and economic similarity
with our business operations. |
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|
Revenue and earnings multiples, when applicable, were calculated
for the comparable companies based upon trading prices. |
|
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|
A comparative risk analysis between the public companies and us
formed the basis for the selection of appropriate risk adjusted
multiplies. |
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|
The risk analysis incorporated both quantitative and qualitative
risk factors which related to, among other things, the nature of
the industry in which we and the other comparable companies are
engaged. |
|
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|
Comparable Transaction Methodology |
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|
This methodology involved analysis of multiples of earnings and
cash flow for transactions involving a change in the controlling
interest of companies with similar operations to ours. |
|
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|
Multiples used in this methodology were determined through an
analysis of such transactions. |
|
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|
Earnings multiples, when applicable, were calculated for the
comparable transactions, and a comparative risk analysis between
the companies acquired in these transactions and us formed the
basis for the selection of appropriate risk adjusted multiples. |
|
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|
Because this methodology involves controlling interest values
resulting from purchases of greater than 50% of the stock of
each target company, an adjustment was made to remove the
control premium to reflect a minority interest valuation basis.
The control premium utilized was 15% based on control premiums
observed in the building products industry. |
36
|
|
|
Discounted Cash Flow Methodology |
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|
|
|
|
This methodology involved estimating the present value of the
projected cash flows to be generated from our business, and then
applying a discount rate to the projected cash flows to reflect
all risks of ownership and the associated risks of realizing the
stream of projected cash flows. |
|
|
|
Because the cash flows were only projected over a limited number
of years, a terminal value was computed as of the end of the
last period of projected cash flows, which value was an estimate
of the value of the enterprise on a going concern basis as of
that future point in time. |
|
|
|
Our valuation was then determined by discounting each of the
projected future cash flows and the terminal value back to the
present time and summing the results. |
Each of the methods was used to determine our valuation from
operations. We determined a range of our value based on each of
the valuation methodologies used, and then calculated an average
value of our common stock, weighting the results of each
methodology equally, since each of the methodologies was equally
reliable. As of June 30, 2005, the market multiple
methodology resulted in a fair value of our Company between
approximately $323 million and $378 million and the
comparable transaction methodology resulted in a fair value of
our Company between approximately $297 million and
$329 million. As of November 30, 2005, the market
multiple methodology resulted in a fair value of our Company
between approximately $405 million and $459 million,
the comparable transaction methodology resulted in a fair value
of our Company between approximately $392 million and
$434 million, and the discounted cash flow methodology
resulted in a fair value of our Company between approximately
$397 million and $473 million.
In determining these calculations, we assumed a lack of
marketability discount of 20% as of July 5, 2005 and 10% as
of November 30, 2005. We determined these discounts based
primarily upon the AICPAs practice aid titled
Valuation of Privately-Held-Company Equity Securities
Issued as Compensation (2004), which provides best
practices relating to the valuation of privately-held
securities. The determination of the reasonable lack of
marketability discount is based on qualitative and quantitative
analysis, and subjective judgment of the following factors that,
according to the AICPA practice guide, should be considered:
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Prospects for liquidity; expectation of a market in the future; |
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|
Number, extent, and terms of existing contractual arrangements
requiring the enterprise to purchase or sell its equity
securities; |
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|
Restrictions on transferability of equity securities by the
holder; |
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|
Pool of potential buyers; |
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|
Risk of volatility; |
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|
Size and timing of distributions; |
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|
Uncertainty of value; |
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|
Concentration of ownership; |
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Historical financial performance; and |
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Economic outlook of the enterprise. |
Of these factors, we believe that the first should be given
particular weight.
The differences in the fair values of our common stock as of
July 5, 2005 and November 30, 2005 are primarily
attributable to our significantly improved financial
performance, as evidenced by our third quarter net sales of
$87.1 million. This represented an 11.3% increase over net
sales generated in the second quarter of 2005 and exceeded our
forecast by 13.3%. Such increase was due to growing demand for
our WinGuard products, which represented 60% of our net sales
for the third quarter of 2005, as compared to 52% of our net
sales for the second quarter of 2005. This increased demand
results primarily from increased awareness of the benefits of
impact-resistant windows and doors. Our operating results also
improved due to a favorable shift in product mix to our more
profitable WinGuard products, with our third quarter gross
margin exceeding second quarter by 18.2%. Our improved financial
performance continued from the third quarter into the fourth
quarter of 2005, as fourth quarter net sales exceeded our
forecast by 16% and gross margin exceeded our forecast by 12.7%.
Moreover, there was a 19.7% increase in the median market price
of the comparable companies (constituting a
37
47.3% annualized increase). In addition, the marketability
discount was decreased from 20% to 10% to account for the
difference in the expected time to our initial public offering.
The difference between the estimated public offering price of
$17.00 (which is the midpoint of the range on the front
cover of this prospectus) and the fair value of our common stock
as of November 30, 2005, is primarily attributable to our
significantly improved financial performance, as evidenced by
our first quarter net sales of $96.4 million. This
represented a 21.4% increase over net sales generated in the
first quarter of 2005 and exceeded our forecast by 10%. Such
increase was due to growing demand for our WinGuard products,
which represented 62% of our net sales for the first quarter of
2006, as compared to 56% of our net sales for the year ended
December 31, 2005. The increased demand for WinGuard
products resulted from increased awareness of the benefits of
impact-resistant windows and doors. Our operating results also
improved due to a favorable shift in product mix to our more
profitable WinGuard products. Our gross margin exceeded forecast
by 15%. Moreover, in determining the public offering price, we
revised the list of comparable companies to include companies
that we believe were more comparable to us than the ones used in
November 2005. Accordingly, because these companies had values
higher than some of the companies previously used on
November 30, 2005, this resulted in an increased valuation
of our common stock. In addition, the public offering price does
not include any discount for lack of marketability, but the
November 30, 2005 valuation included a 10% marketability
discount.
Stock options granted prior to this offering were valued under
SFAS 123 using the minimum value method in the pro forma
disclosures included in Note 2 to our audited consolidated
financial statements included herein. The minimum value method
excludes volatility in the calculation of fair value of
stock-based compensation. In accordance with SFAS 123R, options
granted that were valued using the minimum value method must be
transitioned to SFAS 123R using the prospective method.
Results of Operations
First quarter ended April 1, 2006 compared with the
first quarter ended April 2, 2005
In the first quarter ended April 1, 2006, our operating
results were driven by increased demand for our WinGuard windows
and doors, the realization of the net impact of year over year
price increases across most of our product lines, and
improvements in operating efficiencies. Net sales for the first
quarter ended April 1, 2006, were $96.4 million,
compared with first quarter 2005 net sales of
$79.4 million. Gross margin for the first quarter ended
April 1, 2006, increased $6.0 million, driven by a
continuing shift in product mix to higher margin WinGuard
windows and doors. Selling, general and administrative expenses
for the first quarter ended April 1, 2006, increased
$2.4 million from the first quarter of 2005, primarily to
support our increase in net sales of 21.4%; however, as a
percent of net sales, our selling, general and administrative
expense improved to 22.7%, compared to 24.6% for the first
quarter of 2005. Operating results were impacted by a
$26.9 million stock compensation expense resulting from a
payment made to stock option holders in lieu of adjusting the
exercise prices, in connection with a dividend paid to
shareholders in February 2006.
Net sales
Net sales for the first quarter ended April 1, 2006 were
$96.4 million, a $17.0 million, or 21.4%, increase
over net sales of $79.4 million for the first quarter ended
April 2, 2005.
The following table shows net sales classified by major product
category (in millions):
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended | |
|
|
| |
|
|
April 1, 2006 | |
|
April 2, 2005 | |
|
|
|
|
| |
|
| |
|
|
|
|
Sales | |
|
% of Sales | |
|
Sales | |
|
% of Sales | |
|
% Growth | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
WinGuard Windows and Doors
|
|
$ |
60.0 |
|
|
|
62.3% |
|
|
$ |
39.4 |
|
|
|
49.6% |
|
|
|
52.5 |
% |
Other Window and Door Products
|
|
|
36.4 |
|
|
|
37.7% |
|
|
|
40.0 |
|
|
|
50.4% |
|
|
|
(9.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
96.4 |
|
|
|
100.0% |
|
|
$ |
79.4 |
|
|
|
100.0% |
|
|
|
21.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Net sales of WinGuard Windows and Doors were $60.0 million
for the first quarter ended April 1, 2006, an increase of
$20.6 million, or 52.5%, from $39.4 million in net
sales for the first quarter ended April 2, 2005. This
growth was due to the partial effect of a 9% price increase
implemented during the quarter, increased volume, and a change
in our product mix resulting from increased sales of our
WinGuard impact-resistant products. Demand for WinGuard products
is driven by increased enforcement of strict building codes
mandating the use of impact-resistant products, increased
consumer and homebuilder awareness of the advantages provided by
impact-resistant windows and doors over active forms
of hurricane protection, and our successful marketing efforts,
including a television advertising campaign which began running
in March of 2006. As a result of the great number of different
products we make and the wide variety of custom features offered
(approximately 2,700 different products offered each day),
as well as the fact that price increases are introduced at
different times for different customers based on their order
patterns, we are unable to separately quantify the impact of
price and volume increases on our increased net sales. We track
our sales volume based on our customer orders, which typically
comprise multiple openings (with each opening representing an
opening in the wall of a home into which one or more of our
windows or doors are installed). We are currently unable to
convert sales on a per-opening basis into sales on a per-product
basis; however, we are currently in the process of developing
internal reporting procedures to enable us to track sales on a
per-product basis.
Net sales of Other Window and Door Products were
$36.4 million for the first quarter ended April 1,
2006, a decrease of $3.6 million, or 9.2%, from
$40.0 million in net sales for the first quarter ended
April 2, 2005. This decrease was primarily driven by a
discontinuation of certain products, including Naturescape,
resulting in a reduction of net sales of $5.8 million when
compared to the first quarter ended April 2, 2005. We
discontinued these products because they generated lower margins
and had less attractive growth prospects as compared to our
other product lines. In addition, discontinuation of these
products allowed us to increase manufacturing capacity for our
higher margin WinGuard products in our North Carolina facility.
The effect of these product line discontinuations was offset in
part by growth in other product categories and the net impact of
year over year price increases.
Gross margin
Gross margin was $35.7 million for the first quarter ended
April 1, 2006, an increase of $6.0 million, or 20.2%,
from $29.7 million for the first quarter ended
April 2, 2005. This growth was largely due to higher sales
volume of our WinGuard windows and doors, which increased as a
percentage of our total net sales to 62.3%, compared to 49.6% in
the first quarter of 2005, and increased prices across most of
our product lines. However, the increase in gross margin was
negatively impacted by higher material costs primarily relating
to a temporary increase in the amount of laminated glass
purchased from third parties as demand for our WinGuard products
increased in the first quarter of 2006 relative to the first
quarter of 2005. The gross margin percentage was 37.1% for the
first quarter ended April 1, 2006, a decrease of 0.4% from
37.5% for the first quarter ended April 2, 2005.
Selling, general, and
administrative expenses
Selling, general, and administrative expenses were
$21.9 million for the first quarter ended April 1,
2006, an increase of $2.4 million, or 12.2%, from
$19.5 million for the first quarter ended April 2,
2005. This increase was mainly due to additional sales and
marketing expenses pertaining to WinGuard, including the launch
of a television advertising campaign in March of 2006. As a
percentage of sales, selling, general and administrative
expenses decreased by 1.9% during the first quarter of 2006 to
22.7% compared to 24.6% for the first quarter ended
April 2, 2005. This decrease was due to the fact that
certain fixed expenses, such as support and administrative
costs, grew at a slower rate relative to the increase in net
sales.
Stock compensation
expense
For the first quarter ended April 1, 2006, stock
compensation expense amounted to $26.9 million, resulting
from a payment to option holders in lieu of adjusting exercise
prices in connection with the payment of a dividend to
shareholders in February 2006. No such expense occurred in the
first quarter ended April 2, 2005.
39
Interest expense
Interest expense was $10.4 million for the first quarter
ended April 1, 2006, an increase of $7.2 million from
$3.1 million for the first quarter ended April 2,
2005. The increase was due to a $4.6 million write-off of
previously deferred financing costs in connection with our debt
refinancing on February 14, 2006, and the increase in our
average debt levels to $251.8 million for the first quarter
ended April 1, 2006, compared to $164.4 million for
the first quarter ended April 2, 2005, as well as higher LIBOR
rates.
Income tax expense
Our effective combined federal and state tax rate was 38.8% for
the first quarter ended April 1, 2006 and 33.2% for the
first quarter ended April 2, 2005. The increase in the
effective tax rate was due to a reduction in the amount of North
Carolina tax credits expected to be earned in 2006 compared to
2005.
2005 compared with 2004
Overview
Our 2005 operating results were primarily driven by strong sales
growth largely resulting from increased demand for our WinGuard
windows and doors and price increases across most of our product
lines. Our operating results were negatively impacted by a
$7.2 million write-off of our NatureScape trademark and a
$7.1 million stock compensation expense resulting mainly
from amounts payable to stock option holders in lieu of
adjusting exercise prices in connection with the dividend paid
to shareholders in September 2005.
Net sales
Net sales for 2005 were $332.8 million, a
$95.5 million, or 40.2%, increase over sales of $237.4
million for the period January 30, 2004 to January 1,
2005. Net sales for the period January 30, 2004 to
January 1, 2005 exclude net sales of $19.0 million for
the one-month period of
January 2004.
The following table shows net sales classified by major product
category (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2004 | |
|
|
|
|
Year Ended 2005 | |
|
to January 1, 2005 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
% Growth | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
WinGuard Windows and Doors
|
|
$ |
186.2 |
|
|
|
55.9% |
|
|
$ |
101.5 |
|
|
|
42.8% |
|
|
|
83.4% |
|
Other Window and Door Products
|
|
|
146.6 |
|
|
|
44.1% |
|
|
|
135.9 |
|
|
|
57.2% |
|
|
|
7.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
332.8 |
|
|
|
100.0% |
|
|
$ |
237.4 |
|
|
|
100.0% |
|
|
|
40.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales of WinGuard Windows and Doors were $186.2 million
in 2005, an increase of $84.7 million, or 83.4%, from
$101.5 million in net sales for the period January 30,
2004 to January 1, 2005. This growth was largely due to a
volume increase resulting from increased enforcement of strict
building codes mandating the use of impact-resistant products,
increased consumer and homebuilder awareness of the advantages
provided by impact-resistant windows and doors over
active forms of hurricane protection, and our
successful marketing efforts, including a television advertising
campaign. A price increase on WinGuard Windows and Doors
implemented in the first half of 2005 also had a favorable
impact on WinGuard net sales. In addition, net sales of WinGuard
for the period January 30, 2004 to January 1, 2005
exclude net sales of $7.6 million for the one-month period
of January 2004.
Net sales of Other Window and Door Products were
$146.6 million in 2005, an increase of $10.7 million,
or 7.9%, from $135.9 million for the period
January 30, 2004 to January 1, 2005. This increase was
partly driven by a price increase implemented in the first half
of 2005 and a favorable product mix shift to higher margin
products. In addition, net sales of Other Window and Door
Products for the period January 30, 2004 to January 1,
2005 exclude net sales of $11.4 million for the one-month
period of January 2004. However, the increase in net sales was
negatively impacted by the discontinuation of certain window and
door products, resulting in net sales of
40
$14.7 million. We discontinued these products because they
generated lower margins and had less attractive growth prospects
as compared to our other product lines. In addition,
discontinuation of these products allowed us to increase
manufacturing capacity for our WinGuard products.
Gross margin
Gross margin was $123.3 million in 2005, an increase of
$38.3 million, or 45.0%, from $85.0 million in the
period January 30, 2004 to January 1, 2005. The gross
margin percentage was 37.1% in 2005, an increase of 1.3% from
35.8% in the period January 30, 2004 to January 1,
2005. This growth was largely attributable to higher sales
volume, increased price across most of our product lines, and a
shift in product mix as WinGuard sales increased as a percentage
of our total net sales. Although we had recovered from the
hurricanes in 2004, our gross margin was partially offset by
increased production costs such as labor and material costs due,
in part, to costs involved in adapting our operations to meet
increased demand for our WinGuard products. Our WinGuard
products generate a higher gross margin than our other product
lines. In addition, gross profit for the period January 30,
2004 to January 1, 2005 excludes gross profit of
$5.0 million for the one-month period of January 2004.
|
|
|
Selling, general, and administrative expenses |
Selling, general, and administrative expenses were
$83.6 million in 2005, an increase of $20.1 million,
or 31.7%, from $63.5 million in the period January 30,
2004 to January 1, 2005. This increase was mainly driven by
a $5.1 million increase in salaries and benefits and a
$5.4 million increase in bad debt and warranty expense due
to higher sales volume. In addition, selling, general and
administrative expenses for the period January 30, 2004 to
January 1, 2005 exclude expenses of $6.0 million for
the one-month period of January 2004. As a percentage of sales,
selling, general and administrative expenses were 25.1% in 2005,
a decrease of 1.7% from 26.8% for the period January 30,
2004 to January 1, 2005. This decrease was due to the fact
that certain fixed expenses, such as support and administrative
costs, grew at a slower rate relative to sales.
Stock compensation
expense
In 2005, stock compensation expense amounted to
$7.1 million due primarily to amounts payable to option
holders in lieu of adjusting exercise prices in connection with
the payment of a dividend to shareholders in September 2005. No
such expense occurred in the period January 30, 2004 to
January 1, 2005.
Write-off of
trademark
In 2005, we wrote off our trademark in the amount of
$7.2 million related to our NatureScape business that we
sold on February 20, 2006. No such write-off occurred in
the period January 30, 2004 to January 1, 2005.
Interest expense
Interest expense was $13.9 million in 2005, an increase of
$4.0 million from $9.9 million in the period
January 30, 2004 to January 1, 2005. This was due to
the increase in LIBOR rates during 2005 as well as higher debt
levels resulting from the debt refinancing that occurred in
September 2005. In addition, the interest expense for the period
January 30, 2004 to January 1, 2005 does not include
interest expense of $0.5 million for the
one-month period of
January 2004.
Income tax expense
Our effective combined federal and state tax rate was 33.2% for
the year ended 2005 and 39.3% for the period January 30,
2004 to January 1, 2005. The decrease in the effective tax
rate was primarily due to increased state tax credits in North
Carolina resulting from capital and labor investments at our
North Carolina facility, as well as a manufacturing deduction
under Internal Revenue Code Section 199. The North Carolina
tax credits will continue in any year that expansion or other
material investment is made in North Carolina, including 2006.
The manufacturing deduction, which is limited to income
generated by domestic production, will also continue in future
years.
41
2004 compared with 2003
Overview
During 2004, we were impacted by four major hurricanes that hit
Southeast Florida, which disrupted our operations, our customer
and supplier base, and our employees. Consequently, we
experienced inconsistent order patterns by our customers, higher
raw material costs and surcharges, increased overhead expenses,
and increased shipping and storage costs. In addition, one of
the hurricanes hit the immediate area where most of our employee
base resides, causing increased labor costs as many of our
employees had their homes either damaged or destroyed, which
resulted in increased absentee rates and scheduling issues.
However, we continued to experience strong demand for our
products, especially WinGuard, net sales for which grew 12.8%
from the full year 2003 as compared to the period
January 30, 2004 to January 1, 2005.
Net sales
Net sales for the period January 30, 2004 to
January 1, 2005 were $237.4 million, a
$14.8 million, or 6.6%, increase over sales of
$222.6 million for the year ended 2003. Net sales for the
period January 30, 2004 to January 1, 2005 exclude net
sales of $19.0 million for the
one-month period of
January 2004.
The following table shows sales classified by major product
category (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2004 to | |
|
|
|
|
|
|
January 1, 2005 | |
|
Year Ended 2003 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
% Growth | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
WinGuard Windows and Doors
|
|
$ |
101.5 |
|
|
|
42.8% |
|
|
$ |
90.0 |
|
|
|
40.4% |
|
|
|
12.8% |
|
Other Window and Door Products
|
|
|
135.9 |
|
|
|
57.2% |
|
|
|
132.6 |
|
|
|
59.6% |
|
|
|
2.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
237.4 |
|
|
|
100.0% |
|
|
$ |
222.6 |
|
|
|
100.0% |
|
|
|
6.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales of WinGuard Windows and Doors for the period
January 30, 2004 to January 1, 2005 were
$101.5 million, an increase of $11.5 million, or
12.8%, from $90.0 million for the year ended 2003. This
growth was due to increased demand resulting from greater
consumer and homebuilder awareness of the advantages provided by
impact-resistant windows and doors over active forms
of hurricane protection, as well as a favorable shift in product
mix. However, the increase in net sales of WinGuard Windows and
Doors was reduced by the fact that the period January 30,
2004 to January 1, 2005 does not include net sales of
$7.6 million for the one-month period of January 2004.
Net sales of Other Window and Door Products for the period
January 30, 2004 to January 1, 2005 were
$135.9 million, an increase of $3.3 million, or 2.5%,
from $132.6 million for the year ended 2003. This growth
was largely due to increased sales of our aluminum products of
$10.7 million from national homebuilders who were buying
large tracts of land and expanding their presence to new
geographic markets, an increase in Vinyl window sales of
$1.8 million, and an increase in Multi-Story sales of
$1.2 million. However, the increase in net sales was
reduced by the fact that the period January 30, 2004 to
January 1, 2005 does not include net sales of approximately
$11.4 million for the one-month period of January 2004.
Gross margin
Gross profit in the period January 30, 2004 to
January 1, 2005 was $85.0 million, a decrease of
$2.3 million, or 2.6%, from $87.3 million in the year
ended 2003. The gross margin percentage was 35.8% in the period
January 30, 2004 to January 1, 2005, a decrease of
3.4% from 39.2% in the year ended 2003. This decrease in gross
margin was largely due to severe disruptions to our operations
caused by four major hurricanes that hit Southeast Florida. One
of the hurricanes hit the immediate area where most of our
employee base resides, causing increased overhead expenses and
higher labor costs as many of our employees had their homes
either damaged or destroyed, which resulted in increased
absentee rates and scheduling issues. The other three hurricanes
disrupted our customer base and supply chain, resulting in
inconsistent order patterns by our customers, higher raw
material costs, surcharges, and increased shipping and storage
costs. In addition, gross profit for the period January 30,
2004 to January 1, 2005 excludes results from the
one-month period of
January 2004 of $5.0 million. There was no material impact
on gross margin in 2004 as a result of purchase accounting in
connection with the acquisition.
42
Selling, general, and
administrative expenses
Selling, general, and administrative expenses in the period
January 30, 2004 to January 1, 2005 were
$63.5 million, an increase of $7.8 million, or 14.1%,
from $55.7 million in the year ended 2003. This increase
was caused mainly by an $8.8 million increase in
amortization expense resulting from purchase accounting in
connection with our acquisition by an affiliate of JLL Partners,
a $3.9 million increase in salaries and other labor costs
due to an increase in volume, and a $1.6 million increase
in marketing expenses. However, this increase was reduced by the
fact that selling, general, and administrative expenses for the
period January 30, 2004 to January 1, 2005 do not
include selling, general, and administrative expenses of
$6.0 million for the
one-month period of
January 2004. As a percentage of sales, selling, general and
administrative expenses were 26.8% for the period
January 30, 2004 to January 1, 2005, an increase of
1.8% from 25.0% for the year ended 2003.
Interest expense
Interest expense in the period January 30, 2004 to
January 1, 2005 was $9.9 million, an increase of
$2.6 million from $7.3 million in the year ended 2003.
This is due to the increase in outstanding debt related to our
acquisition by an affiliate of JLL Partners in January 2004 and
does not reflect interest expense of $0.5 million for the
one-month period of
January 2004.
Income tax expense
Our effective combined federal and state tax rate was 39.3% for
the period January 30, 2004 to January 1, 2005 and
38.6% for the year 2003.
Liquidity and Capital Resources
Our primary capital requirements are to fund working capital
needs, meet required debt payments, including debt service
payments on our credit facilities, to fund capital expenditures,
and to pay dividends, if any, on our common stock. Capital
resources have primarily consisted of cash flows from operations
and borrowings under our credit facilities.
Consolidated Cash Flows
Operating activities. Cash flows used in operating
activities were $20.7 million for the first quarter ended
April 1, 2006, compared to cash flows provided by operating
activities of $10.6 million for the first quarter ended
April 2, 2005. This decrease in cash flows from operating
activities of $31.3 million was primarily due to payments
totaling $33.5 million made to option holders in lieu of
adjusting exercise prices in connection with the payment of
dividends to shareholders in February 2006 and September 2005 in
the amount of $26.9 million and $6.6 million,
respectively.
Cash flows provided by operating activities were
$21.7 million for the year ended 2005, compared to
$14.2 million for the period January 30, 2004 to
January 1, 2005. This increase in cash flows from operating
activities was primarily due to an increase in net income and
net changes in working capital of $7.0 million. The
increase in accounts payable and accruals was primarily due to
the amounts payable to option holders in lieu of adjusting
exercise prices in connection with the dividends paid to
shareholders in 2005. The increase in accounts receivable was
largely due to increased sales activity and an increase in days
sales outstanding from 37 at the end of 2004 to 50 at the end of
2005, resulting in part from temporary disruption to our
customers in Southeast Florida caused by a hurricane at the end
of 2005. The affected customers began to reduce past due amounts
in the first quarter of 2006, lowering days sales outstanding to
47 at the end of the quarter.
Cash flows provided by operating activities were
$14.2 million for the period January 30, 2004 to
January 1, 2005, compared to $18.0 million for the
year ended 2003. This decrease in cash flows from operating
activities was primarily due to net increases in inventories and
other current assets necessary to support the higher sales
activity of $4.0 million.
Investing activities. Cash flows used in investing
activities were $10.4 million for the first quarter ended
April 1, 2006, compared to $2.8 million for the first
quarter ended April 2, 2005. The increase in cash flows used
43
in investing activities was due to a $7.3 million purchase
of a 393,000 square foot facility in Salisbury, North Carolina
in February 2006. We plan to move our current North Carolina
operations in Lexington into our new facility and sell the
Lexington facility upon completion of this move.
Cash flows used in investing activities were $15.6 million
for the year ended 2005, compared to $299.2 million for the
period January 30, 2004 to January 1, 2005. This
decrease in cash flows used in investing activities was due to
our acquisition by an affiliate of JLL Partners in 2004. This
was offset by higher capital spending in 2005 of
$3.2 million.
Cash flows used in investing activities were $299.2 million
for the period January 30, 2004 to January 1, 2005,
compared to $13.3 million for the year ended 2003. This
increase in cash flows used in investing activities was due to
our acquisition by an affiliate of JLL Partners in 2004 and
higher capital spending of $5.1 million.
Financing activities. Cash flows provided by financing
activities were $48.5 million for the first quarter ended
April 1, 2006, compared to cash flows used in financing
activities of $8.0 million for the first quarter ended
April 2, 2005. This increase in cash flows of
$56.5 million was due to the proceeds from the refinancing
completed in February 2006 of $320 million, offset by the
repayment of debt totaling $183.5 million, a dividend to
shareholders in February 2006 of $83.5 million, and the
payment of financing costs related to the refinancing of
$4.5 million. During the first quarter ended April 2,
2005, $8.0 million of cash was used to pay down the
outstanding balance on debt.
Cash flows used in financing activities was $5.4 million
for the year ended 2005, compared to cash flows provided by
financing activities of $287.6 million for the period
January 30, 2004 to January 1, 2005. Cash flows
provided by financing activities in the period January 30,
2004 to January 1, 2005 included the proceeds from the
issuance of debt and common stock in connection with our
acquisition by an affiliate of JLL Partners in 2004 in the
amount of $295.9 million. Cash flow used in financing
activities in 2005 included a dividend payment of
$20.0 million, offset by a net change in long term debt of
$17.2 million.
Cash flows provided by financing activities was
$287.6 million for the period January 30, 2004 to
January 1, 2005, compared to cash flows used in financing
activities of $5.6 million for the year ended 2003. The
increase in cash provided by financing activities is largely a
result of the proceeds from the issuance of debt and common
stock in connection with our acquisition by an affiliate of JLL
Partners in 2004 in the amount of $295.9 million.
Capital Resources. On February 14, 2006, our company
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 a
$205 million first lien term loan due in quarterly
installments of $0.5 million beginning May 14, 2006
and ending November 14, 2011 and a final payment of
$193.2 million on February 14, 2012.
The term loans under the first lien term loan facility bear
interest, at our option, at a rate equal to an adjusted LIBOR
rate plus 3.0% per annum or a base rate plus 2.0% per
annum. The loans under the revolving credit facility bear
interest initially, at our option (provided, that all swingline
loans shall be base rate loans), at a rate equal to an adjusted
LIBOR rate plus 2.75% per annum or a base rate plus
1.75% per annum, and the margins above LIBOR and base rate
may decline to 2.00% for LIBOR loans and 1.00% for base rate
loans if certain leverage ratios are met. A commitment fee equal
to 0.50% per annum accrues on the average daily unused
amount of the commitment of each lender under the revolving
credit facility and such fee is payable quarterly in arrears. We
are also required to pay certain other fees with respect to the
senior secured credit facility including (i) letter of
credit fees on the aggregate undrawn amount of outstanding
letters of credit plus the aggregate principal amount of all
letter of credit reimbursement obligations, (ii) a fronting
fee to the letter of credit issuing bank and
(iii) administrative fees. The second lien secured credit
facility bears interest, at our option, at a rate equal to an
adjusted LIBOR rate plus 7.0% per annum or a base rate plus
6.0% per annum. We are required to pay certain
administrative fees under the second lien secured credit
facility.
The first lien secured credit facility is secured by a perfected
first priority pledge of all of the equity interests of our
subsidiary and perfected first priority security interests in
and mortgages on substantially all of our tangible and
intangible assets and those of the guarantors, except, in the
case of the stock of a foreign subsidiary, to the extent such
pledge would be prohibited by applicable law or would result in
materially adverse tax
44
consequences, and subject to such other exceptions as are
agreed. The senior secured credit facility contains a number of
covenants that, among other things, restrict our ability and the
ability of our subsidiaries to (i) dispose of assets;
(ii) change our business; (iii) engage in mergers or
consolidations; (iv) make certain acquisitions;
(v) pay dividends or repurchase or redeem stock;
(vi) incur indebtedness or guarantee obligations and issue
preferred and other disqualified stock; (vii) make
investments and loans; (viii) incur liens; (ix) engage
in certain transactions with affiliates; (x) enter into
sale and leaseback transactions; (xi) issue stock or stock
options of our subsidiary; (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 first lien 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.
The second lien secured credit facility is secured by a
perfected second priority pledge of all of the equity interests
of our subsidiary and perfected second priority security
interests in and mortgages on substantially all of our tangible
and intangible assets and those of the guarantors, except, in
the case of the stock of a foreign subsidiary, to the extent
such pledge would be prohibited by applicable law or would
result in materially adverse tax consequences, and subject to
such other exceptions as are agreed. The second lien secured
credit facility contains a number of covenants that, among other
things, restrict our ability and the ability of our subsidiaries
to (i) dispose of assets; (ii) change our business;
(iii) engage in mergers or consolidations; (iv) make
certain acquisitions; (v) pay dividends or repurchase or
redeem stock; (vi) incur indebtedness or guarantee
obligations and issue preferred and other disqualified stock;
(vii) make investments and loans; (viii) incur liens;
(ix) engage in certain transactions with affiliates;
(x) enter into sale and leaseback transactions;
(xi) issue stock or stock options; (xii) amend or
prepay subordinated indebtedness; (xiii) modify or waive
material documents; or (xiv) change our fiscal year. In
addition, under the second lien 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.
Borrowings under the new senior secured credit facility and
second lien secured credit facility on February 14, 2006,
were used to refinance our companys existing debt
facility, pay a cash dividend to stockholders of
$83.5 million, and make a cash payment of approximately
$26.9 million (including applicable payroll taxes of
$0.5 million) to stock option holders in lieu of adjusting
exercise prices in connection with such dividend. In connection
with the refinancing, our company incurred estimated fees and
expenses aggregating $4.5 million that will be included as
a component of other assets, net and amortized over the terms of
the new senior secured credit facilities. In the first quarter
of 2006, the total cash payment to option holders and the
termination penalty related to the prepayment of the existing
debt were expensed and recorded as stock compensation expense
and a component of interest expense, respectively. Also, our
company expensed approximately $4.6 million of the
unamortized deferred financing costs related to the prior credit
facility recorded as interest expense.
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 2006. Upon
completion of this offering and use of the net proceeds as set
forth herein, we expect to repay $138.0 of borrowings under our
senior secured credit facilities, resulting in total long-term
debt of $182.0 million.
Capital Expenditures. Capital expenditures vary depending
on prevailing business factors, including current and
anticipated market conditions. For the first quarters ended
April 1, 2006 and April 2, 2005, capital expenditures
were $10.7 million and $2.8 million, respectively. For
the year ended 2005, capital expenditures were
$15.9 million, which was an increase of $3.1 million
from the $12.8 million in capital expenditures in the
combined year 2004. We anticipate that cash flows from
operations and liquidity from the revolving credit facility will
be sufficient to execute our business plans. We anticipate our
capital expenditures to be $30.0 million in 2006, which
includes expenditures of $18.0 million in connection with
our facility expansion in North Carolina.
45
Disclosures of Contractual Obligations and Commercial
Commitments
The following summarizes our contractual obligations as of
December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
Less Than | |
|
|
|
After |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
4 Years | |
|
5 Years | |
|
5 Years |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Long-Term Debt
|
|
$ |
183,525 |
|
|
$ |
|
|
|
$ |
1,877 |
|
|
$ |
136,353 |
|
|
$ |
45,295 |
|
|
$ |
|
|
Operating Leases
|
|
|
6,021 |
|
|
|
2,374 |
|
|
|
3,012 |
|
|
|
439 |
|
|
|
196 |
|
|
|
|
|
Interest on Long-Term Debt(1)
|
|
|
51,776 |
|
|
|
13,991 |
|
|
|
27,906 |
|
|
|
9,556 |
|
|
|
323 |
|
|
|
|
|
Purchase Obligations(2)
|
|
|
59,973 |
|
|
|
59,473 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$ |
301,295 |
|
|
$ |
75,838 |
|
|
$ |
33,295 |
|
|
$ |
146,348 |
|
|
$ |
45,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Interest based on LIBOR rate of 4.54% at December 31, 2005.
Actual interest may vary based on LIBOR fluctuations. |
|
(2) |
Purchase obligations are commitments to purchase raw materials
used in production under contracts that expire in 2006 and 2007. |
The following summarizes our contractual obligations as of
December 31, 2005, as adjusted to reflect the recapitalization
transactions and this offering (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
|
|
| |
|
|
|
|
Less Than | |
|
|
|
After | |
Contractual Obligations |
|
Total | |
|
1 Year | |
|
1-3 Years | |
|
4 Years | |
|
5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Long-Term Debt
|
|
$ |
182,000 |
|
|
$ |
|
|
|
$ |
3,677 |
|
|
$ |
1,838 |
|
|
$ |
1,838 |
|
|
$ |
174,647 |
|
Operating Leases
|
|
|
6,021 |
|
|
|
2,374 |
|
|
|
3,012 |
|
|
|
439 |
|
|
|
196 |
|
|
|
|
|
Interest on Long-Term Debt(1)
|
|
|
89,772 |
|
|
|
15,260 |
|
|
|
30,292 |
|
|
|
14,894 |
|
|
|
14,740 |
|
|
|
14,586 |
|
Purchase Obligations(2)
|
|
|
59,973 |
|
|
|
59,473 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$ |
337,766 |
|
|
$ |
77,107 |
|
|
$ |
37,481 |
|
|
$ |
17,171 |
|
|
$ |
16,774 |
|
|
$ |
189,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Interest based on LIBOR rate of 5.27% at June 1, 2006.
