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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/13/20 PGT Innovations, Inc. 10-Q 4/04/20 87:11M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.00M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 31K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 31K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 27K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 27K
49: R1 Document and Entity Information HTML 79K
76: R2 Condensed Consolidated Statements of Operations HTML 71K
67: R3 Condensed Consolidated Statements of Comprehensive HTML 53K
Income
19: R4 Condensed Consolidated Balance Sheets HTML 114K
51: R5 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
77: R6 Condensed Consolidated Statements of Cash Flows HTML 108K
68: R7 Condensed Consolidated Statements of Shareholders' HTML 89K
Equity
20: R8 Condensed Consolidated Statements of Shareholders' HTML 28K
Equity (Parenthetical)
48: R9 Description of Business and Basis of Presentation HTML 49K
53: R10 Revenue Recognition and Contracts with Customers HTML 109K
80: R11 Warranty HTML 84K
35: R12 Inventories HTML 52K
25: R13 Stock Based Compensation HTML 34K
54: R14 Acquisition HTML 94K
81: R15 Net Income Per Common Share HTML 71K
36: R16 Goodwill and Other Intangible Assets HTML 148K
26: R17 Long-Term Debt HTML 139K
52: R18 Leases HTML 174K
82: R19 Commitments and Contingencies HTML 28K
45: R20 Income Taxes HTML 30K
17: R21 Fair Value HTML 148K
69: R22 Derivatives HTML 185K
78: R23 Accumulated Other Comprehensive Loss HTML 64K
46: R24 Segments HTML 91K
18: R25 Subsequent Event HTML 29K
70: R26 Description of Business and Basis of Presentation HTML 50K
(Policies)
79: R27 Revenue Recognition and Contracts with Customers HTML 92K
(Tables)
47: R28 Warranty (Tables) HTML 83K
16: R29 Inventories (Tables) HTML 53K
22: R30 Acquisition (Tables) HTML 89K
34: R31 Net Income Per Common Share (Tables) HTML 70K
84: R32 Goodwill and Other Intangible Assets (Tables) HTML 146K
56: R33 Long-Term Debt (Tables) HTML 130K
21: R34 Leases (Tables) HTML 175K
33: R35 Fair Value (Tables) HTML 140K
83: R36 Derivatives (Tables) HTML 177K
55: R37 Accumulated Other Comprehensive Loss (Tables) HTML 64K
24: R38 Segments (Tables) HTML 90K
32: R39 Description of Business and Basis of Presentation HTML 55K
- Additional Information (Detail)
14: R40 Revenue Recognition and Contracts with Customers - HTML 52K
Additional Information (Detail)
44: R41 Revenue Recognition and Contracts with Customers - HTML 41K
Net Sales by Reporting Segment, Product Category
and Market (Detail)
72: R42 Warranty - Additional Information (Detail) HTML 34K
62: R43 Warranty - Summary of Current Period Charges, HTML 38K
Adjustments to Previous Estimates, Settlements
representing Actual Costs Incurred with regard to
Accrued Warranty (Detail)
13: R44 Inventories - Summary of Inventories (Detail) HTML 35K
43: R45 Stock Based-Compensation - Additional Information HTML 84K
(Detail)
71: R46 Acquisition - Additional Information (Detail) HTML 66K
60: R47 Acquisition - Schedule of Fair Value of Assets and HTML 68K
Liabilities Assumed (Detail)
15: R48 Acquisition - Schedule for Valuation of HTML 42K
Identifiable Intangible Assets Acquired and
Estimate of Useful Lives (Detail)
42: R49 Net Income Per Common Share - Additional HTML 27K
Information (Detail)
37: R50 Net Income Per Common Share - Calculation of EPS HTML 51K
and Reconciliation of Weighted Average Common
Shares Used in Calculation of Basic and Diluted
EPS (Detail)
30: R51 Goodwill and Other Intangible Assets - Schedule of HTML 68K
Goodwill and Intangible Assets Net (Detail)
57: R52 Goodwill and Other Intangible Assets - Estimated HTML 42K
Amortization for Future Fiscal Year (Detail)
85: R53 Goodwill and Other Intangible Assets - Additional HTML 45K
Information (Detail)
38: R54 Long Term Debt - Schedule of Long-term Debt HTML 42K
(Detail)
31: R55 Long-Term Debt - Additional Information (Detail) HTML 181K
58: R56 Long-Term Debt - Activity Relating to Third-Party HTML 41K
Fees and Costs, Lender Fees and Discount (Detail)
86: R57 Long-Term Debt - Estimated Amortization Expense HTML 37K
Relating to Third-Party Fees and Costs, Lender
Fees and Discount (Detail)
39: R58 Long-Term Debt - Contractual Future Maturities of HTML 45K
Long-Term Debt Outstanding, Including Remaining
Balance of Financing Arrangement Described as
Other Debt (Detail)
29: R59 Leases - Additional Information (Detail) HTML 58K
64: R60 Leases - Components of Lease Expense (Detail) HTML 32K
73: R61 Leases - Other Information Relating to Leases HTML 41K
(Detail)
40: R62 Leases - Future Maturities under Operating Leases HTML 70K
(Detail)
11: R63 Income Taxes - Additional Information (Detail) HTML 38K
65: R64 Fair Value - Additional Information (Detail) HTML 39K
74: R65 Fair Value - Schedule of Fair Value on Recurring HTML 37K
Basis (Detail)
41: R66 Derivatives - Additional Information (Detail) HTML 55K
12: R67 Derivatives - Summary of Fair Values of Hedges and HTML 43K
MTP Contracts (Detail)
63: R68 Derivatives - Gains (Losses) on Derivative HTML 38K
Financial Instruments (Detail)
75: R69 Accumulated Other Comprehensive Loss - Components HTML 56K
of Accumulated Other Comprehensive Loss (Detail)
87: R70 Segments - Additional Information (Detail) HTML 26K
59: R71 Segments - Summary of Financial Data Attributable HTML 43K
to Operating Segments (Detail)
28: R72 Subsequent Event - Additional Information (Detail) HTML 50K
27: XML IDEA XML File -- Filing Summary XML 160K
66: XML XBRL Instance -- pgti-10q_20200404_htm XML 2.93M
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
|
i ☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i April 4, i 2020 /
OR
|
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number i 001-37971
i PGT Innovations, Inc.
i 1070 Technology Drive
i North Venice, i FL i 34275
Registrant’s telephone number: i 941- i 480-1600
|
State of Incorporation |
|
IRS Employer Identification No. |
|
i Delaware |
|
i 20-0634715 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
i Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
i Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☑ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company i ☐ |
Emerging growth company i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act.
Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i ☐ No ☑
Common Stock, $0.01 par value, outstanding was i 58,925,776 shares, as of April 30, 2020.
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
i Common stock, par value $0.01 per share |
|
i PGTI |
|
i New York Stock Exchange, Inc. |
PGT INNOVATIONS, INC.
Form 10-Q for the Three Months Ended April 4, 2020
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Page |
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Number |
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Part I. |
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3 |
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Item 1. |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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27 |
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Item 3. |
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37 |
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Item 4. |
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38 |
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Part II. |
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39 |
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Item 1. |
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39 |
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Item 1A. |
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39 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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- 2 -
PART I — FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PGT INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
(unaudited) |
|
|||||
|
Net sales |
|
$ |
i 220,204 |
|
|
$ |
i 173,737 |
|
|
Cost of sales |
|
|
i 139,077 |
|
|
|
i 112,467 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
i 81,127 |
|
|
|
i 61,270 |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
i 54,220 |
|
|
|
i 44,014 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
i 26,907 |
|
|
|
i 17,256 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
i 7,169 |
|
|
|
i 6,714 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
i 19,738 |
|
|
|
i 10,542 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
i 4,138 |
|
|
|
i 2,285 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 15,600 |
|
|
$ |
i 8,257 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
i 0.27 |
|
|
$ |
i 0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
i 0.26 |
|
|
$ |
i 0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
i 58,668 |
|
|
|
i 58,134 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
i 59,121 |
|
|
|
i 59,220 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
PGT INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
(unaudited) |
|
|||||
|
Net income |
|
$ |
i 15,600 |
|
|
$ |
i 8,257 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before tax: |
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives |
|
|
( i 5,213 |
) |
|
|
i 595 |
|
|
Reclassification to earnings |
|
|
i 612 |
|
|
|
i 915 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before tax |
|
|
( i 4,601 |
) |
|
|
i 1,510 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) related to other comprehensive income (loss) |
|
|
( i 1,151 |
) |
|
|
i 386 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax |
|
|
( i 3,450 |
) |
|
|
i 1,124 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
i 12,150 |
|
|
$ |
i 9,381 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
PGT INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 67,552 |
|
|
$ |
i 97,243 |
|
|
Accounts receivable, net |
|
|
i 96,234 |
|
|
|
i 68,091 |
|
|
Inventories |
|
|
i 51,647 |
|
|
|
i 43,851 |
|
|
Contract assets, net |
|
|
i 16,491 |
|
|
|
i 10,547 |
|
|
Prepaid expenses |
|
|
i 6,588 |
|
|
|
i 3,362 |
|
|
Other current assets |
|
|
i 10,687 |
|
|
|
i 10,516 |
|
|
Total current assets |
|
|
i 249,199 |
|
|
|
i 233,610 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
i 132,401 |
|
|
|
i 128,199 |
|
|
Operating lease right-of-use asset, net |
|
|
i 39,448 |
|
|
|
i 26,390 |
|
|
Intangible assets, net |
|
|
i 279,890 |
|
|
|
i 255,962 |
|
|
Goodwill |
|
|
i 323,800 |
|
|
|
i 277,600 |
|
|
Other assets, net |
|
|
i 893 |
|
|
|
i 972 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
i 1,025,631 |
|
|
$ |
i 922,733 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
i 76,108 |
|
|
$ |
i 51,394 |
|
|
Current portion of operating lease liability |
|
|
i 6,325 |
|
|
|
i 4,703 |
|
|
Total current liabilities |
|
|
i 82,433 |
|
|
|
i 56,097 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
i 421,203 |
|
|
|
i 368,971 |
|
|
Operating lease liability, less current portion |
|
|
i 35,571 |
|
|
|
i 24,040 |
|
|
Deferred income taxes |
|
|
i 26,794 |
|
|
|
i 27,945 |
|
|
Other liabilities |
|
|
i 14,549 |
|
|
|
i 14,132 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
i 580,550 |
|
|
|
i 491,185 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
Preferred stock; par value $ i i .01 / per share; i i 10,000 / shares authorized; i i none / outstanding |
|
|
— |
|
|
|
— |
|
|
Common stock; par value $ i i .01 / per share; i i 200,000 / shares authorized; i 62,599 and i 61,921 shares issued and i 58,919 and i 58,505 shares outstanding at April 4, 2020 and December 28, 2019, respectively |
|
|
i 626 |
|
|
|
i 619 |
|
|
Additional paid-in-capital |
|
|
i 416,064 |
|
|
|
i 414,688 |
|
|
Accumulated other comprehensive loss |
|
|
( i 3,688 |
) |
|
|
( i 238 |
) |
|
Retained earnings |
|
|
i 50,388 |
|
|
|
i 34,788 |
|
|
Shareholders' equity |
|
|
i 463,390 |
|
|
|
i 449,857 |
|
|
Less: Treasury stock at cost |
|
|
( i 18,309 |
) |
|
|
( i 18,309 |
) |
|
Total shareholders' equity |
|
|
i 445,081 |
|
|
|
i 431,548 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
i 1,025,631 |
|
|
$ |
i 922,733 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
PGT INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
(unaudited) |
|
|||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 15,600 |
|
|
$ |
i 8,257 |
|
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
i 5,186 |
|
|
|
i 4,497 |
|
|
Amortization |
|
|
i 4,742 |
|
|
|
i 4,015 |
|
|
Provision for allowance for doubtful accounts |
|
|
i 646 |
|
|
|
i 68 |
|
|
Stock-based compensation |
|
|
i 1,530 |
|
|
|
i 1,198 |
|
|
Amortization and write-offs of deferred financing costs and debt discount |
|
|
i 311 |
|
|
|
i 427 |
|
|
Gains on sales of assets |
|
|
( i 82 |
) |
|
|
( i 28 |
) |
|
Change in operating assets and liabilities (net of effects of acquisition): |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( i 17,857 |
) |
|
|
( i 60 |
) |
|
Inventories |
|
|
( i 4,039 |
) |
|
|
( i 3,651 |
) |
|
Contract assets, net, prepaid expenses, other current and other assets |
|
|
( i 1,029 |
) |
|
|
( i 4,678 |
) |
|
Accounts payable, accrued and other liabilities |
|
|
i 5,916 |
|
|
|
( i 9,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
i 10,924 |
|
|
|
i 908 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
( i 2,327 |
) |
|
|
( i 8,299 |
) |
|
Business acquisition |
|
|
( i 90,145 |
) |
|
|
— |
|
|
Proceeds from sales of assets |
|
|
i 82 |
|
|
|
i 28 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( i 92,390 |
) |
|
|
( i 8,271 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes |
|
|
i 53,188 |
|
|
|
— |
|
|
Payments of long-term debt |
|
|
— |
|
|
|
( i 76 |
) |
|
Payments of financing costs |
|
|
( i 1,266 |
) |
|
|
— |
|
|
Purchases of treasury stock relating to tax withholdings on employee equity awards |
|
|
( i 815 |
) |
|
|
( i 505 |
) |
|
Proceeds from exercise of stock options |
|
|
i 549 |
|
|
|
i 213 |
|
|
Proceeds from issuance of common stock under employee stock purchase plan |
|
|
i 119 |
|
|
|
i 17 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
i 51,775 |
|
|
|
( i 351 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
( i 29,691 |
) |
|
|
( i 7,714 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
i 97,243 |
|
|
|
i 52,650 |
|
|
Cash and cash equivalents at end of period |
|
$ |
i 67,552 |
|
|
$ |
i 44,936 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activity: |
|
|
|
|
|
|
|
|
|
Establish right-of-use asset |
|
$ |
i 14,605 |
|
|
$ |
i 31,165 |
|
|
Establish operating lease liability |
|
$ |
( i 14,605 |
) |
|
$ |
( i 33,594 |
) |
|
Property, plant and equipment additions in accounts payable |
|
$ |
i 119 |
|
|
$ |
i 729 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
PGT INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except shares)(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Retained |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
Earnings/ |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Common stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
(Accumulated |
|
|
Treasury |
|
|
|
|
|
|||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit) |
|
|
Stock |
|
|
Total |
|
|||||||
|
THREE MONTHS ENDED MARCH 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018 |
|
|
i 58,081,540 |
|
|
$ |
i 607 |
|
|
$ |
i 409,661 |
|
|
$ |
( i 3,065 |
) |
|
$ |
( i 8,900 |
) |
|
$ |
( i 12,759 |
) |
|
$ |
i 385,544 |
|
|
Vesting of restricted stock |
|
|
i 133,770 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
i 5 |
|
|
|
( i 5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
( i 34,240 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 505 |
) |
|
|
( i 505 |
) |
|
Retirement of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
( i 505 |
) |
|
|
— |
|
|
|
— |
|
|
|
i 505 |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 1,198 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,198 |
|
|
Exercise of stock options |
|
|
i 106,740 |
|
|
|
i 1 |
|
|
|
i 212 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 213 |
|
|
Common stock issued under ESPP |
|
|
i 1,061 |
|
|
|
— |
|
|
|
i 17 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 17 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,257 |
|
|
|
— |
|
|
|
i 8,257 |
|
|
Other comprehensive income, net of tax expense of $ i 386 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,124 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,124 |
|
|
Balance at March 30, 2019 |
|
|
i 58,288,871 |
|
|
$ |
i 613 |
|
|
$ |
i 410,578 |
|
|
$ |
( i 1,941 |
) |
|
$ |
( i 643 |
) |
|
$ |
( i 12,759 |
) |
|
$ |
i 395,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED APRIL 4, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2019 |
|
|
i 58,504,734 |
|
|
$ |
i 619 |
|
|
$ |
i 414,688 |
|
|
$ |
( i 238 |
) |
|
$ |
i 34,788 |
|
|
$ |
( i 18,309 |
) |
|
$ |
i 431,548 |
|
|
Vesting of restricted stock |
|
|
i 175,824 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
i 6 |
|
|
|
( i 6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeitures of restricted stock |
|
|
— |
|
|
|
( i 1 |
) |
|
|
i 1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
( i 51,479 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 815 |
) |
|
|
( i 815 |
) |
|
Retirement of treasury stock |
|
|
— |
|
|
|
( i 1 |
) |
|
|
( i 814 |
) |
|
|
— |
|
|
|
— |
|
|
|
i 815 |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 1,530 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,530 |
|
|
Exercise of stock options |
|
|
i 274,353 |
|
|
|
i 3 |
|
|
|
i 546 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 549 |
|
|
Common stock issued under ESPP |
|
|
i 15,191 |
|
|
|
— |
|
|
|
i 119 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 119 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 15,600 |
|
|
|
— |
|
|
|
i 15,600 |
|
|
Other comprehensive income, net of tax benefit of $ i 1,151 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 3,450 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 3,450 |
) |
|
Balance at April 4, 2020 |
|
|
i 58,918,623 |
|
|
$ |
i 626 |
|
|
$ |
i 416,064 |
|
|
$ |
( i 3,688 |
) |
|
$ |
i 50,388 |
|
|
$ |
( i 18,309 |
) |
|
$ |
i 445,081 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
PGT INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
i
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
About PGT Innovations, Inc.
The accompanying unaudited condensed consolidated financial statements include the accounts of PGT Innovations, Inc. and its direct and indirect wholly-owned subsidiaries, including, PGT Industries, Inc., CGI Window and Door Holdings, Inc. (“CGI”), CGI Commercial, Inc. (“CGIC”), WinDoor, Incorporated, Coyote Acquisition Co., WWS Acquisition LLC (formerly known as GEF WW Parent LLC) (“WWS”), and with their acquisition by PGT Innovations, Inc. effective on February 1, 2020, NewSouth Window Solutions LLC, and NewSouth Window Solutions of Orlando LLC (“NewSouth”) (collectively, the “Company”), after elimination of intercompany accounts and transactions.
PGT Innovations, Inc. (“PGTI”, “we,” or the “Company”), formerly named PGT, Inc., manufactures and supplies premium windows and doors. Our highly engineered and technically advanced products can withstand some of the toughest weather conditions on earth and unify indoor/outdoor living spaces. We are also the nation’s largest manufacturer of impact-resistant windows and doors. Our family of brands include CGI®, PGT® Custom Windows & Doors, WinDoor®, Western Window Systems®, CGI Commercial®, Eze-Breeze® and NewSouth Window Solutions®. Products are sold through an authorized dealer and distributor network and, with the acquisition of NewSouth, directly to the end-user consumer through store-front locations throughout Florida, and through direct-to-homeowner door-to-door sales.
The majority of our sales are to customers in the state of Florida, which further increased with our acquisition of NewSouth, but we sell products to customers in many states, including the western United States through WWS. We also have sales in the Caribbean, Canada, and in South and Central America. See Note 6 for a discussion of the acquisition of NewSouth.
We were incorporated in the state of Delaware on December 16, 2003, as JLL Window Holdings, Inc., with primary operations in North Venice, Florida. On February 15, 2006, our Company was renamed PGT, Inc. On December 14, 2016, we announced that we changed our name to PGT Innovations, Inc. and, effective on December 28, 2016, the listing of our common stock was transferred to the New York Stock Exchange (NYSE) from the NASDAQ Global Market (NASDAQ), and began trading on the NYSE under its existing ticker symbol of “PGTI”. We have i five manufacturing operations in Florida, and i one in Arizona. Our manufacturing facilities in Florida include i one in North Venice, i two in the greater Miami area, i one in Orlando, and i one in Tampa with the acquisition of NewSouth. Pursuant to our recently announced Florida facilities consolidation, we expect to relocate the manufacturing operations currently in Orlando, to our N. Venice and Tampa facilities. Our Arizona operations are in Phoenix. Additionally, we have i i two / glass tempering and laminating plants and i i one / insulation glass plant, all located in North Venice.
All references to PGTI or our Company apply to the consolidated financial statements of PGT Innovations, Inc. unless otherwise noted.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world. The full impact from the rapidly changing U.S. and global market and economic conditions due to the COVID-19 outbreak is uncertain, but we have seen disruptions to the businesses of certain of our customers and suppliers due to the pandemic, which in turn have impacted, and are likely to continue to impact in the future, our business and consolidated results of operations and financial condition. While we have not incurred significant disruptions to our manufacturing or to our supply chain thus far from the COVID-19 outbreak, we are unable to accurately predict the impact COVID-19 and the challenges it has created for the U.S. and global economies, will have on our financial performance and operations going forward due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities to attempt to control the pandemic, the impact to our customers’ and suppliers’ businesses and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact of the pandemic to our business, consolidated results of operations, and financial condition.
i
- 8 -
Basis of Presentation
These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the remainder of the current year or for any future periods. The Company’s fiscal quarter ended April 4, 2020 consisted of 14 weeks, whereas our fiscal quarter ended March 30, 2019, consisted of 13 weeks.
The condensed consolidated balance sheet as of December 28, 2019, is derived from the audited consolidated financial statements, but does not include all disclosures required by GAAP. The condensed consolidated balance sheet as of December 28, 2019, and the unaudited condensed consolidated financial statements as of and for the periods ended April 4, 2020, and March 30, 2019, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 28, 2019, included in the Company’s most recent Annual Report on Form 10-K. The accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP 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. Actual results could materially differ from those estimates.
As described above, the extent to which the COVID-19 pandemic and resulting measures that may be taken by the Company and/or its customers or suppliers and/or by governmental entities will impact the Company's business will depend on future developments, which are highly uncertain and cannot be precisely predicted at this time. Management's estimates and assumptions are highly dependent on estimates of future developments and may change significantly in the future due to unforeseen direct and indirect impacts of the COVID-19 pandemic.
We have i two reportable segments: the Southeast segment, and the Western segment. The Southeast reporting segment, which is also an operating segment, is composed of sales from our facilities in Florida. The Western reporting segment, also an operating segment, is composed of sales from our facility in Arizona. Beginning in 2020, sales into certain states have been reclassified between segments. As such, segment sales amounts for the three months ended March 30, 2019, along with the related income from operations, have been revised to conform to the 2020 presentation. See Note 16 for segment disclosures.
iRecently Adopted Accounting Pronouncements
Fair Value Measurement Disclosures
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The new guidance modifies disclosure requirements related to fair value measurement. The amendments in this ASU were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption was permitted. The standard also allowed for early adoption of any removed or modified disclosures upon issuance of this ASU while it delayed adoption of the additional disclosures until their effective date. The adoption of this guidance by the Company did not have any impact on our fair value disclosures.
Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. Subsequently, in November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”. ASU 2018-19 clarifies the codification and corrects unintended application of the guidance. ASU’s 2016-13 and 2018-19 were effective for us for our 2020 fiscal year. The adoption of this guidance by the Company did not have any impact on our consolidated financial statements.
- 9 -
In the ordinary course of business, we extend credit to qualified dealers and distributors, generally on a non-collateralized basis. The Company maintains an allowance for doubtful accounts which is based on management’s assessments of the amount which may become uncollectible in the future and is determined through consideration of our write-off history, specific identification of uncollectible accounts based in part on the customer’s past due balance (based on contractual terms), and consideration of prevailing economic and industry conditions, and may include anticipated unfavorable impacts of the COVID-19 pandemic on the businesses of our customers, such as dealers and distributors. Uncollectible accounts are written off after repeated attempts to collect from the customer have been unsuccessful. As of April 4, 2020, and December 28, 2019, the allowance for doubtful accounts was $ i 3.0 million and $ i 3.3 million, respectively.
Recently Issued Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The transition to new reference interest rates will require certain contracts to be modified and ASU 2020-04 is intended to mitigate the effects of this transition. The accommodations provided by ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022 and may be applied at the beginning of any interim period within that time frame. We are currently assessing the impact this standard will have on our consolidated financial statements.
Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles and also clarifies and amends existing guidance. This standard is effective beginning January 1, 2021, with early adoption permitted. We do not expect this standard to have a material impact on our consolidated financial statements.
i
NOTE 2. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
iRevenue Recognition Accounting Policy
The Company primarily manufactures fully customized windows and doors based on design specifications, measurements, colors, finishes, framing materials, glass-types, and other options selected by the customer at the point in time an order is received. The Company has an enforceable right to payment at the time an order is received and accepted at the agreed-upon sales prices contained in our agreements with our customers for all manufacturing efforts expended on behalf of its customers. Due to the customized build-to-order nature of these products, the Company’s assessment is that the substantial portion of its finished goods and certain unused glass components have no alternative use, and that control of these products and components passes to the customer over time during the manufacturing of the products in an order, or upon our receipt of certain pre-cut glass components from our supplier attributed to specific customer orders.
Based on these factors, the Company recognizes a substantial portion of revenue over time during the manufacturing process once customization begins, and for certain unused glass components on hand, at the end of a reporting period. Revenue on work-in-process at the end of a reporting period is recognized in proportion to costs incurred to total estimated cost of the product being manufactured. Except for the Western segment’s volume products, discussed in the section titled Disaggregation of Revenue from Contracts with Customers below, revenue recognized at a point in time is immaterial.
- 10 -
Disaggregation of Revenue from Contracts with Customers
As discussed in Note 1, we have i two reportable segments: our Southeast segment and our Western segment. See Note 16 for more information. i The following tables provide information about our net sales by reporting segment, product category and market for the three months ended April 4, 2020, and March 30, 2019 (dollars in millions):
|
|
|
Three Months Ended |
|
|||||
|
Disaggregation of revenue: |
|
|
|
|
||||
|
Reporting segment: |
|
|
|
|
|
|
|
|
|
Southeast |
|
$ |
i 183.6 |
|
|
$ |
i 141.7 |
|
|
Western |
|
|
i 36.6 |
|
|
|
32.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 220.2 |
|
|
$ |
i 173.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Product category: |
|
|
|
|
|
|
|
|
|
Impact-resistant window and door products |
|
$ |
i 153.6 |
|
|
$ |
i 119.6 |
|
|
Non-impact window and door products |
|
|
i 66.6 |
|
|
|
i 54.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 220.2 |
|
|
$ |
i 173.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Market: |
|
|
|
|
|
|
|
|
|
New construction |
|
$ |
i 109.1 |
|
|
$ |
i 88.3 |
|
|
Repair and remodel |
|
|
i 111.1 |
|
|
|
i 85.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 220.2 |
|
|
$ |
i 173.7 |
|
The Company’s Western segment includes both custom and volume products. This segment’s volume products are not made-to-order and are of standardized sizes and design specifications. Therefore, the Company’s assessment is that the Western segment’s volume products have alternative uses, and that control of these products passes to the customer at a point in time, which is typically when the product has been delivered to the customer. For the three months ended April 4, 2020, and March 30, 2019, the Western segment’s net sales of its volume products were $ i 15.2 million and $ i 11.8 million, respectively.
Contract Balances
Contract assets represent sales recognized in excess of billings related to finished goods not yet shipped and certain unused glass components not yet placed into the production process for which revenue is recognized over time as noted above. Contract liabilities relate to customer deposits at the end of reporting periods. At April 4, 2020, and December 28, 2019, those contract liabilities totaled $ i 13.1 million and $ i 7.9 million, respectively, of which $ i 12.5 million and $ i 7.4 million, respectively, are classified within accrued liabilities, and $ i 0.6 million and $ i 0.5 million, respectively, are classified within contract assets, net, in the accompanying condensed consolidated balance sheets at April 4, 2020, and December 28, 2019.
Because of the short-term nature of our performance obligations, as discussed below, substantially all of our performance obligations are satisfied within the quarter following the end of a reporting period. As such, substantially all of the contract liabilities at December 28, 2019 were satisfied in the first quarter of 2020, and contract assets at December 28, 2019 were transferred to accounts receivable in the first quarter of 2020. Contract liabilities at April 4, 2020 represents cash received during the three-month period ended April 4, 2020, excluding amounts recognized as revenue during that period. Contract assets at April 4, 2020 represents revenue recognized during the three-month period ended April 4, 2020, excluding amounts transferred to accounts receivable during that period.
- 11 -
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligation is satisfied. Our contracts with our customers generally represent an approved purchase order together with our standard terms and conditions. Our custom product contracts include distinct goods that are substantially the same and have the same pattern of transfer to the customer over time, and therefore represent a series of distinct goods accounted for as a single performance obligation. For volume products, we allocate the contract’s transaction price to each distinct performance obligation based on the estimated relative standalone selling price of each distinct good. Observable standalone sales are used to determine the standalone selling price. Certain customers are eligible for rebates based on their volume or purchases during an annual period. Rebates are recorded as a reduction to sales and were immaterial in all periods presented.
Performance obligations are satisfied over time, generally for our custom products, and as of a point in time for our standard products. Performance obligations are supported by contracts with customers, and we have elected not to disclose our unsatisfied performance obligations as of April 4, 2020 under the short-term contract exemption as we expect such performance obligations will be satisfied within the quarter following the end of a reporting period.
On i February 1, 2020, we completed the acquisition of NewSouth. NewSouth’s contracts with customers include the manufacturing of goods and installation services related to those goods. Both the manufacturing of goods and installation services represent distinct and separate performance obligations of the Company. As these performance obligations are supported by contracts with customers and the goods are custom in nature, they are satisfied over time, as opposed to a point in time. The contract transaction price is allocated to each performance obligation based on an estimate of stand-alone selling price. Because installation is performed shortly after completion of production, revenue on the total contract is recognized over a relatively short period of time.
iPolicies Regarding Shipping and Handling Costs and Commissions on Contract Assets
The Company has made a policy election to continue to recognize shipping and handling costs as a fulfillment activity. Treating shipping and handling as a fulfillment activity requires estimated shipping and handling costs for undelivered products and certain glass components on which we have recognized revenue and created a contract asset, to be accrued to match this cost with the recognized revenue.
The Company utilizes the practical expedient which permits expensing of costs to obtain a contract when the expected amortization period is one year or less, which typically results in expensing commissions paid to employees. We expense sales commissions paid to employees as sales are recognized, including sales from the creation of contract assets, as the expected amortization period is less than one year.
iNOTE 3. WARRANTY
Most of our manufactured products are sold with warranties. Warranty periods, which vary by product components, generally range from i 1 to i 10 years; however, the warranty period for a limited number of specifically identified components in certain applications is a lifetime. The majority of the products sold have warranties on components which range from i 1 to i 3 years. The amount charged to expense for warranties is based on management’s assessment of the cost per service call and the number of service calls expected to be incurred to satisfy warranty obligations on the current net sales.
During the three months ended April 4, 2020, we recorded warranty expense at a rate of approximately i 1.7% of sales, which was nearly equal to the rate in the three months ended March 30, 2019 of i 1.6% of sales.
iThe following table summarizes current period charges, adjustments to previous estimates, if necessary, as well as settlements, which represent actual costs incurred during the period for the three months ended April 4, 2020, and March 30, 2019. The reserve is determined through specific identification and assessing Company history. Expected future obligations are discounted to a current value using a risk-free rate for obligations with similar maturities.
|
|
|
Beginning |
|
|
|
|
|
|
Charged |
|
|
|
|
|
|
|
|
|
|
End of |
|
|||
|
Accrued Warranty |
|
of Period |
|
|
Acquired |
|
|
to Expense |
|
|
Adjustments |
|
|
Settlements |
|
|
Period |
|
||||||
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended April 4, 2020 |
|
$ |
i 6,244 |
|
|
$ |
i 1,592 |
|
|
$ |
i 3,841 |
|
|
$ |
( i 20 |
) |
|
$ |
( i 4,269 |
) |
|
$ |
i 7,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 30, 2019 |
|
$ |
i 6,149 |
|
|
$ |
— |
|
|
$ |
i 2,820 |
|
|
$ |
i 28 |
|
|
$ |
( i 3,016 |
) |
|
$ |
i 5,981 |
|
/ /
- 12 -
NOTE 4. INVENTORIES
Inventories consist principally of raw materials purchased for the manufacture of our products. We have limited finished goods inventory since the substantial majority of our products are custom, made-to-order and the revenue on these products, as well as the related cost, has been fully recognized upon completion of the manufacturing process. Finished goods inventory and work-in-progress costs include direct materials, direct labor, and overhead. All inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. i Inventories consisted of the following:
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Raw materials |
|
$ |
i 49,566 |
|
|
$ |
i 41,255 |
|
|
Work-in-progress |
|
|
i 1,642 |
|
|
|
i 2,337 |
|
|
Finished goods |
|
|
i 439 |
|
|
|
i 259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
i 51,647 |
|
|
$ |
i 43,851 |
|
/
i
NOTE 5. STOCK BASED-COMPENSATION
Exercises
For the three months ended April 4, 2020, there were i 274,353 options exercised at a weighted average exercise price of $ i 2.00 per share.
Issuance
On February 14, 2020, we granted i 305,030 restricted stock awards to certain executives and non-executive employees of the Company under the 2020 Long-Term Incentive Plan (LTIP). The restrictions on these stock awards lapse over time based solely on continued service with respect to one-half of the granted shares and based on the achievement of a performance metric and the lapse of time, with respect to the other half. Specifically, the quantity of restricted shares issued upon vesting on half of these shares, or i 152,515 shares, is fixed, whereas the quantity issued upon vesting on the remaining half, or i 152,515 shares, is subject to Company-specific performance criteria. The restricted stock awards have a fair value on date of grant of $ i 16.56 per share based on the closing New York Stock Exchange market price of the common stock on the day prior to the day the awards were granted. Those restricted shares whose quantity is fixed vest in equal amounts over a three-year period on the first, second and third anniversary dates of the grant. Those restricted shares whose quantity is subject to Company performance criteria vest in equal amounts on the second and third anniversary dates of the grant, if they are earned.
With respect to the one-half of the granted restricted shares that must be earned through the satisfaction of performance criteria, the performance criteria, as defined in the share awards, provides for a graded awarding of shares based on the percentage by which the Company meets earnings before interest and taxes, as defined, in our 2020 business plan. i The performance percentages, ranging from less than i 80% to greater than i 120%, provide for the awarding of shares ranging from i no shares to i 150% of the target number of shares. /
i None of the restricted stock awards granted under last year’s 2019 LTIP that must be earned through the achievement of the performance criteria were earned, because the Company did not achieve at least i 80% of the target level of our 2019 LTIP performance metric, resulting in i 0% of the target number of performance shares being earned.
Stock Compensation Expense
We record stock compensation expense over an equity award’s vesting period based on the award’s fair value at the date of grant. We recorded compensation expense for stock-based awards of $ i 1.5 million for the three months ended April 4, 2020, and $ i 1.2 million for the three months ended March 30, 2019. As of April 4, 2020, there was $ i 13.3 million of total unrecognized compensation cost related entirely to restricted share awards. These costs are expected to be recognized in earnings on an accelerated basis over the weighted average remaining vesting period of i 2.2 years at April 4, 2020.
Of the $1.5 million and $1.2 million in stock-based compensation expense in the three months ended April 4, 2020, and March 30, 2019, respectively, $ i 1.4 million and $ i 1.0
million, respectively, are classified within selling, general and administrative expense in the accompanying condensed consolidated statements of operations, with the remainders classified within cost of sales.