Actual interest may vary based on LIBOR fluctuations. |
|
(2) |
Purchase obligations are commitments to purchase raw materials
used in production under contracts that expire in 2006 and 2007. |
Purchase orders entered into in the ordinary course of business
are excluded from each of the above tables. Amounts for which we
are liable under purchase orders are reflected on our
consolidated balance sheet as accounts payable and accrued
liabilities.
|
|
|
Other cash obligations not reflected in the balance
sheet |
The amounts reflected in the table above for operating leases
represent future minimum lease payments under non-cancelable
operating leases with an initial or remaining term in excess of
one year at December 31, 2005.
In accordance with GAAP, our operating leases are not recorded
on our balance sheet. Under these leases we have the option of
(a) purchasing the equipment at the end of the lease term
at its then fair market value, (b) arranging for the sale
of the equipment to a third party, or (c) returning the
equipment to the lessor to sell the equipment. If the sales
proceeds in either case are less than the residual value, then
we are required to reimburse the lessor for the deficiency up to
a specified level as stated in each lease agreement.
Based upon the expectation that none of these leased assets will
have a residual value at the end of the lease term that is
materially less than the value specified in the related
operating lease agreement, we do not believe it
46
is probable that we will be required to fund any amounts under
the terms of these guarantee arrangements. Accordingly, no
accruals have been recognized for these guarantees.
Disclosures of Certain Market Risks
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 April 1, 2006, a
25 basis point increase in interest rates would result in
approximately $0.8 million of additional interest costs
annually. As adjusted for the application of proceeds from the
offering, a 25 basis point increase in interest rates would
result in approximately $0.5 million of additional interest
costs annually.
We utilize derivative financial instruments to hedge price
movements of our aluminum materials. As of December 31,
2005, we covered 70% of our anticipated needs for 2006. Short
term changes in the cost of aluminum, which can be significant,
are sometimes passed on to our customers through price
increases, however there can be no guarantee that we will be
able to continue to pass such price increases to our customers
or that price increases will not negatively impact sales volume,
thereby adversely impacting operating income.
Recently Issued Accounting Pronouncements
In October 2004, the American Jobs Creation Act of 2004 (the
Jobs Creation Act) was signed into law. In December
2004, the FASB issued Staff
Position 109-1
(FSP 109-1),
Application of FASB Statement No. 109
(SFAS No. 109), Accounting for
Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004.
FSP 109-1
clarifies guidance that applies to the new deduction for
qualified domestic production activities. When fully
phased-in, the
deduction will be up to 9% of the lesser of qualified
production activities income or taxable income.
FSP 109-1
clarifies that the deduction should be accounted for as a
special deduction under SFAS No. 109 and will reduce
tax expense in the period or periods that the amounts are
deductible on the tax return. The tax benefits resulting from
the new deduction were included in our fiscal year ending
December 31, 2005, and were not material.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
requires that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage) be
recorded as current period charges and that the allocation of
fixed production overheads to inventory be based on the normal
capacity of the production facilities. SFAS No. 151
became effective for us on January 1, 2006. We do not
believe that the adoption of SFAS No. 151 will have a
material impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123(R)
(Revised 2004) Share Based Payment.
SFAS No. 123(R) supersedes Accounting Principles
Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123
Accounting for Stock-Based Compensation. This
statement requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements.
This statement establishes fair value as the measurement
objective in accounting for share-based payment arrangements and
requires all entities to apply a fair value based measurement
method in accounting for share-based payment transactions with
employees except for equity instruments held by employee share
ownership plans.
In March 2005, the Securities and Exchange Commission released
SEC Staff Accounting Bulletin No. 107, Share-Based
Payment (SAB No. 107).
SAB No. 107 provides the SEC staff position regarding
the application of SFAS No. 123(R). SAB No. 107
contains interpretive guidance related to the interaction
between SFAS No. 123(R) and certain SEC rules and
regulations, as well as provides the staffs views
regarding the
47
valuation of share-based payment arrangements for public
companies. SAB No. 107 also highlights the importance
of disclosures made related to the accounting for share-based
payment transactions. We are currently reviewing the effect of
SAB No. 107 on our consolidated financial statements.
Our Company adopted SFAS No. 123(R), using the
modified prospective method, beginning January 1, 2006. We
will be evaluating option valuation models, including the
Black-Scholes-Merton formula, to determine which model we will
utilize under SFAS No. 123(R). We previously used the
minimum value method under SFAS No. 123 to calculate
the fair value of our options and will apply the prospective
transition method as of the required effective date. We will
continue to account for the currently outstanding options under
APB 25 and will apply the provisions of
SFAS No. 123(R) prospectively to new awards and awards
repurchased or cancelled after adoption of this statement. We
also do not expect the adoption of SFAS No. 123(R) to
have a material impact on our Companys future stock-based
compensation expense.
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|
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Exchanges of nonmonetary assets |
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB
Opinion No. 29 (SFAS No. 153).
SFAS No. 153 is based on the principle that exchanges
of non-monetary assets should be measured based on the fair
value of the assets exchanged.
APB Opinion No. 29, Accounting for
Nonmonetary Transactions (APB 29),
provided an exception to its basic measurement principle (fair
value) for exchanges of similar productive assets. Under
APB 29, an exchange of a productive asset for a similar
productive asset was based on the recorded amount of the asset
relinquished. SFAS No. 153 eliminates this exception
and replaces it with an exception for exchanges of non-monetary
assets that do not have commercial substance.
SFAS No. 153 became effective for us as of
July 1, 2005. We will apply the requirements of
SFAS No. 153 on any future non-monetary exchange
transactions. The adoption of this new statement did not have a
material impact on our financial condition or results of
operations.
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|
Accounting changes and error corrections |
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, a replacement of
APB No. 20 and FASB Statement No. 3
(SFAS No. 154). SFAS No. 154
requires retrospective application to prior periods
financial statements of a voluntary change in accounting
principle unless it is impracticable. APB Opinion
No. 20 Accounting Changes, previously required
that most voluntary changes in accounting principle be
recognized by including in net income of the period of the
change the cumulative effect of changing to the new accounting
principle. This statement became effective for us on
January 1, 2006. We do not believe that the adoption of
SFAS No. 154 will have a material impact on our
consolidated financial statements.
48
INDUSTRY OVERVIEW AND TRENDS
National window and door market
We compete in the U.S. residential window and door market,
which, according to a 2005 study by The Freedonia Group,
generated sales of $27.1 billion in 2004. The Freedonia
Group estimates that domestic demand for windows and doors grew
at a compound annual growth rate of 5.1% between 1999 and 2004.
This industry is composed of numerous small, regional producers,
as well as a smaller number of national producers. Many of these
manufacturers, both small and large, are privately held firms.
The window and door industry remains highly fragmented, with the
top ten manufacturers accounting for approximately 34% of 2004
U.S. total industry sales according to The Freedonia Group.
The majority of window and door producers focus almost
exclusively on one primary product category or material, with
clear leaders in certain segments. Although several diversified
building products companies have recently increased their
presence in the window and door market, most industry
participants focus exclusively on window and door manufacturing.
The residential window and door market can be divided into two
end-markets: new construction and repair and remodeling. New
construction includes windows and doors purchased for original
installation in new homes that are often assembled according to
architect and homebuilder specifications. The repair and
remodeling market includes new windows and doors used to replace
older, worn-out units or used as part of a house expansion.
Since building products used in repair and remodeling projects
often need to fit into the pre-existing openings of a house,
window producers must have significant manufacturing flexibility
to produce a wide variety of custom sizes and shapes.
Windows and doors are distributed through three primary
channels: wholesale distributors, retail outlets, and direct
sales to large contractors and homebuilders. According to a 2004
study by Ducker Research Company, the wholesale distributor and
retail channels are the two largest distribution channels and
account for approximately 87% of total industry sales.
Impact-resistant window and door market
Impact-resistant windows and doors combine heavy-duty frames
with laminated glass to provide protection from hurricane-force
winds and wind-borne debris. Impact-resistant windows and doors
are considered a passive form of hurricane
protection because they are permanently in place as part of the
building structure. Active forms of hurricane
protection, such as shutters and plywood, which require
installation and removal before and after each storm, are the
primary alternatives to impact-resistant windows and doors. The
overall impact-resistant market is benefiting from the increased
adoption and enforcement of stricter building codes that mandate
the use of impact-resistant products. In addition, consumers and
homebuilders are increasingly demanding impact-resistant windows
and doors over active hurricane protection because
of (i) increased product awareness, (ii) ease of use,
(iii) superior product performance, (iv) improved
aesthetics, (v) higher security features, (vi) full
egress, (vii) visibility, (viii) UV protection, and
(ix) noise reduction.
The U.S. impact-resistant window and door market originated
in Florida in the aftermath of Hurricane Andrew. In 1994, Dade
County became the first county to require hurricane protection
with the implementation of the South Florida Building Code. In
1999, Florida began developing a Statewide Building Code
incorporating the hurricane protection requirements of the South
Florida Building Code. The Florida Building Code went into
effect on March 1, 2002, and extended hurricane protection
requirements to virtually all coastal areas in Florida. The
International Code Council was established in 1994 to develop a
unified national building code. After six years of development,
the International Code Council published the International
Building Code and International Residential Code. Florida
adopted the International codes as its base code in 2004. The
International Building Code and International Residential Code
require that impact-resistant products be installed or buildings
be designed as partially enclosed whenever wind zone maps
published by the American Society of Civil Engineers indicate
the potential for hurricane force winds (as defined by the
American Society of Civil Engineers, wind speeds over 120 mph or
110+ mph within 1 mile of the coastline). In the next
edition of the International Residential Code, the partially
enclosed option will be removed, requiring all windows and doors
to have wind-borne debris protection in these regions. Florida
has adopted this edition and plans to implement it in January
49
2009. A number of other states, including New Jersey, Delaware,
Maryland, Georgia, Alabama, Louisiana, and Mississippi, have
also adopted the International Building Code and International
Residential Code.
Residential new construction
New housing starts have grown rapidly over the past ten years
according to the U.S. Census Bureau and other sources, primarily
as a result of the following factors:
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Historically attractive mortgage rates and increased financing
options for buyers; |
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Relatively high housing affordability; |
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New household formations and increasing home ownership rates; |
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Immigration trends; |
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Aging U.S. housing stock; |
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Aging U.S. population with higher accumulated household
savings (the number of people between the ages of 45 to 64 is
expected to have reached 70.7 million in 2004, an increase
from 52.8 million in 1995); and |
|
|
|
Favorable capital gains tax treatment since 1997 that enhances
home values. |
US housing starts
Source: U.S. Census Bureau
Repair and remodeling end market
According to the U.S. Census Bureau, U.S. repair and
remodeling expenditures have grown in 36 of the past
40 years and totaled $215.0 billion in 2005. According
to the U.S. Census Bureau, the Joint Center for Housing Studies
of Harvard University, and other sources this steady growth is
largely the result of the following factors:
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Aging U.S. housing stock; |
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Increasing homeownership rates; |
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Increasing average size of U.S. homes; |
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Older homeowners electing to upgrade their existing
residences rather than moving to new homes; and |
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New homeowners electing to customize recently purchased
homes. |
50
National residential repair and remodeling expenditures
Source U.S. Census Bureau
Material descriptions and trends in material substitution
In the United States, virtually all windows and doors are
manufactured from one or a combination of three broad categories
of material: aluminum, vinyl, or wood. Each material offers a
different combination of aesthetic attributes, performance
characteristics, and cost, all of which affect the relative
demand for the end products.
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Framing material comparison |
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|
|
United States %(1) | |
|
Florida %(2) | |
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| |
|
| |
Aluminum
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|
|
10 |
% |
|
|
48 |
% |
Wood
|
|
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41 |
% |
|
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23 |
% |
Vinyl
|
|
|
47 |
% |
|
|
28 |
% |
NOTES:
|
|
(1) |
2004 data, prime window unit demand, The Freedonia Group, Inc. |
|
(2) |
2003 data, prime window shipments, Ducker Research Company Inc. |
Aluminum windows benefit from low maintenance requirements, high
durability, and a high
strength-to-weight
ratio. According to The Freedonia Group, the market share of
aluminum windows is lower in northern regions because of the
superior insulating qualities provided by vinyl and wood in
cooler climates. However, the market share of aluminum windows
remains relatively high in the South. Aluminum resists corrosion
and fire and can be extruded into complex shapes that allow much
stronger product designs with specialty features, including
impact-resistant products. The use of aluminum in windows has
also been supported by the availability of factory-baked enamel
finishes or vinyl coatings to improve the aesthetics of the
material. According to The Freedonia Group, aluminums
U.S. market share in 2004 was 10.1% and was considerably
higher in warmer climates and coastal regions, such as Florida,
where aluminums market share was 48% according to Ducker
Research Company.
51
|
|
|
Vinyl and other PVC-based products |
Vinyl windows generally represent the middle price point of
window products, typically less expensive than wood and
wood-clad windows and more expensive than aluminum windows.
According to The Freedonia Group, vinyl windows have experienced
strong growth over the last decade due to their thermal
efficiency characteristics that approach those of wood windows
and significantly reduced maintenance requirements. Vinyl
windows also are benefitting from increasing acceptance in
higher-end applications. According to The Freedonia Group, vinyl
window market share in 2004 was 47.0%.
|
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|
Wood and wood-clad products |
Wood is generally the most thermally efficient window material
and is valued for its aesthetics. However, wood windows are also
among the most expensive and require the greatest amount of
maintenance. According to The Freedonia Group, wood windows
(including wood-clad windows) accounted for approximately 41.0%
of the U.S. window market in 2004. Although the market
share of solid wood units has declined modestly in recent years,
unit sales of vinyl-clad wood windows have grown so that
overall, the wood window market share has been stable for the
last several years. In wood-clad windows, various non-wood
materials (such as aluminum, vinyl, cellular PVC, fiberglass, or
industrial coatings) are applied to the exterior of the window
frame so that the exterior frame has the desired durability or
insulating characteristics while the frame inside the home has
the desired aesthetics.
52
BUILDING CODES
In 1999, Florida began developing a Statewide Building Code
incorporating the hurricane protection requirements of the South
Florida Building Code. The Florida Building Code went into
effect on March 1, 2002, and extended hurricane protection
requirements to virtually all coastal areas in Florida. The
International Code Council was established in 1994 to develop a
unified national building code. After six years of development,
the International Code Council published the International
Building Code and International Residential Code. Florida
adopted the International codes as its base code in 2004. The
International Building Code and International Residential Code
require that impact-resistant products be installed or buildings
be designed as partially enclosed whenever wind zone maps
published by the American Society of Civil Engineers indicate
the potential for hurricane force winds (as defined by the
American Society of Civil Engineers, wind speeds over 120 mph or
over 110 mph within 1 mile of the coastline). In the
next edition of the International Residential Code, the
partially enclosed option will be removed, requiring all windows
and doors to have wind-borne debris protection in these regions.
Florida has adopted this edition and plans to implement it in
January 2009. To date, forty-seven states, including New York,
New Jersey, Delaware, Maryland, North Carolina, South Carolina,
Georgia, Alabama, Louisiana, and Mississippi, have also adopted
the International Building Code and International Residential
Code.
In a High Velocity Hurricane Zone, which the Florida Building
Code delineates as Miami-Dade and Broward counties, opening
protection is required for all new construction and has been
since 1994. Since 2001, repair and remodeling projects in a High
Velocity Hurricane Zone that replace more than 25% of the
openings also require protection. Additionally, more stringent
testing is required for both new construction and repair and
remodeling projects in this zone, and windows and doors must
pass heightened air, water, structural, and impact testing. In
Miami-Dade County, opening protection must be designed to
withstand wind speeds of 146 mph, and in Broward County,
opening protection must be designed to withstand winds of
140 mph.
Codes applied outside the High Velocity Hurricane Zone,
consisting of the Florida Building Code, Florida Residential
Code, International Building Code, and International Residential
Code, require testing that is considered less stringent than
that mandated by Miami-Dade and Broward Counties. For this
reason, Miami-Dade and Broward Counties will not accept the
lesser standards required by the rest of the State or by the
International Building Code and International Residential Code.
However, the testing methodology for impact testing required in
Miami-Dade and Broward Counties is acceptable statewide in
Florida.
PGT WinGuard with aluminum frames meets or exceeds requirements
throughout Florida, including in the High Velocity Hurricane
Zone, and PGT WinGuard with vinyl frames meets or exceeds
requirements throughout Florida and the balance of the U.S.,
except in the High Velocity Hurricane Zone.
Because code compliance is an integral part of the
Companys sales and marketing efforts, Company employees
consistently provide information to regulatory agencies and
actively participate in the consideration and drafting of code
amendments inside and outside the State of Florida. On
January 26, 2005, for example, one of the Companys
employees was appointed to the Hurricane Research Advisory
Committee of the Florida Building Commission to represent window
and door manufacturers generally. The Hurricane Research
Advisory Committee consists of eleven Florida Building
Commissioners and representatives of various industries and
service providers and was originally charged with identifying
what research is needed related to building failure issues
resulting from the hurricanes in 2004 and 2005, identifying any
research gaps on key issues, and ensuring that the Florida
Building Commission is provided with all relevant research
findings on major issues before it considers code enhancements.
The Hurricane Research Advisory Committee continues to advise
the Florida Building Commission about recent research into
building failure issues resulting from the hurricanes in 2005.
The Florida Building Commission is responsible for developing
and revising the Florida Building Code.
53
BUSINESS
Our Company
We are the leading U.S. manufacturer and supplier of
residential impact-resistant windows and doors and pioneered the
U.S. impact-resistant window and door industry in the
aftermath of Hurricane Andrew in 1992. Our impact-resistant
products, which are marketed under the WinGuard brand name,
combine heavy-duty aluminum or vinyl frames with laminated glass
to provide protection from hurricane-force winds and wind-borne
debris by maintaining their structural integrity and preventing
penetration by impacting objects. Impact-resistant windows and
doors satisfy increasingly stringent building codes in
hurricane-prone coastal states and provide an attractive
alternative to shutters and other active forms of
hurricane protection that require installation and removal
before and after each storm. Our current market share in
Florida, which is the largest U.S. impact-resistant window
and door market, is significantly greater than that of any of
our competitors. WinGuard sales have increased at a compound
annual growth rate of 51% since 1999 and represented 56% of our
2005 net sales, as compared to 17% of our 1999 net sales. We
expect WinGuard sales to continue to represent an increasingly
greater percentage of our net sales. In addition to our core
WinGuard product line, we offer a complete range of premium,
made-to-order and fully
customizable aluminum and vinyl windows and doors that
represented 44% of our 2005 net sales. We manufacture these
products in a wide variety of styles, including single hung,
horizontal roller, casement, and sliding glass doors and we also
manufacture sliding panels used for enclosing screened-in
porches. Our products are sold to both the residential new
construction and home repair and remodeling end markets. For the
year ended December 31, 2005, we generated net sales of
$332.8 million, resulting in a compound annual growth rate
of 23.7% since 1999. In the first quarter of 2006, we generated
net sales of $96.4 million, a 21.4% increase over net sales
generated in the first quarter of 2005.
The impact-resistant window and door market is growing faster
than any major segment of the overall window and door industry.
This growth has been driven primarily by increased adoption and
more active enforcement of stringent building codes that mandate
the use of impact-resistant products and increased penetration
of impact-resistant windows and doors relative to active forms
of hurricane protection. According to Ducker Research Company,
an estimated 80% of the U.S. impact-resistant market uses active
forms of hurricane protection. However, homeowners are
increasingly choosing impact-resistant windows and doors due to
ease of use, superior product performance, improved aesthetics,
higher security features, and resulting lower insurance premiums
for homeowners relative to standard windows. While offering all
of these benefits, our WinGuard products are comparably priced
to the combination of traditional windows and shutters. In
addition, awareness of the benefits provided by impact-resistant
windows and doors has increased dramatically due to media
coverage of recent hurricanes and the experience of coastal
homeowners and building contractors with these products. We have
over one million installed WinGuard units and, following
the devastating 2004 and 2005 hurricane seasons, there were no
reported impact failures. According to the National Hurricane
Center, we are currently in a period of heightened hurricane
activity that could last another 10 to 20 years, which we
expect to further drive awareness of impact-resistant windows
and doors.
The geographic regions in which we currently operate include the
Southeastern U.S., the Gulf Coast and the Caribbean. According
to The Freedonia Group, the Southeastern U.S. and the Gulf Coast
comprise 41% of the total U.S. window and door market and
are benefiting from population growth rates above the national
average and from growing second home ownership. Additionally, we
expect increased demand along the Atlantic coast, from Georgia
to New York, as recently adopted building codes are enforced and
awareness of the PGT brand continues to grow. We distribute our
products through multiple channels, including over 1,300 window
distributors, building supply distributors, window replacement
dealers and enclosure contractors. This broad distribution
network provides us with the flexibility to meet demand as it
shifts between the residential new construction and repair and
remodeling end markets. We offer a compelling value proposition
to our customers centered on our high quality and fully
customizable products, industry-leading lead times with 99%
on-time delivery, and superior after-sale support. We believe
our reputation for outstanding service and quality, strong brand
awareness, leading market position and building code expertise
provide us with sustainable competitive advantages.
54
We operate strategically located manufacturing facilities in
North Venice, Florida and Lexington, North Carolina, both
capable of producing fully-customizable windows and doors. Our
North Venice plant is vertically integrated with a glass
tempering and laminating facility, which provides us with a
consistent source of impact-resistant laminated glass, shorter
lead times, and substantially lower costs relative to
third-party sourcing. Because of increased demand for our
products, we are moving our Lexington operations to a larger
facility in Salisbury, North Carolina that we acquired in
February 2006. This facility will increase our manufacturing
capacity by over 160,000 square feet, include glass
laminating and tempering capabilities, and support the expansion
of our geographic footprint as the impact-resistant market
continues to grow.
Our Competitive Strengths
We believe our sales, earnings, and cash flow will be driven by
our competitive strengths.
Leading Position in the Rapidly Growing
U.S. Impact-Resistant Market with Superior Products and
Strong Brand Awareness. We are the leading
U.S. manufacturer of impact-resistant windows and doors,
offering a complete line of high quality WinGuard products. Our
current market share in Florida, which is the largest
U.S. impact-resistant market, is significantly greater than
that of any of our competitors. In addition, we sell our
products throughout the Southeastern U.S., the Gulf Coast, and
the Caribbean. As the market for impact-resistant windows and
doors continues to expand, we are well positioned to capture
this growth given our manufacturing expertise, in-house glass
tempering and laminating capabilities, outstanding customer
service, and building code expertise. Since we first introduced
our WinGuard product line in the aftermath of Hurricane Andrew,
we have continually focused on developing and manufacturing
innovative products having the highest quality. Our aluminum
WinGuard products meet or exceed the most stringent building
code requirements, those of the High Velocity Hurricane Zone
provisions of the Florida Building Code, and all of our products
meet or exceed the requirements of the International Building
Code. PGT has over one million installed WinGuard units and
following the devastating 2004 and 2005 hurricane seasons, there
were no reported impact failures. Our market leading position,
combined with our marketing efforts including television and
print advertisements, has greatly increased consumers and
homebuilders awareness of our brand. Brand awareness of
our impact-resistant windows and doors among contractors and
homeowners is significantly higher than that of any of our
competitors according to a third-party 2004 Florida brand
awareness survey funded by us. In that survey, contractor
recognition of PGT was 100%, and homeowner recognition had more
than doubled to 37% since 2001.
Since initially developing our WinGuard products in the early
1990s, we have invested substantial resources and capital to
design and manufacture a complete line of impact-resistant
windows and doors that meet the certification requirements of
the most stringent building codes, including the High Velocity
Hurricane Zone Provisions of the Florida Building Codes and the
International Building Codes. In order to receive and maintain
these certifications, our products are tested to ensure that
they perform to the highest quality standards and do not breach
upon impact during a hurricane. Our products are tested for air
and water infiltration, structural loads, impact-resistance, and
cyclic wind loading. The impact test, for example, consists of a
9 pound 2 x 4 being repeatedly fired directly at a window at 50
feet per second. Without any adjustments or repairs, the window
is then subjected to cyclic wind loads that consist of 4,500
positive and 4,500 negative load cycles that mirror conditions
that exist during a hurricane.
Our ability to manufacture products that comply with stringent
building code requirements is further complemented by our
in-depth knowledge of the various building codes. Our
understanding of building codes dates back to the early 1990s
when we were actively involved in helping government officials
craft the testing standards following Hurricane Andrew. Since
then, we have been working with local governments and building
officials to make sure that the codes are continuously updated.
We believe that we are viewed as a leading expert of building
codes and have recently been selected to represent all of the
window and door manufacturers on the Hurricane Research Advisory
Committee for the Florida Building Commission.
Diversified and Loyal Customer Base across Multiple
Distribution Channels and End Markets. We distribute our
products through multiple distribution channels, including over
1,300 window distributors, building supply distributors, window
replacement dealers and enclosure contractors. Our broad
distribution network enables us to effectively serve both the
residential new construction and repair and remodeling end
markets and
55
provides us with the flexibility to meet demand as it shifts
between these markets. Over the past five years, the new
construction and repair and remodeling end markets have
represented approximately 61% and 39% of our sales,
respectively. Our customer base is widely distributed, as
evidenced by the fact that our largest customer represents only
2.8% of our sales and our top ten customers represent only 16.8%
of our sales. Additionally, we have longstanding relationships
with many of our customers, a majority of whom have purchased
our products for over 10 years.
Flexible and Vertically Integrated Manufacturing
Capabilities. Our manufacturing facilities are strategically
located to maximize efficiency and customer responsiveness,
minimize lead times, and cost-effectively serve several of the
nations fastest growing window and door markets. The
facilities are integrated using an enterprise-wide information
technology system that captures customers orders,
schedules production, sorts products for distribution, and
tracks deliveries. We utilize cross-functional manufacturing
teams that can be repositioned during shifts to further enhance
productivity. Our in-house glass tempering and laminating
facility provides us with a significant competitive advantage
due to consistent material sourcing, shorter lead times, lower
costs, and greater custom production capabilities. We also have
low inventory requirements since all of our products are
made-to-order and our
finished products are shipped within an average of 48 hours
of completion.
Superior Customer Service Before, During, and After the
Sale. In addition to manufacturing high quality products,
our value proposition to our customers is centered on
industry-leading lead times, on-time delivery, and superior
after-sale support. Through the coordinated efforts of our sales
team, customer service representatives, product specialists, and
field service teams, we deliver high quality service to our
customers, from the time the initial order is placed through the
warranty period. Our well trained sales team is also focused on
ensuring that our products meet building code specifications and
are appropriately installed.
By providing an efficient flow of product from order through
delivery, our manufacturing process allows us to deliver
impact-resistant products in an average of three weeks, which we
believe is below the industry average. Our cross-functional
workforce and company-owned truck fleet ensure timely
fulfillment and delivery of customer orders, as evidenced by our
on-time delivery rate of 99%. Web Weaver, our web-based order
entry program, allows customers to place orders 24 hours a
day and track the status and lead time of their orders on-line.
Through PGT University, we offer in-house training and product
education to our customers to ensure that our products are
marketed effectively to end-users and installation meets
building code specifications. We believe this education effort
minimizes installation problems, field service requests, and
delivery times by providing our customers with expert knowledge
of our products and local and international building code
requirements. We have provided training to over 15,000
customers, installers, architects, and building code officials
through PGT University, increasing customer loyalty and
strengthening our brand awareness.
Experienced Management Team and Continuous Improvement
Culture. We have a dedicated management team with extensive
experience in manufacturing and marketing building products. Our
senior management team has demonstrated the ability to grow our
business by introducing new product lines, expanding into new
geographic markets, and continuously improving product and
service quality. Our senior management team, including our
President, Chief Executive Officer and co-founder, Rodney
Hershberger, has an average of 20 years of experience in
the manufacturing industry. Much of our senior management
teams prior experience was acquired at leading global
companies, including General Motors Corporation, Lucent
Technologies Inc., Western Electric, Ahlstrom Engine
Filtration & Air Media, L.L.C., Reynolds Metals
Company, The Hershey Company, and Flowers Foods, Inc.
Additionally, our employee base reflects a proud culture focused
on personal growth and reinforced by our skill-based
compensation system that rewards employees for continuous
improvement in output and manufacturing efficiency.
Our Strategy
Our strategy is to leverage our competitive strengths to grow
sales, earnings and cash flow and to expand our market positions
in the window and door industry.
Increase penetration of existing impact-resistant
markets. An estimated 80% of the U.S. impact-resistant
market, including Florida, still use shutters and other forms of
active hurricane protection, providing us with a
56
significant growth opportunity as demand continues to shift
toward impact-resistant windows and doors. We will continue to
drive WinGuard sales by capitalizing on the performance benefits
provided by our impact-resistant windows and doors, including
ease of use, improved aesthetics, higher security features, full
egress, visibility, UV protection, and noise reduction. As a
market leader, we influence consumer and builder demand through
our marketing and advertising campaigns, which further increase
brand awareness of our WinGuard products. Additionally, we
continue to build strong relationships with large national
homebuilders who are increasingly offering WinGuard products as
part of their standard package in an effort to differentiate
themselves from their competitors.
Continue to expand into new geographical markets. The
entire impact-resistant market spans the coastline from Mexico
to New York and includes the Caribbean Islands and the Yucatan
Peninsula, and the market opportunity will continue to grow as
increasingly stringent building codes requiring impact-resistant
products are adopted and enforced. Our strategy is to capitalize
on this growth of the impact-resistant market by leveraging our
market leadership position to grow sales in new geographic
regions. Additionally, many of our existing WinGuard dealers and
distributors currently serve both the inland and coastal
markets. We are leveraging our relationships with these
customers to increase penetration of inland markets with our
premium non-impact-resistant windows and doors.
Continue to improve and develop new products. We are
focused on developing innovative new products, as well as
improving existing product lines to meet the changing demands of
our customers and capitalize on high growth opportunities. In
order to further strengthen our impact-resistant product line,
we have recently introduced a number of new WinGuard products:
an aluminum casement window for the high-end custom home market;
a series of French doors that meet higher design pressure
specifications; and a 90 degree sliding glass door. We have also
enhanced our WinGuard offering to address the demand for
impact-resistant windows and doors in cooler climates where
vinyl is the material of choice. In addition, we have recently
introduced a Multi-Story product line to capitalize on the rapid
growth of mid- and high-rise condominiums in high density
coastal areas. To further bolster our premium product offering,
we now offer a full range of customizable product features and
colors. We are preparing to expand into new markets, such as
noise abatement and bomb blast protection, by leveraging our
laminated glass technology and manufacturing expertise. We
believe the breadth and depth of our product offering, combined
with our continuous improvement culture, helps us maintain our
market leadership.
Continue to focus on productivity improvements and working
capital utilization. We continue to drive increased output
and manufacturing efficiencies through investments in
automation, workforce training and development, process control,
quality activities, and re-engineering of assembly-line layouts.
As a result of these efforts, we have successfully increased our
sales per manufacturing square foot from $210 in 1997 to $510 in
2005 and reduced our inventory as a percent of sales from 8.5%
in 1997 to 4.2% in 2005. In addition, we continually evaluate
our product lines based on profitability and growth potential in
order to ensure the most productive deployment of capital.
Our Products
We manufacture complete lines of premium, fully customizable
aluminum and vinyl windows and doors and porch enclosure
products targeting both the residential new construction and
repair and remodeling end markets. All of our products carry the
PGT brand, and our consumer-oriented products carry an
additional, trademarked product name, including WinGuard and
Eze-Breeze.
WinGuard. WinGuard is our impact-resistant product line
and combines heavy-duty aluminum or vinyl frames with laminated
glass to provide constant protection from hurricane-force winds
and wind-borne debris. Over the past five years, WinGuard has
been our fastest growing product line, with sales increasing at
a compound annual growth rate of 51% since 1999, and represented
56% of our 2005 sales. WinGuard products satisfy
increasingly stringent building codes and primarily target
hurricane-prone coastal states in the U.S., as well as the
Caribbean and Mexico. In addition to their impact-resistant
characteristics, WinGuard products are fully customizable and
offer excellent aesthetics, year-round security, enhanced energy
efficiency, noise reduction, and protection from ultra-violet
light.
57
Aluminum. We offer a complete line of fully customizable,
non-impact-resistant aluminum frame windows and doors. These
products primarily target regions with warmer climates, where
aluminum is often preferred due to its ability to withstand
higher temperatures and humidity. We offer a comprehensive
selection of options and upgrades to meet the evolving demands
of homeowners. Our aluminum product lines include single hung,
horizontal roller, casement, fixed lite, and architectural
windows and sliding glass, French, corner meet, prime, and
cabana doors. We are also developing new and innovative versions
of these products.
Vinyl. We offer a complete line of fully customizable,
non-impact-resistant vinyl frame windows and doors primarily
targeting regions with colder climates, where the
energy-efficient characteristics of vinyl frames are critical.
Our vinyl products include single hung, horizontal roller,
casement, fixed lite, and architectural windows and sliding
glass doors.
Multi-Story. Leveraging our technical and manufacturing
expertise gained in developing WinGuard products, we introduced
our Multi-Story products in 2002. Similar to WinGuard,
Multi-Story products are impact-resistant, offering protection
from hurricane-force winds and wind-borne debris. However, this
product line is installed in mid- and high-rise buildings rather
than single family homes. Our Multi-Story products include
single hung, horizontal roller, and fixed lite windows and
sliding glass doors.
Eze-Breeze. Our Eze-Breeze sliding panels for porch
enclosures are vinyl-glazed, aluminum-framed products used for
enclosing screened-in porches. They are available in three
styles: vertical four-track, side slider, and screened garage
door. The most popular style, the vertical four-track, allows
nearly 75% ventilation when fully opened. The cost-effective
Eze-Breeze product is ideal for enclosing screen porches because
it provides protection from inclement weather while still
creating a screened-porch feel. The product is sold in Florida
and throughout the eastern US, Canada and Australia.
Sales, Marketing and Customer Service
Sales and marketing. Our sales strategy primarily focuses
on attracting and retaining distributors and dealers by
consistently providing exceptional customer service, leading
product quality, and competitive pricing. Our customers also
value our shorter lead times, knowledge of building code
requirements, and technical expertise, which collectively
generate significant customer loyalty. We have a dedicated sales
force that operates regionally and is comprised of four teams:
Florida, Mid-Atlantic, Eze-Breeze, and International. Our sales
representatives, who average 8 years with us, receive
performance-based compensation based on sales and profitability
metrics. Dealers utilize our on-line order management system,
Web Weaver, a complete quote and order management system that
allows dealers and distributors to configure, price, create
quotes, and place orders, which arrive on the manufacturing
floor within minutes.
Our marketing strategy focuses on television and print
advertising in coastal markets. Our advertising campaigns
reinforce the high quality of our products and educate consumers
and homebuilders on the advantages of using impact-resistant
products. Our slogan for the WinGuard brand summarizes our
marketing message: Effortless Hurricane Protection.
In supporting the sales effort of our dealers and distributors,
we publish product brochures that summarize the various
technical and aesthetic features of our products. We also set up
product displays that showcase our products at various industry
trade-shows and distributor showrooms. In addition, we take
advantage of opportunities to have our products featured on
various home improvement television programs, such as ABCs
Extreme Home Makeover. We primarily market our products based on
product quality, building code compliance, outstanding service,
shorter lead times, and on-time delivery.
Customer Service. We believe that our ability to provide
customers outstanding service quality serves as a strong
competitive differentiator. Our relationship with our customers
is established and maintained through the coordinated efforts of
our sales, customer service, production, and transportation
teams. Our customer service teams are structured by product line
and are responsible for fielding in-bound inquiries from dealers
and distributors. We devote a team of highly seasoned
professionals to address service and product return support with
the goal of resolving any issue in a timely manner. Field
service calls are processed through our FieldPro system, which
allows timely dispatch of our field service representatives and
provides repair history. Field sales
58
and service representatives are closely aligned to ensure proper
resource allocation. Our production scheduling team coordinates
rush orders with manufacturing and transportation to assist
customers requiring products prior to our published lead time.
We own a truck fleet of 78 tractors and 140 trailers.
Our drivers usually cover dedicated routes, which allows them to
build strong relationships directly with our customers,
accommodate our customers specific preferences in taking
delivery of our products, and gather real-time customer feedback
regarding our service quality.
In order to promote customer loyalty and employee development,
we developed PGT University in early 1999 with the primary
objectives of creating a strong partnership with our
distribution network and providing our employees with the
necessary knowledge base and skill-set to help optimize their
performance. All of our current employees have taken at least
one class at PGT University. We have created an
on-site training
facility that includes a computer lab to help implement the
goals of PGT University.
Our Customers
We have a highly diversified customer base that is comprised of
over 1,300 window distributors, window replacement dealers,
aluminum contractors, and Eze-Breeze dealers. Our largest
customer accounts for approximately 2.8% of sales, and our top
ten customers account for approximately 16.8% of sales. We enjoy
strong customer loyalty and stability, as evidenced by our
longstanding relationships with most of our customers. The
majority of our dealers and distributors have purchased our
products for over 10 years and our top ten customers have
purchased our products for an average of 10 years. Although
we do not supply our products directly to homebuilders, we have
strong relationships with a number of national homebuilders,
which we believe helps drive demand for our products.
Our sales are balanced between the residential new construction
and home repair and remodeling end markets, which have
represented approximately 61% and 39% of our sales,
respectively, over the past five years. Given our broad
distribution network, we have the flexibility to effectively
meet demand as it shifts between these end markets. In fiscal
years 2005, 2004, and 2003, our net sales from customers in the
United States were $318.5 million, $245.3 million, and
$213.1 million, respectively, and our net sales from
foreign countries, including the Caribbean, Mexico, South
America and Australia, in those same periods were
$14.3 million, $11.1 million, and $9.5 million,
respectively.
Materials and Supplier Relationships
Our primary manufacturing materials include aluminum extrusions,
glass, and polyvinyl butyral. Although in many instances we have
agreements with our suppliers, these agreements are generally
terminable by either party on limited notice, other than our
polyvinyl butyral contract, which has a term that expires on
December 31, 2008. Moreover, other than with our suppliers of
polyvinyl butyral and aluminum, we do not have long-term
contracts with the majority of suppliers of our raw materials.
In addition, our current forward contracts for aluminum run
through October 2006. All of our materials are readily available
from other sources.
It is our philosophy to leverage our scale to identify premier
suppliers who can reliably deliver high quality materials at
attractive prices. We believe that our current base of suppliers
will continue to provide us with a stable supply of materials as
our business continues to grow. In order to lower our inventory
levels and minimize lead times, we have implemented electronic
pull systems with our key suppliers to coordinate the flow of
materials across our supply chain.
Aluminum extrusions accounted for approximately 44% of our
material purchases in the fourth quarter of 2005. While aluminum
prices have been increasing over the past three years, we hedge
our exposure to these rising costs through forward purchase
commitments. We currently utilize a rolling nine-month hedge for
the purchase of approximately 70% of our aluminum.
Sheet glass, which is sourced from three major national
suppliers, accounted for approximately 24% of our material
purchases in the fourth quarter of 2005. Sheet glass that we
purchase comes in various sizes, tints, and thermal properties.
We have a vertically integrated glass tempering and laminating
facility that provides us with a consistent source of
impact-resistant laminated glass, shorter lead times, and
substantially lower costs relative to third-party sourcing. Our
glass plant works in tandem with our window manufacturing
facilities and provides
59
just-in-time delivered
and custom-sized material that matches the master manufacturing
production sequence. We produce approximately 75% of our
laminated glass needs in-house and purchase the remaining
amounts from third-party suppliers. Our systems allow us to make
the most economical make/buy decision on laminated glass so that
we can plan our glass capacity to maximize plant throughput.
Polyvinyl butyral, which is used as the inner layer in laminated
glass, accounted for approximately 9% of our material purchases
in the fourth quarter of 2005. We have negotiated an agreement
with our polyvinyl butyral supplier that provides us with
favorable pricing through the end of 2008, pursuant to
which we are required to purchase 100% of our requirements for
polyvinyl butyral.
Manufacturing
Our manufacturing facilities, located in Florida and North
Carolina, are capable of producing fully-customizable products.
The manufacturing process typically begins in our glass plant
where we cut standard-sized sheet glass to meet specific
requirements of our customers orders. We also temper and
laminate glass for our impact-resistant products. Our in-house
tempering and laminating capabilities allow us to deliver
products to our customers in shorter lead times than our
competitors who source laminated glass from third parties.
After the tempering and laminating process has been completed,
glass is transported to our window and door assembly lines in a
make-to-order sequence
where it is combined with an aluminum or vinyl frame. These
frames are also fabricated to order, as we start with a piece of
extruded material that we cut and shape into a frame that fits
our customers specifications. After an order has been
completed, it is immediately staged for delivery on one of our
trucks and shipped within an average of 48 hours of
completion.
We utilize cross-functional manufacturing teams that can be
repositioned during shifts to enhance efficiency, productivity,
and customer responsiveness. We continually inspect our
manufacturing lines and finished products to make sure that we
maintain the highest quality standards. Our manufacturing
employees are trained in quality control and can take
appropriate measures to react to quality control issues in real
time.
Competition
The window and door industry is highly fragmented and is served
predominantly by local and regional competitors with relatively
limited product lines and overall market share. In general, we
divide the competitive landscape of our industry based on
geographic scope, with competitors falling within one of two
categories: local and regional competitors and national window
and door manufacturers.
Local and Regional Window and Door Manufacturers: This
group of competitors consists of numerous local job shops and
small manufacturing facilities that tend to focus on selling
branded products to local or regional dealers and wholesalers
and that typically lack the service levels and quality controls
demanded by larger distributors. Further, the significant
emphasis on stringent building codes requires windows and doors
with increasing design, testing, and manufacturing complexity.
As a result, these smaller local manufacturers would need to
invest significant capital for their products to become or
remain compliant with building codes. While a number of these
firms are stand-alone entities, some are regional divisions of
larger companies. Competitors include Kinco, a division of
Atrium Companies, Inc., Lawson Industries Inc.,
CGI®
(Construction Glass Industries), and Florida Extruders
International, Inc. (manufacturer of the
Milestone®
brand of windows).
National Window and Door Manufacturers: This group of
competitors tends to focus on selling branded products
nationally to dealers and wholesalers and have multiple
locations. Competitors include
Simonton®
Windows,
Jeld-Wen®
Windows and Doors, and Silver
Line®
Windows.
The principal methods of competition in the window and door
industry are the development of long-term relationships with
window and door dealers and distributors and professional
homebuilders and the retention of customers by delivering a full
range of high-quality products on time while offering
competitive pricing and flexibility in transaction processing.
Although some of our competitors may have greater geographic
scope and access to greater resources and economies of scale
than do we, our leading position in the U.S. impact-resistant
window and door market and the high quality of our products
position us well to meet the needs of our customers and retain
an advantage over our competitors.
60
Employees
At December 31, 2005, we had approximately 2,400 employees,
none of whom was represented by a union. We believe that we have
good relations with our employees.
History
Our subsidiary, PGT Industries, Inc., was founded in 1980 as
Vinyl Technology, Inc. by Paul Hostetler and our current
President and Chief Executive Officer, Rodney Hershberger. The
PGT brand was established in 1987, and we introduced our
WinGuard product line in the aftermath of Hurricane Andrew in
1992.
PGT, Inc. is a Delaware corporation formed on December 16,
2003, as JLL Window Holdings, Inc. by an affiliate of JLL
Partners in connection with its acquisition of PGT Industries.
In connection with the acquisition, PGT Holding Company (the
then-parent corporation of PGT Industries) was merged with and
into JLL Window Holdings, Inc. For more information about such
acquisition, see Note 4 to our audited consolidated financial
statements included herein. On February 15, 2006, we
changed our name to PGT, Inc.
Information Technology Systems
We believe that an appropriate information technology
infrastructure is critical to maintain and strengthen our market
leadership. Through our Enterprise IT alignment, we
apply technology across the entire value chain.
The key to our application software is our Expert Configuration
Order Fulfillment System, which allows us to accurately enter,
price, configure valid product in a
made-to-order,
demand-driven manufacturing environment. Expert Configuration
assistance is critical, given that our products can be built in
millions of combinations of options and sizes. This software
enables us to synchronize the scheduling of the manufacturing
process of multiple assembly operations to serve our
make-to-order needs and ship in geography sequence. Our
exception processing and reporting enables timely
identification and the scheduling of on-time delivery.
Our Web Weaver web-based order entry system extends
the Expert Configuration technology to the dealer, allowing
dealers to configure, price and order our products 24 hours
a day. Web Weaver is seamlessly integrated with our
manufacturing system to allow orders to flow directly from
dealers to our manufacturing plants. Dealers can pre-load
preferences and generate templates for re-use and consistency
when ordering repetitive house packages (common in
new construction). The system helps dealers to comply with
building codes, as well, since required wind performance
information can be entered, and the system can then validate the
performance of the configured order to the requirement. Our
dealers currently enter 33% of our sales dollars directly into
Web Weaver.
Facilities and Properties
We own facilities in two strategic locations. We own a
363,000 square foot facility in North Venice, Florida that
contains our corporate headquarters and main manufacturing
plant. We also own an adjacent 80,000 square foot facility
used for glass tempering and laminating and a 42,000 square
foot facility for producing Multi-Story and simulated
wood-finished products. In addition, we own a
225,000 square foot facility in Lexington, North Carolina.
The plant in Lexington manufactures WinGuard products, vinyl
windows and doors, and porch enclosure windows. It provides easy
distribution access to the Mid-Atlantic and the developing
impact-resistant market along the Eastern seaboard and Gulf
coasts. Because of increased demand for our products, we are
moving our Lexington operations to a larger facility in
Salisbury, North Carolina that we acquired in February 2006 and
that, at approximately 393,000 square feet, will
significantly increase our manufacturing capacity and include
glass tempering and laminating capabilities. Upon completion of
the move to this larger facility, we plan to sell the Lexington
facility. Our facilities in both Florida and North Carolina are
capable of producing our fully customizable product lines.
The Company leases three properties in North Venice, Florida and
one property in Lexington, North Carolina. The leases for the
training facility, fleet maintenance building, and fleet parking
lot in North Venice, Florida expire in November 2008, September
2008, and September 2013, respectively. The lease for the fleet
61
maintenance building in North Carolina expires in October 2006
and is renewable for additional one-year terms. Each of the
leases provides for a fixed annual rent. The leases require us
to pay taxes, insurance, and common area maintenance expenses
associated with the properties.
Our principal manufacturing plants and distribution facilities
are listed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased or |
Facility Location |
|
Address |
|
General Character |
|
Owned |
|
|
|
|
|
|
|
North Venice, Florida
|
|
1070 Technology Drive |
|
Manufacturing plant and distribution center |
|
Own |
North Venice, Florida
|
|
3419 Technology Drive |
|
Manufacturing and finishing plant |
|
Own |
North Venice, Florida
|
|
3429 Technology Drive |
|
Glass tempering and laminating plant |
|
Own |
North Venice, Florida
|
|
3439 Technology Drive |
|
PGT-University training facility |
|
Lease |
North Venice, Florida
|
|
1044 Endeavor Court |
|
Fleet maintenance bldg |
|
Lease |
North Venice, Florida
|
|
Precision Drive |
|
Fleet parking lot |
|
Lease |
Salisbury, North Carolina
|
|
2121 Heilig Road |
|
Manufacturing plant and distribution center |
|
Own |
Lexington, North Carolina
|
|
210 Walser Road |
|
Manufacturing plant and distribution center |
|
Own |
Lexington, North Carolina
|
|
1607 Leonard Road |
|
Fleet maintenance bldg |
|
Lease |
Backlog
The dollar amount of our backlog at December 31, 2005 and
January 1, 2005 was approximately $57.5 million and
$16.5 million, respectively. Our backlog consists of orders
that we have received from customers that have not yet shipped.
The increase in our backlog in 2005 largely resulted from the
increase in our sales in 2005 and a shift in our product mix to
higher value products. We expect that substantially all of our
December 31, 2005 backlog will be recognized as sales
during the next twelve months.
Trademarks and Patents
Among the trademarks owned and registered by us in the United
States are the following: PGT, WinGuard, Eze-Breeze, Progressive
Glass Technology, PGT Industries and Visibly Better. In
addition, we own several patents and patent applications
concerning various aspects of window assembly and related
processes. We are not aware of any circumstances that would have
a material adverse effect on our ability to use our trademarks
and patents. As long as we continue to renew our trademarks when
necessary, the trademark protection provided by them is
perpetual. Our patents will expire at various times over the
next 20 years.
Legal Proceedings
We are involved in various claims and lawsuits incidental to the
conduct of our business in the ordinary course. We carry
insurance coverage in such amounts in excess of our self-insured
retention as we believe to be reasonable under the circumstances
and that may or may not cover any or all of our liabilities in
respect of claims and lawsuits. We do not believe that the
ultimate resolution of these matters will have a material
adverse impact on our financial position or operating results.
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.
62
MANAGEMENT
Directors and Executive Officers
Information with respect to our directors and executive
officers, as of the date hereof, is set forth below:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position |
|
|
| |
|
|
Rodney Hershberger
|
|
|
49 |
|
|
President, Chief Executive Officer, and Director |
Herman Moore(1)
|
|
|
53 |
|
|
Executive Vice President |
Jeffrey T. Jackson(2)
|
|
|
40 |
|
|
Chief Financial Officer and Treasurer |
Mario Ferrucci III(3)
|
|
|
43 |
|
|
Vice President and Corporate Counsel |
Deborah L. LaPinska
|
|
|
44 |
|
|
Vice President Sales & Marketing |
B. Wayne Varnadore
|
|
|
44 |
|
|
Vice President Information Technology and Supply
Chain |
David McCutcheon
|
|
|
40 |
|
|
Vice President Engineering |
Ken Hilliard
|
|
|
60 |
|
|
Vice President Manufacturing |
Linda Gavit
|
|
|
48 |
|
|
Vice President Human Resources |
Alexander R. Castaldi(4)
|
|
|
56 |
|
|
Director |
Richard D. Feintuch(5)
|
|
|
53 |
|
|
Director |
Ramsey A. Frank(4)
|
|
|
45 |
|
|
Director |
Paul S. Levy(4)
|
|
|
58 |
|
|
Director |
Brett N. Milgrim(4)
|
|
|
37 |
|
|
Director |
Floyd F. Sherman
|
|
|
66 |
|
|
Director |
Randy L. White(6)
|
|
|
60 |
|
|
Director and Former Chief Executive Officer |
|
|
(1) |
Mr. Moore began his employment with us in November 2005. |
|
(2) |
Mr. Jackson began his employment with us in November 2005. |
|
(3) |
Mr. Ferrucci began his employment with us in April 2006. |
|
(4) |
Messrs. Castaldi, Frank, Levy, and Milgrim are affiliates of JLL
Partners. |
|
(5) |
Mr. Feintuch has agreed to become a member of our board of
directors prior to the completion of this offering and has
consented to being named in this prospectus. |
|
(6) |
Mr. White resigned as our Chief Executive Officer on
February 3, 2005. Mr. White continues to serve as a
director. |
Our board of directors consists of seven members elected
annually by our stockholders. Immediately prior to the
completion of this offering, we will adopt our amended and
restated certificate of incorporation and our amended and
restated by-laws, which will provide that our board of directors
be divided into three classes, each of whose members will serve
for a staggered three-year term. All executive officers are
chosen by the board of directors and serve at its pleasure.
There are no family relationships among any of the directors or
executive officers, and there is no arrangement or understanding
between any of the directors or executive officers and any other
person pursuant to which he was selected as a director or
officer. Unless otherwise indicated, each director and officer
is a citizen of the United States and the business address of
each individual is: 1070 Technology Drive, North Venice, Florida
34275.
Set forth below is a brief description of the business
experience of each of our directors and executive officers.
Rodney Hershberger, President, Chief Executive Officer,
and Director. Mr. Hershberger, a co-founder of PGT
Industries, Inc., has served the Company for 25 years.
Mr. Hershberger was named President and Director in 2004
and became our Chief Executive Officer in March 2005.
Mr. Hershberger also became President of PGT Industries,
Inc. in 2004 and was named Chief Executive Officer of PGT
Industries, Inc. in 2005. In 2003 Mr. Hershberger became
63
executive vice president and chief operating officer and oversaw
the Companys Florida and North Carolina operations, sales,
marketing, and engineering groups. Previously,
Mr. Hershberger led the manufacturing, transportation, and
logistics operations in Florida and served as vice president of
customer service.
Herman Moore, Executive Vice President. Mr. Moore
joined the Company in November 2005 as Executive Vice President.
Mr. Moore is responsible for the Companys operations,
including manufacturing, business logistic processes, and
engineering. From 1999 to 2005, Mr. Moore was vice
president of operations at Ahlstrom Engine Filtration &
Air Media, L.L.C. Previously, he worked for Reynolds Metals
Company for 25 years and held management positions in
several departments from financial planning, to materials
management, to operations. Mr. Moore has over 30 years
of management experience in various businesses, with
responsibilities ranging from operations to financial and
materials planning. Mr. Moore holds a B.S. in engineering
from the University of Dayton and an M.B.A. from the University
of Richmond and is a Registered Professional Engineer.
Jeffrey T. Jackson, Chief Financial Officer and
Treasurer. Mr. Jackson joined the Company as Chief
Financial Officer and Treasurer in November 2005, and his
current responsibilities include all aspects of financial
reporting, accounting and general ledger, internal controls,
cash management, and the business planning process. Before
joining the Company, Mr. Jackson spent two years as Vice
President, Corporate Controller for The Hershey Company. From
1999 to 2004 Mr. Jackson was Senior Vice President, Chief
Financial Officer for Mrs. Smiths Bakeries, LLC, a
division of Flowers Foods, Inc. Mr. Jackson has over
sixteen years of increasing responsibility in various executive
management roles with various companies, including Division
Chief Financial Officer, Vice President Corporate Controller,
and Senior Vice President of Operations. Mr. Jackson holds
a B.B.A. from the University of West Georgia and is a Certified
Public Accountant in the State of Georgia and the State of
California.
Mario Ferrucci III, Vice President and Corporate Counsel.
Mr. Ferrucci joined the Company in April 2006 as Vice President
and Corporate Counsel. Mr. Ferrucci is responsible for the
Companys legal affairs. From 2001 to 2006, Mr. Ferrucci
practiced law with the law firm of Skadden, Arps, Slate, Meagher
& Flom LLP.
Deborah L. LaPinska, Vice President
Sales & Marketing. Ms. LaPinska joined the Company
in 1991. Ms. LaPinska has been responsible for customer
service, sales, and marketing, as well as incorporating new
tools and resources to improve order processing cycle times and
sales forecasting. Before she was appointed Vice President in
2003, Ms. LaPinska held the position of Director, National
and International Sales. Ms. LaPinska holds a B.A. in
business management from Eckerd College.
B. Wayne Varnadore, Vice President
Information Technology and Supply Chain. Mr. Varnadore
joined the Company in 1993. Mr. Varnadore is responsible
for customer service, quality, field service, information
technology, materials management, transportation, and production
scheduling. Mr. Varnadore holds a B.S. in finance from the
University of Florida and an M.B.A. from the University of South
Florida.
David McCutcheon, Vice President Engineering.
Mr. McCutcheon joined the Company in 1997, and his current
responsibilities include all aspects of code compliance, product
development, manufacturing process and equipment development,
and facilities planning and maintenance. Previously,
Mr. McCutcheon worked for ten years for General Motors in
management positions in manufacturing operations and
manufacturing engineering. Mr. McCutcheon holds a B.S.E.E.
from Purdue University and an M.B.A. from The Ohio State
University.
Ken Hilliard, Vice President Manufacturing.
Mr. Hilliard joined the Company in 2001 as Plant
Superintendent of the North Venice facility and is responsible
for manufacturing at the North Venice, Florida facility. From
1996 to 2001, Mr. Hilliard was the manufacturing manager at
Via Systems. Mr. Hilliard has over 36 years of
experience in engineering and leadership positions in
manufacturing operations. Mr. Hilliard holds a B.S. from
North Carolina State University.
Linda Gavit, Vice President Human Resources.
Ms. Gavit joined the Company in 1999 and is heavily
involved in the Companys strategic initiatives directed
toward employee development, compensation and benefits,
communications, and safety. Ms. Gavit has over
16 years of management experience and 18 years of
combined experience in human resources and employment law.
Ms. Gavit holds a J.D. and an M.B.A. from the University of
Denver.
64
Alexander R. Castaldi, Director. Mr. Castaldi has
been a director since 2004. Mr. Castaldi, a C.P.A., is a
Senior Managing Director of JLL Partners, Inc., which he joined
in 2003, and was previously a chief financial officer of three
management buyouts. He was most recently Executive Vice
President, Chief Financial Officer and Administration Officer of
Remington Products Company. Previously, Mr. Castaldi was
Vice President and Chief Financial Officer at Uniroyal Chemical
Company. From 1990 until 1995, he was Senior Vice President and
Chief Financial Officer at Kendall International, Inc. During
the 1980s, Mr. Castaldi was also Vice President, Controller
of Duracell, Inc. and Uniroyal, Inc. Mr. Castaldi serves as
a director of several companies, including Medical Card System,
Inc., J. G. Wentworth, LLC, Motor Coach Industries
International, Inc., Education Affiliates, Inc., Mosaic Sales
Solutions, Corp., and C.H.I. Overhead Doors, Inc.
Richard D. Feintuch, Director. Mr. Feintuch has been
nominated to become a director prior to the consummation of this
offering. Mr. Feintuch was a partner of the law firm
Wachtell, Lipton, Rosen & Katz from 1984 until his
retirement in 2004, specializing in mergers and acquisitions,
corporate finance, and the representation of creditors and
debtors in large restructurings. Mr. Feintuch received a
B.S. in Economics from the Wharton School of the University of
Pennsylvania and a J.D. from New York University School of Law.
Ramsey A. Frank, Director. Mr. Frank has been a
director since 2003. Mr. Frank is a Senior Managing
Director of JLL Partners, Inc., which he joined in 1999. From
January 1993 to July 1999, Mr. Frank was a Managing
Director at Donaldson, Lufkin & Jenrette, Inc., where
he headed the restructuring group and was a senior member of the
leveraged finance group. Mr. Frank serves as a director of
several companies, including Motor Coach Industries
International, Inc., Education Affiliates, Inc., C.H.I. Overhead
Doors, Inc., Builders FirstSource, Inc., and Medical Card
System, Inc.
Paul S. Levy, Director. Mr. Levy has been a director
since 2004. Mr. Levy is a Senior Managing Director of JLL
Partners, Inc., which he founded in 1988. Mr. Levy serves
as a director of several companies, including Iasis Healthcare,
LLC, J. G. Wentworth, LLC, Motor Coach Industries International,
Inc., Education Affiliates, Inc., Mosaic Sales Solutions, Corp.,
and Builders FirstSource, Inc.
Brett N. Milgrim, Director. Mr. Milgrim has been a
director since 2003. Mr. Milgrim is a director of both
Builders FirstSource, Inc. and C.H.I. Overhead Doors, Inc. and
is a Managing Director of JLL Partners, Inc., which he
joined in 1997.
Floyd F. Sherman, Director. Mr. Sherman has been a
director since 2005. Mr. Sherman is President, Chief
Executive Officer, and a director of Builders FirstSource, Inc.,
a leading supplier and manufacturer of structural and related
building products for residential new construction. Before
joining Builders FirstSource, Mr. Sherman spent
28 years at Triangle Pacific/ Armstrong Flooring, the last
nine of which he served as Chairman and Chief Executive Officer.
Mr. Sherman has over 40 years of experience in the
building products industry. A native of Kerhonkson, New York,
and a veteran of the U.S. Army, Mr. Sherman is a
graduate of the New York State College of Forestry at Syracuse
University. He also holds an M.B.A. degree from Georgia State
University.
Randy L. White, Director and Former Chief Executive
Officer. Mr. White has been a director since 2004.
Mr. White has served on the board of directors of our
subsidiary since 1996 and became president in 1997.
Mr. White resigned as president in 2005. Before joining the
Company, Mr. White spent almost 30 years with Reynolds
Metals Company in a variety of manufacturing positions,
including director of manufacturing for the aluminum can
division. Mr. White holds an M.S. in business from the
University of Richmond.
Upon completion of this offering, our board will consist of
Messrs. Castaldi, Feintuch, Frank, Hershberger, Levy,
Milgrim, Sherman, and White. We will have appointed one
independent member to the board of directors before the
consummation of this offering, and we intend to appoint one
additional independent member to the board of directors within
90 days of the consummation of this offering and one
additional independent director within one year of the
consummation of this offering. We currently intend that a
majority of the members of our board of directors will continue
to be associated with JLL Partners for so long as affiliates of
JLL Partners own more than 50% of our outstanding shares.
Immediately prior to the consummation of this offering, we will
adopt our amended and restated certificate of incorporation and
our amended and restated by-laws, which will provide
65
that our board of directors be divided into three classes, each
of whose members will serve for a staggered three-year term. The
term of the initial Class I directors will terminate on the
date of the 2007 annual meeting, while the terms of the
Class II and Class III directors will terminate on the
dates of the 2008 and 2009 annual meetings, respectively.
Although we intend to satisfy all applicable Nasdaq corporate
governance rules, for so long as an affiliate of JLL Partners
continues to own more than 50% of our outstanding shares after
the consummation of the offering we intend to avail ourselves of
the Nasdaq Rule 4350(c) controlled company
exemption that applies to companies in which more than 50% of
the stockholder voting power is held by an individual, a group,
or another company. This rule will grant us an exemption from
the requirements that we have a majority of independent
directors on our board of directors and that we have independent
directors determine the compensation of executive officers and
the selection of nominees to the board of directors. However, we
intend to comply with such requirements in the event that such
affiliate of JLL Partners ownership falls to or below 50%.
Our board of directors has the authority to appoint committees
to perform certain management and administration functions. Our
board of directors currently has an audit committee, the
composition of which, upon completion of this offering, will
comply with the requirements of The Nasdaq National Market and
the Sarbanes-Oxley Act of 2002. Our board of directors also
intends to appoint such other committees as may be required by
the rules of The Nasdaq National Market.
The audit committee selects, on behalf of our board of
directors, an independent public accounting firm to be engaged
to audit our financial statements, discusses with the
independent auditors their independence, and reviews and
discusses the audited financial statements with the independent
auditors and management. Upon completion of this offering, the
audit committee will also recommend to our board of directors
whether the audited financial statements should be included in
our Annual Reports on
Form 10-K to be
filed with the SEC. Mr. Castaldi and Mr. Milgrim are
the members of our audit committee. Our board of directors
intends to adopt a formal written audit committee charter,
appoint three independent members to the audit committee,
determine which member qualifies as an audit committee
financial expert under applicable SEC rules, and otherwise
comply with the requirements of The Nasdaq National Market and
the Sarbanes-Oxley Act of 2002.
|
|
|
Compensation Interlocks and Insider Participation |
We do not have a compensation committee of the board of
directors, and the full board decides executive compensation.
Mr. Randy L. White, a member of the board of directors,
served as our Chief Executive Officer until he resigned from
such position on February 3, 2005, and his son,
Mr. Randy L. White, Jr., is employed by the company as one
of our area leaders. Additionally, Mr. Rodney Hershberger,
our current President and Chief Executive Officer, also serves
as a member of the board. Board members do not make employee
compensation decisions with respect to themselves or their
relatives. In addition, we do not have any compensation
interlocks, or executive officers who are also serving on
the compensation committee of, or serving in a similar function
for, or on the board of, another company that has an executive
officer who is on our board of directors.
|
|
|
Compensation of directors |
For the year ended December 31, 2005, the individuals
serving on the board of directors did not receive any
compensation for their service as directors. We intend to set
the compensation for all directors, other than employees of the
Company and designees of our majority stockholder, at an annual
cash retainer of $40,000; an annual grant under our 2006 Equity
Incentive Plan of restricted stock with a fair market value at
the time of issuance of approximately $40,000; a fee of $1,000
per day for each meeting of the board of directors or committee
thereof attended; and an annual cash retainer of $5,000 for each
committee on which they serve.
66
EXECUTIVE COMPENSATION
Summary of Compensation
The following summary compensation table sets forth information
concerning compensation earned in the fiscal year ended
December 31, 2005, by Mr. White, who served as our
chief executive officer until February 3, 2005,
Mr. Hershberger, and each of our next five most highly
compensated executive officers serving at the end of the last
fiscal year. We refer to these executives as our named
executive officers elsewhere in this prospectus.
|
|
|
Summary compensation table |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term | |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
Annual Compensation |
|
|
|
Securities | |
|
|
|
|
|
|
Other Annual | |
|
Underlying | |
|
All Other | |
|
|
Year |
|
Salary |
|
Bonus |
|
Compensation(1) | |
|
Options (#) | |
|
Compensation | |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
Rodney Hershberger
|
|
2005 |
|
$261,250 |
|
|
|
$ |
17,544 |
|
|
|
66,207 |
|
|
|
|
|
Randy L. White
|
|
2005 |
|
$154,947 |
|
|
|
$ |
12,111 |
|
|
|
12,579 |
|
|
|
|
|
Deborah L. LaPinska
|
|
2005 |
|
$167,000 |
|
|
|
$ |
15,483 |
|
|
|
26,483 |
|
|
|
|
|
B. Wayne Varnadore
|
|
2005 |
|
$167,000 |
|
|
|
$ |
17,178 |
|
|
|
26,483 |
|
|
|
|
|
David McCutcheon
|
|
2005 |
|
$167,000 |
|
|
|
$ |
16,254 |
|
|
|
26,483 |
|
|
|
|
|
Ken Hilliard
|
|
2005 |
|
$162,082 |
|
$9,558 |
|
$ |
12,167 |
|
|
|
38,400 |
|
|
|
|
|
Linda Gavit
|
|
2005 |
|
$167,000 |
|
|
|
$ |
10,100 |
|
|
|
26,483 |
|
|
|
|
|
|
|
|
(1) |
|
All other annual compensation in the table includes, for
Messrs. Hershberger and White, Ms. LaPinska,
Messrs. Varnadore, McCutcheon, and Hilliard, and
Ms. Gavit, the following: (a) 401(k)
$6,300, $4,648, $4,239, $5,010, $5,010, $4,767, and $5,010,
respectively; (b) business interruption
insurance $208, $208, $208, $208, $208, $208, and
$208, respectively; (c) medical insurance
$10,147, $6,842, $10,147, $11,383, $10,147, $6,370, and $4,005,
respectively; (d) life insurance $43, $43, $43,
$43, $43, $43, and $43, respectively; (e) long-term
disability insurance $534, $370, $534, $534, $534,
$529, and $534, respectively; (f) membership in
YMCA-Venice $312, $0, $312, $0, $312, $125, and $0,
respectively; and (g) membership in Southside
Gym $0, $0, $0, $0, $0, $125, and $300, respectively. |
|
|
NOTE: |
Messrs. Moore and Jackson joined the Company as Executive
Vice President and Chief Financial Officer and Treasurer,
respectively, in November 2005, and neither received total
annual salary and bonus exceeding $100,000 at the end of the
last completed fiscal year. We expect information regarding
compensation received by Messrs. Moore and Jackson to be
required to be disclosed in this table at the end of the current
fiscal year. We likewise expect to disclose information
regarding compensation received by Mr. Ferrucci, who joined the
Company in April 2006, in this table at the end of the current
fiscal year. |
67
The following table sets forth information concerning the grant
of stock options to each of our named executive officers during
the last fiscal year.
|
|
|
Option grants in last fiscal year |
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants | |
|
|
|
|
| |
|
|
Number of | |
|
Percent of | |
|
|
|
|
Securities | |
|
Total Options | |
|
|
|
|
Underlying | |
|
Granted to | |
|
Exercise or | |
|
|
|
Grant Date | |
|
|
Options | |
|
Employees in | |
|
Base Price | |
|
|
|
Present | |
Name |
|
Granted(1) | |
|
Fiscal Year | |
|
($/Sh) | |
|
Expiration Date | |
|
Value ($)(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Rodney Hershberger
|
|
|
66,207 |
|
|
|
10.1% |
|
|
$ |
8.64 |
|
|
|
July 12, 2015 |
|
|
$ |
61,954 |
|
Randy L. White
|
|
|
12,579 |
|
|
|
1.9% |
|
|
$ |
8.64 |
|
|
|
July 14, 2015 |
|
|
$ |
11,771 |
|
Herman Moore
|
|
|
68,194 |
|
|
|
10.4% |
|
|
$ |
12.84 |
|
|
|
November 30, 2015 |
|
|
$ |
108,493 |
|
Jeffrey T. Jackson
|
|
|
115,863 |
|
|
|
17.6% |
|
|
$ |
12.84 |
|
|
|
November 30, 2015 |
|
|
$ |
184,332 |
|
Deborah L. LaPinska
|
|
|
26,483 |
|
|
|
4.0% |
|
|
$ |
8.64 |
|
|
|
July 6, 2015 |
|
|
$ |
24,782 |
|
B. Wayne Varnadore
|
|
|
26,483 |
|
|
|
4.0% |
|
|
$ |
8.64 |
|
|
|
July 6, 2015 |
|
|
$ |
24,782 |
|
David McCutcheon
|
|
|
26,483 |
|
|
|
4.0% |
|
|
$ |
8.64 |
|
|
|
July 12, 2015 |
|
|
$ |
24,782 |
|
Ken Hilliard
|
|
|
38,400 |
|
|
|
5.8% |
|
|
$ |
8.64 |
|
|
|
July 12, 2015 |
|
|
$ |
35,933 |
|
Linda Gavit
|
|
|
26,483 |
|
|
|
4.0% |
|
|
$ |
8.64 |
|
|
|
July 6, 2015 |
|
|
$ |
24,782 |
|
|
|
(1) |
The effective dates of the option grants are the same day and
month of the expiration date, but in the year 2005. Each option
vests in full on the fifth anniversary of its effective date.
The options have accelerated vesting provisions that provide
that (a) one fifth of the options vest on each anniversary
of the effective date; (b) the options vest in full if
certain financial performance targets for the three fiscal years
ending on or nearest to December 31, 2006, are met; and
(c) the options vest in full upon a change of control of
the Company. |
|
(2) |
The options are valued by the minimum value option pricing
variation of the Black-Scholes pricing model. The following
weighted average assumptions were used for the grants: expected
term 3 years; expected volatility
0%; expected dividend yield 0%; and risk free
rate 4.0%. No adjustment was made for
non-transferability or risk of forfeitures. |
The following table sets forth information concerning the
exercise of stock options during the last fiscal year by each of
our named executive officers and the number and value of
unexercised options held by such individuals as of the end of
the last fiscal year.
|
|
|
Aggregated option exercises in last fiscal year and fiscal
year-end option values |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
Value of Unexercised In-the- | |
|
|
|
|
|
|
Underlying Unexercised | |
|
Money Options at Fiscal Year- | |
|
|
Shares Acquired | |
|
Value | |
|
Options at Fiscal Year-End (#) | |
|
End ($) Exercisable/ | |
Name |
|
on Exercise (#) | |
|
Realized ($) | |
|
Exercisable/Unexercisable | |
|
Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
Rodney Hershberger
|
|
|
|
|
|
|
|
|
|
|
202,265/135,063 |
|
|
|
$3,010,238/$1,128,827 |
|
Randy L. White
|
|
|
|
|
|
|
|
|
|
|
324,643/12,579 |
|
|
|
5,028,592/105,133 |
|
Herman Moore
|
|
|
|
|
|
|
|
|
|
|
0/68,194 |
|
|
|
0/283,800 |
|
Jeffrey T. Jackson
|
|
|
|
|
|
|
|
|
|
|
0/115,863 |
|
|
|
0/482,181 |
|
Deborah L. LaPinska
|
|
|
|
|
|
|
|
|
|
|
67,181/84,745 |
|
|
|
936,722/708,284 |
|
B. Wayne Varnadore
|
|
|
|
|
|
|
|
|
|
|
199,617/84,745 |
|
|
|
2,988,103/708,284 |
|
David McCutcheon
|
|
|
|
|
|
|
|
|
|
|
621,619/84,745 |
|
|
|
10,002,790/708,284 |
|
Ken Hilliard
|
|
|
|
|
|
|
|
|
|
|
43,068/84,480 |
|
|
|
584,948/706,065 |
|
Linda Gavit
|
|
|
|
|
|
|
|
|
|
|
574,731/84,745 |
|
|
|
9,223,399/708,284 |
|
68
We have entered into employment agreements with all of our named
executive officers, as well as Messrs. Moore, Jackson, and
Ferrucci. Each of these agreements has a term of three years,
with automatic one-year renewals commencing on the first
anniversary of the effective date of the employment agreement.