/
- 13 -
NOTE 6. ACQUISITION
NEWSOUTH WINDOW SOLUTIONS
On i February 1, 2020 (the “closing date”), we completed the acquisition of NewSouth Window Solutions LLC and NewSouth Window Solutions of Orlando LLC (together, “NewSouth”, and the “NewSouth Acquisition”), which became wholly-owned subsidiaries of PGT Innovations, Inc. The fair value of consideration transferred in the acquisition was $ i 90.4 million. The acquisition was financed with proceeds of $ i 53.2 million from the add-on issuance of $ i 50.0 of 2018 Senior Notes due 2026 (“Add-On Senior Notes”), including a premium of $ i 3.2 million, and with $ i 37.0 million in cash, as well as a post-closing adjustment owed to sellers of $ i 0.2 million described below. See Note 9 for a discussion of the Add-On Senior Notes.
iThe estimated fair value of assets acquired, and liabilities assumed as of the closing date, are as follows:
|
|
|
Preliminary Allocation |
|
|
|
Accounts receivable |
|
$ |
i 10,294 |
|
|
Inventories |
|
|
i 3,757 |
|
|
Contract assets, net |
|
|
i 4,413 |
|
|
Prepaid expenses and other assets |
|
|
i 1,756 |
|
|
Property and equipment |
|
|
i 7,423 |
|
|
Operating lease right-of-use asset |
|
|
i 10,578 |
|
|
Intangible assets |
|
|
i 28,670 |
|
|
Goodwill |
|
|
i 46,200 |
|
|
Accounts payable |
|
|
( i 6,621 |
) |
|
Accrued and other liabilities |
|
|
( i 5,524 |
) |
|
Operating lease liability |
|
|
( i 10,578 |
) |
|
Purchase price |
|
$ |
i 90,368 |
|
|
|
|
|
|
|
|
Consideration: |
|
|
|
|
|
Cash |
|
$ |
i 90,145 |
|
|
Due to Sellers |
|
|
i 223 |
|
|
Total fair value of consideration |
|
$ |
i 90,368 |
|
The fair value of certain working capital related items, including accounts receivable, prepaid expenses, and accounts payable and accrued liabilities, approximated their book values at the date of the NewSouth Acquisition. The fair value of inventory was estimated by major category, at net realizable value. The substantial majority of inventories at the acquisition date was composed of raw materials. The fair value of property and equipment and remaining useful lives were estimated by management, with the assistance of a third-party valuation firm, using the cost approach. Valuations of the intangible assets were done using income and royalty relief approaches based on projections provided by management, which we consider to be Level 3 inputs, with the assistance of a third-party valuations firm, the report of whom we are in the process of finalizing.
We incurred acquisition costs totaling $ i 2.0 million relating to legal expenses, representations and warranties insurance, diligence, accounting and printing services in the NewSouth Acquisition, which includes $ i 0.5 million in the first quarter of 2020, classified as selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the three months ended April 4, 2020. We began incurring these costs in the fourth quarter of 2019.
The remaining consideration, after identified intangible assets and the net assets and liabilities recorded at fair value, has been determined to be $ i 46.2 million, all of which we expected to be deductible for tax purposes. Goodwill represents the increased value of the combined entity through new direct-to-consumer sales channel opportunities, as well as NewSouth’s extensive advertising throughout Florida, NewSouth’s market intelligence, which we expect to utilize.
The purchase agreement relating to the NewSouth Acquisition (“PA”) requires certain post-closing adjustments, under which we determined that we owe sellers an additional $ i 0.2 million. The calculation resulted in a net decrease in purchase price of $ i 0.2 million.
Net sales included in the condensed consolidated statement of operations for the three months ended April 4, 2020, from NewSouth from the February 1, 2020 acquisition date was $ i 15.9 million, and NewSouth’s net income was de minimis. On a proforma basis, assuming we had acquired NewSouth on the first day of the three-month periods ended April 4, 2020, and March 30, 2019, our consolidated net sales would have been $ i 228.4 million and $ i 192.6 million, respectively. There would have been immaterial impacts to our consolidated net income and our net income per share, both basic and diluted, on a proforma basis in both periods.
- 14 -
Valuation of identified intangible assets
iThe valuation of the identifiable intangible assets acquired in the NewSouth Acquisition and our estimate of their respective useful lives are as follows:
|
|
|
Valuation |
|
|
Useful Life |
|
|
|
|
Amount |
|
|
(in years) |
|
|
(in thousands) |
|
|
|
|
|
|
|
Trade name |
|
$ |
i 23,500 |
|
|
15 |
|
Non-compete agreements |
|
|
i 1,670 |
|
|
5 |
|
Developed technology |
|
|
i 2,600 |
|
|
6 |
|
Customer-related intangible |
|
|
i 900 |
|
|
<1 |
|
|
|
|
|
|
|
|
|
Other intangible assets, net |
|
$ |
i 28,670 |
|
|
|
i
NOTE 7. NET INCOME PER COMMON SHARE
Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders, by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the dilutive effect of potential common shares from securities such as stock options.
There were i 586 thousand anti-dilutive securities excluded from the calculation of weighted average shares outstanding for the three months ended April 4, 2020, and i 263 thousand for the three months ended March 30, 2019.
iThe table below presents the calculation of EPS and a reconciliation of weighted average common shares used in the calculation of basic and diluted EPS:
|
|
Three Months Ended |
|
|||||
|
|
April 4, |
|
|
|
|||
|
|
|
|
2019 |
|
|||
|
|
(in thousands, except per share amounts) |
|
|||||
|
Net income |
$ |
i 15,600 |
|
|
$ |
i 8,257 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares - Basic |
|
i 58,668 |
|
|
|
i 58,134 |
|
|
Add: Dilutive effect of stock compensation plans |
|
i 453 |
|
|
|
i 1,086 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares - Diluted |
|
i 59,121 |
|
|
|
i 59,220 |
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
Basic |
$ |
i 0.27 |
|
|
$ |
i 0.14 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
$ |
i 0.26 |
|
|
$ |
i 0.14 |
|
/
- 15 -
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
iGoodwill and intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
Initial |
|
|
|
April 4, |
|
|
December 28, |
|
|
Useful Life |
||
|
|
|
2020 |
|
|
2019 |
|
|
(in years) |
||
|
|
|
(in thousands) |
|
|
|
|||||
|
Goodwill |
|
$ |
323,800 |
|
|
$ |
277,600 |
|
|
indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Trade names (indefinite-lived) |
|
$ |
i 148,841 |
|
|
$ |
i 148,841 |
|
|
indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and customer-related assets |
|
|
i 201,547 |
|
|
|
i 200,647 |
|
|
<1-10 |
|
Trade name (amortizable) |
|
|
i 23,500 |
|
|
|
- |
|
|
15 |
|
Developed technology |
|
|
i 5,600 |
|
|
|
i 3,000 |
|
|
6-10 |
|
Non-compete agreement |
|
|
i 3,338 |
|
|
|
i 1,668 |
|
|
2-5 |
|
Software license |
|
|
i 590 |
|
|
|
i 590 |
|
|
2 |
|
Less: Accumulated amortization |
|
|
( i 103,526 |
) |
|
|
( i 98,784 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
i 131,049 |
|
|
|
i 107,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net |
|
$ |
i 279,890 |
|
|
$ |
i 255,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at December 28, 2019 |
|
$ |
i 277,600 |
|
|
|
|
|
|
|
|
Increase related to the acquisition of NewSouth |
|
|
i 46,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at April 4, 2020 |
|
$ |
i 323,800 |
|
|
|
|
|
|
|
i
Estimated amortization of our amortizable intangible assets for future years is as follows:
|
(in thousands) |
|
Total |
|
|
|
Remainder of 2020 |
|
$ |
i 14,677 |
|
|
2021 |
|
|
i 17,727 |
|
|
2022 |
|
|
i 16,869 |
|
|
2023 |
|
|
i 14,708 |
|
|
2024 |
|
|
i 14,621 |
|
|
Thereafter |
|
|
i 52,447 |
|
|
|
|
|
|
|
|
Total |
|
$ |
i 131,049 |
|
Amortization expense for relating to amortizable intangible assets for the three months ended April 4, 2020, and March 30, 2019, was $ i 4.7 million and $ i 4.0 million, respectively.
We perform our annual goodwill and indefinite-lived intangible asset impairment testing on the first day of our fiscal fourth quarter of each year, and at interim periods if needed based on occurrence of triggering events. Given the general deterioration in economic and market conditions surrounding the COVID-19 pandemic, and the narrow excess fair value over carrying value of its WinDoor and WWS trade names as described in our 2019 Form 10-K, the Company determined it should complete interim impairment tests of its WinDoor and WWS trade names as of April 4, 2020.
Although these interim impairment tests did not indicate that impairments of those assets exist at this time, due to earlier and stricter stay-at-home orders relating to the COVID-19 pandemic in the western states, WWS reporting unit sales could decrease further or for longer than we currently forecast, which would result in an impairment if such decrease in sales were to occur. Our modeling has indicated that if sales of our WWS reporting unit decrease to approximately $ i 133
million in 2020, assuming a long-term compound average growth rate of i 7% thereafter, with a terminal growth rate of i 3%,
the $ i 73.0 million carrying value of our WWS trade name would exceed it fair value by approximately $ i 6
million. However, if WWS achieves 2020 net sales that are flat to prior year and returns to growth assumptions for 2021 and beyond, as modeled in our 2019 annual impairment test, which includes a terminal growth rate of i 3%, then i no
impairment is indicated. A key assumption in our modeling is an assessment of macro industry growth in our WWS reporting unit’s key markets.
/
- 16 -
i
NOTE 9. LONG-TERM DEBT
i
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
2018 Senior Notes due 2026 |
|
$ |
i 365,000 |
|
|
$ |
i 315,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Term loan payable under the 2016 Credit Agreement |
|
|
i 64,000 |
|
|
|
i 64,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
i 429,000 |
|
|
|
i 379,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Fees, costs, discount and premium |
|
|
( i 7,797 |
) |
|
|
( i 10,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net |
|
$ |
i 421,203 |
|
|
$ |
i 368,971 |
|
/
2018 Senior Notes due 2026
On August 10, 2018, we completed the issuance of $ i 315.0 million aggregate principal amount of i 6.75% senior notes (“2018 Senior Notes due 2026”), issued at i 100% of their principal amount. The 2018 Senior Notes due 2026 are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future restricted subsidiaries, other than any restricted subsidiary of the Company that does not guarantee the existing senior secured credit facilities or any permitted refinancing thereof. The 2018 Senior Notes due 2026 are senior unsecured obligations of the Company and the guarantors, respectively, and rank pari passu in right of payment with all existing and future senior debt and senior to all existing and future subordinated debt of the Company and the guarantors. The 2018 Senior Notes due 2026 were offered under Rule 144A of the Securities Act, and in transactions outside the United States under Regulation S of the Securities Act, and have not been, and will not be, registered under the Securities Act.
On January 24, 2020, we completed the add-on issuance of $ i 50.0 million aggregate principal amount of i 6.75% senior notes (“Additional Senior Notes”), issued at i 106.375% of their principal amount, resulting in a premium to us of $ i 3.2 million. The Additional Notes are part of the same issuance of, and rank equally and form a single series with, the 2018 Senior Notes due 2026. Proceeds from the Additional Senior Notes, including premium, were used, together with cash on hand, to pay the $ i 90.4 million purchase price in the NewSouth Acquisition.
The 2018 Senior Notes due 2026 mature on i August 10, 2026. Interest on the 2018 Senior Notes due 2026 is payable semi-annually, in arrears, beginning on February 16, 2019, with interest accruing at a rate of i 6.75% per annum from August 10, 2018. We incurred financing costs relating to bank fees and professional services costs relating to the offering and issuance of the 2018 Senior Notes due 2026 totaling $ i 10.4 million, and the Additional Senior Notes totaling $ i 1.3 million, partially offset by the $ i 3.2 million premium on the Additional Senior Notes, which are being amortized under the effective interest method. See “Deferred Financing Costs” below. As of April 4, 2020, the face value of debt outstanding under the 2018 Senior Notes due 2026 was $ i 365.0 million, and accrued interest totaled $ i 4.3 million.
The indenture for the 2018 Senior Notes due 2026 gives us the option to redeem some or all of the 2018 Senior Notes due 2026 at the redemption prices and on the terms specified in the indenture governing the 2018 Senior Notes due 2026. The indenture governing the 2018 Senior Notes due 2026 does not require us to make any mandatory redemptions or sinking fund payments. However, upon the occurrence of a change of control, as defined in the indenture, the Company is required to offer to repurchase the notes at i 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The indenture for the 2018 Senior Notes due 2026 includes certain covenants limiting the ability of the Company and any guarantors to, (i) incur additional indebtedness; (ii) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; (iii) enter into agreements that restrict distributions from restricted subsidiaries; (iv) sell or otherwise dispose of assets; (v) enter into transactions with affiliates; (vi) create or incur liens; merge, consolidate or sell all or substantially all of the Company’s assets; (vii) place restrictions on the ability of subsidiaries to pay dividends or make other payments to the Company; and (viii) designate the Company’s subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications.