In addition to providing for an annual base salary and employee
benefits, these agreements provide, among other things, that the
executive is eligible for an annual performance bonus, as
determined by the President of the Company and the Board of
Directors, in their discretion. The executive must be employed
at the time such bonus is awarded and paid by the Company.
Under each of these employment agreements, in the event that
(a) the executives employment is terminated by us
without cause (as defined in the employment
agreement) or (b) the executive terminates his/her
employment because of (i) a material adverse diminution of
his/her duties or responsibilities to which he/she has not
agreed in writing, (ii) the assignment of the executive to
a location outside of a fifty (50) mile radius from the
Companys current headquarters, or (iii) conduct on
the part of the Company amounting to fraud against the
executive; in addition to the benefits otherwise due to the
executive and as otherwise required by law, the executive is
entitled to continuation of his/her base salary for twelve
months after the date of termination. Should the executive
terminate his/her employment other than for the reasons set
forth above in clause (b), the Company will continue to pay
such executives salary for the shorter of thirty days or
the notice period provided by the executive with respect to
his/her termination. In addition, under this employment
agreement, in the event that the executives employment is
terminated by his or her death or disability (as defined in the
employment agreement), in addition to the benefits otherwise due
to him or her, the Company will pay to the executive (or, in the
case of death, to his or her designated beneficiary) his/her
base salary for a period of six months.
During the executives employment with us and at all times
thereafter, he/she may not disclose confidential information.
During the executives employment with us and for two years
thereafter, unless the employment agreement is terminated by us
without cause or by him/her for the reasons set
forth in the paragraph above in clause (b), in which case
the period will be the duration of the executives
employment with us and for one year thereafter (except in the
case of Mr. Hershberger, for whom the period is two years
thereafter), the executive may not directly or indirectly
compete with the Company. In addition, the executive may not
solicit any employees or agents of the Company or any suppliers
or contractors of the Company to terminate or adversely change
their relationships with us.
|
|
|
2004 Stock Incentive Plan |
The following is a summary of the material terms of the
Companys 2004 Stock Incentive Plan, a copy of which has
been filed as an exhibit to the registration statement of which
this prospectus is a part.
The purpose of the Companys 2004 Stock Incentive Plan is
to provide officers, key employees (including leased employees),
consultants, and advisors of the Company and its subsidiary with
an opportunity to acquire shares of our common stock. Under this
plan, our board of directors is authorized to grant stock
options and other equity based awards, such as stock
appreciation rights or restricted stock awards. In addition, the
plan provides for the sale of shares to plan participants at
prices to be determined by our board of directors in its sole
discretion. A total of 2,239,812 shares of our common stock
have been reserved for issuance under this plan. The plan is
intended to comply with the requirements of Rule 701 under
the Securities Act.
The plan is administered by our board of directors, which has
the discretion to determine the persons to whom awards will be
granted, the type of awards, the number of awards, vesting
requirements, and other features and conditions of awards under
the plan, including whether the awards will contain provisions
relating to a change in control of the Company. Unless otherwise
determined by the board of directors, the term of options
granted under the plan may be no longer than ten years from the
date of the grant of the option. Under the plan, our board of
directors may accelerate the vesting of options at any time. It
is contemplated that, following this offering of the
Companys common stock, the plan will be administered by a
committee of our board of directors that will be composed solely
of at least two persons who are outside directors
within the meaning of Section 162(m) of the Internal
Revenue Code and non-employee directors within the
meaning of
Rule 16b-3 under
the Exchange Act.
69
In the event of any stock split, stock dividend, combination or
exchange of shares, exchange for other securities,
reclassification, reorganization, redesignation, merger,
consolidation, recapitalization, spin-off, split-off, split-up,
or other such change, or a special dividend or other
distribution to the Companys stockholders, resulting in
the outstanding shares of our common stock being increased or
decreased or changed into or exchanged for a different number or
kind of shares of capital stock or other securities of the
Company, then, as applicable (a) there will automatically
be substituted for each share of common stock subject to the
option the number and kind of shares of capital stock or other
securities into which each outstanding share of common stock
will be exchanged, (b) the exercise price per share of
common stock or unit of securities will be increased or
decreased proportionately so that the aggregate purchase price
for the securities subject to the option may remain the same,
and (c) the board of directors will make such other
appropriate adjustments to the securities subject to the option
as may be appropriate and equitable, and any such adjustment
will be final, binding, and conclusive as to the plans
participants.
In the event of a sale of the Company, the board of directors
may, in its sole discretion, determine that outstanding options
may be converted into a comparable option to purchase shares of
the entity acquiring control of the Company, or the board of
directors may cancel any outstanding stock options issued under
the plan and provide for a payment to each holder thereof equal
to (i) the excess of the consideration received by the
Companys stockholders pursuant to the sale of the Company
over the exercise price per share of the option multiplied by
(ii) the number of shares of common stock subject to the
option. Alternatively, the board of directors may, in its sole
discretion, provide that such options be converted into
comparable options, as determined by the board of directors in
its reasonable discretion, to purchase securities of the
corporation or other entity acquiring direct or indirect control
of the Company.
|
|
|
2006 Equity Incentive Plan |
The following is a summary of the material terms of the 2006
Equity Incentive Plan, a copy of which has been filed as an
exhibit to the registration statement of which this prospectus
is a part.
We have adopted, and our stockholders have approved, our 2006
Equity Incentive Plan for the purpose of affording an incentive
to eligible persons to increase their efforts on behalf of the
Company and its subsidiaries and to promote the Companys
success. The plan will become effective on the date on which the
board of directors determines the initial public offering price.
The 2006 Equity Incentive Plan provides for the grant of
equity-based awards, including stock options, stock appreciation
rights, restricted stock, restricted stock units and other
awards based on or relating to our common stock to eligible
non-employee directors, selected officers and other employees,
advisors and consultants. The plan will be administered by our
board of directors. Our board of directors may appoint a
committee of its members to administer the plan and awards
granted under the plan, provided that the committees
authorities under the plan will be limited by the Boards
authority to make all final determinations with respect to the
plan and any awards granted under the plan. If a committee is
appointed to administer the plan, each member of the committee
will qualify as a non-employee director within the
meaning of
Rule 16b-3 under
the Exchange Act and an outside director within the
meaning of Section 162(m) of the Code. Our board of
directors will have the authority, in its discretion, to
determine the participants in the plan; to grant awards under
the plan and determine all of the terms and conditions of
awards, including, but not limited to, whether the grant,
vesting or settlement of awards may be conditioned upon
achievement of one or more performance goals; to construe and
interpret the plan and any award; to prescribe, amend and
rescind rules and regulations relating to the plan; and to make
all other determinations deemed necessary or advisable for the
administration of the plan. Our board of directors may delegate
such administrative duties as it may deem advisable. All
decisions and determinations of our board of directors will be
final and binding on all persons.
Shares Available under the Plan. An aggregate of
3.0 million shares of our common stock have been authorized
for issuance under the plan. Up to an aggregate of
3.0 million shares may be made subject to stock options and
stock appreciation rights, and up to an aggregate of
1.05 million shares may be made subject to awards that are
not stock options (which may be incentive stock options or
non-qualified options) and stock appreciation rights, which
awards include, among other things, grants of restricted stock
and restricted stock units. The shares available for issuance
under the plan may be authorized but unissued shares or shares
that we have reacquired. If any shares subject to an award are
forfeited, cancelled, exchanged or surrendered, or if an
70
award terminates or expires without a distribution of shares, or
if shares are surrendered or withheld as payment of the exercise
price or withholding taxes with respect to an award, those
shares will again be available for issuance under the plan. If
our board of directors determines that any dividend or other
distribution, recapitalization, stock split, reverse split,
reorganization, merger, consolidation, spin-off, combination or
other similar corporate transaction or event affects our common
stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of participants rights under the
plan, our board of directors will make such changes or
adjustments as it deems necessary or appropriate including with
respect to any or all of (i) the number and kind of shares
or other property that may thereafter be issued in connection
with awards, (ii) the number and kind of shares or other
property subject to outstanding awards, (iii) the exercise
or purchase price of any award and (iv) the performance
goals applicable to outstanding awards. In addition, our board
of directors may determine that an equitable adjustment may take
the form of a payment to an award holder in the form of cash or
other property.
Performance Goals. Our board of directors may determine
that the grant, vesting or settlement of an award granted under
the plan may be subject to the attainment of one or more
performance goals.
Stock Options and Stock Appreciation Rights. Each stock
option and stock appreciation right, or SAR, will be
evidenced by an award agreement which will set forth the terms
and conditions of the award. Stock options granted under the
plan may be incentive stock options, within the
meaning of Section 422 of the Code, or nonqualified stock
options. A SAR confers on the participant the right to receive
an amount with respect to each share subject to the SAR equal to
the excess of the fair market value of one share of our common
stock on the date of exercise over the grant price of the SAR.
SARs may be granted alone or in tandem with a stock option. Our
board of directors will determine all of the terms and
conditions of stock options and SARs including, among other
things, the number of shares subject to the award and the
exercise price per share of the award, which in no event may be
less than the fair market value of a share of our common stock
on the date of grant (in the case of a SAR granted in tandem
with a stock option, the grant price of the tandem SAR will be
equal to the exercise price of the stock option), and whether
the vesting of the award will be subject to the achievement of
one or more performance goals. Stock options and SARs granted
under the plan may not have a term exceeding 10 years from
the date of grant, and the award agreement will contain terms
concerning the termination of the option or SAR following
termination of the participants service with us. Payment
of the exercise price of a stock option granted under the plan
may be made in cash or by an exchange of our common stock
previously owned by the participant, through a cashless
exercise procedure approved by the plan administrator or
by a combination of the foregoing methods.
Restricted Stock and Restricted Stock Units. The terms
and conditions of awards of restricted stock and restricted
stock units granted under the plan will be determined by our
board of directors and set forth in an award agreement. A
restricted stock unit confers on the participant the right to
receive a share of our common stock or its equivalent value in
cash, in the discretion of our board of directors. These awards
will be subject to restrictions on transferability which may
lapse under those circumstances that our board of directors
determines, which may include the attainment of one or more
performance goals. Our board of directors may determine that the
holder of restricted stock or restricted stock units may receive
dividends (or dividend equivalents, in the case of restricted
stock units) that may be deferred during the restricted period
applicable to these awards. The award agreement will contain
terms concerning the termination of the award of restricted
stock or restricted stock units following termination of the
participants service with us.
Other Stock-Based Awards. The plan also provides for
other stock-based awards, the form and terms of which will be
determined by our board of directors consistent with the
purposes of the plan. The vesting or payment of one of these
awards may be made subject to the attainment of one or more
performance goals. Our board of directors may determine to issue
awards in respect of payments under a Company bonus plan or for
purposes of deferred compensation plans that may be adopted by
the Company.
Change in Control. The plan provides that, unless
otherwise determined by our board of directors and set forth in
an award agreement, in the event of a change in control (as
defined in the plan), all awards granted under the plan will
become fully vested and/or exercisable, and any performance
conditions will be deemed to be fully achieved.
71
Taxes. We are authorized to withhold from any payment in
respect of any award granted under the plan, or from any other
payment to a participant, amounts of withholding and other taxes
due in connection with any transaction involving an award. Our
board of directors may provide in the agreement evidencing an
award that the participant may satisfy this obligation by
electing to have the company withhold a portion of the shares of
our common stock to be received upon exercise or settlement of
the award.
Amendment; Termination. The plan will expire on the tenth
anniversary of its effective date. Our board of directors may
amend, suspend or terminate the plan in whole or in part at any
time, provided that no amendment, expiration or termination of
the plan will adversely affect any then-outstanding award
without the consent of the holder of the award. Unless otherwise
determined by our board of directors, an amendment to the plan
that requires stockholder approval in order for the plan to
continue to comply with applicable law, regulations or stock
exchange requirements will not be effective unless approved by
our stockholders. Our board of directors may amend an
outstanding award at any time, provided that the amendment of an
award will not adversely affect the award without the consent of
the holder of the award.
Management Incentive Plan
The following is a summary of the material terms of the
Management Incentive Plan, a copy of which has been filed as an
exhibit to the registration statement of which this prospectus
is a part.
We have adopted the Management Incentive Plan for the purpose of
reinforcing corporate, organizational and business development
goals, to promote the achievement of year-to-year financial and
other business objectives and to reward the performance of those
of our executive officers and employees selected for
participation in the plan. Our board of directors will
administer the Management Incentive Plan. Our board of directors
may appoint a committee of its members to administer all or a
portion of this plan and to make recommendations concerning the
plan and any awards granted under the plan; however, our board
of directors will have the sole authority to make all final
determinations under the plan. If a committee is appointed to
administer the plan, each member of the committee will qualify
as a non-employee director within the meaning of
Rule 16b-3 under
the Exchange Act and as an outside director within
the meaning of Section 162(m) of the Code. Our board of
directors will have the authority to determine the persons to
whom awards will be granted and the timing of awards; to
determine all of the terms and conditions relating to any award,
including the performance goals relating to the award and to
what extent an award may be settled, cancelled or forfeited; and
prescribe, amend and rescind such rules that it deems necessary
or advisable for the administration of the Management Incentive
Plan. Unless otherwise determined by our board of directors,
performance periods under the Management Incentive Plan will be
no longer than 12 months.
The Management Incentive Plan provides for the payment of
bonuses to selected executive officers and employees of the
Company based on achievement against pre-determined performance
goals during the specified performance periods. Performance
goals under the Management Incentive Plan will be subject to
adjustment by our board of directors in recognition of unusual
or non-recurring events affecting the Company or the financial
statements of the Company, in response to changes in applicable
laws or regulations, or extraordinary or unusual events.
Payments in respect of awards under the Management Incentive
Plan will be made in cash or in awards relating to our common
stock issued under a stockholder-approved equity plan, or a
combination of cash and stock-based awards, as determined by our
board of directors. A participant in the plan generally must be
employed by us or one of our affiliates on the day payment is to
be made, absent any deferral of the bonus payment. In addition,
in order to receive payment under the plan, achievement of the
applicable performance goals must be certified by our board of
directors. Awards payable under the Management Incentive Plan
will be subject to applicable withholding taxes.
Our board of directors may at any time amend or terminate the
Management Incentive Plan in whole or in part, provided that no
amendment that requires stockholder approval will be effective
unless we obtain that approval. No amendment or termination of
the Management Incentive Plan will affect adversely the rights
of any participant under any outstanding award without the
participants consent.
72
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership, as of June 7, 2006, and as adjusted
to reflect the sale of the shares of common stock offered by us
in this offering, of: (i) our common stock by each person
known to us to hold greater than 5% of the total number of
outstanding shares and (ii) our common stock by each
current director and each named executive officer and of all the
current directors and executive officers as a group. The number
of shares beneficially owned by each person or group as of
June 7, 2006, includes shares of common stock that such
person or group had the right to acquire on or within
60 days of June 7, 2006, including upon the exercise
of options. All such information is estimated and subject to
change.
Ownership of our common stock is shown in terms of
beneficial ownership. Amounts and percentages of
common stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is
deemed to be a beneficial owner of a security if
that person has or shares voting power, which
includes the power to vote or to direct the voting of such
security, or investment power, which includes the
power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of
any securities of which he has a right to acquire beneficial
ownership within 60 days. More than one person may be
considered to beneficially own the same shares. To our
knowledge, except as indicated in the footnotes to this table,
and subject to community property laws when applicable, the
persons named in the table have sole voting and investment power
with respect to all shares of our common stock shown as
beneficially owned by them.
Percentage of beneficial ownership before this offering is
calculated by dividing the number of shares beneficially owned
by such person or group as described above by the sum of
15,749,483 shares of common stock outstanding on
June 7, 2006, and the number of shares of common stock that
such person or group had the right to acquire on or within
60 days of June 7, 2006, including upon the exercise
of options. Percentage of beneficial ownership after this
offering is based on 24,573,012 shares outstanding
immediately after this offering, after giving effect to sale of
shares of our common stock in this offering.
73
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Shares | |
|
|
Shares Beneficially Owned | |
|
Beneficially Owned | |
|
|
Before the Offering | |
|
After the Offering(4) | |
|
|
| |
|
| |
|
|
|
|
Percentage of | |
|
|
|
Assuming | |
|
|
|
|
Ownership of | |
|
Assuming | |
|
Exercise in | |
|
|
Shares of | |
|
Shares of | |
|
Over-allotment | |
|
Full of the | |
Name and Address of |
|
Common | |
|
Common | |
|
Option Is Not | |
|
Over-allotment | |
Beneficial Owner(1) |
|
Stock(2) | |
|
Stock(3) | |
|
Exercised | |
|
Option | |
|
|
| |
|
| |
|
| |
|
| |
JLL Partners Fund IV, L.P.(5)
|
|
|
14,463,776 |
|
|
|
91.8 |
% |
|
|
58.9 |
% |
|
|
55.9 |
% |
Rodney Hershberger(6)
|
|
|
755,763 |
|
|
|
4.7 |
% |
|
|
3.0 |
% |
|
|
2.9 |
% |
Herman Moore
|
|
|
14,566 |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Jeffrey T. Jackson
|
|
|
14,566 |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Mario Ferrucci III
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Deborah L. LaPinska(7)
|
|
|
92,984 |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
B. Wayne Varnadore(8)
|
|
|
633,279 |
|
|
|
4.0 |
% |
|
|
2.6 |
% |
|
|
2.4 |
% |
David McCutcheon(9)
|
|
|
641,481 |
|
|
|
3.9 |
% |
|
|
2.5 |
% |
|
|
2.4 |
% |
Ken Hilliard(10)
|
|
|
62,268 |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Linda Gavit(11)
|
|
|
666,588 |
|
|
|
4.1 |
% |
|
|
2.6 |
% |
|
|
2.5 |
% |
Alexander R. Castaldi(5)(12)
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Richard D. Feintuch
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Ramsey A. Frank(5)(12)
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Paul S. Levy(5)(12)
|
|
|
14,463,776 |
|
|
|
91.8 |
% |
|
|
58.9 |
% |
|
|
55.9 |
% |
Brett N. Milgrim(5)(12)
|
|
|
|
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Floyd F. Sherman(13)
|
|
|
1,986 |
|
|
|
* |
|
|
|
* |
|
|
|
* |
|
Randy L. White(14)
|
|
|
327,159 |
|
|
|
2.0 |
% |
|
|
1.3 |
% |
|
|
1.2 |
% |
Directors and executive officers of the Company as a group
|
|
|
17,674,416 |
|
|
|
98.7 |
% |
|
|
66.1 |
% |
|
|
63.0 |
% |
|
|
|
|
(1) |
Unless otherwise indicated, the business address of each person
named in the table is 1070 Technology Drive, North Venice,
Florida 34275. |
|
|
(2) |
The number of shares beneficially owned by each person or group
as of June 7, 2006, includes shares of common stock that
such person or group had the right to acquire on or within
60 days after June 7, 2006, including upon the
exercise of options. |
|
|
(3) |
Subject to dilution resulting from potential awards of common
stock and exercise of options to acquire common stock under our
2004 Stock Incentive Plan or pursuant to a Rollover Stock Option
Agreement. |
|
|
(4) |
Shares beneficially owned after the offering do not include
shares that may be purchased under the directed share program.
It is anticipated that a number of directors and officers will
purchase shares under the directed share program. |
|
|
(5) |
The business address for JLL Partners Fund IV, L.P., and
Messrs. Levy, Frank, Milgrim, and Castaldi is
450 Lexington Ave., Suite 3350, New York, New York
10017. |
|
|
(6) |
Includes 232,720 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement. |
|
|
(7) |
Includes 87,043 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement. |
|
|
(8) |
Includes 219,479 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, issued under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement and
413,800 shares of common stock owned by B.W. Varnadore
Partnership, Ltd., a Florida limited partnership. |
74
|
|
|
|
|
The business address for B.W. Varnadore Partnership, Ltd. is
5307 22nd Ave. W, Bradenton, Florida 34209. Mr. Varnadore
is the Manager of B.W. Varnadore, LLC, a Florida limited
liability company that is the General Partner of the Partnership. |
|
|
(9) |
Includes 641,481 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement. |
|
|
(10) |
Includes 62,268 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement. |
|
(11) |
Includes 594,593 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement. |
|
(12) |
Messrs. Castaldi, Frank, Levy, and Milgrim are all
affiliates of JLL Partners. Mr. Levy is the managing member
of JLL Associates G.P. IV, L.L.C., the general partner of JLL
Associates IV, L.P., which in turn is the general partner of JLL
Partners Fund IV, L.P. As a result, Mr. Levy may be
deemed to beneficially own all of the shares of common stock
owned by JLL Partners Fund IV, L.P., and to have shared
voting or investment power over the shares of common stock owned
by JLL Partners Fund IV, L.P. Messrs. Castaldi, Frank,
and Milgrim disclaim any beneficial ownership of our common
stock. |
|
(13) |
Includes 1,986 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan. |
|
(14) |
Includes 327,159 shares of common stock issuable upon
exercise of options exercisable within 60 days of
June 7, 2006, under our 2004 Stock Incentive Plan or
pursuant to a Rollover Stock Option Agreement. |
75
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On February 17, 2006, with a portion of the net proceeds of
our second amended and restated senior secured credit facility
and our new second lien credit facility, we paid a dividend to
our stockholders and a compensation-based payment to all holders
of our outstanding stock options (including vested and unvested
options) in lieu of adjusting exercise prices in connection with
the payment of such dividend. The aggregate dividend to
stockholders was approximately $83.5 million, and the
aggregate payment to option holders was approximately
$26.9 million (including applicable payroll taxes of
$0.5 million), which will be recognized as stock
compensation expense.
In the third quarter of 2005, we paid a dividend to our
stockholders and accrued a compensation-based payment to all
holders of our outstanding stock options (including vested and
unvested options) in lieu of adjusting exercise prices in
connection with the payment of such dividend. The aggregate
dividend to stockholders was approximately $20.0 million,
and the aggregate amount payable to option holders was
approximately $6.6 million (including applicable payroll
taxes of $0.5 million), which was be recognized as stock
compensation expense.
Pursuant to a management services agreement that will terminate
upon consummation of this offering, we pay an affiliate of JLL
Partners for certain management, consulting, financial planning,
and other services, and we reimburse such affiliate of JLL
Partners for reasonable
out-of-pocket expenses
it pays or incurs on our behalf or in connection with its
investment in us. The amount of fees paid and expenses
reimbursed was approximately $1.8 million in 2005.
In the ordinary course of business, we sell windows to Builders
FirstSource, Inc., a company in which an affiliate of JLL
Partners owns an approximately 26% interest. One of our
directors, Floyd F. Sherman, is the president, chief executive
officer, and a director of Builders FirstSource, Inc. In
addition, Paul S. Levy, Ramsey A. Frank, and Brett N. Miligrim
are directors of Builders FirstSource, Inc. See Note 15 to
our audited consolidated financial statements included elsewhere
herein.
Prior to the consummation of this offering, we intend to adopt a
code of business conduct and ethics applicable to all directors,
officers, and employees and an additional code of ethics for the
president and chief executive officer and senior financial
officers that include procedures for the review and
pre-approval of related
party transactions.
We have entered into a security holders agreement with our
majority stockholder and our executive officers that provides
for certain registration rights with respect to their shares of
our stock. See Description of capital stock
REGISTRATION RIGHTS.
On December 9, 2005, the Company provided Mr. Moore
with a relocation advance of $110,000 in connection with
relocation expenses, which advance was repaid in full on
February 24, 2006.
76
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material terms of our capital
stock. You are strongly encouraged, however, to read our amended
and restated certificate of incorporation, which will be filed
with the State of Delaware and become effective immediately
prior to the closing of this offering, amended and restated
by-laws and other agreements, copies of which have been filed as
exhibits to the registration statement of which this prospectus
is a part.
General Matters
Our amended and restated certificate of incorporation, which
will be filed with the State of Delaware and become effective
immediately prior to the closing of this offering, provides that
we are authorized to issue 200,000,000 shares of common
stock, par value $0.01 per share, and
10,000,000 shares of undesignated preferred stock, par
value $0.01 per share.
As of June 7, 2006, we had outstanding
15,749,483 shares of common stock, held by 20 stockholders
of record. As of June 7, 2006, we had outstanding options
(including vested and unvested options) to purchase
4,938,536 shares of our common stock.
Common Stock
Shares of our common stock have the following rights,
preferences and privileges:
|
|
|
|
|
Voting rights. Each outstanding share of common stock
entitles its holder to one vote on all matters submitted to a
vote of our stockholders, including the election of directors.
There are no cumulative voting rights. Generally, all matters to
be voted on by stockholders must be approved by a majority of
the votes entitled to be cast by all shares of common stock
present or represented by proxy. |
|
|
|
Dividends. Holders of common stock are entitled to
receive dividends as, when and if dividends are declared by our
board of directors out of assets legally available for the
payment of dividends. |
|
|
|
Liquidation. In the event of a liquidation, dissolution
or winding up of our affairs, whether voluntary or involuntary,
after payment of our liabilities and obligations to creditors,
our remaining assets will be distributed ratably among the
holders of shares of common stock on a per share basis. If we
have any preferred stock outstanding at such time, holders of
the preferred stock may be entitled to distribution and/or
liquidation preferences. In either such case, we will need to
pay the applicable distribution to the holders of our preferred
stock before distributions are paid to the holders of our common
stock. |
|
|
|
Rights and preferences. Our common stock has no
preemptive, redemption, conversion or subscription rights. The
rights, powers, preferences and privileges of holders of our
common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future. |
Listing
We have applied to list our common stock on The Nasdaq National
Market under the trading symbol PGTI.
Preferred Stock
Our amended and restated certificate of incorporation provides
that the board of directors has the authority, without action by
the stockholders, to designate and issue up to
10,000,000 shares of preferred stock in one or more classes
or series and to fix the powers, rights, preferences and
privileges of each class or series of preferred stock, including
dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares
constituting any class or series, which may be greater than the
rights of the holders of the common stock. There will be no
shares of preferred stock outstanding immediately after the
closing of this offering. Any issuance of shares of preferred
stock could adversely affect the voting power of holders of
common stock, and the likelihood that the holders will receive
dividend payments and payments upon liquidation could
77
have the effect of delaying, deferring or preventing a change in
control. We have no present plans to issue any shares of
preferred stock.
Registration Rights
In connection with this offering, we will amend and restate our
security holders agreement with certain of our
stockholders, including JLL Partners Fund IV, L.P.,
and our executive officers. The agreement will provide that,
upon the request of JLL Partners Fund IV, L.P., we
will register under the Securities Act shares of our common
stock held by JLL Partners Fund IV, L.P. for sale in
accordance with its intended method of disposition, and will
take other actions as are necessary to permit the sale of the
shares in various jurisdictions. In addition, if we register any
of our equity securities either for our own account or for the
account of other security holders, JLL Partners
Fund IV, L.P. is entitled to notice of the registration and
may include its shares in the registration, subject to certain
customary underwriters cut-back provisions.
All fees, costs and expenses of underwritten registrations will
be borne by us, other than underwriting discounts and selling
commissions, which will be borne by each stockholder selling its
shares. Our obligation to register the shares and take other
actions is subject to certain restrictions on, among other
things, the frequency of requested registrations, the number of
shares to be registered and the duration of these rights.
Anti-Takeover Effects of Certain Provisions of Our
Certificate of Incorporation and
By-Laws
Our amended and restated certificate of incorporation, which
will be filed with the State of Delaware and become effective
immediately prior to the closing of this offering, and
by-laws contain
provisions that are intended to enhance the likelihood of
continuity and stability in the composition of the board of
directors and which may have the effect of delaying, deferring
or preventing a future takeover or change in control of our
company unless the takeover or change in control is approved by
our board of directors. These provisions include the following:
Staggered Board of Directors. Our amended and restated
certificate of incorporation provides for a staggered board of
directors, divided into three classes, with our stockholders
electing one class each year. Between stockholders
meetings, the board of directors will be able to appoint new
directors to fill vacancies or newly created directorships so
that no more than the number of directors in any given class
could be replaced each year and it would take three successive
annual meetings to replace all directors.
Elimination of stockholder action through written
consent. Our amended and restated certificate of
incorporation provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be
taken by written consent in lieu of a meeting.
Elimination of the ability to call special meetings. Our
amended and restated certificate of incorporation provides that,
except as otherwise required by law, special meetings of our
stockholders can only be called pursuant to a resolution adopted
by a majority of our board of directors, a committee of the
board of directors that has been duly designated by the board of
directors and whose powers and authority include the power to
call such meetings, or by our chief executive officer or the
chairman of our board of directors. Stockholders are not
permitted to call a special meeting or to require our board to
call a special meeting.
Advance notice procedures for stockholder proposals. Our
by-laws establish an
advance notice procedure for stockholder proposals to be brought
before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board. Stockholders
at our annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting
by or at the direction of our board or by a stockholder who was
a stockholder of record on the record date for the meeting, who
is entitled to vote at the meeting and who has given to our
secretary timely written notice, in proper form, of the
stockholders intention to bring that business before the
meeting.
Removal of Directors; Board of Directors Vacancies. Our
certificate of incorporation and
by-laws provide that
members of our board of directors may not be removed without
cause. Our by-laws further provide that only our board of
directors may fill vacant directorships, except in limited
circumstances. These provisions would
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prevent a stockholder from gaining control of our board of
directors by removing incumbent directors and filling the
resulting vacancies with such stockholders own nominees.
Amendment of certificate of incorporation and bylaws. The
General Corporation Law of the State of Delaware, or DGCL,
provides generally that the affirmative vote of a majority of
the outstanding shares entitled to vote is required to amend or
repeal a corporations certificate of incorporation or
bylaws, unless the certificate of incorporation requires a
greater percentage. Our certificate of incorporation generally
requires the approval of the holders of at least two-thirds of
the voting power of the issued and outstanding shares of our
capital stock entitled to vote in connection with the election
of directors to amend any provisions of our certificate of
incorporation described in this section. Our certificate of
incorporation and bylaws provide that the holders of at least
two-thirds of the voting power of the issued and outstanding
shares of our capital stock entitled to vote in connection with
the election of directors have the power to amend or repeal our
bylaws. In addition, our certificate of incorporation grants our
board of directors the authority to amend and repeal our bylaws
without a stockholder vote in any manner not inconsistent with
the laws of the State of Delaware or our certificate of
incorporation.
The foregoing provisions of our amended and restated certificate
of incorporation and
by-laws could
discourage potential acquisition proposals and could delay or
prevent a change in control. These provisions are intended to
enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies
formulated by our board of directors and to discourage certain
types of transactions that may involve an actual or threatened
change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The
provisions also are intended to discourage certain tactics that
may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for
our shares and, as a consequence, they also may inhibit
fluctuations in the market price of the common stock that could
result from actual or rumored takeover attempts. Such provisions
also may have the effect of preventing changes in our management
or delaying or preventing a transaction that might benefit you
or other minority stockholders. See Risk
factors RISKS RELATED TO OUR COMMON STOCK AND THIS
OFFERING Provisions in our charter documents could
discourage a takeover that stockholders may consider
favorable.
Limitations on Liability and Indemnification of Officers and
Directors
Our amended and restated certificate of incorporation and
by-laws provide
indemnification for our directors and officers to the fullest
extent permitted by the DGCL. Prior to the completion of this
offering, we intend to enter into indemnification agreements
with each of our directors that may, in some cases, be broader
than the specific indemnification provisions contained under
Delaware law. In addition, as permitted by Delaware law, our
amended and restated certificate of incorporation includes
provisions that eliminate the personal liability of our
directors for monetary damages resulting from breaches of
certain fiduciary duties as a director. The effect of this
provision is to restrict our rights and the rights of our
stockholders in derivative suits to recover monetary damages
against a director for breach of fiduciary duties as a director,
except that a director will be personally liable for:
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any breach of his duty of loyalty to us or our stockholders; |
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acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; |
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any transaction from which the director derived an improper
personal benefit; or |
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improper distributions to stockholders. |
These provisions may be held not to be enforceable for
violations of the federal securities laws of the United States.
Corporate Opportunities
In recognition that directors, officers, partners, members,
managers and/or employees of JLL Partners and their respective
affiliates and investment funds, which we refer to as the
Sponsor Entities, may serve as our directors and/or officers,
and that the Sponsor Entities may engage in similar activities
or lines of business that
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we do, our amended and restated certificate of incorporation
provides for the allocation of certain corporate opportunities
between us and the Sponsor Entities. Specifically, none of the
Sponsor Entities or any director, officer, partner, member,
manager or employee of the Sponsor Entities has any duty to
refrain from engaging directly or indirectly in the same or
similar business activities or lines of business that we do. In
the event that any Sponsor Entity acquires knowledge of a
potential transaction or matter which may be a corporate
opportunity for itself and us, we will not have any expectancy
in such corporate opportunity, and the Sponsor Entity will not
have any duty to communicate or offer such corporate opportunity
to us and may pursue or acquire such corporate opportunity for
itself or direct such opportunity to another person. In
addition, if a director or officer of our company who is also a
director, officer, member, manager or employee of any Sponsor
Entity acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for us and a Sponsor
Entity, we will not have any expectancy in such corporate
opportunity unless such corporate opportunity is expressly
offered to such person in his or her capacity as a director or
officer of our company.
The above provision shall automatically, without any need for
any action by us, be terminated and void at such time as the
Sponsor Entities beneficially own less than 15% of our shares of
common stock.
In recognition that we may engage in material business
transactions with the Sponsor Entities, from which we are
expected to benefit, our amended and restated certificate of
incorporation provides that any of our directors or officers who
are also directors, officers, partners, members, managers and/or
employees of any Sponsor Entity will have fully satisfied and
fulfilled his or her fiduciary duty to us and our stockholders
with respect to such transaction, if: the transaction was fair
to us and was made on terms that are not less favorable to us
than could have been obtained from a bona fide third party at
the time we entered into the transaction; and either the
transaction was approved, after being made aware of the material
facts of the relationship between each of the company or a
subsidiary thereof and the Sponsor Entity and the material terms
and facts of the transaction, by (i) an affirmative vote of
a majority of the members of our board of directors who do not
have a material financial interest in the transaction, referred
to as Interested Persons or (ii) an affirmative vote of a
majority of the members of a committee of our board of directors
consisting of members who are not interested persons; or the
transaction was approved by an affirmative vote of the holders
of a majority of shares of our common stock entitled to vote,
excluding the Sponsor Entities and any interested person.
By becoming a stockholder in our company, you will be deemed
to have notice of and consented to these provisions of our
amended and restated certificate of incorporation. Any amendment
to the foregoing provisions of our amended and restated
certificate of incorporation requires the affirmative vote of at
least 85% of the voting power of all shares of our common stock
then outstanding.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock
is LaSalle Bank National Association, and its telephone
number is (312) 904-2458.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of the material provisions of the
agreements governing our material debt to be in effect upon the
closing of this offering. Copies of these agreements have been
filed as exhibits to our registration statement filed in
connection with this offering and are available as set forth
under Where you can find more information.
Second Amended and Restated Senior Secured Credit Facility
On February 14, 2006, our subsidiary (as borrower) and the
Company (as a Guarantor) entered into a second amended and
restated senior secured credit facility (the Senior
Secured Credit Facility) with various lenders, UBS
Securities LLC, as Arranger, Bookmanager, Co-Documentation Agent
and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, Collateral Agent and Issuing Bank, UBS
Loan Finance LLC, as Swingline Lender and General Electric
Capital Corporation, as Co-Documentation Agent.
Structure. The Senior Secured Credit Facility consists of:
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a senior secured term loan facility of $205.0 million (the
Term Loan Facility); and |
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a senior secured revolving credit facility (including swingline
loans and letters of credit) of $30.0 million (the
Revolving Credit Facility). |
We may borrow, repay, and reborrow from the Revolving Credit
Facility from time to time until the earlier of the maturity
date thereof and the termination of the revolving loan
commitment. The borrowings under the Revolving Credit Facility
are available for working capital and general corporate
purposes. The borrowings under the Term Loan Facility were
used to refinance the then outstanding term loans under the
prior senior secured credit facility, fund a portion of a
dividend paid to our stockholders, pay fees and expenses related
to the Senior Secured Credit Facility and for working capital
and general corporate purposes.
Maturity, Amortization, and Prepayment. The Term
Loan Facility has a maturity of six years and will amortize
in consecutive equal quarterly installments in an aggregate
annual amount equal to 1.0% of the original principal amount of
the Term Loan Facility, with the balance payable on the
maturity date. Unless terminated earlier, the Revolving Credit
Facility has a maturity of five years.
The Senior Secured Credit Facility is subject to mandatory
prepayment with, in general, (i) 100% of the net proceeds
of certain asset sales or other disposition of assets, subject
to a 180-day
reinvestment period and to certain other agreed upon exceptions;
(ii) 100% of the net cash proceeds from certain issuances
of debt and preferred stock; (iii) 100% of casualty and
condemnation proceeds in excess of amounts applied within
365 days of receipt to repair, replace or restore any
property in respect of which such proceeds are received; and
(iv) certain specified percentages of excess cash flow,
with such percentages being based upon our leverage ratio. Any
such prepayment is applied first to the Term Loan Facility,
then to reduce the outstanding revolving loans to zero and,
following such repayment, to repay the loans under the Second
Lien Secured Credit Facility pursuant to the terms thereof. If
the Term Loan Facility and the Second Lien Secured Credit
Facility have been repaid in full, such prepayments shall be
applied to repay then outstanding amounts under the Revolving
Credit Facility and the repayments thereof shall also
(i) result in the permanent reduction of the Revolving
Credit Facility commitments and (ii) be applied to cash
collateralize any outstanding letters of credit issued
thereunder. The Senior Secured Credit Facility is subject to
optional prepayments in minimum agreed upon amounts.
Interest and Fees. The term loans under the Term
Loan Facility bear interest, at our option, at a rate equal
to an adjusted LIBOR rate plus 3.0% per annum or a base
rate plus 2.0% per annum. The loans under the Revolving
Credit Facility bear interest initially, at our option
(provided, that all swingline loans shall be base rate loans),
at a rate equal to an adjusted LIBOR rate plus 2.75% per
annum or a base rate plus 1.75% per annum, and the margins
above LIBOR and base rate may decline to 2.00% for LIBOR loans
and 1.00% for base rate loans if certain leverage ratios are
met. A commitment fee equal to 0.50% per annum accrues on
the average daily unused amount of the commitment of each lender
under the Revolving Credit Facility and such fee is payable
quarterly in arrears. We are also required to pay certain other
fees with respect to the Senior Secured Credit Facility
including (i) letter of credit fees on the aggregate
undrawn amount of outstanding letters of credit plus the
aggregate
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principal amount of all letter of credit reimbursement
obligations, (ii) a fronting fee to the letter of credit
issuing bank and (iii) administrative fees.
Guarantees. All of the obligations of our subsidiary
under the Senior Secured Credit Facility are guaranteed by the
Company and all of our existing and future direct and indirect
subsidiaries (collectively, the Guarantors), subject
to exceptions for foreign subsidiaries to the extent such
guarantees would be prohibited by applicable law or would result
in adverse tax consequences.
Pledge and Security. The Senior Secured Credit Facility
is secured by a perfected first priority pledge of all of the
equity interests of our subsidiary and perfected first priority
security interests in and mortgages on substantially all of our
tangible and intangible assets and those of the Guarantors,
except, in the case of the stock of a foreign subsidiary, to the
extent such pledge would be prohibited by applicable law or
would result in materially adverse tax consequences, and subject
to such other exceptions as are agreed.
Covenants. The Senior Secured Credit Facility contains a
number of covenants that, among other things, restrict our
ability and the ability of our subsidiaries to (i) dispose
of assets; (ii) change our business; (iii) engage in
mergers or consolidations; (iv) make certain acquisitions;
(v) pay dividends or repurchase or redeem stock;
(vi) incur indebtedness or guarantee obligations and issue
preferred and other disqualified stock; (vii) make
investments and loans; (viii) incur liens; (ix) engage
in certain transactions with affiliates; (x) enter into
sale and leaseback transactions; (xi) issue stock or stock
options; (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.
Events of Default. The Senior Secured Credit Facility
contains customary events of default, including, without
limitation (i) nonpayment of principal or interest;
(ii) false or misleading representations or warranties;
(iii) noncompliance with covenants; (iv) insolvency
and bankruptcy-related events; (v) judgments in excess of
specified amounts; (vi) certain ERISA matters;
(vii) impairment of security interests in collateral;
(viii) invalidity or unenforceability of certain provisions
of any loan document; (ix) certain change of control
events; (x) cross defaults with other indebtedness; and
(xi) any restraint from conducting business in a manner
that could result in a material adverse effect.
Second Lien Secured Credit Facility
On February 14, 2006, our subsidiary (as borrower) and the
Company (as a Guarantor) entered into a second lien secured
credit facility (the Second Lien Secured Credit
Facility) with various lenders, UBS Securities LLC, as
Arranger, Bookmanager, Co-Documentation Agent and Syndication
Agent, UBS AG, Stamford Branch, as Administrative Agent and
Collateral Agent, and General Electric Capital Corporation, as
Co-Documentation Agent.
Structure. The Second Lien Secured Credit Facility
consists of a $115.0 million term loan. The proceeds of the
Second Lien Secured Credit Facility were used to fund a portion
of a dividend paid to our stockholders, to pay fees and expenses
related to the Second Lien Secured Credit Facility and for
working capital and general corporate purposes.
Maturity, Amortization, and Prepayment. The Second Lien
Secured Credit Facility has a maturity of six and one half years
and will be due and payable on the maturity date.
When the Term Loan Facility has been paid in full and the
outstanding loans under Revolving Credit Facility have been
reduced to zero (and remain at zero), the Second Lien Secured
Credit Facility is subject to mandatory prepayment with, in
general, (i) 100% of the net proceeds of certain asset
sales or other disposition of assets, subject to a
180-day reinvestment
period and to certain other agreed upon exceptions;
(ii) 100% of the net cash proceeds from certain issuances
of debt and preferred stock; (iii) 100% of casualty and
condemnation proceeds in excess of amounts applied within
365 days of receipt to repair, replace or restore any
property in respect of which such proceeds are received; and
(iv) certain specified percentages of excess cash flow,
with such percentages being based upon our leverage ratio. The
Second Lien Secured Credit Facility provides for optional
prepayments
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(subject to the consent of the lenders under the Senior Secured
Credit Facility, if outstanding) in minimum agreed upon amounts,
provided that a premium equal to (i) 2.0% of the principal
amount prepaid, if such prepayment is made on or prior to the
first anniversary of the effective date of the Second Lien
Secured Credit Facility, or (ii) 1.0% of the principal
amount prepaid, if such prepayment is made after the first
anniversary of the effective date of the Second Lien Secured
Credit Facility and on or prior to the second anniversary of the
Second Lien Secured Credit Facility, is required thereunder.
Interest and Fees. The Second Lien Secured Credit
Facility bears interest, at our option, at a rate equal to an
adjusted LIBOR rate plus 7.0% per annum or a base rate plus
6.0% per annum. We are required to pay certain
administrative fees under the Second Lien Secured Credit
Facility.
Guarantees. All of the obligations of our subsidiary
under the Second Lien Secured Credit Facility are guaranteed by
the Company and all of our existing and future direct and
indirect subsidiaries (collectively, the
Guarantors), subject to exceptions for foreign
subsidiaries to the extent such guarantees would be prohibited
by applicable law or would result in adverse tax consequences.
Pledge and Security. The Second Lien Secured Credit
Facility is secured by a perfected second priority pledge of all
of the equity interests of our subsidiary and perfected second
priority security interests in and mortgages on substantially
all of our tangible and intangible assets and those of the
Guarantors, except, in the case of the stock of a foreign
subsidiary, to the extent such pledge would be prohibited by
applicable law or would result in materially adverse tax
consequences, and subject to such other exceptions as are agreed.
Covenants. The Second Lien Secured Credit Facility
contains a number of covenants that, among other things,
restrict our ability and the ability of our subsidiaries to
(i) dispose of assets; (ii) change our business;
(iii) engage in mergers or consolidations; (iv) make
certain acquisitions; (v) pay dividends or repurchase or
redeem stock; (vi) incur indebtedness or guarantee
obligations and issue preferred and other disqualified stock;
(vii) make investments and loans; (viii) incur liens;
(ix) engage in certain transactions with affiliates;
(x) enter into sale and leaseback transactions;
(xi) issue stock or stock options; (xii) amend or
prepay subordinated indebtedness; (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.
Events of Default. The Second Lien Secured Credit
Facility contains customary events of default, including,
without limitation (i) nonpayment of principal or interest;
(ii) false or misleading representations or warranties;
(iii) noncompliance with covenants; (iv) insolvency
and bankruptcy-related events; (v) judgments in excess of
specified amounts; (vi) certain ERISA matters;
(vii) impairment of security interests in collateral;
(viii) invalidity or unenforceability of certain provisions
of any loan document; (ix) certain change of control
events; (x) cross defaults with other indebtedness; and
(xi) any restraint from conducting business in a manner
that could result in a material adverse effect.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock, and a significant public market for our common
stock may not develop or be sustained after this offering.
Future sales of significant amounts of our common stock,
including shares of our outstanding common stock and shares of
our common stock issued upon exercise of outstanding options, in
the public market, or the perception that these sales could
occur, could adversely affect the price of our common stock and
could impair our ability to raise capital through the sale of
our equity securities.
Based on the number of shares outstanding as of June 7,
2006, and assuming no exercise of stock options, we will have
24,573,012 shares of our common stock outstanding after the
completion of this offering (25,896,541 shares if the
underwriters exercise their over-allotment option in full). Of
these shares, the shares of common stock sold in this offering
will be freely transferable without restriction under the
Securities Act, unless purchased by our affiliates, as that term
is defined in Rule 144 under the Securities Act.
The remaining 15,749,483 shares of common stock to be
outstanding immediately following the completion of this
offering, which are restricted securities under
Rule 144 of the Securities Act, as well as any other shares
held by our affiliates, may not be resold except pursuant to an
effective registration statement or an applicable exemption from
registration, including an exemption under Rule 144 or
Rule 701 of the Securities Act.
Lock-Up Agreements
The holders of 15,507,687 shares of outstanding common
stock as of the closing of this offering (representing 63.1% of
the shares of outstanding common stock) and the holders of
2,798,214 shares of common stock underlying options as of
the closing of this offering (representing 9.5% of the shares of
common stock that would be outstanding upon exercise of all
outstanding options on a fully diluted basis) are subject to
lock-up agreements and
other restrictions on the resale of shares of common stock. We,
our directors, our executive officers, and our majority
stockholder have entered into
lock-up agreements with
the underwriters under which, subject to certain exceptions, we
and each of these persons may not offer, sell, contract to sell,
pledge, hedge, or otherwise dispose of, directly or indirectly,
any shares of common stock or securities convertible into or
exercisable or exchangeable for shares of common stock, for a
period of at least 180 days after the date of this
prospectus without the prior written consent of Deutsche Bank
Securities Inc. and J.P. Morgan Securities Inc. Such
parties may, in their sole discretion and at any time without
notice, release all or any portion of the securities subject to
the lock-up agreements
before the 180-day
lock-up period ends.
Although they have advised the Company that they have no intent
or understanding to do so at this time, the representatives of
the underwriters, in their sole discretion, may permit early
release of the shares of the Companys common stock subject
to the lock-up prior to
the expiration of the applicable
lock-up period. The
representatives of the underwriters have advised the Company
that, prior to granting an early release of the Companys
common stock, they would consider factors including need, market
conditions, the performance of the Companys common stock
price, trading liquidity, and other relevant considerations.
Following this offering, we intend to file a registration
statement on
Form S-8 under the
Securities Act covering shares of our common stock issued or
reserved for issuance under our 2004 Stock Incentive Plan and
our 2006 Equity Incentive Plan. Accordingly, shares of our
common stock registered under such registration statement will
be available for sale in the open market subject to
Rule 144 provisions applicable to affiliates, or, in the
case of options, upon exercise by the holders, but in each case
subject to vesting restrictions with us and any applicable
contractual lock-up
restrictions that prohibit the sale or other disposition of the
shares of common stock underlying the options.
Rule 144
In general, Rule 144 allows an affiliate of ours who
beneficially owns shares of our common stock that are not
restricted securities or a person who beneficially owns for more
than one year shares of our common stock
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that are restricted securities to sell within any three month
period a number of shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal 245,730 shares immediately after this
offering; and |
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the average weekly trading volume of our common stock during the
four preceding calendar weeks. |
Sales under Rule 144 are also subject to requirements with
respect to manner of sale, notice, and the availability of
current public information about us. Generally, a person who was
not our affiliate at any time during the three months before the
sale and who has beneficially owned shares of our common stock
that are restricted securities for at least two years may sell
those shares without regard to the volume limitations, manner of
sale provisions, notice requirements, or the requirements with
respect to availability of current public information about us.
We cannot estimate the number of shares of common stock our
existing stockholders will sell under Rule 144, as this
will depend on the market price for our common stock, the
personal circumstances of the stockholders, and other factors.
Rule 144 does not supersede the contractual obligations of
our security holders set forth in the
lock-up agreements
described above.
Rule 701
Generally, an employee, officer, director, or consultant who
purchased shares of our common stock before the effective date
of the registration statement of which this prospectus is a
part, or who holds options as of that date, pursuant to a
written compensatory plan or contract, may rely on the resale
provisions of Rule 701. Under Rule 701, these persons
who are not our affiliates may generally sell their eligible
securities, commencing 90 days after the effective date of
the registration statement of which this prospectus is a part,
without having to comply with the public information, holding
period, volume limitation, or notice provisions of
Rule 144. These persons who are our affiliates may
generally sell their eligible securities under Rule 701,
commencing 90 days after the effective date of the
registration statement of which this prospectus is a part,
without having to comply with Rule 144s one-year
holding period restriction. In addition, holders of
Rule 701 shares who are subject to the
lock-up agreements
described in LOCK-UP AGREEMENTS have
agreed not to sell their shares for a period of 180 days
after the date of this prospectus. Neither Rule 144 nor
Rule 701 supersedes the contractual obligations of our
security holders set forth in the
lock-up agreements
described above.
Our 2004 Stock Incentive Plan provides for the issuance of up to
an aggregate of 2,239,812 shares pursuant to Rule 701.
As of June 7, 2006, 129,351 shares of our outstanding
common stock have been issued in reliance on Rule 701,
including as a result of exercises of stock options, and an
additional 2,066,305 shares are issuable upon exercise of
outstanding stock options issued under our 2004 Stock Incentive
Plan.
Sale of Restricted Shares
The 15,749,483 shares of our common stock that were
outstanding on June 7, 2006 will become eligible for sale,
pursuant to Rule 144 or Rule 701, without registration
approximately as follows:
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No shares of common stock will be immediately eligible for
sale in the public market without restriction; |
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15,720,351 shares of common stock will be eligible for sale
in the public market under Rule 144 or Rule 701,
beginning 90 days after the effective date of the
registration statement of which this prospectus is a part,
subject to the volume, manner of sale, and other limitations
under those rules; and |
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the remaining 29,132 shares of common stock will become
eligible under Rule 144 for sale in the public market from
time to time after the effective date of the registration
statement of which this prospectus is a part upon expiration of
their respective holding periods. |
The above does not take into consideration the effect of the
lock-up agreements
described above.
85
Registration Rights
After the closing of this offering, JLL Partners Fund IV,
L.P., which will hold 14,463,776 shares of our common
stock, and our executive officers will have the right, subject
to various conditions and limitations, including the
lock-up agreements
described in Lock-Up Agreements, to
cause us to register shares of our common stock held by them and
to include such shares in registration statements relating to
our securities. The exercise of such registration rights,
resulting in a large number of shares to be registered and sold
in the public market, could cause the price of the common stock
to fall. In addition, any demand to include such shares in our
registration statements could have a material adverse effect on
our ability to raise needed capital. See Description of
capital stock REGISTRATION RIGHTS.
86
CERTAIN MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR
NON-U.S. HOLDERS
The following is a summary of certain material United States
federal income and estate tax consequences to a
Non-U.S. Holder
(as defined below) of the acquisition, ownership and disposition
of our common stock under current United States federal tax law.
This discussion does not address specific tax consequences that
may be relevant to particular persons in light of their
individual circumstances (including, for example, pass-through
entities (e.g., partnerships) or persons who hold our common
stock through pass-through entities, banks or financial
institutions, broker-dealers, insurance companies, tax-exempt
entities, common trust funds, pension plans, controlled foreign
corporations, passive foreign investment companies, owners of
more than 5% of our common stock, United States expatriates,
dealers in securities or currencies, and persons in special
situations, such as those who hold our common stock as part of a
straddle, hedge, conversion transaction, or other integrated
investment), all of whom may be subject to tax rules that differ
significantly from those summarized below. Unless otherwise
stated, this discussion is limited to the tax consequences to
those
Non-U.S. Holders
who hold such common stock as capital assets
(generally, property held for investment) under the United
States Internal Revenue Code of 1986, as amended (the
Code). In addition, this discussion does not
describe any tax consequences arising under other United States
federal tax laws (except for the estate tax discussion below) or
the tax laws of any state, local or non-United States
jurisdiction. This discussion is based upon the Code, the
Treasury Department regulations (the Treasury
Regulations) promulgated thereunder and administrative and
judicial interpretations thereof, all as of the date hereof and
all of which are subject to change, possibly with retroactive
effect.
Prospective purchasers of our common stock are urged to
consult their tax advisors concerning the United States federal
tax consequences to them of acquiring, owning and disposing of
our common stock, as well as the application of other United
States federal tax laws and state, local and non-United States
tax laws.
As used herein (except as provided for below in the discussion
of estate tax), a U.S. Person is (i) an
individual who is a citizen or resident of the United States,
(ii) a corporation or other entity taxable as a corporation
created or organized under the laws of the United States, any
state thereof or the District of Columbia, (iii) an estate
that is subject to United States federal income taxation without
regard to the source of its income or (iv) a trust
(a) the administration of which is subject to the primary
supervision of a United States court and which has one or more
United States persons who have the authority to control all
substantial decisions of the trust or (b) that was in
existence on August 20, 1996, was properly treated as a
United States person under the Code on the previous day, and
elected to continue to be so treated. A
Non-U.S. Holder
is a holder of our common stock who is an individual,
corporation, trust or estate and is not a U.S. Person.
If a partnership, or other entity or arrangement treated as a
partnership for United States federal income tax purposes, holds
our common stock, the tax treatment of each partner will
generally depend upon the status of the partner and the
activities of the partnership. Partners in a partnership that is
a prospective investor should consult their tax advisors as to
the particular United States federal tax consequences applicable
to them.
Dividends
Dividends paid to a
Non-U.S. Holder
will generally be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Dividends that are
effectively connected with the conduct of a trade or business by
the Non-U.S. Holder
within the United States and, where an income tax treaty
applies, are attributable to a United States permanent
establishment of the
Non-U.S. Holder,
are not, however, subject to the withholding tax, but are
instead subject to United States federal income tax on a net
income basis at applicable graduated individual or corporate
rates. Certain certification and disclosure requirements must be
satisfied for effectively connected income to be exempt from
withholding. Any such effectively connected dividends received
by a foreign corporation may be subject to an additional
branch profits tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty. A
Non-U.S. Holder
who wishes to claim the benefit of an applicable income tax
treaty rate for dividends, will be required to (a) complete
Internal Revenue Service (IRS) Form W-8BEN (or
other applicable form) and certify under penalties of perjury
that such holder is not a U.S. person or (b) if the
common stock is held through certain
87
foreign intermediaries, satisfy the relevant certification
requirements of applicable Treasury Regulations. Special
certification and other requirements apply to certain
Non-U.S. Holders
that are entities rather than individuals.
A Non-U.S. Holder
eligible for a reduced rate of United States withholding tax
pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for
refund with the IRS.
Gain on disposition of common stock
A Non-U.S. Holder
will generally not be subject to United States federal income
tax with respect to gain recognized on a sale or other
disposition of our common stock unless (i) the gain is
effectively connected with a trade or business of the
Non-U.S. Holder in
the United States, and, where an income tax treaty applies, is
attributable to a United States permanent establishment of the
Non-U.S. Holder,
(ii) in the case of a
Non-U.S. Holder
who is an individual, such holder is present in the United
States for 183 or more days in the taxable year of the sale or
other disposition and certain other conditions are met, or
(iii) we either are or have been a United States real
property holding corporation (a USRPHC) for
United States federal income tax purposes at any time during the
shorter of the five-year period preceding such sale or other
disposition or the period that such
Non-U.S. Holder
held our common shares (the Applicable Period).
An individual
Non-U.S. Holder
described in clause (i) above will be subject to tax on the
net gain derived from the sale under regular graduated United
States federal income tax rates. If a
Non-U.S. Holder
that is a foreign corporation is described in clause (i)
above, it will be subject to tax on its gain under regular
graduated United States federal income tax rates and, in
addition, may be subject to the branch profits tax equal to 30%
of its effectively connected earnings and profits or at such
lower rate as may be specified by an applicable income tax
treaty. An individual
Non-U.S. Holder
described in clause (ii) above will be subject to a flat
30% tax on the gain derived from the sale, which may be
generally offset by United States source capital losses (even
though the individual is not considered a resident of the United
States).
Generally, a corporation is a USRPHC if the fair market value of
its United States property interests equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests plus its other assets used or held for
use in a trade or business. We do not believe that we have been,
are currently or are likely to be a USRPHC. However, because the
determination of whether we are USRPHC depends on the fair
market value of our United States real property interests
relative to the fair market values of our other business assets,
there can be no assurance that we will not become a USRPHC in
the future. If we were to become a USRPHC, so long as our common
stock is regularly traded on an established securities market
and continues to be traded, you would be subject to federal
income tax on any gain from the sale or other disposition of
shares of common stock only if you actually or constructively
owned, during the Applicable Period, more than 5% of the class
of stock that includes such shares.
Federal estate tax
Common stock owned or treated as owned by an individual who is a
Non-U.S. Holder
(as specifically defined for United States federal estate tax
purposes) at the time of death will generally be included in
such holders gross estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides
otherwise.
Information reporting and backup withholding
We must report annually to the IRS and to each
Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
A Non-U.S. Holder
will be subject to backup withholding (currently at a rate of
28%) on dividends paid to such holder unless such holder
certifies its
non-U.S. status or
otherwise establishes an exemption.
88
If common stock is sold by a
Non-U.S. Holder
outside the United States through a non-United States related
financial institution or broker, backup withholding and
information reporting generally would not apply. Information
reporting and, depending on the circumstances, backup
withholding, generally would apply to the proceeds of a sale or
redemption of common stock within the United States or conducted
through a United States related financial institution or broker
unless the beneficial owner certifies under penalties of perjury
that it is not a U.S. Person or the owner otherwise
establishes an exemption.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be allowed as a
refund or a credit against a
Non-U.S. Holders
United States federal income tax liability provided the required
information is furnished to the IRS.
89
UNDERWRITING
We are offering the shares of our common stock described in this
prospectus through the underwriters named below. Deutsche Bank
Securities Inc., J.P. Morgan Securities Inc., JMP Securities
LLC, Raymond James & Associates, Inc., and SunTrust
Capital Markets, Inc. are the representatives of the
underwriters. We have entered into an underwriting agreement
with the representatives. Subject to the terms and conditions of
the underwriting agreement, each of the underwriters has
severally agreed to purchase the number of shares of common
stock listed next to its name in the following table.
|
|
|
|
|
|
Underwriters |
|
Number of Shares | |
|
|
| |
Deutsche Bank Securities Inc.
|
|
|
|
|
J.P. Morgan Securities Inc.
|
|
|
|
|
JMP Securities LLC
|
|
|
|
|
Raymond James & Associates, Inc.
|
|
|
|
|
SunTrust Capital Markets, Inc.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,823,529 |
|
|
|
|
|
The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option
described below.
Our common stock is offered subject to a number of conditions,
including:
|
|
|
|
|
receipt and acceptance of our common stock by the
underwriters; and |
|
|
|
the underwriters right to reject orders in whole or in
part. |
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
Sales of shares made outside of the United States may be made by
affiliates of the underwriters.
Over-Allotment Option
We have granted the underwriters an option to buy up to an
aggregate of 1,323,529 additional shares of our common stock.
The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with
this offering. The underwriters have 30 days from the date
of this prospectus to exercise this option. If the underwriters
exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the
table above.
Commissions and Discounts
Shares sold by the underwriters to the public will initially be
offered at the offering price set forth on the cover of this
prospectus. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to
$ per
share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to
$ per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms. The underwriters have informed us that they do
not expect discretionary sales to
exceed % of the shares of common
stock to be offered.
90
The following table shows the per share and total underwriting
discounts and commissions we will pay to the underwriters,
assuming both no exercise and full exercise of the
underwriters option to purchase up to an additional
1,323,529 shares.
|
|
|
|
|
|
|
|
|
|
|
No Exercise | |
|
Full Exercise | |
|
|
| |
|
| |
Per Share
|
|
$ |
|
|
|
$ |
|
|
Total
|
|
$ |
|
|
|
$ |
|
|
We estimate that the total expenses of this offering payable by
us, not including underwriting discounts and commissions, will
be approximately $1.5 million.
No Sales of Similar Securities
We, our executive officers, our directors, and our majority
stockholder have entered into
lock-up agreements with
the underwriters. Under these
lock-up agreements,
subject to certain exceptions, we and each of these persons may
not, without the prior written consent of Deutsche Bank
Securities Inc. and J.P. Morgan Securities Inc., offer, sell,
offer to sell, contract or agree to sell, hypothecate, hedge,
pledge, grant any option to purchase, or otherwise dispose of or
agree to dispose of, directly or indirectly, any of our common
stock or any securities convertible into or exercisable or
exchangeable for our common stock, or warrants or other rights
to purchase our common stock. These restrictions will be in
effect for a period of 180 days after the date of this
prospectus. Although they have advised us that they have no
intention or understanding to do so, at any time and without
public notice, Deutsche Bank Securities Inc. and J.P. Morgan
Securities Inc. may, in their sole discretion, release some or
all of the affected securities from these
lock-up agreements.
If:
|
|
|
|
|
during the period that begins on the date that is
15 calendar days plus 3 business days before the last
day of the 180-day
lock-up period and ends
on the last day of the
180-day
lock-up period, |
|
|
|
|
|
we issue an earnings release; or |
|
|
|
material news or a material event relating to us occurs; or |
|
|
|
|
|
prior to the expiration of the
180-day
lock-up period, we
announce that we will release earnings results during the
16-day period beginning
on the last day of the
180-day
lock-up period, |
then the 180-day
lock-up period will be
extended until the expiration of the date that is
15 calendar days plus 3 business days after the date
on which the issuance of the earnings release or the material
news or material event occurs.
Indemnification and Contribution
We have agreed to indemnify the underwriters and their
controlling persons against certain liabilities, including
liabilities under the Securities Act. If we are unable to
provide this indemnification, we will contribute to payments the
underwriters and their controlling persons may be required to
make in respect of those liabilities.
NASDAQ National Market Quotation
We have applied to have our shares of common stock approved for
listing on The Nasdaq National Market under the
symbol PGTI.
Price Stabilization, Short Positions
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain, or otherwise affect the
price of our common stock, including:
|
|
|
|
|
stabilizing transactions; |
|
|
|
short sales; |
91
|
|
|
|
|
purchases to cover positions created by short sales; |
|
|
|
imposition of penalty bids; and |
|
|
|
syndicate covering transactions. |
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
These transactions may also include making short sales of our
common stock, which involve the sale by the underwriters of a
greater number of shares of common stock than they are required
to purchase in this offering. Short sales may be covered
short sales, which are short positions in an amount not
greater than the underwriters over-allotment option
referred to above, or may be naked short sales,
which are short positions in excess of that amount.
The underwriters may close out any covered short position either
by exercising their over-allotment option, in whole or in part,
or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase
shares through the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
that could adversely affect investors who purchased in this
offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our common stock
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on The Nasdaq National Market,
in the over-the-counter
market or otherwise.
Determination of Offering Price
Prior to this offering, there was no public market for our
common stock. The initial public offering price will be
determined by negotiation by us and the representatives of the
underwriters. The principal factors to be considered in
determining the initial public offering price include:
|
|
|
|
|
the information set forth in this prospectus and otherwise
available to the representatives; |
|
|
|
our history and prospects and the history and the prospects for
the industry in which we compete; |
|
|
|
our past and present financial performance and an assessment of
our management; |
|
|
|
our prospects for future earnings and the present state of our
development; |
|
|
|
the general condition of the securities markets at the time of
this offering; and |
|
|
|
the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies. |
Directed Share Program
At our request, certain of the underwriters have reserved up to
7% of the common stock being offered by this prospectus for sale
at the initial offering price to our officers, directors,
employees and consultants and other persons having a
relationship with us, as designated by us. The sales will be
made by Deutsche Bank Alex. Brown, a division of Deutsche Bank
Securities Inc., through a directed share program. We do not
know whether these persons will choose to purchase all or any
portion of these reserved shares, but any purchases they do make
will reduce the number of shares available to the general
public. Any directed share participants purchasing these
reserved shares will be subject to the restrictions described in
NO SALE OF SIMILAR SECURITIES above.
92
Affiliations
Certain of the underwriters and their affiliates in the past
have provided and may provide from time to time certain
commercial banking, financial advisory, investment banking, and
other services for us for which they have been or will be
entitled to receive separate fees. The underwriters and their
affiliates may from time to time in the future engage in
transactions with us and perform services for us in the ordinary
course of their business.
93
NOTICE TO INVESTORS
European economic area
With respect to each Member State of the European Economic Area
that has implemented Prospectus Directive 2003/71/EC, including
any applicable implementing measures, from and including the
date on which the Prospectus Directive is implemented in that
Member State, the offering of our common stock in this offering
is being made only: (a) to legal entities that are
authorized or regulated to operate in the financial markets or,
if not so authorized or regulated, whose corporate purpose is
solely to invest in securities; (b) to any legal entity
that has two or more of (1) an average of at least 250
employees during the last financial year, (2) a total
balance sheet of more than
43,000,000, and
(3) an annual net turnover of more than
50,000,000, as
shown in its last annual or consolidated accounts; or
(c) in any other circumstances that do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
United Kingdom
Shares of our common stock may not be offered or sold and will
not be offered or sold to any persons in the United Kingdom,
other than to persons whose ordinary activities involve them in
acquiring, holding, managing, or disposing of investments (as
principal or as agent) for the purposes of their businesses and
in compliance with all applicable provisions of the FSMA with
respect to anything done in relation to shares of our common
stock in, from, or otherwise involving the United Kingdom. In
addition, each Underwriter has only communicated or caused to be
communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in
investment activity (within the meaning of Section 21 of
the FSMA) received by it in connection with the issue or sale of
shares of our common stock in circumstances in which
Section 21(1) of the FSMA does not apply to the Company.
Without limitation to the other restrictions referred to herein,
this offering circular is directed only at (1) persons
outside the United Kingdom; (2) persons having professional
experience in matters relating to investments who fall within
the definition of investment professionals in
Article 19(5) of the Financial Services and Markets act
2000 (Financial Promotion) Order 2005; or (3) high net
worth bodies corporate, unincorporated associations, and
partnerships and trustees of high value trusts, as described in
Article 49(2) of the Financial Services and Markets act
2000 (Financial Promotion) Order 2005. Without limitation to the
other restrictions referred to herein, any investment or
investment activity to which this offering circular relates is
available only to, and will be engaged in only with, such
persons, and persons within the United Kingdom who receive this
communication (other than persons who fall within (2) or
(3) above) should not rely or act upon this communication.
Switzerland
Shares of our common stock may be offered in Switzerland only on
the basis of a non-public offering. This prospectus does not
constitute an issuance prospectus according to articles 652a or
1156 of the Swiss Federal Code of Obligations or a listing
prospectus according to article 32 of the Listing Rules of the
Swiss Exchange. The shares of our common stock may not be
offered or distributed on a professional basis in or from
Switzerland, and neither this prospectus nor any other offering
material relating to shares of our common stock may be publicly
issued in connection with any such offer or distribution. The
shares have not been and will not be approved by any Swiss
regulatory authority. In particular, the shares are not and will
not be registered with or supervised by the Swiss Federal
Banking Commission, and investors may not claim protection under
the Swiss Investment Fund Act.
94
LEGAL MATTERS
The validity of the common stock offered hereby will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom
LLP, Wilmington, Delaware. Certain legal matters in connection
with the offering will be passed upon for the underwriters by
Cahill Gordon & Reindel
llp.
EXPERTS
The consolidated financial statements of PGT, Inc. and
Subsidiary at December 31, 2005 and January 1, 2005,
and for the year ended December 31, 2005, the period
January 30, 2004 to January 1, 2005, the period
December 28, 2003 to January 29, 2004, and the year
ended December 27, 2003 appearing in this Prospectus and
Registration Statement have been audited by Ernst &
Young LLP, independent registered public accounting firm, as set
forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority
of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1 with
respect to the shares of common stock being sold in this
offering. This prospectus, which forms part of the registration
statement, does not contain all of the information included in
that registration statement and the exhibits to that
registration statement. For further information about us and our
common stock, you should refer to the registration statement and
its exhibits.
You may read and copy the registration statement of which this
prospectus is a part at the SECs Public Reference Room,
which is located at 100 F Street, N.E.,
Washington, D.C. 20549. You can request copies of the
registration statement by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at
1-800-SEC-0330 for more
information about the operation of the SECs Public
Reference Room. In addition, the SEC maintains an Internet
website, which is located at http://www.sec.gov, that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
SEC. You may access the registration statement of which this
prospectus is a part at the SECs Internet website. Upon
completion of this offering, we will be subject to the
information reporting requirements of the Securities Exchange
Act of 1934, and we will file reports, proxy statements and
other information with the SEC.
We maintain an Internet website at www.pgtindustries.com.
We have not incorporated by reference into this prospectus the
information on our website, and you should not consider it to be
a part of this prospectus.
95
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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|
|
|
|
Consolidated financial statements
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-8 |
|
Interim condensed consolidated financial statements (unaudited)
|
|
|
|
|
Unaudited condensed consolidated statements of operations for
the three months ended April 1, 2006 and April 2, 2005
|
|
|
F-30 |
|
Unaudited condensed consolidated balance sheets as of
April 1, 2006 and December 31, 2005
|
|
|
F-31 |
|
Unaudited condensed consolidated statements of cash flows for
the three months ended April 1, 2006 and April 2, 2005
|
|
|
F-32 |
|
Unaudited condensed consolidated statements of
shareholders equity for the three months ended
April 1, 2006
|
|
|
F-33 |
|
Notes to condensed consolidated financial statements (unaudited)
|
|
|
F-34 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
PGT, Inc.
We have audited the accompanying consolidated balance sheets of
PGT, Inc. and Subsidiary (the Company) as of December 31,
2005 and January 1, 2005, the related consolidated
statements of operations, shareholders equity, and cash
flows for the year ended December 31, 2005, for the period
January 30, 2004 to January 1, 2005, for the period
December 28, 2003 to January 29, 2004, and for the
year ended December 27, 2003. These financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of PGT, Inc. and Subsidiary as of
December 31, 2005 and January 1, 2005, and the results
of their operations and their cash flows for the year ended
December 31, 2005, for the period January 30, 2004 to
January 1, 2005, for the period December 28, 2003 to
January 29, 2004, and for the year ended December 27,
2003, in conformity with U.S. generally accepted accounting
principles.