- 17 -
2016 Credit Agreement due 2022
On i February 16, 2016, we entered into the 2016 Credit Agreement due 2022, among us, the lending institutions identified in the 2016 Credit Agreement due 2022, and SunTrust Bank, as Administrative Agent and Collateral Agent. The 2016 Credit Agreement due 2022 establishes new senior secured credit facilities in an aggregate amount of $ i 310.0 million, consisting of a $ i 270.0 million Term B term loan facility maturing in February 2022 that amortizes on a basis of i 1% annually during its six-year term, and a $ i 40.0 million revolving credit facility maturing in February 2021 that includes a swing line facility and a letter of credit facility. Our obligations under the 2016 Credit Agreement due 2022 are, subject to exceptions, guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries that are restricted subsidiaries and secured by substantially all of our assets as well as our direct and indirect restricted subsidiaries’ assets.
On March 16, 2018, we entered into an amendment of our 2016 Credit Agreement due 2022 (the “Second Amendment”). i The Second Amendment, among other things, decreases the applicable interest rate margins for the Initial Term Loans (as defined in the 2016 Credit Agreement due 2022) from (i) i 3.75% to i 2.50%, in the case of the Base Rate Loans (as defined in the 2016 Credit Agreement due 2022), and (ii) i 4.75% to i 3.50%, in the case of the Eurodollar Loans (as defined in the 2016 Credit Agreement due 2022). / On February 17, 2017, we entered into the first amendment to our 2016 Credit Agreement due 2022, which also resulted in decreases in the applicable margins, but which, unlike the Second Amendment, did not include any changes in lender positions.
On October 31, 2019, we entered into an amendment of our 2016 Credit Agreement due 2022 (“Third Amendment”). The Third Amendment provides for, among other things, (i) a new three-year Term A loan in the aggregate principal amount of $ i 64.0 million (the “Initial Term A Loan”), which refinances in full our existing Term B term loan facility under the 2016 Credit Agreement, and has no regularly scheduled amortization, and (ii) a new five-year revolving credit facility due 2024 in an aggregate principal amount of up to $ i 80.0 million (the “New Revolving Facility”), which replaces our existing $ i 40.0 million revolving credit facility under the 2016 Credit Agreement, and includes a swing-line facility and letter of credit facility. Our obligations under the 2016 Credit Agreement continue to be secured by substantially all of our assets, as well as our direct and indirect subsidiaries’ assets.
Pursuant to the Third Amendment, interest on all loans under the 2016 Credit Agreement is payable either quarterly or at the expiration of any LIBOR interest period applicable thereto. i The Third Amendment decreases the applicable interest rate margins for the Initial Term Loan A from (i) i 2.50% to a spread of i 1.00% to i 1.75% based on our first lien net leverage ratio, in the case of the Base Rate Loans (with a floor of i 100 basis points), and (ii) i 3.50% to a spread ranging from i 2.00% to i 2.75% based on our first lien leverage ratio, in the case of the Eurodollar Loans (with a floor of i zero basis points). /
Also, in connection with the Third Amendment, we will pay quarterly fees on the unused portion of the revolving credit facility equal to a percentage spread (ranging from i 0.25% to i 0.35%) based on our first lien net leverage ratio. The Third Amendment also modifies the springing financial covenant under the 2016 Credit Agreement to provide that such financial covenant will not be tested until the Initial Term A Loan is paid in full. As of April 4, 2020, there were $ i 4.0 million of letters of credit outstanding and $ i 76.0 million available under the New Revolving Facility.
Fees and costs relating to the Third Amendment were $ i 0.9 million, which are deferred and being amortized. In connection with the Third Amendment, certain existing lenders modified their positions in or exited the 2016 Credit Agreement. Deferred financing costs and original issue discount allocated to these lenders of $ i 1.5 million were written-off and classified as debt extinguishment costs in our consolidated statement of operations for the year ended December 28, 2019. As of April 4, 2020, the principal amount of debt outstanding under the 2016 Credit Agreement due 2022 was $ i 64.0 million, and accrued interest was $ i 136 thousand.
The weighted average all-in interest rate for borrowings under the term-loan portion of the 2016 Credit Agreement due 2022 was i 3.30% as of April 4, 2020, and was i 3.77% at December 28, 2019.
Pursuant to the Third Amendment, the 2016 Credit Agreement due 2022 contains a springing financial covenant that would apply if we draw in excess of thirty-five percent (35%) of the revolving facility commitment (excluding $ i 7.5 million of undrawn letters of credit and letters of credit and draws thereunder that are cash collateralized at i 103% of the stated amount thereof from such availability test). To the extent in effect, the springing financial covenant would prohibit us from exceeding a maximum first lien net leverage ratio (based on the ratio of total first lien (less unrestricted cash) debt to EBITDA) as of the last day of each applicable fiscal quarter. To the extent the springing financial covenant is in effect, the first lien net leverage ratio cannot exceed i 4.00:1.00 ( i 4.50:1.00 during a significant acquisition period as defined). i We have not been required to test our first lien net leverage ratio because we have not exceeded 35% of our revolving capacity.
The 2016 Credit Agreement due 2022 also contains a number of affirmative and restrictive covenants, including limitations on the incurrence of additional debt, liens on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, entry into restrictive agreements, prepayments of certain debt and transactions with affiliates, in each case, subject to exceptions and qualifications. The 2016 Credit Agreement due 2022 also contains customary events of default. Upon the occurrence of an event of default, the amounts outstanding under the 2016 Credit Agreement due 2022 may be accelerated and may become immediately due and payable.
- 18 -
On September 18, 2018, we completed an underwritten, public offering of i 7,000,000 shares of our common stock, at a public offering price of $ i 23.00 per share (the “2018 Equity Issuance”). The offering resulted in gross proceeds to the Company of $ i 161.0 million. Net of an underwriting fee of $ i 1.15 per share, net cash proceeds to the Company approximated $ i 153.0 million. Contemporaneously with the 2018 Equity Issuance, we prepaid $ i 152.0 million in borrowings outstanding under the term loan portion of the 2016 Credit Agreement due 2022. On December 19, 2018, we voluntarily prepaid an additional $ i 8.0 million in borrowings under the 2016 Credit Agreement due 2022.
Deferred Financing Costs
iThe activity relating to third-party fees and costs, lender fees and discount for the three months ended April 4, 2020, are as follows. All debt-related fees, costs and original issue discount are classified as a reduction of the carrying value of long-term debt:
|
(in thousands) |
|
Total |
|
|
|
At beginning of year |
|
$ |
i 10,029 |
|
|
Add: Deferred financing costs from the issuance of the add-on 2018 Senior Notes due 2026 |
|
|
i 1,266 |
|
|
Less: Premium on the issuance of the add-on 2018 Senior Notes due 2026 |
|
|
( i 3,187 |
) |
|
Less: Amortization expense relating to 2016 Credit Agreement |
|
|
( i 73 |
) |
|
Less: Amortization expense relating to 2018 Senior Notes |
|
|
( i 238 |
) |
|
|
|
|
|
|
|
At end of period |
|
$ |
i 7,797 |
|
i
Estimated amortization expense relating to third-party fees and costs, lender fees and discount for the years indicated as of April 4, 2020, is as follows:
|
(in thousands) |
|
Total |
|
|
|
Remainder of 2020 |
|
$ |
i 847 |
|
|
2021 |
|
|
i 1,195 |
|
|
2022 |
|
|
i 1,245 |
|
|
2023 |
|
|
i 1,183 |
|
|
2024 |
|
|
i 1,250 |
|
|
Thereafter |
|
|
i 2,077 |
|
|
|
|
|
|
|
|
Total |
|
$ |
i 7,797 |
|
As a result of prepayments of the 2016 Credit Agreement due 2022 totaling $ i 204.0 million since its inception in i February 2016, we have no future scheduled repayments until the maturity of the facility on i October 31, 2022. The contractual future maturities of long-term debt outstanding, including the remaining balance of the financing arrangement described as other debt, as of April 4, 2020, are as follows (at face value):
/
|
(in thousands) |
|
|
|
|
|
Remainder of 2020 |
|
$ |
i — |
|
|
2021 |
|
|
i — |
|
|
2022 |
|
|
i 64,000 |
|
|
2023 |
|
|
i — |
|
|
2024 |
|
|
i — |
|
|
Thereafter |
|
|
i 365,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
i 429,000 |
|
- 19 -
NOTE 10. LEASES
We lease certain of our manufacturing facilities under operating leases. We also lease production equipment, vehicles, computer equipment, storage units and office equipment under operating leases. Our leases have remaining lease terms of i 1 year to i 9 years, some of which may include options to extend the leases for up to i 5 years, and some of which may include options to terminate the leases within i 1 year. All of our leases are operating leases. We did not recognize right-of-use assets or lease liabilities for certain short-term leases that are month-to-month leases. The lease expense relating to these leases is not significant.
iThe components of lease expense for the three months ended April 4, 2020, and March 30, 2019, are as follows (in thousands):
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
i 2,009 |
|
|
$ |
i 1,576 |
|
|
Variable lease cost |
|
|
i 881 |
|
|
|
i 550 |
|
|
Total lease cost |
|
$ |
i 2,890 |
|
|
$ |
i 2,126 |
|
i
Other information relating to leases for the three months ended April 4, 2020, and March 30, 2019, are as follows (in thousands, except years and percentages):
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
Supplemental cash flows information |
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows relating to operating leases |
|
$ |
( i 2,009 |
) |
|
$ |
( i 1,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
i 14,605 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term in years |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
7.27 |
|
|
|
4.63 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
i 5.9 |
% |
|
|
i 6.2 |
% |
i
- 20 -
Future maturities under operating leases were as follows at April 4, 2020, and December 28, 2019 (in thousands):
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
Remainder of 2020 |
|
$ |
i 6,610 |
|
|
$ |
i 6,319 |
|
|
2021 |
|
|
i 7,255 |
|
|
|
i 4,771 |
|
|
2022 |
|
|
i 6,430 |
|
|
|
i 3,878 |
|
|
2023 |
|
|
i 6,236 |
|
|
|
i 3,741 |
|
|
2024 |
|
|
i 6,202 |
|
|
|
i 3,771 |
|
|
Thereafter |
|
|
i 18,931 |
|
|
|
i 13,691 |
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments |
|
|
i 51,664 |
|
|
|
i 36,171 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest |
|
|
( i 9,768 |
) |
|
|
( i 7,428 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - total |
|
$ |
i 41,896 |
|
|
$ |
i 28,743 |
|
|
|
|
|
|
|
|
|
|
|
|
Reported as of April 4, 2020 and December 28, 2019: |
|
|
|
|
|
|
|
|
|
Current portion of operating lease liability |
|
$ |
i 6,325 |
|
|
$ |
i 4,703 |
|
|
Operating lease liability, less current portion |
|
|
i 35,571 |
|
|
|
i 24,040 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - total |
|
$ |
i 41,896 |
|
|
$ |
i 28,743 |
|
As of April 4, 2020, we had i i no additional operating or finance leases that have not yet commenced / . Our operating leases expire at various times through 2028. Lease expense prior to the adoption of ASU 2016-02 would have been $ i 2.9 million for the three months ended April 4, 2020 and was $ i 2.1 million for the three months ended March 30, 2019. Of the $2.9 million for the three months ended April 4, 2020, $ i 1.5 million is classified as cost of sales in the accompanying condensed consolidated statement of operations, with the remainder classified within selling, general and administrative expenses. Of the $2.1 million for the three months ended March 30, 2019, $ i 1.0 million is classified as cost of sales in the accompanying condensed consolidated statement of operations, with the remainder classified within selling, general and administrative expenses. Lease expense was $ i 8.9 million for the year ended December 28, 2019.
The $ i 14.6 million in operating lease right-of-use assets obtained in exchange for operating lease obligations during the three months ended April 4, 2020 includes $ i 10.6 million relating to the NewSouth Acquisition. See Note 6 for additional information.
iNOTE 11. 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 in the aggregate, will not have a material adverse effect on our operations, financial position or cash flows.
iNOTE 12. INCOME TAXES
Our income tax expense was $ i 4.1 million for the three months ended April 4, 2020, compared with $ i 2.3 million for the three months ended March 30, 2019. Our effective tax rate for the three months ended April 4, 2020, was i 21.0%, and was i 21.7% for the three months ended March 30, 2019.