Tampa, Florida
February 22, 2006, except for Note 21, as to which the date
is June 5, 2006
F-2
PGT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
332,813 |
|
|
$ |
237,350 |
|
|
$ |
19,044 |
|
|
$ |
222,594 |
|
Cost of sales
|
|
|
209,475 |
|
|
|
152,316 |
|
|
|
13,997 |
|
|
|
135,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
123,338 |
|
|
|
85,034 |
|
|
|
5,047 |
|
|
|
87,309 |
|
Selling, general and administrative expenses
|
|
|
83,634 |
|
|
|
63,494 |
|
|
|
6,024 |
|
|
|
55,655 |
|
Write off of trademark
|
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense (includes expenses related to cost of
sales and selling, general and administrative of $1,292 and
$5,854, respectively)
|
|
|
7,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
25,358 |
|
|
|
21,540 |
|
|
|
(977 |
) |
|
|
31,654 |
|
Other (income) expense, net
|
|
|
(286 |
) |
|
|
124 |
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
13,871 |
|
|
|
9,893 |
|
|
|
518 |
|
|
|
7,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
11,773 |
|
|
|
11,523 |
|
|
|
(1,495 |
) |
|
|
24,362 |
|
Income tax expense (benefit)
|
|
|
3,910 |
|
|
|
4,531 |
|
|
|
(912 |
) |
|
|
9,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
7,863 |
|
|
$ |
6,992 |
|
|
$ |
(583 |
) |
|
$ |
14,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
0.50 |
|
|
$ |
0.44 |
|
|
|
N/A |
|
|
|
N/A |
|
Diluted net income per common and common equivalent share
|
|
$ |
0.45 |
|
|
$ |
0.41 |
|
|
|
N/A |
|
|
|
N/A |
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,723 |
|
|
|
15,720 |
|
|
|
N/A |
|
|
|
N/A |
|
Diluted
|
|
|
17,299 |
|
|
|
17,221 |
|
|
|
N/A |
|
|
|
N/A |
|
Unaudited pro forma basic net income per common share
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma diluted net income per common and common
equivalent share
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
PGT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands, except per | |
|
|
share amounts) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
3,270 |
|
|
$ |
2,525 |
|
|
Accounts receivable, net
|
|
|
45,193 |
|
|
|
26,996 |
|
|
Inventories
|
|
|
13,981 |
|
|
|
11,451 |
|
|
Other current assets
|
|
|
5,757 |
|
|
|
6,650 |
|
|
Fair value of aluminum hedges
|
|
|
5,603 |
|
|
|
2,521 |
|
|
Deferred income taxes
|
|
|
3,133 |
|
|
|
3,503 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
76,937 |
|
|
|
53,646 |
|
Property, plant and equipment, net
|
|
|
65,508 |
|
|
|
57,971 |
|
Goodwill
|
|
|
169,648 |
|
|
|
169,648 |
|
Other intangible assets, net
|
|
|
107,760 |
|
|
|
122,980 |
|
Deferred financing costs
|
|
|
4,715 |
|
|
|
5,500 |
|
Other assets, net
|
|
|
985 |
|
|
|
191 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
425,553 |
|
|
$ |
409,936 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
4,380 |
|
|
$ |
2,914 |
|
|
Accrued liabilities
|
|
|
26,757 |
|
|
|
14,259 |
|
|
Line of credit
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
31,137 |
|
|
|
19,173 |
|
Long-term debt
|
|
|
183,525 |
|
|
|
166,375 |
|
Deferred income taxes
|
|
|
54,320 |
|
|
|
58,219 |
|
Other long-term liabilities
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
268,982 |
|
|
|
243,829 |
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 200,000,000 shares
authorized: 15,749 and 15,720 issued and outstanding at
December 31, 2005 and January 1, 2005, respectively
|
|
|
157 |
|
|
|
157 |
|
|
Additional paid-in-capital
|
|
|
152,647 |
|
|
|
157,458 |
|
|
Retained earnings
|
|
|
|
|
|
|
6,992 |
|
|
Accumulated other comprehensive income
|
|
|
3,767 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
156,571 |
|
|
|
166,107 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
425,553 |
|
|
$ |
409,936 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
PGT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
7,863 |
|
|
$ |
6,992 |
|
|
$ |
(583 |
) |
|
$ |
14,965 |
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
7,503 |
|
|
|
5,221 |
|
|
|
484 |
|
|
|
5,075 |
|
|
|
Amortization
|
|
|
8,020 |
|
|
|
9,289 |
|
|
|
44 |
|
|
|
458 |
|
|
|
Write-off of trademark
|
|
|
7,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing
|
|
|
1,285 |
|
|
|
876 |
|
|
|
45 |
|
|
|
477 |
|
|
|
Derivative financial instruments
|
|
|
(221 |
) |
|
|
1,079 |
|
|
|
97 |
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(4,978 |
) |
|
|
3,598 |
|
|
|
(525 |
) |
|
|
1,779 |
|
|
|
Expense related to stock issuance
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on disposals of assets
|
|
|
562 |
|
|
|
(11 |
) |
|
|
|
|
|
|
(1 |
) |
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(18,197 |
) |
|
|
(6,285 |
) |
|
|
1,394 |
|
|
|
(5,382 |
) |
|
|
Inventories
|
|
|
(2,530 |
) |
|
|
(2,905 |
) |
|
|
151 |
|
|
|
(419 |
) |
|
|
Other current assets
|
|
|
893 |
|
|
|
(2,922 |
) |
|
|
(167 |
) |
|
|
(1,437 |
) |
|
|
Accounts payable and accrued expenses
|
|
|
13,964 |
|
|
|
(776 |
) |
|
|
2,865 |
|
|
|
2,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
21,698 |
|
|
|
14,156 |
|
|
|
3,805 |
|
|
|
17,997 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(15,864 |
) |
|
|
(12,635 |
) |
|
|
(150 |
) |
|
|
(7,523 |
) |
|
Proceeds from sales of equipment
|
|
|
261 |
|
|
|
43 |
|
|
|
|
|
|
|
4 |
|
|
Acquisition of subsidiary, net of cash acquired
|
|
|
|
|
|
|
(286,589 |
) |
|
|
|
|
|
|
(5,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(15,603 |
) |
|
|
(299,181 |
) |
|
|
(150 |
) |
|
|
(13,260 |
) |
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
|
170,000 |
|
|
|
|
|
|
|
|
|
|
Net proceeds from refinancing long-term debt
|
|
|
31,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in revolving line of credit
|
|
|
(2,000 |
) |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
125,866 |
|
|
|
|
|
|
|
|
|
|
Payment of dividends
|
|
|
(20,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of financing costs
|
|
|
(500 |
) |
|
|
(6,376 |
) |
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(14,475 |
) |
|
|
(3,625 |
) |
|
|
|
|
|
|
(5,600 |
) |
|
Purchase of interest rate cap
|
|
|
|
|
|
|
(315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(5,350 |
) |
|
|
287,550 |
|
|
|
|
|
|
|
(5,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
745 |
|
|
|
2,525 |
|
|
|
3,655 |
|
|
|
(863 |
) |
|
Cash and cash equivalents at beginning of period
|
|
|
2,525 |
|
|
|
|
|
|
|
8,536 |
|
|
|
9,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
3,270 |
|
|
$ |
2,525 |
|
|
$ |
12,191 |
|
|
$ |
8,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
PGT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
Additional | |
|
|
|
Other | |
|
|
|
|
| |
|
Paid-In | |
|
Retained | |
|
Comprehensive | |
|
|
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Income | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands except share amounts) | |
Balance at January 30, 2004
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Issuance of common stock for cash
|
|
|
14,563,995 |
|
|
|
146 |
|
|
|
125,720 |
|
|
|
|
|
|
|
|
|
|
|
125,866 |
|
|
Common stock issued to stockholders in acquired entity
|
|
|
1,156,356 |
|
|
|
11 |
|
|
|
9,982 |
|
|
|
|
|
|
|
|
|
|
|
9,993 |
|
|
Options granted to vested option holders in acquired entity
|
|
|
|
|
|
|
|
|
|
|
21,756 |
|
|
|
|
|
|
|
|
|
|
|
21,756 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,992 |
|
|
|
|
|
|
|
6,992 |
|
|
Change in fair value of interest rate swaps, net of tax benefit
of $24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38 |
) |
|
|
(38 |
) |
|
Change in fair value of aluminum forward contracts, net of tax
expense of $983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,538 |
|
|
|
1,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
15,720,351 |
|
|
|
157 |
|
|
|
157,458 |
|
|
|
6,992 |
|
|
|
1,500 |
|
|
|
166,107 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,863 |
|
|
|
|
|
|
|
7,863 |
|
|
Amortization of ineffective interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78 |
) |
|
|
(78 |
) |
|
Change in fair value of interest rate swaps, net of tax expense
of $248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465 |
|
|
|
465 |
|
|
Change in fair value of aluminum forward contracts, net of tax
expense of $1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,880 |
|
|
|
1,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,130 |
|
|
Issuance of stock as compensation
|
|
|
29,132 |
|
|
|
|
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
|
334 |
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(5,145 |
) |
|
|
(14,855 |
) |
|
|
|
|
|
|
(20,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
15,749,483 |
|
|
$ |
157 |
|
|
$ |
152,647 |
|
|
$ |
|
|
|
$ |
3,767 |
|
|
$ |
156,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
PGT HOLDING COMPANY (PREDECESSOR)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
Class B |
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Stock |
|
Common Stock |
|
Additional | |
|
|
|
Other | |
|
|
|
|
|
|
|
|
Paid-In | |
|
Retained | |
|
Comprehensive | |
|
|
|
|
Shares | |
|
Amount |
|
Shares | |
|
Amount |
|
Capital | |
|
Earnings | |
|
Income | |
|
Total | |
|
|
| |
|
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except share amounts) | |
Balance at December 28, 2002
|
|
|
33,481 |
|
|
$ |
|
|
|
|
1,000 |
|
|
$ |
|
|
|
$ |
40,212 |
|
|
$ |
14,526 |
|
|
$ |
(2,569 |
) |
|
$ |
52,169 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,965 |
|
|
|
|
|
|
|
14,965 |
|
|
Change in fair value of interest rate swaps, net of tax expense
of $453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
709 |
|
|
|
709 |
|
|
Change in fair value of aluminum forward contracts, net of tax
expense of $568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888 |
|
|
|
888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2003
|
|
|
33,481 |
|
|
|
|
|
|
|
1,000 |
|
|
|
|
|
|
|
40,212 |
|
|
|
29,491 |
|
|
|
(972 |
) |
|
|
68,731 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(583 |
) |
|
|
|
|
|
|
(583 |
) |
|
Change in fair value of interest rate swaps, net of tax benefit
of $38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
(60 |
) |
|
Change in fair value of aluminum forward contracts, net of tax
expense of $63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 29, 2004
|
|
|
33,481 |
|
|
$ |
|
|
|
|
1,000 |
|
|
$ |
|
|
|
$ |
40,212 |
|
|
$ |
28,908 |
|
|
$ |
(933 |
) |
|
$ |
68,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Description of Business |
PGT, Inc. (PGTI or the Company) is a
leading manufacturer of impact-resistant aluminum and
vinyl-framed windows and doors and offers a broad range of fully
customizable window and door products. The majority of our
Companys sales are to customers in the state of Florida;
however, our Company also sells its products in over
40 states and in South and Central America. Products are
sold through an authorized dealer and distributor network, which
our Company approves.
Our Company was incorporated in the state of Delaware on
December 16, 2003, as JLL Window Holdings, Inc. On
February 15, 2006, our Company was renamed PGT, Inc. On
January 29, 2004, our Company acquired 100% of the
outstanding stock of PGT Holding Company (sometimes referred to
as the Predecessor), based in North Venice, Florida.
Our Company has one manufacturing operation and one glass
tempering and laminating plant in North Venice, Florida with a
second manufacturing operation located in Lexington, North
Carolina.
The Predecessor Financial Statements for the periods ended
December 27, 2003 and January 29, 2004 include the
activities of PGT Holding Company, which was incorporated in the
state of Delaware on December 12, 2000. PGT Holding Company
acquired 100% of the outstanding stock of PGT Industries, Inc.
and Triple Diamond Glass, Inc., both based in North Venice,
Florida on January 29, 2001. Periods of our Predecessor
reflect the historical basis of accounting of PGT Holding
Companys operations, and periods of our Company reflect
the effects of purchase accounting for the PGT Holding Company
acquisition. Accordingly, the results of operations for periods
of the Predecessor are not comparable to the results of
operations for periods of our Company.
All references to PGTI or our Company apply to the consolidated
financial statements of both PGT, Inc. and PGT Holding Company,
unless otherwise noted.
|
|
2. |
Summary of Significant Accounting Policies |
Fiscal period
Our Companys fiscal year consists of 52 or 53 weeks
ending on the Saturday nearest December 31 of the related
year. The period ended December 31, 2005 consisted of
52 weeks, the period January 30, 2004 to
January 1, 2005 consisted of 49 weeks, the period of
PGT Holding Company from December 28, 2003 to
January 29, 2004 consisted of 4 weeks, and the year
ended December 27, 2003 consisted of 52 weeks.
|
|
|
Principles of consolidation |
The consolidated financial statements present the results of the
operations, financial position and cash flows of PGTI and its
wholly owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Our Company operates in one operating segment, the manufacture
and sale of windows and doors.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Critical accounting estimates
involved in applying our
F-8
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys accounting policies are those that require
management to make assumptions about matters that are uncertain
at the time the accounting estimate was made and those for which
different estimates reasonably could have been used for the
current period, or changes in the accounting estimate that are
reasonably likely to occur from period to period, and would have
a material impact on the presentation of PGTIs financial
condition, changes in financial condition or results of
operations. Actual results could materially differ from those
estimates.
PGTI recognizes revenue when all of the following criteria have
been met:
|
|
|
|
|
a valid customer order with a fixed price has been received; |
|
|
|
the product has been delivered and accepted by the customer; and |
|
|
|
collectibility is reasonably assured. |
Cost of sales represents costs directly related to the
production of our Companys products. Primary costs include
raw materials, direct labor, and manufacturing overhead.
Manufacturing overhead and related expenses primarily include
salaries, wages, employee benefits, utilities, maintenance,
engineering and property taxes.
|
|
|
Shipping and handling costs |
Handling costs incurred in the manufacturing process are
included in cost of sales. All other shipping and handling costs
are included in selling, general and administrative expenses and
total $19.5 million, $15.2 million, $1.4 million
and $13.4 million for the year ended December 31,
2005, the period January 30, 2004 to January 1, 2005,
the period December 28, 2003 to January 29, 2004, and
the year ended December 27, 2003, respectively.
Our Company expenses advertising costs as incurred. Advertising
expense included in selling, general and administrative expenses
was $2.5 million, $2.1 million, $0.2 million and
$1.5 million for the year ended December 31, 2005, the
period January 30, 2004 to January 1, 2005, the period
December 28, 2003 to January 29, 2004, and the year
ended December 27, 2003, respectively.
|
|
|
Research and development costs |
Our Company expenses research and development costs as incurred.
Research and development costs included in selling, general and
administrative expenses were $2.2 million,
$2.8 million, $0.3 million and $2.4 million for
the year ended December 31, 2005, the period
January 30, 2004 to January 1, 2005, the period
December 28, 2003 to January 29, 2004, and the year
ended December 27, 2003, respectively.
|
|
|
Cash and cash equivalents |
Cash and cash equivalents consist of cash on hand and all highly
liquid investments with an original maturity date of three
months or less.
|
|
|
Accounts receivable and allowance for doubtful
accounts |
Our Company extends credit to qualified dealers and
distributors, generally on a non-collateralized basis. Accounts
receivable are recorded at their gross receivable amount,
reduced by an allowance for doubtful accounts that results in
the receivable being recorded at its net realizable value. The
allowance for doubtful accounts is based on managements
assessment of the amount which may become uncollectible in the
future and is
F-9
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined through consideration of Company write-off history,
specific identification of uncollectible accounts, and
consideration of prevailing economic and industry conditions.
Uncollectible accounts are charged off after repeated attempts
to collect from the customer have been unsuccessful.
Accounts receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Trade receivables
|
|
$ |
47,643 |
|
|
$ |
27,555 |
|
Less allowance for doubtful accounts
|
|
|
(2,450 |
) |
|
|
(559 |
) |
|
|
|
|
|
|
|
|
|
$ |
45,193 |
|
|
$ |
26,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
|
|
Balance at | |
|
|
Beginning | |
|
Costs and | |
|
|
|
End | |
Allowance for Doubtful Accounts |
|
of Period | |
|
Expenses | |
|
Deductions(1) | |
|
of Period | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 27, 2003
|
|
$ |
300 |
|
|
|
372 |
|
|
|
(250 |
) |
|
$ |
422 |
|
Period from December 28, 2003 to January 29, 2004
|
|
$ |
422 |
|
|
|
182 |
|
|
|
|
|
|
$ |
604 |
|
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from January 30, 2004 to January 1, 2005
|
|
$ |
604 |
|
|
|
371 |
|
|
|
(416 |
) |
|
$ |
559 |
|
Year ended December 31, 2005
|
|
$ |
559 |
|
|
|
2,308 |
|
|
|
(417 |
) |
|
$ |
2,450 |
|
|
|
(1) |
Represents uncollectible accounts charged against the allowance
for doubtful accounts. |
Our Company has warranty obligations with respect to most of our
manufactured products. Warranty periods, which vary by product
components, range from 1 to 10 years. However, the
majority of the products sold have warranties on components
which range from 1 to 3 years. The reserve for
warranties is based on managements assessment of the cost
per service call and the number of service calls expected to be
incurred to satisfy warranty obligations on recorded net sales.
The reserve is determined after assessing company history and
specific identification. In 2005, the accrual for warranty
increased over prior years as a result of a change in sales mix
toward products that carry a higher replacement cost of
materials and additional labor cost to service the product in
the field. The following provides information with respect to
our Companys warranty accrual.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Accruals for | |
|
|
|
|
|
Balance at | |
|
|
Beginning | |
|
Warranties Issued | |
|
Adjustments | |
|
Settlements | |
|
End of | |
Allowance for Warranty |
|
of Period | |
|
During Period | |
|
Made | |
|
Made | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 27, 2003
|
|
$ |
2,824 |
|
|
|
2,226 |
|
|
|
(180 |
) |
|
|
(1,976) |
|
|
$ |
2,894 |
|
Period from December 28, 2003 to January 29, 2004
|
|
$ |
2,894 |
|
|
|
190 |
|
|
|
144 |
|
|
|
(186) |
|
|
$ |
3,042 |
|
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from January 30, 2004 to January 1, 2005
|
|
$ |
3,042 |
|
|
|
2,374 |
|
|
|
(485 |
) |
|
|
(2,068) |
|
|
$ |
2,863 |
|
Year ended December 31, 2005
|
|
$ |
2,863 |
|
|
|
5,658 |
|
|
|
223 |
|
|
|
(4,243) |
|
|
$ |
4,501 |
|
F-10
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories consist principally of raw materials purchased for
the manufacture of our products. PGTI has limited finished goods
inventory as all products are custom,
made-to-order products.
Finished goods inventory costs include direct materials, direct
labor, and overhead. All inventories are stated at the lower of
cost (first-in,
first-out method) or market. The reserve for obsolescence is
based on managements assessment of the amount of inventory
that may become obsolete in the future and is determined through
company history, specific identification and consideration of
prevailing economic and industry conditions.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Finished goods
|
|
$ |
1,867 |
|
|
$ |
1,978 |
|
Work in progress
|
|
|
467 |
|
|
|
147 |
|
Raw materials
|
|
|
12,460 |
|
|
|
9,457 |
|
Less reserve for obsolescence
|
|
|
(813 |
) |
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
$ |
13,981 |
|
|
$ |
11,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
|
|
Balance at | |
|
|
Beginning | |
|
Costs and | |
|
|
|
End of | |
Reserve for Obsolescence |
|
of Period | |
|
Expenses | |
|
Deductions(1) | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 27, 2003
|
|
$ |
261 |
|
|
|
1,096 |
|
|
|
(1,100) |
|
|
$ |
257 |
|
Period from December 28, 2003 to January 29, 2004
|
|
$ |
257 |
|
|
|
277 |
|
|
|
(77) |
|
|
$ |
457 |
|
Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from January 30, 2004 to January 1, 2005
|
|
$ |
457 |
|
|
|
423 |
|
|
|
(749) |
|
|
$ |
131 |
|
Year ended December 31, 2005
|
|
$ |
131 |
|
|
|
1,930 |
|
|
|
(1,248) |
|
|
$ |
813 |
|
|
|
(1) |
Represents obsolete inventory charged against the reserve. |
|
|
|
Property, plant and equipment |
Property, plant and equipment are recorded at cost and
depreciated using the straight-line method over the estimated
useful lives of the related assets. Depreciable assets are
assigned estimated lives as follows:
|
|
|
|
|
Building and improvements
|
|
|
5 to 40 years |
|
Furniture and equipment
|
|
|
3 to 10 years |
|
Vehicles
|
|
|
3 to 10 years |
|
Computer Software
|
|
|
3 years |
|
Maintenance and repair expenditures are charged to expense as
incurred.
PGTI reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of long-lived assets to future undiscounted net cash
flows expected to be generated, in accordance with Statements of
Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. If such assets are considered to be impaired, the
F-11
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impairment recognized is the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less cost to sell, and depreciation is no longer
recorded.
Our Company capitalizes costs associated with software developed
or obtained for internal use when both the preliminary project
stage is completed and it is probable that computer software
being developed will be completed and placed in service.
Capitalized costs include:
|
|
|
(i) external direct costs of materials and services
consumed in developing or obtaining computer software, |
|
|
(ii) payroll and other related costs for employees who are
directly associated with and who devote time to the software
project and |
|
|
(iii) interest costs incurred, when material, while
developing internal-use software. |
Capitalization of such costs ceases no later than the point at
which the project is substantially complete and ready for its
intended purpose.
Depreciation expense for capitalized software was
$2.4 million and $1.6 million for the year ended
December 31, 2005 and the period from January 30, 2004
to January 1, 2005, respectively.
The unamortized amount of capitalized software as of
December 31, 2005 and January 1, 2005, was
$7.5 million and $7.0 million, respectively.
Accumulated amortization of capitalized software was
$4.4 million and $2.0 million as of December 31,
2005 and January 1, 2005, respectively.
Our Company reviews the carrying value of software and
development costs for impairment in accordance with its policy
pertaining to the impairment of long-lived assets.
|
|
|
Goodwill and other intangible assets |
Our Company accounts for goodwill and other intangible assets in
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets. Other intangible assets primarily consist
of trademarks and customer-related intangible assets. The useful
lives of trademarks were determined to be indefinite and,
therefore, these assets are not being amortized.
Customer-related intangible assets are being amortized over
their estimated useful lives of ten years.
The impairment evaluation for goodwill is conducted annually, or
more frequently, if events or changes in circumstances indicate
that an asset might be impaired. The evaluation is performed
using a two-step process. In the first step, which is used to
screen for potential impairment, the fair value of the reporting
unit is compared with the carrying amount of the reporting unit,
including goodwill. The estimated fair value of the reporting
unit is generally determined on the basis of discounted future
cash flows. If the estimated fair value of the reporting unit is
less than the carrying amount of the reporting unit, then a
second step, which determines the amount of the goodwill
impairment to be recorded must be completed. In the second step,
the implied fair value of the reporting units goodwill is
determined by allocating the reporting units fair value to
all of its assets and liabilities other than goodwill (including
any unrecognized intangible assets). The resulting implied fair
value of the goodwill that results from the application of this
second step is then compared to the carrying amount of the
goodwill and an impairment charge is recorded for the
difference. Our Company performs its impairment test as of the
end of each fiscal year.
F-12
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The impairment evaluation of the carrying amount of intangible
assets with indefinite lives is conducted annually, or more
frequently if events or changes in circumstances indicate that
an asset might be impaired. The evaluation is performed by
comparing the carrying amount of these assets to their estimated
fair value. If the estimated fair value is less than the
carrying amount of the intangible assets with indefinite lives,
then an impairment charge is recorded to reduce the asset to its
estimated fair value. The estimated fair value is generally
determined on the basis of discounted future cash flows.
The assumptions used in the estimate of fair value are generally
consistent with past performance and are also consistent with
the projections and assumptions that are used in current PGTI
operating plans. Such assumptions are subject to change as a
result of changing economic and competitive conditions.
Deferred financing costs are amortized using the effective
interest method over the life of the debt instrument to which
they relate. Amortization of deferred financing costs is
included in interest expense on our Companys consolidated
statements of operations. There was $1.3 million,
$0.9 million, $45,017, and $0.5 million of
amortization for the year ended December 31, 2005, the
period January 30, 2004 to January 1, 2005, the period
December 28, 2003 to January 29, 2004, and the year
ended December 27, 2003, respectively. There was
$2.2 million and $0.9 million in accumulated
amortization related to these costs at December 31, 2005
and January 1, 2005, respectively.
Estimated amortization on deferred financing costs is as follows
for future fiscal years:
|
|
|
|
|
|
|
(In thousands) | |
2006
|
|
$ |
1,284 |
|
2007
|
|
|
1,277 |
|
2008
|
|
|
1,273 |
|
2009
|
|
|
858 |
|
2010
|
|
|
23 |
|
|
|
|
|
|
|
$ |
4,715 |
|
|
|
|
|
|
|
|
Derivative financial instruments |
Our Company utilizes certain derivative instruments, from time
to time, including interest rate swaps and forward contracts to
manage variability in cash flow associated with interest rates
and commodity market price risk exposure in the aluminum market.
While our Company does not enter into derivatives for
speculative purposes, upon termination of the hedging
relationship, our Company may continue to hold such derivatives
and record them at their fair value, with changes recorded in
the income statement.
PGTI accounts for derivative instruments in accordance with
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended
(SFAS No. 133). SFAS No. 133
requires our Company to recognize all of its derivative
instruments as either assets or liabilities in the consolidated
balance sheet at fair value. The accounting for changes in the
fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part
of a hedging relationship based on its effectiveness in hedging
against the exposure and further, on the type of hedging
relationship. For those derivative instruments that are
designated and qualify as hedging instruments, our Company must
designate the hedging instrument, based upon the exposure being
hedged, as a fair value hedge or a cash flow hedge.
Our Companys forward contracts are designated and
accounted for as cash flow hedges (i.e., hedging the exposure to
variability in expected future cash flows that is attributable
to a particular risk). SFAS No. 133
F-13
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides that the effective portion of the gain or loss on a
derivative instrument designated and qualifying as a cash flow
hedging instrument be reported as a component of other
comprehensive income and be reclassified into earnings in the
same line item in the income statement as the hedged item in the
same period or periods during which the transaction affects
earnings. The ineffective portion of the gain or loss on these
derivative instruments, if any, is recognized in other
income/expense in current earnings during the period of change.
For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in other
income/expense in current earnings during the period of change.
When a cash flow hedge is terminated, if the forecasted hedged
transaction is still probable of occurrence, amounts previously
recorded in other comprehensive income remain in other
comprehensive income and are recognized in earnings in the
period in which the hedged transaction affects earnings.
For the interest rate cap, changes in fair value of the cap due
to the passage of time reduce the asset established when the cap
was purchased and appear as a component of other expense as they
occur, since they are considered inherently ineffective. Changes
in intrinsic value that result from changes in the interest
yield curve to the extent effective are reported as a component
of other comprehensive income. Effectiveness of the cap is
periodically evaluated by determining that the critical terms
continue to match those of the debt agreement, determining that
the future interest payments are still probable of occurrence,
and evaluating the likelihood of the counterpartys
compliance with the terms of the swap.
Additional information with regard to accounting policies
associated with derivative instruments is contained in
Note 11, Derivative Financial Instruments.
Our Companys financial instruments include cash, accounts
receivable, and accounts payable, all of which approximate their
fair value due to their short-term nature. Additional financial
instruments include the interest rate swap, interest rate cap,
and aluminum forward contracts, for which the carrying amount
was determined using fair value estimates from third parties and
long-term debt which approximates fair value due to the variable
interest rate.
|
|
|
Concentrations of credit risk |
Financial instruments, which potentially subject our Company to
concentrations of credit risk, consist principally of cash and
trade accounts receivable. Accounts receivable are due primarily
from companies in the construction industry located in Florida
and the eastern half of the United States. Credit is extended
based on an evaluation of the customers financial
condition and credit history, and generally collateral is not
required.
PGTI maintains its cash with financial institutions. The
balances, at times, may exceed federally insured limits. At
December 31, 2005 and January 1, 2005, our
Companys balances exceeded the insured limit by
approximately $7.6 million and $4.7 million,
respectively.
|
|
|
Comprehensive income (loss) |
Comprehensive income (loss) is reported on the Consolidated
Statements of Shareholders Equity and accumulated other
comprehensive income (loss) is reported on the Consolidated
Balance Sheets.
Gains and losses on cash flow hedging derivatives, to the extent
effective, are included in other comprehensive income (loss).
Reclassification adjustments reflecting such gains and losses
are ratably recorded in income in the same period as the hedged
items affect earnings. Additional information with regard to
accounting policies associated with derivative instruments is
contained in Note 11, Derivative Financial Instruments.
F-14
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
PGTI has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees
(APB 25), and related interpretations in
accounting for its employee stock option plan (see
Note 16). APB 25 is an intrinsic value approach for
measuring stock-based compensation costs. Accordingly, no
employee compensation expense for stock options is reflected in
net income as all stock options granted under the plan had an
exercise price equal to or greater than the market value of the
underlying common stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based
Compensation, (SFAS No. 123) is a
fair value approach for measuring stock-based compensation costs.
Had the compensation cost for our Companys stock-based
compensation been determined in accordance with
SFAS No. 123, our Companys net income (loss) and
net income (loss) per common and common equivalent share for the
year ended December 31, 2005, the period January 30,
2004 to January 1, 2005, the period December 28, 2003
to January 29, 2004, and the year ended December 27,
2003, respectively, would approximate the pro forma amounts
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amount) | |
Reported net income (loss)
|
|
$ |
7,863 |
|
|
$ |
6,992 |
|
|
$ |
(583 |
) |
|
$ |
14,965 |
|
Deduct: Total stock-based compensation expense determined under
minimum value methods for all awards, net of related tax effect
|
|
|
(212 |
) |
|
|
(231 |
) |
|
|
(9 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
7,651 |
|
|
$ |
6,761 |
|
|
$ |
(592 |
) |
|
$ |
14,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share as reported
|
|
$ |
0.50 |
|
|
$ |
0.44 |
|
|
|
N/A |
|
|
|
N/A |
|
Basic earnings per common share pro forma
|
|
$ |
0.49 |
|
|
$ |
0.43 |
|
|
|
N/A |
|
|
|
N/A |
|
Diluted earnings per common and common equivalents
share as reported
|
|
$ |
0.45 |
|
|
$ |
0.41 |
|
|
|
N/A |
|
|
|
N/A |
|
Diluted earnings per common and common equivalents
share pro forma
|
|
$ |
0.44 |
|
|
$ |
0.39 |
|
|
|
N/A |
|
|
|
N/A |
|
In order to calculate the fair values, the following assumptions
were made: the expected dividend payment rate used was zero, the
expected option lives were three years and the risk free
interest rates ranged from 2.37% to 4.41%.
The effects of applying SFAS No. 123 in this
pro forma disclosure may not be indicative of future
results.
In the third quarter of 2005, our Company paid a dividend to our
stockholders and accrued a payment to all holders of our
outstanding stock options (including vested and unvested
options). This payment to option holders was made in connection
with the payment of the dividend. The aggregate dividend to
stockholders was approximately $20.0 million, and the
aggregate amount payable to option holders was approximately
$6.6 million (including applicable payroll taxes of
$0.5 million), which was recognized as stock compensation
expense. Approximately $1.4 million of the amount payable
to option holders is payable to employees whose other
compensation is a component of cost of sales.
In the fourth quarter of 2005, our Company issued a total of
44 shares of common stock to two key employees. The fair
value at time of issue was $0.3 million. Stock compensation
expense was recorded in the amount of $0.5 million for the
fair value received, including applicable payroll taxes of
$0.2 million.
F-15
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our Company accounts for income taxes utilizing the liability
method described in SFAS No. 109, Accounting
for Income Taxes (SFAS No. 109).
Under SFAS No. 109 deferred income taxes are recorded
to reflect consequences on future years of differences between
financial reporting and the tax basis of assets and liabilities
measured using the enacted statutory tax rates and tax laws
applicable to the periods in which differences are expected to
affect taxable earnings.
|
|
|
Net income per common share |
Net income (loss) per common share (EPS) is
calculated in accordance with SFAS No. 128,
Earnings per Share, which requires the presentation
of basic and dilutive earnings per share. Basic earnings per
share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share
is computed using the weighted average number of common shares
outstanding during the period, plus the dilutive effect of
common stock equivalents. Our Companys weighted average
shares outstanding excludes underlying options of
0.2 million and 1.5 million for the year ended
December 31, 2005 and the period from January 30, 2004
to January 1, 2005, respectively, because their effects
were anti-dilutive.
The Table below presents a reconciliation of weighted average
common shares, in thousands, used in the calculation of basic
and diluted EPS for our Company:
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
|
| |
|
|
|
|
January 30, | |
|
|
Year Ended | |
|
2004 to | |
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
Weighted average common shares for basic EPS
|
|
|
15,723 |
|
|
|
15,720 |
|
Effect of dilutive stock options
|
|
|
1,576 |
|
|
|
1,501 |
|
|
|
|
|
|
|
|
Weighted average common and common equivalents shares for
diluted EPS
|
|
|
17,299 |
|
|
|
17,221 |
|
|
|
|
|
|
|
|
|
|
3. |
Recently Issued Accounting Pronouncements |
In October 2004, the American Jobs Creation Act of 2004
(the Jobs Creation Act) was signed into law. In
December 2004, the FASB issued Staff
Position 109-1
(FSP 109-1),
Application of FASB Statement No. 109
(SFAS No. 109), Accounting for
Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004.
FSP 109-1
clarifies guidance that applies to the new deduction for
qualified domestic production activities. When fully phased-in,
the deduction will be up to 9% of the lesser of qualified
production activities income or taxable income.
FSP 109-1
clarifies that the deduction should be accounted for as a
special deduction under SFAS No. 109 and will reduce
tax expense in the period or periods that the amounts are
deductible on the tax return. The tax benefits resulting from
the new deduction were included in our fiscal year ending
December 31, 2005, and were not material.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
requires that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials (spoilage) be
recorded as current period charges and that the allocation of
fixed production overheads to inventory be based on the normal
capacity of the production facilities. SFAS No. 151
becomes effective for our Company on January 1, 2006. Our
Company does not believe that the adoption of
SFAS No. 151 will have a material impact on our
consolidated financial statements.
F-16
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2004, the FASB issued SFAS No. 123(R)
(Revised 2004) Share Based Payment.
SFAS No. 123(R) supersedes Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123
Accounting for Stock-Based Compensation. This
statement requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements.
This statement establishes fair value as the measurement
objective in accounting for share-based payment arrangements and
requires all entities to apply a fair value based measurement
method in accounting for share-based payment transactions with
employees except for equity instruments held by employee share
ownership plans.
In March 2005, the Securities and Exchange Commission
released SEC Staff Accounting Bulletin No. 107,
Share-Based Payment (SAB No. 107).
SAB No. 107 provides the SEC staff position regarding
the application of (SFAS 123(R)).
SAB No. 107 contains interpretive guidance related to
the interaction between SFAS No. 123(R) and certain
SEC rules and regulations, as well as provides the staffs
views regarding the valuation of share-based payment
arrangements for public companies. SAB No. 107 also
highlights the importance of disclosures made related to the
accounting for share-based payment transactions. We are
currently reviewing the effect of SAB No. 107 on our
consolidated financial statements.
Our Company plans to adopt SFAS No. 123(R), using the
modified prospective method, beginning January 1, 2006. We
will be evaluating option valuation models, including the
Black-Scholes-Merton formula, to determine which model we will
utilize upon adoption of SFAS No. 123(R). We
previously used the minimum value method under
SFAS No. 123 to calculate the fair value of our
options and will apply the prospective transition method as of
the required effective date. We will continue to account for the
currently outstanding options under APB 25 and will apply
the provisions of SFAS No. 123(R) prospectively to new
awards and awards repurchased or cancelled after adoption of
this statement. We do not expect the adoption of
SFAS No. 123(R) to have a material impact on our
Companys future stock-based compensation expense.
|
|
|
Exchanges of nonmonetary assets |
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29 (SFAS No. 153).
SFAS No. 153 is based on the principle that exchanges
of non-monetary assets should be measured based on the fair
value of the assets exchanged. APB Opinion No. 29,
Accounting for Nonmonetary Transactions
(APB 29), provided an exception to its
basic measurement principle (fair value) for exchanges of
similar productive assets. Under APB 29, an exchange of a
productive asset for a similar productive asset was based on the
recorded amount of the asset relinquished.
SFAS No. 153 eliminates this exception and replaces it
with an exception for exchanges of non-monetary assets that do
not have commercial substance. SFAS No. 153 became
effective for our Company as of July 1, 2005. Our Company
will apply the requirements of SFAS No. 153 on any
future non-monetary exchange transactions. The adoption of this
new statement did not have a material impact on our financial
condition or results of operations.
|
|
|
Accounting changes and error corrections |
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, a replacement of
APB No. 20 and FASB Statement No. 3
(SFAS No. 154). SFAS No. 154
requires retrospective application to prior periods
financial statements of a voluntary change in accounting
principle unless it is impracticable. APB Opinion No. 20
Accounting Changes, previously required that most
voluntary changes in accounting principle be recognized by
including in net income of the period of the change the
cumulative effect of changing to the new accounting principle.
This statement will become effective for our Company on
January 1, 2006. Our Company does not believe that the
adoption of SFAS No. 154 will have a material impact
on our consolidated financial statements.
F-17
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On January 29, 2004, PGTI acquired 100% of the outstanding
stock of PGT Holding Company for approximately
$318.4 million. The purchase price consisted of
$286.6 million in cash, net of cash acquired,
$10.0 million, representing the fair value of
1.2 million shares of our Companys common stock
issued, and $21.8 million, representing the fair value of
2.9 million shares of vested stock options which were
rolled over from PGT Holding Company to PGTI. The fair
value of the stock and rollover options was determined based on
the price paid (net of debt) by PGTI in the acquisition. In
connection with the acquisition, our Company recorded goodwill
in the amount of $169.6 million. As a result of the
transaction, PGT Holding Company became a wholly-owned
subsidiary of PGTI. Our Company believes that the acquisition of
PGT Holding Company is consistent with its policy of investing
in companies that are expected to substantially increase in
value within five to seven years based on their growth and
profitability.
Our Company recorded the acquisition using the purchase method
of accounting in accordance with SFAS No. 141,
Business Combinations.
|
|
|
|
|
|
|
Purchase price allocation:
|
|
|
|
|
Assets:
|
|
|
|
|
|
Current assets
|
|
$ |
33,940 |
|
|
Property, plant and equipment
|
|
|
50,589 |
|
|
Intangible assets
|
|
|
132,269 |
|
|
Goodwill
|
|
|
169,648 |
|
|
|
|
|
|
|
Total Assets
|
|
$ |
386,446 |
|
|
|
|
|
Liabilities and Equity:
|
|
|
|
|
|
Current liabilities
|
|
$ |
17,948 |
|
|
Net Deferred Tax Liability
|
|
|
50,160 |
|
|
Rollover Equity
|
|
|
31,749 |
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
|
99,857 |
|
|
|
|
|
Total cash paid
|
|
$ |
286,589 |
|
|
|
|
|
F-18
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5. |
Property, Plant and Equipment |
The following table presents the composition of property, plant
and equipment as of:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Land
|
|
$ |
4,029 |
|
|
$ |
4,029 |
|
Building and improvements
|
|
|
33,485 |
|
|
|
30,217 |
|
Machinery and equipment
|
|
|
23,131 |
|
|
|
13,389 |
|
Vehicles
|
|
|
3,863 |
|
|
|
1,664 |
|
Software
|
|
|
7,453 |
|
|
|
6,960 |
|
Construction in process
|
|
|
5,979 |
|
|
|
6,929 |
|
|
|
|
|
|
|
|
|
|
|
77,940 |
|
|
|
63,188 |
|
Less accumulated depreciation
|
|
|
(12,432 |
) |
|
|
(5,217 |
) |
|
|
|
|
|
|
|
|
|
$ |
65,508 |
|
|
$ |
57,971 |
|
|
|
|
|
|
|
|
|
|
6. |
Goodwill and Other Intangible Assets |
Goodwill and other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
Useful Life | |
|
|
2005 | |
|
2005 | |
|
in Years | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
169,648 |
|
|
$ |
169,648 |
|
|
|
indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$ |
62,600 |
|
|
$ |
69,800 |
|
|
|
indefinite |
|
Amortized intangible assets, gross:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
55,700 |
|
|
|
55,700 |
|
|
|
10 |
|
|
Supplier agreements
|
|
|
2,300 |
|
|
|
2,300 |
|
|
|
1-2 |
|
|
Noncompete agreements
|
|
|
4,469 |
|
|
|
4,469 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets, gross
|
|
|
62,469 |
|
|
|
62,469 |
|
|
|
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
(10,712 |
) |
|
|
(5,141 |
) |
|
|
|
|
|
Supplier agreements
|
|
|
(2,300 |
) |
|
|
(2,085 |
) |
|
|
|
|
|
Noncompete agreements
|
|
|
(4,297 |
) |
|
|
(2,063 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accumulated Amortization
|
|
|
(17,309 |
) |
|
|
(9,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
$ |
107,760 |
|
|
$ |
122,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The trademarks purchased by our Company during the
PGT Holding Company acquisition included PGT/Visibly
Better, WinGuard, Eze-Breeze and NatureScape. As a
result of declining margins and a shift in our manufacturing
focus, our Company made the decision to sell the NatureScape
product line during the fourth quarter of 2005. The sale,
which closed on February 20, 2006, included the sale of the
trademark. Accordingly, the trademark, which was recorded at
$7.3 million at January 1, 2005, was written down to
its net realizable value of $100,000 at December 31, 2005.
F-19
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
There were no changes in the net carrying amount of goodwill for
the year ended December 31, 2005 or the period from
January 30, 2004 to January 1, 2005. The amount of
goodwill deductible for tax purposes is $80.3 million.
Estimated amortization on intangible assets is as follows for
future fiscal years:
|
|
|
|
|
|
|
(In thousands) | |
2006
|
|
$ |
5,742 |
|
2007
|
|
|
5,570 |
|
2008
|
|
|
5,570 |
|
2009
|
|
|
5,570 |
|
2010
|
|
|
5,570 |
|
Thereafter
|
|
|
17,138 |
|
|
|
|
|
|
|
$ |
45,160 |
|
|
|
|
|
7. Accrued Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
Accrued warranty
|
|
$ |
4,501 |
|
|
$ |
2,863 |
|
Accrued interest
|
|
|
2,306 |
|
|
|
1,838 |
|
Accrued payroll and benefits
|
|
|
9,451 |
|
|
|
8,139 |
|
Accrued stock compensation
|
|
|
6,813 |
|
|
|
|
|
Other
|
|
|
3,686 |
|
|
|
1,419 |
|
|
|
|
|
|
|
|
|
|
$ |
26,757 |
|
|
$ |
14,259 |
|
|
|
|
|
|
|
|
8. Line of Credit
Our Company has a revolving line of credit with a bank
collateralized by substantially all the assets of PGTI. The line
has a term of five years and allows our Company to draw
$25.0 million less the amount allocated for letters of
credit. The line was not used as of December 31, 2005, and
there was $19.6 million available for borrowing. As of
January 1, 2005, $2.0 million was drawn on this line
and $19.6 million was available for borrowing.
Our Company has the option to borrow up to its limit by means of
any combination of base rate loans bearing interest at a rate
based on the prime rate plus a margin of 1.75% or LIBOR loans
bearing interest at a rate based on LIBOR plus a margin of
2.75%. As of January 1, 2005 the effective rate on the line
was approximately 5.2%. During the term of this line, our
Company is obligated to pay a fee equal to 0.5% per annum
on the unused portion of the line.
On February 14, 2006, this line of credit was amended in
connection with the refinancing discussed in Note 18,
Recapitalization.
F-20
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
9. Interest Expense
Interest expense, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Long-term debt
|
|
$ |
12,495 |
|
|
$ |
8,760 |
|
|
$ |
463 |
|
|
$ |
6,700 |
|
Debt Fees
|
|
|
397 |
|
|
|
264 |
|
|
|
19 |
|
|
|
182 |
|
Amortization of Deferred Financing Costs
|
|
|
1,285 |
|
|
|
876 |
|
|
|
45 |
|
|
|
477 |
|
Short-term Debt
|
|
|
120 |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
(122 |
) |
|
|
(67 |
) |
|
|
(9 |
) |
|
|
(67 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, gross
|
|
|
14,175 |
|
|
|
9,893 |
|
|
|
518 |
|
|
|
7,292 |
|
Capitalized interest
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$ |
13,871 |
|
|
$ |
9,893 |
|
|
$ |
518 |
|
|
$ |
7,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Tranche A1 term note payable to a bank in quarterly
installments of $469,373 beginning January 29, 2008 through
January 29, 2009. Quarterly installments increase to
$45.3 million on April 29, 2009 and continue through
January 29, 2010. Interest is payable quarterly at LIBOR or
the prime rate plus an applicable margin. At December 31,
2005, the rate was 4.23% plus a margin of 3.00%
|
|
$ |
183,525 |
|
|
$ |
|
|
Tranche A term note payable to a bank in quarterly
installments of $312,500 beginning April 29, 2004 through
January 29, 2009. Quarterly installments increase to
$29.7 million on April 29, 2009 and continue through
January 29, 2010. Interest was payable quarterly at LIBOR
or the prime rate plus an applicable margin. At January 1,
2005, the rate was approximately 2.13% plus a margin of 3.00%
|
|
|
|
|
|
|
121,375 |
|
Tranche B term note payable to bank with the balance due on
July 29, 2010. Interest was payable quarterly at either
LIBOR or the prime rate plus an applicable margin. At
January 1, 2005, the rate was approximately 2.13% plus a
margin of 6.25%
|
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
$ |
183,525 |
|
|
$ |
166,375 |
|
|
|
|
|
|
|
|
On September 19, 2005 our Company amended and restated our
prior credit agreement with a bank. In connection with the
amendment, our Company created a new tranche of term loans with
an aggregate principal amount of $190.0 million. The
proceeds were used to refinance the existing Tranche A and
B debt, fund a $20 million dividend to our stockholders,
and pay certain financing costs related to the amendment. The
quarterly payments were adjusted, although the timing of the
payments remained unchanged. All other material aspects of the
credit agreement were unaffected.
F-21
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. The percentage range is 25% to 75%, against
the principal balance of the Tranche A1 term note payable,
as well as the balance of the Tranche A term note payable
while it was still outstanding. During the year ended
December 31, 2005, as well as the period from
January 30, 2004 to January 1, 2005, no such payment
was required. However, our Company made optional prepayments
against the principal of the Tranche A1 term note totaling
$6.0 million during the year ended December 31, 2005,
and optional prepayments against the Tranche A note
totaling $8.0 million and $3.0 million for the year ended
December 31, 2005 and the period from January 30, 2004
to January 1, 2005, respectively. Under the terms of the
loan agreement, prepayments are applied to the next
12 months scheduled payments, with the remainder to be
applied on a pro rata basis to the remaining scheduled payments.
The Tranche A1 term note and line of credit require that
our Company maintain compliance with certain restrictive
financial covenants, the most restrictive of which requires our
Company to maintain a total leverage ratio, as defined in the
debt agreement, of not greater than certain predetermined
amounts. Our Company believes that we are in compliance with all
restrictive financial covenants.
Future maturities on long-term debt are as follows (in
thousands):
|
|
|
|
|
2006
|
|
$ |
|
|
2007
|
|
|
|
|
2008
|
|
|
1,877 |
|
2009
|
|
|
136,353 |
|
2010
|
|
|
45,295 |
|
|
|
|
|
|
|
$ |
183,525 |
|
|
|
|
|
11. Derivative Financial
Instruments
On October 29, 2004, our Company entered into an interest
rate swap agreement with a notional amount of $33.5 million
that was designated as a cash flow hedge and effectively
converted a portion of the floating rate debt to a fixed rate of
3.53%. Since all of the critical terms of the swap exactly
matched those of the hedged debt, no ineffectiveness was
identified in the hedging relationship. Consequently, all
changes in fair value were recorded as a component of other
comprehensive income. Our Company periodically determined the
effectiveness of the swap by determining that the critical terms
still match, determining that the future interest payments are
still probable of occurrence, and evaluating the likelihood of
the counterpartys compliance with the terms of the swap.
The fair value of the interest rate swap agreement was
$0.7 million and a liability of $0.1 million as of
December 31, 2005 and January 1, 2005, respectively,
and is recorded in other assets on our Companys
Consolidated Balance Sheet.
Also on October 29, 2004, our Company entered into an
interest rate cap agreement with a notional amount of
$33.5 million that protected an additional portion of the
variable rate debt from an increase in the floating rate to
greater than 4.5%. Our Company designated the cap as a cash flow
hedge since changes in the intrinsic value of the cap were
expected to be highly effective in offsetting the changes in
cash flow attributable to fluctuations in interest rates. The
time value of the cap was considered inherently ineffective and
changes in its value were reported in earnings as they occurred.
Changes in the intrinsic value of the cap were not significant
in 2004 and 2005. The fair value of the interest rate cap
agreement was $0.2 million and $0.2 million as of
December 31, 2005 and January 1, 2005, respectively,
and is recorded in other assets on our Companys
Consolidated Balance Sheet.
On September 19, 2005, the hedging relationships involving
the interest rate swap and cap agreements were terminated as a
result of changes made to the terms of the credit agreement.
Accordingly, the changes in fair
F-22
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of the swap and cap from that point are recorded in other
(income) expense, net, and the accumulated balance for the
interest rate swap agreement included in other comprehensive
income at the time of ineffectiveness of $0.7 million is
being amortized into earnings over the remaining life of the
agreement. At December 31, 2005, there was
$0.6 million remaining to be amortized, in accumulated
other comprehensive income, which will amortize into earnings in
the amount of $0.3 million and $0.3 million for the
years ended 2006, and 2007, respectively.
Our Company enters into aluminum forward contracts to hedge the
fluctuations in the purchase price of aluminum extrusion it uses
in production. Our Company had eleven outstanding forward
contracts at December 31, 2005, with an average notional
amount of 2,190,000 pounds and maturity date varying in length
from one to ten months. Our Company had 20 outstanding forward
contracts at January 1, 2005, with an average notional
amount of 907,000 pounds and maturity date varying in length
from one to twelve months. These contracts are designated as
cash flow hedges since they are expected to be highly effective
in offsetting changes in the cash flows attributable to
forecasted purchases of aluminum. Our Companys aluminum
hedges have a fair value of approximately $5.6 million and
$2.5 million at December 31, 2005 and January 1,
2005, respectively, and qualify as highly effective for
reporting purposes. Effectiveness of aluminum forward contracts
is determined by comparing the change in the fair value of the
forward contract to the change in the expected cash to be paid
for the hedged item. During the years ended December 31,
2005 and January 1, 2005, the ineffective portion of the
hedging instruments was not significant. The ending accumulated
balance for the aluminum forward contracts included in
accumulated other comprehensive income, net of tax, is
approximately $3.4 million and $1.5 million as of
December 31, 2005 and January 1, 2005, respectively.
12. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
difference between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of our Companys net
deferred tax liability are as follows at December 31, 2005
and January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
January 1, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Warranty reserve
|
|
$ |
1,755 |
|
|
$ |
1,116 |
|
|
Deferred financing costs
|
|
|
635 |
|
|
|
924 |
|
|
Accounts receivable
|
|
|
1,328 |
|
|
|
277 |
|
|
State tax credits
|
|
|
591 |
|
|
|
143 |
|
|
Other accruals
|
|
|
1,483 |
|
|
|
1,805 |
|
|
Inventories
|
|
|
752 |
|
|
|
306 |
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,544 |
|
|
|
4,571 |
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
(46,000 |
) |
|
|
(51,292 |
) |
|
Property, plant, and equipment
|
|
|
(9,162 |
) |
|
|
(6,962 |
) |
|
Derivative financial instruments
|
|
|
(2,569 |
) |
|
|
(1,033 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(57,731 |
) |
|
|
(59,287 |
) |
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
(51,187 |
) |
|
$ |
(54,716 |
) |
|
|
|
|
|
|
|
F-23
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
7,497 |
|
|
$ |
795 |
|
|
$ |
(266 |
) |
|
$ |
6,399 |
|
|
State
|
|
|
1,391 |
|
|
|
138 |
|
|
|
(121 |
) |
|
|
1,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,888 |
|
|
|
933 |
|
|
|
(387 |
) |
|
|
7,618 |
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,817 |
) |
|
|
3,030 |
|
|
|
(321 |
) |
|
|
1,492 |
|
|
State
|
|
|
(1,161 |
) |
|
|
568 |
|
|
|
(204 |
) |
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,978 |
) |
|
|
3,598 |
|
|
|
(525 |
) |
|
|
1,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
$ |
3,910 |
|
|
$ |
4,531 |
|
|
$ |
(912 |
) |
|
$ |
9,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory federal income tax rate to our
Companys and the Predecessors effective rate is
provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Statutory federal income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal income tax benefit
|
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
3.7 |
% |
State tax credits
|
|
|
(4.8 |
)% |
|
|
|
|
|
|
9.6 |
% |
|
|
|
|
Manufacturing deduction
|
|
|
(2.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1.2 |
% |
|
|
0.3 |
% |
|
|
12.4 |
% |
|
|
(0.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.2 |
% |
|
|
39.3 |
% |
|
|
61.0 |
% |
|
|
38.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, our
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Our
Company considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment. After consideration of all
the evidence, both positive and negative, our Company has
determined that a valuation allowance is not necessary.
13. Commitments and
Contingencies
Our Company leases production equipment, vehicles, computer
equipment, storage units and various office equipment under
operating leases expiring at various times through 2010. Lease
expense was $2.3 million, $1.7 million,
$0.2 million and $1.5 million for the year ended
December 1, 2005, the period from January 30, 2004 to
January 1, 2005, the period from December 28, 2003 to
January 29, 2004, and the year ended
F-24
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 27, 2003, respectively. Future minimum lease
commitments for non-cancelable operating leases are as follows
at December 31, 2005 (in thousands):
|
|
|
|
|
2006
|
|
$ |
2,374 |
|
2007
|
|
|
1,918 |
|
2008
|
|
|
1,094 |
|
2009
|
|
|
439 |
|
2010
|
|
|
196 |
|
|
|
|
|
|
|
$ |
6,021 |
|
|
|
|
|
Our Company, through the terms of certain of its leases, has the
option to purchase the leased equipment for cash in an amount
equal to its then fair market value plus all applicable taxes.
Our Company is obligated to purchase certain raw materials used
in the production of our products from certain vendors, pursuant
to various contracts that expire at the end of 2006 or 2007. In
accordance with these contracts, a minimum of $59.5 million
and $0.5 million of materials must be purchased during the
years ended 2006 and 2007, respectively.
At December 31, 2005, our Company had approximately
$5.4 million in standby letters of credit related to its
workers compensation insurance coverage and commitments to
purchase equipment of approximately $5.1 million.
Our Company is a party to various legal proceedings in the
ordinary course of business. Although the ultimate disposition
of those proceedings cannot be predicted with certainty,
management believes the outcome of any claim that is pending or
threatened, either individually or on a combined basis, will not
have a materially adverse effect on the operations, financial
position or cash flows of PGTI.
14. Employee Benefit Plan
Our Company has a 401(k) plan covering substantially all
employees 18 years of age or older who have at least six
months of service. Employees may contribute up to 100% of their
annual compensation subject to Internal Revenue Code maximum
limitations. Our Company has agreed to make matching
contributions of 100% of the employees contribution up to
3% of the employees salary. Company contributions and
earnings thereon vest at the rate of 20% per year of
service with our Company when at least 1,000 hours are
worked within the Plan year. Our Company recognized expense of
$1.7 million, $1.4 million, $0.1 million, and
$1.3 million in the year ended December 31, 2005, the
period from January 30, 2004 to January 1, 2005, the
period from December 28, 2003 to January 29, 2004, and
the year ended December 27, 2003, respectively.
15. Related Parties
Our Company pays a management fee to JLL Partners, Inc., which
is related to our Companys majority shareholder, JLL
Partners Fund IV L.P., of $1.0 million or 3% of
EBITDA, whichever is greater, annually for corporate services.
Our Company was charged management fees of approximately
$1.8 million and $1.4 million for the year ended
December 31, 2005 and the period from January 30, 2004
to January 1, 2005, respectively.
Our Predecessor paid a management fee to FNL Management Corp.,
which was related to our Predecessors majority
stockholder, Linsalata Capital Partners. The fee charged was
$66,667 and $0.8 million for the period from
December 28, 2003 to January 29, 2004 and the year
ended December 27, 2003, respectively.
These amounts are recorded in selling, general, and
administrative expenses in our consolidated statements of
operations.
F-25
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the ordinary course of business, we sell windows to Builders
FirstSource, Inc., a company controlled by affiliates of JLL
Partners. One of our directors, Floyd F. Sherman, is the
president, chief executive officer, and a director of Builders
FirstSource, Inc. In addition, Alexander R. Castaldi,
Ramsey A. Frank, Brett N. Milgrim, and Paul
S. Levy are directors of Builders FirstSource, Inc. Total
net sales to Builders FirstSource, Inc. were $2.6 million,
$2.4 million, $0.2 million, and $1.3 million in
the year ended December 31, 2005, the period from
January 30, 2004 to January 1, 2005, the period from
December 28, 2003 to January 29, 2004, and the year
ended December 27, 2003, respectively.
16. Shareholders Equity
On January 29, 2004, our Company adopted the JLL Window
Holdings, Inc. Key Employees Stock Option Plan (the Plan)
whereby stock options may be granted by the Board of Directors
(the Board) to eligible employees of our Company.
In conjunction with the acquisition of PGT Holding Company, our
Company rolled over 2.9 million option shares belonging to
option holders of the acquired entity into our Companys
plan. These options have an indefinite term and are fully
vested. Of these options, 1.1 million have an exercise
price of $0.38 per share and 1.8 million have an
exercise price of $1.51 per share.
Also in conjunction with the acquisition, our Company granted
1.6 million option shares to key employees. These options
have a ten-year life, fully vest after five years and an
accelerated vesting based on achievement of certain financial
targets over three years, with an exercise price of
$8.64 per share.
On July 5, 2005, and November 30, 2005, our Company
granted to key employees 0.5 million and 0.2 million
option shares, respectively. These options have a ten-year life,
fully vest after five years, and have accelerated vesting based
on certain financial targets over three years, with an exercise
price of $8.64 and $12.84 per share, respectively. Both option
grants were made with an exercise price at or above fair value
(based on retrospective valuations) and accordingly had no
intrinsic value at the time of issuance. There are no shares
available for grant under the plan at December 31, 2005.
A summary of the status of our Companys stock options as
of December 31, 2005 and January 1, 2005, and the
changes during the periods is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Weighted Average | |
|
|
Underlying Options | |
|
Exercise Price | |
|
|
| |
|
| |
|
|
(in thousands) | |
|
|
Outstanding at January 30, 2004
|
|
|
2,872 |
|
|
$ |
1.07 |
|
Granted
|
|
|
1,553 |
|
|
$ |
8.64 |
|
Cancelled
|
|
|
(29 |
) |
|
$ |
8.64 |
|
|
|
|
|
|
|
|
Outstanding at January 1, 2005
|
|
|
4,396 |
|
|
$ |
3.61 |
|
Granted
|
|
|
659 |
|
|
$ |
9.81 |
|
Cancelled
|
|
|
(73 |
) |
|
$ |
8.64 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
4,982 |
|
|
$ |
4.43 |
|
|
|
|
|
|
|
|
F-26
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about employee stock
options outstanding at December 31, 2005 (options are in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted Average | |
|
|
|
|
|
|
| |
|
|
|
|
Outstanding at | |
|
|
|
Remaining | |
|
Exercisable at | |
|
|
|
|
December 31, | |
|
Exercise | |
|
Contractual | |
|
December 31, | |
|
Weighted Average | |
Exercise Prices |
|
2005 | |
|
Price | |
|
Life | |
|
2005 | |
|
Exercise Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$0.38
|
|
|
1,122 |
|
|
$ |
0.38 |
|
|
|
8 yrs |
|
|
|
1,122 |
|
|
$ |
0.38 |
|
$1.51
|
|
|
1,750 |
|
|
$ |
1.51 |
|
|
|
8 yrs |
|
|
|
1,750 |
|
|
$ |
1.51 |
|
$8.64
|
|
|
1,926 |
|
|
$ |
8.64 |
|
|
|
8.2 yrs |
|
|
|
290 |
|
|
$ |
8.64 |
|
$12.84
|
|
|
184 |
|
|
$ |
12.84 |
|
|
|
10 yrs |
|
|
|
|
|
|
|
|
|
|
|
17. |
Supplemental Cash Flow Information |
Cash flows from operating activities included cash payments as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company | |
|
Predecessor | |
|
|
| |
|
| |
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Cash payments for interest
|
|
$ |
11,643 |
|
|
$ |
6,979 |
|
|
$ |
187 |
|
|
$ |
6,701 |
|
Cash payments for income taxes
|
|
|
10,780 |
|
|
|
3,324 |
|
|
|
|
|
|
|
8,416 |
|
On February 14, 2006, our company 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 a $205 million first lien
term loan due in quarterly installments of $0.5 million
beginning May 14, 2006 and ending November 14, 2011
and a final payment of $193.2 million on February 14,
2012.
The term loans under the first lien term loan facility bear
interest, at our option, at a rate equal to an adjusted LIBOR
rate plus 3.0% per annum or a base rate plus 2.0% per
annum. The loans under the revolving credit facility bear
interest initially, at our option (provided, that all swingline
loans shall be base rate loans), at a rate equal to an adjusted
LIBOR rate plus 2.75% per annum or a base rate plus
1.75% per annum, and the margins above LIBOR and base rate
may decline to 2.00% for LIBOR loans and 1.00% for base rate
loans if certain leverage ratios are met. A commitment fee equal
to 0.50% per annum accrues on the average daily unused
amount of the commitment of each lender under the revolving
credit facility and such fee is payable quarterly in arrears. We
are also required to pay certain other fees with respect to the
senior secured credit facility including (i) letter of
credit fees on the aggregate undrawn amount of outstanding
letters of credit plus the aggregate principal amount of all
letter of credit reimbursement obligations, (ii) a fronting
fee to the letter of credit issuing bank and
(iii) administrative fees. The second lien secured credit
facility bears interest, at our option, at a rate equal to an
adjusted LIBOR rate plus 7.0% per annum or a base rate plus
6.0% per annum. We are required to pay certain
administrative fees under the second lien secured credit
facility.
The first lien secured credit facility is secured by a perfected
first priority pledge of all of the equity interests of our
subsidiary and perfected first priority security interests in
and mortgages on substantially all of our tangible and
intangible assets and those of the guarantors, except, in the
case of the stock of a foreign subsidiary, to the extent such
pledge would be prohibited by applicable law or would result in
materially adverse tax consequences, and subject to such other
exceptions as are agreed. The senior secured credit facility
contains a number of covenants that, among other things,
restrict our ability and the ability of our subsidiaries to
(i) dispose
F-27
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of assets; (ii) change our business; (iii) engage in
mergers or consolidations; (iv) make certain acquisitions;
(v) pay dividends or repurchase or redeem stock;
(vi) incur indebtedness or guarantee obligations and issue
preferred and other disqualified stock; (vii) make
investments and loans; (viii) incur liens; (ix) engage
in certain transactions with affiliates; (x) enter into
sale and leaseback transactions; (xi) issue stock or stock
options; (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.
The second lien secured credit facility is secured by a
perfected second priority pledge of all of the equity interests
of our subsidiary and perfected second priority security
interests in and mortgages on substantially all of our tangible
and intangible assets and those of the guarantors, except, in
the case of the stock of a foreign subsidiary, to the extent
such pledge would be prohibited by applicable law or would
result in materially adverse tax consequences, and subject to
such other exceptions as are agreed. The second lien secured
credit facility contains a number of covenants that, among other
things, restrict our ability and the ability of our subsidiaries
to (i) dispose of assets; (ii) change our business;
(iii) engage in mergers or consolidations; (iv) make
certain acquisitions; (v) pay dividends or repurchase or
redeem stock; (vi) incur indebtedness or guarantee
obligations and issue preferred and other disqualified stock;
(vii) make investments and loans; (viii) incur liens;
(ix) engage in certain transactions with affiliates;
(x) enter into sale and leaseback transactions;
(xi) issue stock or stock options; (xii) amend or
prepay subordinated indebtedness; (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.
Borrowings under the new senior secured credit facility and
second lien secured credit facility were used to refinance our
companys existing debt facility, pay a cash dividend to
stockholders of $83.5 million, and make a cash payment of
approximately $26.9 million (including applicable payroll
taxes of $0.5 million) to stock option holders in
connection with such dividend. In connection with the
refinancing, our company incurred estimated fees and expenses
aggregating $4.5 million that will be included as a
component of other assets, net and amortized over the terms of
the new senior secured credit facility. In the first quarter of
2006, the total cash payment to option holders and the
termination penalty related to the prepayment of the existing
debt were expensed and recorded as stock compensation expense
and a component of interest expense, respectively. Our company
expensed approximately $4.6 million of the unamortized
deferred financing costs related to the prior credit facility
recorded as interest expense.
Future maturities of the debt entered into on February 14,
2006 are as follows:
|
|
|
|
|
2006
|
|
$ |
1,538 |
|
2007
|
|
|
2,050 |
|
2008
|
|
|
2,050 |
|
2009
|
|
|
2,050 |
|
2010
|
|
|
2,050 |
|
Thereafter
|
|
|
310,262 |
|
|
|
|
|
|
|
$ |
320,000 |
|
|
|
|
|
F-28
PGT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
19. |
Sales by Product Group |
Sales by product group is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, | |
|
December 28, | |
|
|
|
|
Year Ended | |
|
2004 to | |
|
2003 to | |
|
Year Ended | |
|
|
December 31, | |
|
January 1, | |
|
January 29, | |
|
December 27, | |
|
|
2005 | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Winguard Windows and Doors
|
|
$ |
186,184 |
|
|
$ |
101,497 |
|
|
$ |
7,606 |
|
|
$ |
89,973 |
|
Other Windows and Door Products
|
|
|
146,629 |
|
|
|
135,853 |
|
|
|
11,438 |
|
|
|
132,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
332,813 |
|
|
$ |
237,350 |
|
|
$ |
19,044 |
|
|
$ |
222,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20. |
Pro Forma Disclosure (Unaudited) |
Pro forma net income per common share outstanding: Shares
used to calculate unaudited pro forma basic and diluted net
income per common share outstanding were adjusted to add
6.1 million shares of common stock as required under Staff
Accounting Bulletin (SAB) Topic 1.B.3 to reflect the number
of shares which would have to be issued to replace the
$83.5 million distribution paid to our shareholders on
February 17, 2006 and the $20.0 million distribution
paid to our shareholders in September 2005. The number of
shares included under SAB Topic 1.B.3 is equal to the
$103.5 million in distributions paid, divided by an assumed
offering price of $17 per share of our common stock, the
mid-point of the range on the cover of the prospectus.
On June 5, 2006, our board of directors and our
stockholders approved a 662.07889-for-1 stock split of our
common stock and approved increasing to 200.0 million the
number of shares of common stock that the Company is authorized
to issue.
After the stock split, effective June 6, 2006, each holder
of record held 662.07889 shares of common stock for every 1
share held immediately prior to the effective date. As a result
of the stock split, the board of directors also exercised its
discretion under the anti-dilution provisions of our 2004 Stock
Incentive Plan to adjust the number of shares underlying stock
options and the related exercise prices to reflect the change in
the per share value and outstanding shares on the date of the
stock split. The effect of fractional shares is not material.
Following the effective date of the stock split, the par value
of the common stock remained at $0.01 per share. As a result, we
have increased the common stock in our consolidated balance
sheets and statements of shareholders equity included
herein on a retroactive basis for all of our Companys
periods presented, with a corresponding decrease to additional
paid-in capital. All share and per share amounts and related
disclosures have also been retroactively adjusted for all of our
Companys periods presented to reflect the 662.07889-for-1
stock split.