Income tax expense in the three months ended April 4, 2020, and March 30, 2019, includes excess tax benefits relating to exercises of stock options and lapses of restrictions on stock awards, treated as a discrete item of income tax, totaling $ i 767 thousand and $ i 422 thousand, respectively. Excluding this discrete item, the effective tax rates for the three months ended April 4, 2020, and March 30, 2019, would have been i 24.8% and i 25.7%, respectively.
Our estimated annual effective tax rate, excluding the discrete items discussed above, approximates our current combined statutory federal and state rate of i 25.0%.
In response to the COVID-19 outbreak, in March 2020, the U.S. Congress passed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) legislation aimed at providing relief for individuals and businesses that have been negatively impacted by the pandemic. While we are still assessing the impact of the CARES Act legislation on the Company’s income taxes, at this time we do not expect that the CARES Act will have a material impact to our consolidated financial statements. However, during the three months ended April 4, 2020, we made i no
payments of estimated federal and state income taxes as the deadlines for such payments to the United States government, and the majority of states in which we have nexus, which have followed the payment deadline extension of this new Federal legislation, have been deferred until July 2020 as a result of the CARES Act.
- 21 -
NOTE 13. FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A three-tier fair value hierarchy is used to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are as follows:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The accounting guidance concerning fair value allows us to elect to measure financial instruments at fair value and report the changes in fair value through earnings. This election can only be made at certain specified dates and is irrevocable once made. We do not have a policy regarding specific assets or liabilities to elect to measure at fair value, but rather we make the election on an instrument-by-instrument basis as they are acquired or incurred.
During the three or nine months ended April 4, 2020, or March 30, 2019, we did i i no / t make any transfers between Level 2 and Level 3 financial assets. We conduct reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, accounts and notes receivable, and accounts payable and accrued liabilities, whose carrying amounts approximate their fair values due to their short-term nature. Our financial instruments also include borrowings under our 2016 Credit Agreement due 2022, as well as the 2018 Senior Notes due 2026, both classified as long-term debt. The fair value of borrowings under the 2016 Credit Agreement due 2022 is based on debt with similar terms and characteristics and was approximately $ i 64.0 million as of April 4, 2020, compared to a principal outstanding value of $ i 64.0 million, and fair value of $ i 64.0 million as of December 28, 2019, compared to a principal outstanding value of $ i 64.0 million. The fair value of the 2018 Senior Notes due 2026 is also based on debt with similar terms and characteristics and was approximately $ i 346.8 million as of April 4, 2020, compared to a principal outstanding value of $ i 365.0 million, which includes the Additional Senior Notes, and the fair value was approximately $ i 338.6 million as of December 28, 2019, compared to a principal outstanding value of $ i 315.0 million. Fair values were determined based on observed trading prices of our debt between domestic financial institutions, which we consider to be a Level 2 input.
Items Measured at Fair Value on a Recurring Basis
iThe following are measured in the condensed consolidated financial statements at fair value on a recurring basis and are categorized in the table below based upon the lowest level of significant input to the valuation (in thousands):
|
|
Fair Value Measurements |
|
|||||||||||||
|
|
Assets (Liabilities) |
|
|||||||||||||
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
April 4, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
|
|
|
2020 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||
|
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts |
$ |
( i 4,865 |
) |
|
$ |
— |
|
|
$ |
( i 4,865 |
) |
|
$ |
— |
|
|
MTP contracts |
|
( i 53 |
) |
|
|
— |
|
|
|
( i 53 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( i 4,918 |
) |
|
$ |
— |
|
|
$ |
( i 4,918 |
) |
|
$ |
— |
|
- 22 -
|
|
Fair Value Measurements |
|
|||||||||||||
|
|
Assets (Liabilities) |
|
|||||||||||||
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
December 28, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
|
|
2019 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts |
$ |
( i 317 |
) |
|
$ |
— |
|
|
$ |
( i 317 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( i 317 |
) |
|
$ |
— |
|
|
$ |
( i 317 |
) |
|
$ |
— |
|
The following is a description of the methods and assumptions used to estimate the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis, as well as the basis for classifying these assets and liabilities as Level 2.
See Note 14 for a discussion of the determination of the fair values of our aluminum forward and Midwest Transaction Premium (“MTP”) contracts.
iNOTE 14. DERIVATIVES
Aluminum Contracts and Midwest Transaction Premium
We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusion we use in production. Beginning late in the first quarter of 2020, we began entering into forward contracts to hedge the fluctuations in the price of the delivery component of our aluminum extrusion purchases, known as the Midwest Transaction Premium. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted purchases of aluminum and the related MTP.
We record our aluminium hedge contracts at fair value, based on trading values for aluminum forward contracts. Aluminum forward contracts identical to those held by us trade on the London Metal Exchange (“LME”). The LME provides a transparent forum and is the world’s largest center for the trading of futures contracts for non-ferrous metals. The prices are used by the metals industry worldwide as the basis for contracts for the movement of physical material throughout the production cycle. Based on this high degree of volume and liquidity in the LME, we believe the valuation price at any measurement date for contracts with identical terms as to prompt date, trade date and trade price as those we hold at any time represents a contract’s exit price to be used for purposes of determining fair value.
We record our MTP hedge contracts at fair value based on the Platts MW US Transaction price per pound assessment, which has been a benchmark for decades in the North American aluminium industry. Platts surveys the North American market daily to capture trades, bids and offers on a delivered Midwest basis. Data is normalized to reflect the typical price per pound between the largest number of market participants, for delivery within 7 to 30 days from date of publication, net- i 30-day payment terms, for typical order quantities, chemistries and freight allowances. The survey is extensive and encompasses both domestic and offshore producers, traders and brokers that are varied in scope. Based on the extensive nature of this pricing mechanism, we believe the Platts MW US Transaction price at any time represents a contract’s exit price to be used for purposes of determining fair value.
Guidance under the Financial Instruments Topic 825 of the Codification requires us to record our hedge contracts at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings. We assess our risk of non-performance when measuring the fair value of our financial instruments in a liability position by evaluating our credit ratings, our current liquidity including cash on hand and availability under our revolving credit facility as compared to the maturities of the financial liabilities.
At April 4, 2020, the fair value of our aluminum forward contracts was in a net liability position of $ i 4.9 million. We had i 33 outstanding forward contracts for the purchase of i 41.5 million pounds of aluminum through December 2021, at an average price of $ i 0.81 per pound, which excludes the Midwest premium, with maturity dates of between i one month and i twenty-one months. At April 4, 2020, the fair value of our MTP contracts was in a net liability position of $ i 53 thousand. We had i 7 outstanding MTP contracts to hedge the Platt US MW Transaction price per pound for the delivery of i 15.3 million pounds of aluminum through December 2021, at an average price of $ i 0.12 per pound, with maturity dates of between i one month and i twenty-one months. We assessed the risk of non-performance of the Company to these contracts and determined it was insignificant and, therefore, did not record any adjustment to their fair values as of April 4, 2020.
- 23 -
We assess the effectiveness of our aluminum forward contracts 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. The effective portion of the gain or loss on our aluminum forward contracts is reported as a component of accumulated other comprehensive loss and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. The amount of losses, net, recognized in the “accumulated other comprehensive loss” line item in the accompanying condensed consolidated balance sheet as of April 4, 2020, that we expect will be reclassified to earnings within the next twelve months, is approximately $ i 4.0 million.
iThe fair values of our aluminum hedges and MTP contracts are classified in the accompanying condensed consolidated balance sheets at April 4, 2020, and December 28, 2019, as follows (in thousands):
|
|
|
Derivative Assets |
|
|
|
Derivative Liabilities |
|
||||||
|
|
|
|
|
|
|
||||||||
|
Derivatives designated as hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments under Subtopic 815-20: |
|
Balance Sheet Location |
|
Fair Value |
|
|
|
Balance Sheet Location |
|
Fair Value |
|
||
|
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts |
|
Other current assets |
|
$ |
— |
|
|
|
Accrued liabilities |
|
$ |
( i 3,990 |
) |
|
MTP contracts |
|
Other current assets |
|
|
— |
|
|
|
Accrued liabilities |
|
|
( i 20 |
) |
|
Aluminum forward contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
( i 875 |
) |
|
MTP contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
( i 33 |
) |
|
Total derivative instruments |
|
Total derivative assets |
|
$ |
— |
|
|
|
Total derivative liabilities |
|
$ |
( i 4,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
|
|
Derivative Liabilities |
|
||||||
|
|
|
|
|
|
|
||||||||
|
Derivatives designated as hedging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments under Subtopic 815-20: |
|
Balance Sheet Location |
|
Fair Value |
|
|
|
Balance Sheet Location |
|
Fair Value |
|
||
|
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts |
|
Other current assets |
|
$ |
i 193 |
|
|
|
Accrued liabilities |
|
$ |
( i 510 |
) |
|
Aluminum forward contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
— |
|
|
Total derivative instruments |
|
Total derivative assets |
|
$ |
i 193 |
|
|
|
Total derivative liabilities |
|
$ |
( i 510 |
) |
The ending accumulated balance for the aluminum forward and MTP contracts included in accumulated other comprehensive losses, net of tax, was $ i 3.7 million as of April 4, 2020, and $ i 0.2 million at December 28, 2019.
iThe following represents the gains (losses) on derivative financial instruments, and their classifications within the accompanying condensed consolidated financial statements, for the three months ended April 4, 2020, and March 30, 2019 (in thousands):
|
|
|
Derivatives in Cash Flow Hedging Relationships |
|
|||||||||||||||
|
|
|
Amount of Gain or (Loss) Recognized in OCI(L) on Derivatives |
|
|
Location of Gain or (Loss) Reclassified from Accumulated OCI(L) into Income |
|
Amount of Gain or (Loss) Reclassified from Accumulated OCI(L) into Income |
|
||||||||||
|
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
||||||||||
|
|
|
April 4, |
|
|
March 30, |
|
|
|
|
April 4, |
|
|
|
|||||
|
|
|
|
|
2019 |
|
|
|
|
2020 |
|
|
2019 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts |
|
$ |
( i 5,160 |
) |
|
$ |
i 595 |
|
|
Cost of sales |
|
$ |
( i 612 |
) |
|
$ |
( i 915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MTP contracts |
|
$ |
( i 53 |
) |
|
$ |
— |
|
|
Cost of sales |
|
$ |
— |
|
|
$ |
— |
|
- 24 -
NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS
iThe following table shows the components of accumulated other comprehensive loss for the three months ended April 4, 2020 and March 30, 2019 (in thousands):
|
|
|
Aluminum |
|
|
|
Three months ended April 4, 2020 |
|
Forward and MTP |
|
|
|
(in thousands) |
|
|
||
|
Balance at December 28, 2019 |
|
$ |
( i 238 |
) |
|
Change in fair value of derivatives |
|
|
( i 5,213 |
) |
|
Amounts reclassified from other comprehensive loss |
|
|
i 612 |
|
|
Tax effect |
|
|
i 1,151 |
|
|
Net current-period other comprehensive income |
|
|
( i 3,450 |
) |
|
Balance at April 4, 2020 |
|
$ |
( i 3,688 |
) |
|
|
|
|
|
|
|
|
|
Aluminum |
|
|
|
Three months ended March 30, 2019 |
|
Forward |
|
|
|
(in thousands) |
|
|
||
|
Balance at December 29, 2018 |
|
$ |
( i 3,065 |
) |
|
Change in fair value of derivatives |
|
|
i 595 |
|
|
Amounts reclassified from other comprehensive loss |
|
|
i 915 |
|
|
Tax effect |
|
|
( i 386 |
) |
|
Net current-period other comprehensive loss |
|
|
i 1,124 |
|
|
Balance at March 30, 2019 |
|
$ |
( i 1,941 |
) |
i
- 25 -
NOTE 16. SEGMENTS
We have i two reportable segments: the Southeast segment, and the Western segment. The Southeast reporting segment, which is also an operating segment, is composed of sales from our facilities in Florida. The Western reporting segment, also an operating segment, is composed of sales from our facility in Arizona. Beginning in 2020, sales into certain states have been reclassified between segments. As such, segment sales amounts for the three months ended March 30, 2019, along with the related income from operations, have been revised to conform to the 2020 presentation.