F-29
PGT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
April 1, | |
|
April 2, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands, except per | |
|
|
share amounts) | |
|
|
(Unaudited) | |
Net sales
|
|
$ |
96,355 |
|
|
$ |
79,364 |
|
Cost of sales
|
|
|
60,634 |
|
|
|
49,636 |
|
|
|
|
|
|
|
|
Gross margin
|
|
|
35,721 |
|
|
|
29,728 |
|
Stock compensation expense (includes expenses related to cost of
sales and selling, general and administrative of $5,069 and
$21,829, respectively)
|
|
|
26,898 |
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
21,868 |
|
|
|
19,492 |
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(13,045 |
) |
|
|
10,236 |
|
Other income
|
|
|
(409 |
) |
|
|
(81 |
) |
Interest expense
|
|
|
10,359 |
|
|
|
3,143 |
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(22,995 |
) |
|
|
7,174 |
|
Income tax expense (benefit)
|
|
|
(8,919 |
) |
|
|
2,382 |
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(14,076 |
) |
|
$ |
4,792 |
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$ |
(0.89 |
) |
|
$ |
0.30 |
|
Diluted net income (loss) per common and common equivalent share
|
|
$ |
(0.89 |
) |
|
$ |
0.28 |
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,749 |
|
|
|
15,720 |
|
|
Diluted
|
|
|
15,749 |
|
|
|
17,221 |
|
Unaudited pro forma basic net income (loss) per common share
|
|
$ |
(0.64 |
) |
|
|
|
|
Unaudited pro forma diluted net income (loss) per common and
common equivalent share
|
|
$ |
(0.64 |
) |
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-30
PGT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
April 1, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share amounts) | |
|
|
(Unaudited) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
20,642 |
|
|
$ |
3,270 |
|
Accounts receivable, net
|
|
|
46,029 |
|
|
|
45,193 |
|
Inventories
|
|
|
13,424 |
|
|
|
13,981 |
|
Deferred income taxes
|
|
|
11,944 |
|
|
|
3,133 |
|
Other current assets
|
|
|
13,924 |
|
|
|
11,360 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
105,963 |
|
|
|
76,937 |
|
Property, plant and equipment, net
|
|
|
73,989 |
|
|
|
65,508 |
|
Goodwill
|
|
|
169,648 |
|
|
|
169,648 |
|
Other intangible assets, net
|
|
|
106,096 |
|
|
|
107,760 |
|
Other assets, net
|
|
|
5,633 |
|
|
|
5,700 |
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
461,329 |
|
|
$ |
425,553 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
28,066 |
|
|
$ |
31,137 |
|
Current portion of long-term debt
|
|
|
2,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,116 |
|
|
|
31,137 |
|
Long-term debt less current portion
|
|
|
317,950 |
|
|
|
183,525 |
|
Deferred income taxes
|
|
|
54,320 |
|
|
|
54,320 |
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
402,386 |
|
|
|
268,982 |
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 200,000,000 shares
authorized: 15,749 shares issued and outstanding
|
|
|
157 |
|
|
|
157 |
|
Additional paid-in-capital
|
|
|
69,163 |
|
|
|
152,647 |
|
Retained earnings (accumulated deficit)
|
|
|
(14,076 |
) |
|
|
|
|
Accumulated other comprehensive income
|
|
|
3,699 |
|
|
|
3,767 |
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
58,943 |
|
|
|
156,571 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$ |
461,329 |
|
|
$ |
425,553 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-31
PGT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
| |
|
|
April 1, | |
|
April 2, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
|
|
(Unaudited) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(14,076 |
) |
|
$ |
4,792 |
|
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,255 |
|
|
|
1,637 |
|
|
Amortization
|
|
|
1,564 |
|
|
|
2,005 |
|
|
Deferred financing
|
|
|
4,809 |
|
|
|
260 |
|
|
Deferred income taxes
|
|
|
(8,919 |
) |
|
|
|
|
|
Derivative financial instruments
|
|
|
(408 |
) |
|
|
(80 |
) |
|
Loss on disposal of assets
|
|
|
|
|
|
|
14 |
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(836 |
) |
|
|
(5,569 |
) |
|
Inventories
|
|
|
557 |
|
|
|
529 |
|
|
Other current assets
|
|
|
(2,600 |
) |
|
|
3,024 |
|
|
Accounts payable and accrued expenses
|
|
|
(3,070 |
) |
|
|
3,977 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(20,724 |
) |
|
|
10,589 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(10,736 |
) |
|
|
(2,829 |
) |
|
Proceeds from sales of equipment
|
|
|
300 |
|
|
|
10 |
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(10,436 |
) |
|
|
(2,819 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
320,000 |
|
|
|
|
|
|
Payment of dividends
|
|
|
(83,484 |
) |
|
|
|
|
|
Payments of financing costs
|
|
|
(4,459 |
) |
|
|
|
|
|
Payments of long-term debt
|
|
|
(183,525 |
) |
|
|
(6,000 |
) |
|
Payments on revolving line of credit
|
|
|
|
|
|
|
(2,000 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
48,532 |
|
|
|
(8,000 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
17,372 |
|
|
|
(230 |
) |
Cash and cash equivalents at beginning of period
|
|
|
3,270 |
|
|
|
2,525 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
20,642 |
|
|
$ |
2,295 |
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
4,318 |
|
|
$ |
2,699 |
|
|
Income taxes paid
|
|
$ |
780 |
|
|
$ |
18 |
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-32
PGT, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained | |
|
Accumulated | |
|
|
|
|
Common stock | |
|
Additional | |
|
Earnings | |
|
Other | |
|
|
|
|
| |
|
Paid-in | |
|
(Accumulated | |
|
Comprehensive | |
|
|
|
|
Shares |
|
Amount | |
|
Capital | |
|
Deficit) | |
|
Income | |
|
Total | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except share amounts) | |
Balance at December 31, 2005
|
|
15,749,483 |
|
$ |
157 |
|
|
$ |
152,647 |
|
|
$ |
|
|
|
$ |
3,767 |
|
|
$ |
156,571 |
|
Dividends paid
|
|
|
|
|
|
|
|
|
(83,484 |
) |
|
|
|
|
|
|
|
|
|
|
(83,484 |
) |
Amortization of ineffective interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78 |
) |
|
|
(78 |
) |
Change in fair value of aluminum forward contracts, net of tax
expense of $6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
10 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,076 |
) |
|
|
|
|
|
|
(14,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2006
|
|
15,749,483 |
|
$ |
157 |
|
|
$ |
69,163 |
|
|
$ |
(14,076 |
) |
|
$ |
3,699 |
|
|
$ |
58,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-33
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
1. |
Description of Business |
PGT, Inc. (PGTI or our Company) is a
leading manufacturer of impact-resistant aluminum and
vinyl-framed windows and doors and offers a broad range of fully
customizable window and door products. All references to PGTI or
our Company apply to the condensed consolidated financial
statements of both PGT, Inc. and PGT Holding Company, unless
otherwise noted.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions for interim financial statements and do not include
all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial
statements. Operating results for the interim periods are not
necessarily indicative of the results to be expected during the
remainder of the current year or for any future periods. In the
opinion of management, the unaudited condensed consolidated
financial statements reflect all adjustments considered
necessary for a fair presentation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements
should be read in conjunction with the more detailed audited
consolidated financial statements for the year ended
December 31, 2005, the period January 30, 2004 to
January 1, 2005, the period December 28, 2003 to
January 29, 2004, and the year ended December 27,
2003. Accounting policies used in the preparation of these
unaudited condensed consolidated financial statements are
consistent in all material respects with the accounting policies
described in the Notes to Consolidated Financial Statements.
|
|
2. |
Summary of Significant Accounting Policies |
Our Companys fiscal quarter consists of 13 weeks
ending on April 1, 2006, and April 2, 2005.
Our Company operates in one operating segment, the manufacture
and sale of windows and doors.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Critical accounting estimates involved in applying our
Companys accounting policies are those that require
management to make assumptions about matters that are uncertain
at the time the accounting estimate was made and are those which
different estimates reasonably could have been used for the
current period, or changes in the accounting estimate that are
reasonably likely to occur from period to period, and would have
a material impact on the presentation of PGTIs financial
condition, changes in financial condition or results of
operations. Actual results could materially differ from those
estimates.
Our Company has warranty obligations with respect to most of our
manufactured products. Warranty periods, which vary by product
components, range from 1 to 10 years. However, the majority
of the products sold have warranties on components which range
from 1 to 3 years. The reserve for warranties is based on
managements assessment of the cost per service call and
the number of service calls expected to be incurred to satisfy
warranty obligations on recorded net sales. The reserve is
determined after assessing company history and
F-34
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
specific identification. The following provides information with
respect to our Companys warranty accrual for the current
fiscal quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for | |
|
|
|
|
|
|
|
|
Balance at | |
|
Warranties | |
|
|
|
|
|
Balance at | |
|
|
Beginning | |
|
Issued | |
|
Adjustments | |
|
Settlements | |
|
End of | |
Allowance for Warranty |
|
of Period | |
|
During Period | |
|
Made | |
|
Made | |
|
Period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Quarter ended April 1, 2006
|
|
$ |
4,501 |
|
|
|
1,445 |
|
|
|
(139 |
) |
|
|
(1,224 |
) |
|
$ |
4,583 |
|
Quarter ended April 2, 2005
|
|
$ |
2,863 |
|
|
|
794 |
|
|
|
115 |
|
|
|
(859 |
) |
|
$ |
2,913 |
|
Inventories consist principally of raw materials purchased for
the manufacture of our products. PGTI has limited finished goods
inventory as all products are custom, made-to-order products.
Finished goods inventory costs include direct materials, direct
labor, and overhead. All inventories are stated at the lower of
cost (first-in, first-out method) or market. The reserve for
obsolescence is based on managements assessment of the
amount of inventory that may become obsolete in the future and
is determined through company history, specific identification
and consideration of prevailing economic and industry conditions.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
April, 1 | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Finished goods
|
|
$ |
1,880 |
|
|
$ |
1,867 |
|
Work in progress
|
|
|
1,937 |
|
|
|
467 |
|
Raw materials
|
|
|
10,036 |
|
|
|
12,460 |
|
Less reserve for obsolescence
|
|
|
(429 |
) |
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
$ |
13,424 |
|
|
$ |
13,981 |
|
|
|
|
|
|
|
|
We adopted Statement of Financial Accounting Standards
No. 123R, Share-Based Payment (SFAS 123R), on
January 1, 2006. This statement is a fair-value approach
for measuring stock-based compensation and requires us to
recognize the cost of employee services received in exchange for
our companys equity instruments. Under SFAS 123R, we are
required to record compensation expense over an awards
vesting period based on the awards fair value at the date
of grant. We have adopted SFAS 123R on a prospective basis;
accordingly, our financial statements for periods prior to
January 1, 2006, do not include compensation cost
calculated under the fair value method.
Prior to January 1, 2006, our Company applied Accounting
Principles Board Opinion 25, Accounting for Stock issued to
Employees (APB 25), and therefore recorded the intrinsic
value of stock-based compensation as expense. Under APB 25,
compensation cost was recorded only to the extent that the
exercise price was less than the fair value of our
Companys stock on the date of grant. No compensation
expense was recognized in previous financial statements under
APB 25. Additionally, our Company reported the pro forma
impact of using a fair value based approach to valuing stock
options under the Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensation
(SFAS 123).
Stock options granted prior to our Companys initial public
offering were valued using the minimum value method in the
pro-forma disclosures required by SFAS 123. The minimum
value method excludes volatility in the calculation of fair
value of stock based compensation. In accordance with SFAS
No. 123R, options that were valued using the minimum value
method, for purposes of pro forma disclosure under
SFAS 123, must be
F-35
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
transitioned to SFAS 123R using the prospective method.
This means that these options will continue to be accounted for
under the same accounting principles (recognition and
measurement) originally applied to those awards in the income
statement, which for our Company was APB 25. Accordingly,
the adoption of SFAS 123R did not result in any
compensation cost being recognized for these options.
Additionally, pro forma information previously required under
SFAS 123 and SFAS 148 will no longer be presented for
these options.
Due to the fact that all previously issued options will continue
to be accounted for under APB 25, and no stock based
compensation was awarded during the three months ended
April 1, 2006, the adoption of SFAS 123R had no impact
on income before income taxes, net income, cash flow from
operations, cash flow from financing activities, and basic and
diluted earnings per share. Options issued subsequent to
December 31, 2005, will be valued using the Black-Scholes
option pricing model, which considers such things as risk free
interest rate, expected life, expected dividends, and expected
volatility of the underlying stock.
|
|
|
Net income per common share |
Net income (loss) per common share (EPS) is
calculated in accordance with SFAS No. 128, Earnings
per Share, which requires the presentation of basic and
dilutive earnings per share. Basic earnings per share is
computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares
outstanding during the period, plus the dilutive effect of
common stock equivalents. Our Companys weighted average
shares outstanding excludes underlying options of
4.9 million and 1.5 million for the quarters ended
April 1, 2006 and April 2, 2005, respectively, because
their effects were anti-dilutive.
The table below presents a reconciliation of weighted average
common shares, in thousands used in the calculation of basic and
diluted EPS for our Company:
|
|
|
|
|
|
|
|
|
|
|
For the Three | |
|
|
Months Ended | |
|
|
| |
|
|
April 1, | |
|
April 2, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Weighted average common shares for basic EPS
|
|
|
15,749 |
|
|
|
15,720 |
|
Effect of dilutive stock options
|
|
|
|
|
|
|
1,501 |
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares for diluted
EPS
|
|
|
15,749 |
|
|
|
17,221 |
|
|
|
|
|
|
|
|
F-36
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
3. |
Goodwill and Other Intangible Assets |
Goodwill and other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, | |
|
December 31, | |
|
Useful Life | |
|
|
2006 | |
|
2005 | |
|
in Years | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
169,648 |
|
|
$ |
169,648 |
|
|
|
indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$ |
62,500 |
|
|
$ |
62,600 |
|
|
|
indefinite |
|
Amortized intangible assets, gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
55,700 |
|
|
|
55,700 |
|
|
|
10 |
|
|
Supplier agreements
|
|
|
2,300 |
|
|
|
2,300 |
|
|
|
|
|
|
Noncompete agreements
|
|
|
4,469 |
|
|
|
4,469 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets, gross
|
|
|
62,469 |
|
|
|
62,469 |
|
|
|
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
(12,104 |
) |
|
|
(10,712 |
) |
|
|
|
|
|
Supplier agreements
|
|
|
(2,300 |
) |
|
|
(2,300 |
) |
|
|
|
|
|
Noncompete agreements
|
|
|
(4,469 |
) |
|
|
(4,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accumulated Amortization
|
|
|
(18,873 |
) |
|
|
(17,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net
|
|
$ |
106,096 |
|
|
$ |
107,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 14, 2006, our company 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 a $205 million first lien
term loan due in quarterly installments of $0.5 million
beginning May 14, 2006 and ending November 14, 2011
and a final payment of $193.2 million on February 14, 2012.
The term loans under the first lien term loan facility bear
interest, at our option, at a rate equal to an adjusted LIBOR
rate plus 3.0% per annum or a base rate plus 2.0% per annum. The
loans under the revolving credit facility bear interest
initially, at our option (provided, that all swingline loans
shall be base rate loans), at a rate equal to an adjusted LIBOR
rate plus 2.75% per annum or a base rate plus 1.75% per annum,
and the margins above LIBOR and base rate may decline to 2.00%
for LIBOR loans and 1.00% for base rate loans if certain
leverage ratios are met. A commitment fee equal to 0.50% per
annum accrues on the average daily unused amount of the
commitment of each lender under the revolving credit facility
and such fee is payable quarterly in arrears. We are also
required to pay certain other fees with respect to the senior
secured credit facility including (i) letter of credit fees
on the aggregate undrawn amount of outstanding letters of credit
plus the aggregate principal amount of all letter of credit
reimbursement obligations, (ii) a fronting fee to the
letter of credit issuing bank and (iii) administrative
fees. The second lien secured credit facility bears interest, at
our option, at a rate equal to an adjusted LIBOR rate plus 7.0%
per annum or a base rate plus 6.0% per annum. We are required to
pay certain administrative fees under the second lien secured
credit facility.
The first lien secured credit facility is secured by a perfected
first priority pledge of all of the equity interests of our
subsidiary and perfected first priority security interests in
and mortgages on substantially all of our tangible and
intangible assets and those of the guarantors, except, in the
case of the stock of a foreign subsidiary, to the extent such
pledge would be prohibited by applicable law or would result in
materially adverse tax
F-37
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
consequences, and subject to such other exceptions as are
agreed. The senior secured credit facility contains a number of
covenants that, among other things, restrict our ability and the
ability of our subsidiaries to (i) dispose of assets;
(ii) change our business; (iii) engage in mergers or
consolidations; (iv) make certain acquisitions;
(v) pay dividends or repurchase or redeem stock;
(vi) incur indebtedness or guarantee obligations and issue
preferred and other disqualified stock; (vii) make
investments and loans; (viii) incur liens; (ix) engage
in certain transactions with affiliates; (x) enter into
sale and leaseback transactions; (xi) issue stock or stock
options; (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.
The second lien secured credit facility is secured by a
perfected second priority pledge of all of the equity interests
of our subsidiary and perfected second priority security
interests in and mortgages on substantially all of our tangible
and intangible assets and those of the guarantors, except, in
the case of the stock of a foreign subsidiary, to the extent
such pledge would be prohibited by applicable law or would
result in materially adverse tax consequences, and subject to
such other exceptions as are agreed. The second lien secured
credit facility contains a number of covenants that, among other
things, restrict our ability and the ability of our subsidiaries
to (i) dispose of assets; (ii) change our business;
(iii) engage in mergers or consolidations; (iv) make
certain acquisitions; (v) pay dividends or repurchase or
redeem stock; (vi) incur indebtedness or guarantee
obligations and issue preferred and other disqualified stock;
(vii) make investments and loans; (viii) incur liens;
(ix) engage in certain transactions with affiliates;
(x) enter into sale and leaseback transactions;
(xi) issue stock or stock options; (xii) amend or
prepay subordinated indebtedness; (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.
Borrowings under the new senior secured credit facility and
second lien secured credit facility were used to refinance our
companys existing debt facility, pay a cash dividend to
stockholders of $83.5 million, and make a cash payment of
approximately $26.9 million (including applicable payroll
taxes of $0.5 million) to stock option holders in
connection with such dividend. Approximately $5.1 million
of the cash payment to stock option holders was paid to
employees whose other compensation is a component of cost of
sales. In connection with the refinancing, our company incurred
estimated fees and expenses aggregating $4.5 million that
are included as a component of other assets, net and amortized
over the terms of the new senior secured credit facility. In the
first quarter of 2006, the total cash payment to option holders
and the termination penalty related to the prepayment of the
existing debt were expensed and recorded as stock compensation
expense and a component of interest expense, respectively. Our
company expensed approximately $4.6 million of the
unamortized deferred financing costs related to the prior credit
facility recorded as interest expense.
Future maturities of long-term debt outstanding as of
April 1, 2006 are as follows:
|
|
|
|
|
2006
|
|
$ |
1,538 |
|
2007
|
|
|
2,050 |
|
2008
|
|
|
2,050 |
|
2009
|
|
|
2,050 |
|
2010
|
|
|
2,050 |
|
Thereafter
|
|
|
310,262 |
|
|
|
|
|
|
|
$ |
320,000 |
|
|
|
|
|
On September 19, 2005, our Company amended and restated our
prior credit agreement with a bank. In connection with the
amendment, our Company created a new tranche of term loans with
an aggregate principal amount of $190.0 million. The
proceeds were used to refinance the existing Tranche A and B
debt, fund a
F-38
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
$20 million dividend to our stockholders, and pay certain
financing costs related to the amendment. These term loans were
paid off with the proceeds from the debt entered into on
February 14, 2006.
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 payments were required for the year
ended December 31, 2005. The term note and line of credit
require that our Company also maintain compliance with certain
restrictive financial covenants, the most restrictive of which
requires our Company to maintain a total leverage ratio, as
defined in the debt agreement, of not greater than certain
predetermined amounts. Our Company believes that we are in
compliance with all restrictive financial covenants.
5. Shareholders Equity
On January 29, 2004, our Company adopted the JLL Window
Holdings, Inc. Key Employees Stock Option Plan (the Plan)
whereby stock options may be granted by the Board of Directors
(the Board) to eligible employees of our Company.
In conjunction with the acquisition of PGT Holding Company, our
Company rolled over 2.9 million option shares belonging to
option holders of the acquired entity into our Companys
plan. These options have an indefinite term and are fully
vested. Of these options, 1.1 million have an exercise
price of $0.38 per share and 1.8 million have an exercise
price of $1.51 per share.
Also in conjunction with the acquisition, our Company granted
1.6 million option shares to key employees. These options
have a ten-year life, fully vest after five years and an
accelerated vesting based on achievement of certain financial
targets over three years, with an exercise price of $8.64 per
share. On July 5, 2005, and November 30, 2005, our
Company granted to key employees 0.5 million and
0.2 million option shares, respectively. These options have
a ten-year life, fully vest after five years, and have
accelerated vesting based on certain financial targets over
three years, with an exercise price of $8.64 and $12.84 per
share, respectively. There are 43,697 shares available for grant
under the plan at April 1, 2006.
A summary of the status of our Companys stock options as
of April 1, 2006, and the changes during the three months
ended April 1, 2006, is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Weighted | |
|
|
Underlying | |
|
Average | |
|
|
Options | |
|
Exercise Price | |
|
|
| |
|
| |
|
|
(in thousands) | |
|
|
Outstanding at December 31, 2005
|
|
|
4,982 |
|
|
$ |
4.43 |
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(44 |
) |
|
$ |
8.64 |
|
|
|
|
|
|
|
|
Outstanding at April 1, 2006
|
|
|
4,938 |
|
|
$ |
4.39 |
|
|
|
|
|
|
|
|
F-39
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table summarizes information about employee stock
options outstanding at April 1, 2006 (options are in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
|
|
Options Exercisable | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
Weighted Average | |
|
|
|
Weighted Average | |
|
|
|
|
| |
|
|
|
| |
|
|
Outstanding at | |
|
|
|
Remaining | |
|
Exercisable at | |
|
|
|
Remaining | |
|
|
April 1, | |
|
Exercise | |
|
Contractual | |
|
April 1, | |
|
Exercise | |
|
Contractual | |
Range of Exercise Prices |
|
2006 | |
|
Price | |
|
Life | |
|
2006 | |
|
Price | |
|
Life | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
$0.38
|
|
|
1,122 |
|
|
$ |
0.38 |
|
|
|
7.8 yrs. |
|
|
|
1,122 |
|
|
$ |
0.38 |
|
|
|
7.8 yrs. |
|
$1.51
|
|
|
1,750 |
|
|
$ |
1.51 |
|
|
|
7.8 yrs. |
|
|
|
1,750 |
|
|
$ |
1.51 |
|
|
|
7.8 yrs. |
|
$8.64
|
|
|
1,882 |
|
|
$ |
8.64 |
|
|
|
8.2 yrs. |
|
|
|
581 |
|
|
$ |
8.64 |
|
|
|
7.8 yrs. |
|
$12.84
|
|
|
184 |
|
|
$ |
12.84 |
|
|
|
9.7 yrs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Comprehensive Income
A summary of the components of comprehensive income is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
April 1, 2006 | |
|
|
| |
|
|
Pre-Tax | |
|
Tax (Expense) | |
|
After-Tax | |
|
|
Amount | |
|
Benefit | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net loss
|
|
|
|
|
|
|
|
|
|
$ |
(14,076 |
) |
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of ineffective interest rate swap
|
|
|
(78 |
) |
|
|
|
|
|
|
(78 |
) |
|
Change in fair value of aluminum forward contracts
|
|
|
16 |
|
|
|
(6 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
(62 |
) |
|
|
(6 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
$ |
(14,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
April 1, 2005 | |
|
|
| |
|
|
Pre-Tax | |
|
Tax (Expense) | |
|
After-Tax | |
|
|
Amount | |
|
Benefit | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net income
|
|
|
|
|
|
|
|
|
|
$ |
4,792 |
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap
|
|
|
604 |
|
|
|
(236 |
) |
|
|
368 |
|
|
Change in fair value of aluminum forward contracts
|
|
|
(303 |
) |
|
|
101 |
|
|
|
(202 |
) |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
301 |
|
|
|
(135 |
) |
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
$ |
4,958 |
|
|
|
|
|
|
|
|
|
|
|
7. Commitments and
Contingencies
Our Company is a party to various legal proceedings in the
ordinary course of business. Although the ultimate disposition
of those proceedings cannot be predicted with certainty,
management believes the outcome of any claim that is pending or
threatened, either individually or on a combined basis, will not
have a materially adverse effect on the operations, financial
position or cash flows of PGTI.
F-40
PGT, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
8. Pro Forma Disclosure
Pro forma net income per common share outstanding: Shares
used to calculate unaudited pro forma basic and diluted net
income per common share outstanding were adjusted to add
6.1 million shares of common stock as required under Staff
Accounting Bulletin (SAB) Topic 1.B.3 to reflect the number
of shares which would have to be issued to replace the
$83.5 million distribution paid to our shareholders on
February 17, 2006 and the $20.0 million distribution
paid to our Shareholders in September 2005. The number of
shares included under SAB Topic 1.B.3 is equal to the
$103.5 million in distributions paid, divided by an assumed
offering price of $17.00 per share of our common stock, the
mid-point of the range on the cover of the prospectus.
On June 5, 2006, our board of directors and our
stockholders approved a 662.07889-for-1 stock split of our
common stock and approved increasing to 200.0 million the
number of shares of common stock that the Company is authorized
to issue.
After the stock split, effective June 6, 2006, each holder
of record held 662.07889 shares of common stock for every 1
share held immediately prior to the effective date. As a result
of the stock split, the board of directors also exercised its
discretion under the anti-dilution provisions of our 2004 Stock
Incentive Plan to adjust the number of shares underlying stock
options and the related exercise prices to reflect the change in
the per share value and outstanding shares on the date of the
stock split. The effect of fractional shares is not material.
Following the effective date of the stock split, the par value
of the common stock remained at $0.01 per share. As a result, we
have increased the common stock in our consolidated balance
sheets and statements of shareholders equity included
herein on a retroactive basis for all of our Companys
periods presented, with a corresponding decrease to additional
paid-in capital. All share and per share amounts and related
disclosures have also been retroactively adjusted for all of our
Companys periods presented to reflect the 662.07889-for-1
stock split.
F-41
8,823,529 Shares
PGT, Inc.
Common Stock
|
|
Deutsche Bank Securities |
JPMorgan |
|
|
SunTrust Robinson Humphrey |
|
Until ,
2006 (25 days after the date of this prospectus), federal
securities laws may require all dealers that effect transactions
in our common stock, whether or not participating in this
offering, to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
|
|
Item 13. |
Other Expenses of Issuance and Distribution |
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by the
Registrant in connection with the sale of common stock being
registered. All amounts are estimated, except the SEC
registration fee, the National Association of Securities
Dealers, Inc. (NASD) filing fee, and the Nasdaq National Market
listing fee.
|
|
|
|
|
|
SEC Registration Fee
|
|
$ |
19,550 |
|
NASD Fee
|
|
|
18,765 |
|
Nasdaq National Market Listing Fee
|
|
|
100,000 |
|
Printing and Engraving Expenses
|
|
|
296,800 |
|
Legal Fees and Expenses
|
|
|
551,700 |
|
Accounting Fees and Expenses
|
|
|
500,000 |
|
Blue Sky Fees and Expenses
|
|
|
2,685 |
|
Transfer Agent and Registrar Fees and Expenses
|
|
|
10,500 |
|
|
|
|
|
|
Total
|
|
$ |
1,500,000 |
|
|
|
|
|
The registrant will bear all of the expenses shown above.
|
|
Item 14. |
Indemnification of Officers and Directors |
Section 145 of the Delaware General Corporation Law (the
DGCL) provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and
liabilities (including attorneys fees) incurred by them as
a result of suits brought against them in their capacity as
directors or officers, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to our
best interests, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their
conduct was unlawful; provided that no indemnification may be
made against expenses in respect of any claim, issue, or matter
as to which they shall have been adjudged to be liable to us,
unless and only to the extent that the court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, they are fairly and reasonably
entitled to indemnity for such expenses as the court shall deem
proper. Any such indemnification may be made by us only as
authorized in each specific case upon a determination by the
stockholders, disinterested directors or independent legal
counsel that indemnification is proper because the indemnitee
has met the applicable standard of conduct.
Section 102(b)(7) of the DGCL permits a corporation to
provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability for any
breach of the directors duty of loyalty to the corporation
or its stockholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, for unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions, or for any
transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation and
amended and restated by-laws provide that we shall indemnify our
directors and officers to the fullest extent permitted by law
and that no director shall be liable for monetary damages to us
or our stockholders for any breach of fiduciary duty, except to
the extent provided by applicable law. Prior to the completion
of this offering, we intend to enter into indemnification
agreements with our directors. The indemnification agreements
provide indemnification to our directors under certain
circumstances for acts or omissions that may not be covered by
directors and officers liability insurance and may,
in
II-1
some cases, be broader than the specific indemnification
provisions contained under Delaware law. We currently maintain
liability insurance for our directors and officers.
|
|
Item 15. |
Recent Sales of Unregistered Securities |
In the three years preceding the filing of this Registration
Statement, the Registrant has issued the following securities
that were not registered under the Securities Act:
In the past three calendar years, the Company has sold
100,219 shares of common stock to employees under its 2004
Stock Incentive Plan. The Company received proceeds of
$0.9 million from such sales.
On November 1, 2005, the Company issued a total of 29,132
shares of common stock to Herman Moore and Jeffrey T. Jackson
pursuant to the Companys 2004 Stock Incentive Plan.
In the past three calendar years, the Company has granted stock
options to employees under its 2004 Stock Incentive Plan, as
amended, covering an aggregate of 2,211,961 shares. Of
these options, 2,027,904 were issued at an exercise price of
$8.64 per share, and 184,057 options were issued at an
exercise price of $12.84 per share.
On January 29, 2004, in conjunction with the acquisition of
PGT Holding Company, the Company issued 2,872,231 options to
purchase common stock to option holders of the acquired entity.
Of these options, 1,122,348 have an exercise price of $0.38 per
share and 1,749,883 have an exercise price of $1.51 per share.
Also in connection with the acquisition of PGT Holding Company,
the Company issued 1,156,356 shares of common stock to holders
of shares of PGT Holding Company. The fair value of the stock
and rollover options was determined based on the cash price paid
by the Company in the acquisition.
The issuances described in the second through fourth paragraphs
above in this Item 15 were made in reliance on the
exemption from registration provided by Rule 701 under the
Securities Act. The transactions were pursuant to a written
compensatory benefit plan relating to compensation as provided
under such rule.
The issuances described in the fifth paragraph above in this
Item 15 were made in reliance on the exemption from
registration under the Securities Act provided by Section 4(2)
of the Securities Act and rules promulgated thereunder as
transactions by an issuer not involving a public offering. The
recipients of securities in each such transaction represented
their intention to acquire the securities for investment only
and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the
share certificates issued in such transactions. Each recipient
of securities represented that either (i) it had such
knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of its investment
and had the ability to suffer the total loss of its investment
or (ii) it was an Accredited Investor within
the meaning of Rule 501 under the Securities Act.
In the third quarter of 2005, we paid a dividend to our
stockholders and accrued a compensation-based payment to all
holders of our outstanding stock options (including vested and
unvested options) in lieu of adjusting exercise prices in
connection with the payment of such dividend. The aggregate
dividend to stockholders was approximately $20.0 million,
and the aggregate amount payable to option holders was
approximately $6.6 million (including applicable payroll
taxes of $0.5 million), which was recognized as stock
compensation expense.
On February 17, 2006, with a portion of the net proceeds of
our second amended and restated senior secured credit facility
and our new second lien credit facility, we paid a dividend to
our stockholders and a compensation-based payment to all holders
of our outstanding stock options (including vested and unvested
options) in lieu of adjusting exercise prices in connection with
the payment of such dividend. The aggregate dividend to
stockholders was approximately $83.5 million, and the
aggregate payment to option holders was approximately
$26.9 million (including applicable payroll taxes of
$0.5 million), which will be recognized as stock
compensation expense.
|
|
|
|
|
|
1.1 |
|
|
Form of Underwriting Agreement |
|
3.1 |
|
|
Form of Amended and Restated Certificate of Incorporation of
PGT, Inc. |
|
3.2 |
|
|
Form of Amended and Restated By-Laws of PGT, Inc. |
|
4.1 |
|
|
Form of Specimen Certificate |
II-2
|
|
|
|
|
|
4.2 |
|
|
Form of Amended and Restated Security Holders Agreement,
by and among PGT, Inc., JLL Partners Fund IV, L.P., and the
stockholders named therein, dated as of June ,
2006 |
|
5.1* |
|
|
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
regarding the legality of the common stock being issued |
|
10.1 |
|
|
Second Amended and Restated Credit Agreement dated as of
February 14, 2006 among PGT Industries, Inc., as Borrower,
JLL Window Holdings, Inc. and the other Guarantors party
thereto, as Guarantors, the lenders party thereto, UBS
Securities LLC, as Arranger, Bookmanager, Co-Documentation Agent
and Syndication Agent, UBS AG, Stamford Branch, as Issuing
Bank, Administrative Agent and Collateral Agent, UBS
Loan Finance LLC, as Swingline Lender and General Electric
Capital Corporation, as Co-Documentation Agent |
|
10.2 |
|
|
Second Lien Credit Agreement dated as of February 14, 2006
among PGT Industries, Inc., as Borrower, JLL Window Holdings,
Inc. and the other Guarantors party thereto, as Guarantors, the
lenders party thereto, UBS Securities LLC, as Arranger,
Bookmanager, Co-Documentation Agent and Syndication Agent,
UBS AG, Stamford Branch, as Administrative Agent and
Collateral Agent and General Electric Capital Corporation, as
Co-Documentation Agent |
|
10.3 |
|
|
Amended and Restated Pledge and Security Agreement dated as of
February 14, 2006, by PGT Industries, Inc., JLL Window
Holdings, Inc. and the other Guarantors party thereto in favor
of UBS AG, Stamford Branch, as First Lien Collateral Agent |
|
10.4 |
|
|
Second Lien Pledge and Security Agreement dated as of
February 14, 2006, by PGT Industries, Inc., JLL Window
Holdings, Inc. and the other Guarantors party thereto in favor
of UBS AG, Stamford Branch, as Second Lien Collateral Agent |
|
10.5 |
|
|
PGT, Inc. 2004 Stock Incentive Plan, as amended |
|
10.6 |
|
|
Form of PGT, Inc. 2004 Stock Incentive Plan Stock Option
Agreement |
|
10.7 |
|
|
Form of PGT, Inc. 2006 Equity Incentive Plan |
|
10.8 |
|
|
Form of PGT, Inc. 2006 Equity Incentive Plan Non-qualified Stock
Option Agreement |
|
10.9 |
|
|
Employment Agreement, dated January 29, 2001, between PGT
Industries, Inc. and Rodney Hershberger |
|
10.10 |
|
|
Employment Agreement, dated November 1, 2005, between PGT
Industries, Inc. and Herman Moore |
|
10.11 |
|
|
Employment Agreement, dated November 28, 2005, between PGT
Industries, Inc. and Jeffrey T. Jackson |
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10.12 |
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Employment Agreement, dated January 29, 2001, between PGT
Industries, Inc. and Deborah L. LaPinska |
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10.13 |
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Employment Agreement, dated January 29, 2001, between PGT
Industries, Inc. and B. Wayne Varnadore |
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10.14 |
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Employment Agreement, dated January 29, 2001, between PGT
Industries, Inc. and David McCutcheon |
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10.15 |
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Employment Agreement, dated July 8, 2004, between PGT
Industries, Inc. and Ken Hilliard |
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10.16 |
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Employment Agreement, dated January 29, 2001, between PGT
Industries, Inc. and Linda Gavit |
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10.17 |
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Form of Director Indemnification Agreement |
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10.18 |
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Form of PGT, Inc. Rollover Stock Option Agreement |
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10.19 |
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Employment Agreement, dated April 10, 2006, between PGT
Industries, Inc. and Mario Ferrucci III |
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10.20* |
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Supply Agreement between PGT Industries, Inc. and E.I. du Pont
de Nemours and Company, dated January 1, 2006, with
portions omitted pursuant to a request for confidential treatment |
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10.21* |
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Supplier Agreement between Indalex Aluminum Solutions and PGT
Industries, Inc., dated January 1, 2005, with portions
omitted pursuant to a request for confidential treatment |
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10.22* |
|
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Supplier Agreement between Keymark Corporation and PGT
Industries, Inc., dated January 1, 2005, with portions
omitted pursuant to a request for confidential treatment |
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10.23 |
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Form of PGT, Inc. 2006 Management Incentive Plan |
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10.24 |
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Form of PGT, Inc. 2006 Equity Incentive Plan Restricted Stock
Award Agreement |
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10.25 |
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Form of PGT, Inc. 2006 Equity Incentive Plan Restricted Stock
Unit Award Agreement |
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10.26 |
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Form of PGT, Inc. 2006 Equity Incentive Plan Incentive Stock
Option Agreement |
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21.1 |
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Subsidiary of PGT, Inc. |
II-3
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23.1* |
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Consent of Ernst & Young LLP |
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23.2* |
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Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included as part of Exhibit 5.1) |
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24.1 |
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Powers of Attorney (included with the signature page of this
Registration Statement) |
|
99.1 |
|
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Consent of Director Nominee (Richard D. Feintuch) |
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|
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Previously filed. |
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* |
Filed herewith. |
|
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
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|
|
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of
the time it was declared effective. |
|
|
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 5 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of North
Venice, State of Florida, on June 27, 2006.
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By: |
/s/ Rodney Hershberger
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Rodney Hershberger, |
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President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature |
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Title |
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Date |
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/s/ Rodney Hershberger
Rodney Hershberger |
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President and Chief Executive Officer (Principal Executive
Officer and Director) |
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June 27, 2006 |
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/s/ Jeffrey T. Jackson
Jeffrey T. Jackson |
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Chief Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer) |
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June 27, 2006 |
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*
Alexander R. Castaldi |
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Director |
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June 27, 2006 |
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*
Ramsey A. Frank |
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Director |
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June 27, 2006 |
|
*
Paul S. Levy |
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Director |
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June 27, 2006 |
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*
Brett N. Milgrim |
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Director |
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June 27, 2006 |
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*
Floyd F. Sherman |
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Director |
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June 27, 2006 |
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*
Randy L. White |
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Director |
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June 27, 2006 |
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*By: |
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/s/ Jeffrey T. Jackson
Jeffrey
T. Jackson
Attorney-in-Fact |
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II-5