Centralized financial and operational oversight, including resource allocation and assessment of performance on an income (loss) from operations basis, is performed by our CEO, whom we have determined to be our chief operating decision maker (“CODM”), with oversight by the Board of Directors. Total asset information by segment is not included herein as asset information by segment is not presented to or reviewed by the CODM.
iThe following table represents summary financial data attributable to our operating segments for the three months ended April 4, 2020, and March 30, 2019. Results of the Western segment are composed of the results of WWS, which was acquired on August 13, 2018 (in thousands):
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
Net sales: |
|
|
|
|
|
|
|
|
|
Southeast segment |
|
$ |
i 183,641 |
|
|
$ |
i 141,676 |
|
|
Western segment |
|
|
i 36,563 |
|
|
|
i 32,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 220,204 |
|
|
$ |
i 173,737 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
Southeast segment |
|
$ |
i 25,821 |
|
|
$ |
i 15,264 |
|
|
Western segment |
|
|
i 1,086 |
|
|
|
i 1,992 |
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations |
|
|
i 26,907 |
|
|
|
i 17,256 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
i 7,169 |
|
|
|
i 6,714 |
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes |
|
$ |
i 19,738 |
|
|
$ |
i 10,542 |
|
i
NOTE 17. SUBSEQUENT EVENT
Florida Manufacturing Facilities Consolidation
i On i April 15, 2020, the Company’s management decided to exit its manufacturing facility in Orlando, Florida, where its WinDoor and Eze-Breeze products are assembled, and to relocate the manufacturing of those products to the Company’s Venice and Tampa, Florida plants, respectively. The Company expects to cease production at the Orlando facility during June 2020. / In connection with this announcement, the Company currently expects to record pre-tax special item charges in the range of approximately $ i 4.2 million to $ i 4.6 million. Approximately $ i 3.0 million to $ i 3.4 million of the charges are expected to be paid in cash and are primarily attributable to separation and retention-until-closure payments for employees, remaining rent on the Orlando facility, and equipment relocation expenses. Non-cash charges of approximately $ i 1.2 million are related to certain product rationalization initiatives. Most of the pre-tax special item charges are expected to be recorded in 2020 and most of the cash outflows are expected to occur in 2020.
/
- 26 -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the year ended December 28, 2019, included in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 26, 2020. All amounts herein are unaudited.
Special Note Regarding Forward-Looking Statements
Except for historical information contained herein, the matters set forth in this Quarterly Report on Form 10-Q are forward-looking statements. These statements are based on management’s current expectations and plans, which involve risks and uncertainties. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as “expected,” “excited,” “guidance,” “believe,” “expect,” “may,” “outlook,” “forecast,” “intend,” “could,” “project,” “estimate,” “anticipate,” “should,” “plan” and similar terminology. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the filing date of this Quarterly Report and which involve risks and uncertainties that may cause our actual results to differ materially from those set forth in the forward-looking statements. Those risks and uncertainties that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to:
|
• |
the impact of the COVID-19 pandemic and related measures taken by governmental or regulatory authorities to combat the pandemic, including the impact of the pandemic and these measures on the economies and demand for our products in the states where we sell them, and on our customers, suppliers, labor force, business, operations and financial performance; |
|
• |
unpredictable weather and macroeconomic factors that may negatively impact the repair and remodel and new construction markets and the construction industry generally, especially in the state of Florida and the western United States, where the substantial portion of our sales are currently generated, and in the U.S. generally; |
|
• |
changes in raw material prices, especially for aluminum, glass and vinyl, including, price increases due to the implementation of tariffs and other trade-related restrictions; |
|
• |
our dependence on a limited number of suppliers for certain of our key materials; |
|
• |
our dependence on our impact-resistant product lines and contemporary indoor/outdoor window and door systems, and on consumer preferences for those types and styles of products; |
|
• |
the effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to, our acquisitions of NewSouth and Western Window Systems; |
|
• |
our level of indebtedness, which increased in connection with our acquisition of Western Window Systems, and increased further in connection with our acquisition of NewSouth; |
|
• |
increases in bad debt owed to us by our customers in the event of a downturn in the home repair and remodeling or new home construction channels in our core markets and our inability to collect such debt; |
|
• |
the risks that the anticipated cost savings, synergies, revenue enhancement strategies and other benefits expected from our acquisitions of NewSouth and Western Window Systems may not be fully realized or may take longer to realize than expected or that our actual integration costs may exceed our estimates; |
|
• |
increases in transportation costs, including due to increases in fuel prices; |
|
• |
our dependence on our limited number of geographically concentrated manufacturing facilities; |
|
• |
sales fluctuations to and changes in our relationships with key customers; |
|
• |
federal, state and local laws and regulations, including unfavorable changes in local building codes and environmental and energy code regulations; |
|
• |
risks associated with our information technology systems, including cybersecurity-related risks, such as unauthorized intrusions into our systems by “hackers” and theft of data and information from our systems, and the risks that our information technology systems do not function as intended or experience temporary or long-term failures to perform as intended. |
|
• |
product liability and warranty claims brought against us; |
|
• |
in addition to the acquisitions of NewSouth and Western Window Systems, our ability to successfully integrate businesses we may acquire in the future, or that any business we acquire may not perform as we expected at the time we acquired it; and |
|
• |
the other risks and uncertainties discussed under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended April 4, 2020, and “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 28, 2019 and our other SEC filings. |
Any forward-looking statements made by us or on our behalf speak only as of the date they are made and, except as may be required by law, we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances.
- 27 -
EXECUTIVE OVERVIEW
Impact of COVID-19 on Our Business
Our first priority is the health and safety of our employees, our customers and their families and the communities in which we operate, and as the COVID-19 virus gained a foothold in the Southeast Florida area, we took swift action to protect our employees by shutting down and fumigating our Miami and Hialeah, Florida facilities, each for one-week periods in April 2020. As of the date of this filing, all of our operating locations are operational and have been deemed essential under various government orders. Each of our facilities has implemented a variety of new policies and procedures designed to protect the health and safety of our team members in light of the COVID-19 pandemic, including: 1) following World Health Organization and U.S. Centers for Disease Control and Prevention guidelines for personal health and safety; 2) increasing cleaning frequency and enhancing sanitization of all facilities; 3) adjusting production schedules and operations to promote social distancing; 4) restricting external visitor access to facilities; 5) implementing work-at-home programs where possible; 6) banning all non-essential air travel; 7) implementing temperature checks of our team members at our production facilities; and 8) offering our employees age 65 and over and other at-risk team members the opportunity to not report to work, so that they may shelter-in-place, with no adverse consequences to their employment status.
During the first quarter of 2020, we achieved double-digit sales growth at both of our reporting segments, as compared to the same quarter in 2019, due to the sales contribution from our NewSouth Windows Solutions business, which we acquired on February 1, 2020 and also due to organic sales growth of approximately 18% in our Southeastern Business Unit and 14% in our Western Windows Systems business, or “Western Business Unit”. However, due to the unprecedented uncertainty associated with the COVID-19 pandemic and its impact on the United States economy, including in our core markets, and on our business, on April 8, 2020, we announced that we were withdrawing our financial performance guidance for 2020. Additionally, due to that same uncertainty, we took certain actions aimed at preserving cash and maintaining our liquidity, including: 1) delaying or canceling planned capital expenditures; 2) reducing discretionary spending; 3) optimizing net working capital by closely monitoring and forecasting cash collections and disbursement; and 4) controlling labor-related costs.
We ended our first quarter of 2020 with $67.6 million in cash on hand, and have $76.0 million of available liquidity under our 2016 Credit Agreement due 2022. Additionally, we have no scheduled debt repayment obligations until the maturity of the outstanding balance of $64.0 million under our 2016 Credit Agreement comes due on October 31, 2022. As of May 1, 2020, we had cash on hand of $69.3 million and availability of $76.0 million under our 2016 Credit Agreement due 2022.
Our supply chains have generally not experienced significant disruptions, and although we do not anticipate any such disruptions in the near term, there can be no assurances that we will not experience such disruptions to our materials supply chain during the COVID-19 pandemic. Our manufacturing, sales and servicing operations have been deemed essential operations under the COVID-19 related government orders issued to-date, and thus, our operations have been permitted to continue at all of our locations. However, there can be no assurance that our operations will be considered essential and exempt from any such emergency or executive orders issued by governmental authorities in response to any future increases in the extent or severity of the COVID-19 pandemic, including in the event of a “second wave” of infections.
Sales and Operations
We achieved double-digit organic sales growth in both our Southeast and Western segments in the first quarter of 2020, compared to the first quarter of 2019. Our Southeast segment achieved 18.4% organic growth, with sales of $167.7 million in the first quarter of 2020, excluding our NewSouth acquisition, compared to $141.7 million in the first quarter of 2019. Our Western segment achieved 14.0% organic growth, with sales of $36.6 million in the first quarter of 2020, compared with $32.0 million in the first quarter of 2019. We believe this growth reflects increased demand for our products during the first quarter of 2020 in both the new construction and repair and remodel markets. Additionally, order volume of our NewSouth brand was up approximately 50% on a proforma basis in the first quarter of 2020 when compared to the first quarter of 2019. Overall, we were seeing strong order momentum across all of our businesses throughout most of the first quarter of 2020, until the unfavorable change in macro-economic conditions resulting from the COVID-19 pandemic.
As a result of the COVID-19 pandemic and related governmental actions to control it, and the impact it has had on the economy, we have seen order volume in our Florida market in April 2020 decrease approximately 10% when compared to April of last year, and decrease by approximately 30% on a sequential basis compared to the first quarter growth rate. We quickly reacted to these conditions by adjusting our operations to meet changing demands but during May have seen a growing order pipeline in Florida. As such, we are cautiously beginning to enhance our capacity to meet this increasing demand. In our Western markets, where government restrictions related to COVID-19, including stay-at-home orders were more stringent and imposed earlier than in Florida, we have seen order decreases in the range of 20% to 30% in April 2020 when compared to April last year, and a decrease of approximately 40% on a sequential basis compared with the first quarter growth rate. Recent order patterns appear to indicate that the unfavorable macro-economic impacts of the COVID-19 pandemic may continue in our Western markets.
- 28 -
Despite a solid start to 2020, which saw 2020 first quarter consolidated net sales increase 27%, to $220.2 million, net income increase 89%, to $15.6 million, and net income per diluted share increase 86%, to $0.26, all as compared to the first quarter of 2019, the uncertainty of the duration and extent of the pandemic and the unfavorable economic environment it has created has limited our ability at this time to forecast our operational and financial performance results for the remainder of 2020.
We previously withdrew our 2020 annual guidance, but we expect our second quarter consolidated net sales, inclusive of NewSouth, to decline in the range of 7 to 10 percent as compared to the prior year, driven primarily by COVID-19 related reduction in orders, which we began to experience in April 2020.
Performance Summary
The following table presents financial data derived from our unaudited condensed consolidated statements of operations as a percentage of total net sales for the periods indicated (in thousands, except percentages):
|
|
|
Three Months Ended |
|
|||||||||||||
|
|
|
April 4, |
|
|
|
|||||||||||
|
|
|
|
|
2019 |
|
|||||||||||
|
|
|
(unaudited) |
|
|||||||||||||
|
Net sales |
|
$ |
220,204 |
|
|
100.0% |
|
|
$ |
173,737 |
|
|
100.0% |
|
||
|
Cost of sales |
|
|
139,077 |
|
|
63.2% |
|
|
|
112,467 |
|
|
64.7% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
81,127 |
|
|
36.8% |
|
|
|
61,270 |
|
|
35.3% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
54,220 |
|
|
24.6% |
|
|
|
44,014 |
|
|
25.3% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
26,907 |
|
|
12.2% |
|
|
|
17,256 |
|
|
9.9% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
7,169 |
|
|
3.3% |
|
|
|
6,714 |
|
|
3.9% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
19,738 |
|
|
9.0% |
|
|
|
10,542 |
|
|
6.1% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
4,138 |
|
|
1.9% |
|
|
|
2,285 |
|
|
1.3% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,600 |
|
|
7.1% |
|
|
$ |
8,257 |
|
|
4.8% |
|
||
- 29 -
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 4, 2020 AND MARCH 30, 2019
Net sales
|
|
|
Three Months Ended |
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
Net Sales |
|
|
% of sales |
|
|
Net Sales |
|
|
% of sales |
|
|
% change |
|
|||||
|
By segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast segment |
|
$ |
183.6 |
|
|
|
83.4 |
% |
|
$ |
141.7 |
|
|
|
81.6 |
% |
|
|
29.6 |
% |
|
Western segment |
|
|
36.6 |
|
|
|
16.6 |
% |
|
|
32.0 |
|
|
|
18.4 |
% |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
220.2 |
|
|
|
100.0 |
% |
|
$ |
173.7 |
|
|
|
100.0 |
% |
|
|
26.7 |
% |
Net sales for the first quarter of 2020 were $220.2 million, a $46.5 million, or 26.7%, increase in sales, from $173.7 million in the first quarter of the prior year. The first quarter of 2020 includes 14-weeks of sales, compared to 13 weeks in the first quarter of 2019, as our fiscal year of 2020 will be 53 weeks long, compared to 52 weeks in our 2019 fiscal year.
Net sales of our Southeast segment were $183.6 million in the first quarter of 2020, compared with $141.7 million in the 2019 first quarter, an increase of $41.9 million, or 29.6%. Southeast segment sales in the first quarter of 2020 includes $15.9 million from our NewSouth Acquisition. Net sales of our Western segment were $36.6 million in the first quarter of 2020, compared with $32.0 million in the first quarter of 2019, an increase of $4.6 million, or 14.0%. Sales of our Western segment are composed of the sales of WWS.
The $46.5 million increase in net sales for the first quarter of 2020 was driven by solid organic growth in both our Southeast and Western segments. Net sales of our Southeast segment, excluding the sales of our NewSouth acquisition, increased $26.0 million, or 18.4%, and net sales of our Western segment increased $4.6 million, or 14.0%, in the first quarter of 2020 compared to the 2019 first quarter. We believe these increases were due to a strong start to the housing market in 2020, as demonstrated by steady order volumes during our 2020 first quarter before the change in the economy as a result of the global COVID-19 pandemic, but also due to successful execution on strategic selling initiatives, which drove incremental sales in the 2020 first quarter compared to last year. There was also an extra week of sales in the first quarter of 2020 compared to the first quarter of 2019, as discussed above. Net sales of our Southeast segment also increased due to the inclusion of $15.9 million from our NewSouth acquisition.
Gross profit and gross margin
Gross profit was $81.1 million in the first quarter of 2020, an increase of $19.8 million, or 32.4%, from $61.3 million in the first quarter of 2019. The gross margin percentage was 36.8% in the first quarter of 2020, compared to 35.3% in the prior year first quarter, an increase of 1.5%. Gross margin increased in the first quarter of 2020 due primarily to the favorable effects of a higher sales and the resulting additional leverage provided to cover fixed costs, and also due to our management of labor costs and other improvements in manufacturing efficiencies.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses were $54.2 million in the first quarter of 2020, an increase of $10.2 million, from $44.0 million in the first quarter of 2019. SG&A in the first quarter of 2020 was 24.6% of net sales, compared to 25.3% of net sales in the first quarter of 2019. The increase in SG&A is primarily the result of the inclusion of the SG&A expenses of NewSouth for the first quarter of 2020, which resulted in an increase in SG&A totaling $6.1 million from its acquisition on February 1, 2020, which includes $0.6 million in amortization of the amortizable intangible assets acquired in the acquisition of NewSouth. Excluding the increase in SG&A from the inclusion of NewSouth, SG&A increased $4.1 million in the first quarter of 2020, compared to the first quarter of 2019. The increase in SG&A was primarily driven by higher distribution costs from the increase in sales in the 2020 first quarter compared to last year’s first quarter.
Income from operations
Income from operations was $26.9 million in the first quarter of 2020, an increase of $9.6 million, from $17.3 million in the first quarter of 2019. Income from operations in the first quarter of 2020 includes $25.8 million from our Southeast segment and $1.1 million from our Western segment, compared to $15.3 million and $2.0 million from our Southeast and Western segments, respectively, in the first quarter of 2019, all after allocation of corporate operating costs in both periods. The increase in income from operations in the first quarter of 2020 compared to the first quarter of 2019 is primarily a result of the previously discussed increases in sales and gross profits driven by solid organic growth in both segments during the first quarter of 2020, compared to last year’s first quarter.
- 30 -
Interest expense, net
Interest expense was $7.2 million in the first quarter of 2020, an increase of $0.5 million, or 6.8%, from $6.7 million in the first quarter of 2019. Interest expense in the first quarter of 2020 includes an increase in interest expense due to the issuance of the Additional Senior Notes totaling $50.0 million effective on January 24, 2020, which we used to finance a portion of the purchase price for our acquisition of NewSouth.
Income tax expense
Our income tax expense was $4.1 million for the first quarter of 2020, compared with $2.3 million for the first quarter of 2019. Our effective tax rate for the three months ended April 4, 2020, was 21.0%, and was 21.7% for the three months ended March 30, 2019.
Income tax expense in the three months ended April 4, 2020, and March 30, 2019, includes excess tax benefits relating to exercises of stock options and lapses of restrictions on stock awards, treated as a discrete item of income tax, totaling $767 thousand and $422 thousand, respectively. Excluding this discrete item, the effective tax rates for the three months ended April 4, 2020, and March 30, 2019, would have been 24.8% and 25.7%, respectively.
Our estimated annual effective tax rate, excluding the discrete items discussed above, approximates our current combined statutory federal and state rate of 25.6%.
In response to the COVID-19 outbreak, in March 2020, the U.S. Congress passed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) legislation aimed at providing relief for individuals and businesses that have been negatively impacted by the pandemic. While we are still assessing the impact of the CARES Act legislation on the Company’s income taxes, at this time we do not expect that the CARES Act will have a material impact to our consolidated financial statements. However, during the three months ended April 4, 2020, we made no payments of estimated federal and state income taxes as the deadlines for such payments to the United States government, and the majority of states in which we have nexus, which have followed the payment deadline extension of this new Federal legislation, have been deferred until July 2020 as a result of the CARES Act.
LIQUIDITY AND CAPITAL RESOURCES
Impact of COVID-19 on Our Business
Due to the unprecedented uncertainty regarding the extent and duration of the COVID-19 pandemic, and the impact it may have on the U.S. economy and our business and operations, we have taken actions aimed at preserving cash and maintaining our liquidity, including : 1) delaying or canceling planned capital expenditures; 2) reducing discretionary spending; 3) optimizing net working capital by closely monitoring and forecasting cash collections and disbursement; and 4) closely managing labor costs.
We ended the first quarter of 2020 with $67.6 million in cash on hand and have $76.0 million of availability under the revolving credit facility of our 2016 Credit Agreement due 2022. Additionally, we have no scheduled debt repayment obligations until the maturity of the outstanding balance of $64.0 million under our 2016 Credit Agreement on October 31, 2022.
Consolidated Cash Flows
Our principal source of liquidity is cash flow generated by operations and supplemented by borrowings under our credit facilities. We expect that this cash generating capability will provide us with financial flexibility in meeting operating and investing needs, but there can be no assurance that will be the case in future periods, due to the possible adverse impacts the COVID-19 pandemic and its effects on the economy may have on our business. Our primary capital requirements are to fund working capital needs, meet required debt service payments on our credit facilities and fund capital expenditures.
The following table summarizes our cash flow results for the first three months of 2020 and 2019:
|
|
|
Components of Cash Flows |
|
|||||
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
March 30, |
|
||
|
(in millions) |
|
2020 |
|
|
2019 |
|
||
|
Cash provided by operating activities |
|
$ |
10.9 |
|
|
$ |
0.9 |
|
|
Cash used in investing activities |
|
|
(92.4 |
) |
|
|
(8.3 |
) |
|
Cash provided by (used in) financing activities |
|
|
51.8 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
$ |
(29.7 |
) |
|
$ |
(7.8 |
) |
- 31 -
Operating activities. Cash provided by operating activities during the first quarter of 2020 was $10.9 million, compared to cash provided of $0.9 million in the first quarter of 2019. The increase in cash provided by operating activities for the first quarter of 2020, as compared to the first quarter of 2019, of $10.0 million, was due to the factors set forth in the table below.
Direct cash flows from operations for the first three months of 2020 and 2019 are as follows:
|
|
|
Direct Operating Cash Flows |
|
|||||
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 4, |
|
|
March 30, |
|
||
|
(in millions) |
|
2020 |
|
|
2019 |
|
||
|
Collections from customers |
|
$ |
219.1 |
|
|
$ |
174.6 |
|
|
Other collections of cash |
|
|
2.4 |
|
|
|
2.3 |
|
|
Disbursements to vendors |
|
|
(139.7 |
) |
|
|
(112.2 |
) |
|
Personnel related disbursements |
|
|
(59.5 |
) |
|
|
(52.6 |
) |
|
Debt service payments |
|
|
(11.4 |
) |
|
|
(11.3 |
) |
|
Other cash activity, net |
|
|
- |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash from operations |
|
$ |
10.9 |
|
|
$ |
0.9 |
|
Days sales outstanding (DSO), which we calculate as accounts receivable divided by quarterly average daily sales, was 41 days at April 4, 2020, compared to 39 days at March 30, 2019.
Inventory on hand as of April 4, 2020, was $51.6 million, compared to $43.9 million at December 28, 2019, an increase of $7.7 million. Inventory on hand at April 4, 2020 includes $4.2 million relating to our acquisition of NewSouth.
We monitor and evaluate raw material inventory levels based on the need for each discrete item to fulfill short-term requirements calculated from current order patterns and to provide appropriate safety stock. Because a significant portion of our products are made-to-order, we have a low amount of work-in-process inventory. As a result of these factors, our inventories are not excessive, and we believe the value of such inventories will be realized through sales.
Investing activities. Cash used in investing activities was $92.4 million for the first quarter of 2020, compared to cash used in investing activities of $8.3 million for the first quarter of 2019, an increase in cash used in investing activities of $84.1 million. Cash used to acquire NewSouth in the first quarter of 2020 totaled $90.1 million. This increase in cash used was partially offset by a decrease in cash used in investing activities due to a decrease in capital expenditures of $6.0 million, which went from $8.3 million in the first quarter of 2019, to $2.3 million in the first quarter of 2020. In the first quarter of 2020, management made the decision to cease spending on a majority of capital projects as part of its cash preservation strategy due to the uncertainty around the COVID-19 pandemic and its potential impact to the Company’s liquidity. Proceeds from disposals of assets in the first quarter of 2020 was $0.1 million, compared with less than $0.1 million in the first quarter of 2019.
Financing activities. Cash provided in financing activities was $51.8 million in the first quarter of 2020, compared to cash used in financing activities of $0.4 million in the first quarter of 2019, an increase in cash provided of $52.1 million. In the first quarter of 2020, we issued the Additional Senior Notes, which provided proceeds of $53.2 million, including a premium of $3.2 million. Proceeds from the issuance of the Additional Senior Notes were used to partially fund the acquisition of NewSouth. There were payments of financing costs totaling $1.3 million in the first quarter of 2020, related to the issuance of Additional Senior Notes. Taxes paid relating to common stock withheld from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock awards were $0.8 million in the first quarter of 2020, versus $0.5 million in the first quarter of 2019, an increase in cash used of $0.3 million. Proceeds from the exercises of stock options were $0.5 million in the first quarter of 2020, compared to $0.2 million in the first quarter of 2019, an increase in proceeds of $0.3 million. There were proceeds from stock issued under our 2019 Employee Stock Purchase Plan of $0.1 million, and there were payments of long-term debt of $0.1 million in the first quarter of 2019.
During the three months ended April 4, 2020, we made no payments of estimated federal and state income taxes as the deadlines for such payments have been deferred until July 2020 as a result of actions by Congress in response to the COVID-19 pandemic.
- 32 -
Capital Resources and Debt Covenant.
2018 Senior Notes due 2026
On August 10, 2018, we completed the issuance of $315.0 million aggregate principal amount of 6.75% senior notes (“2018 Senior Notes due 2026”), issued at 100% of their principal amount. The 2018 Senior Notes due 2026 are jointly and severally and fully and unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future restricted subsidiaries, other than any restricted subsidiary of the Company that does not guarantee the existing senior secured credit facilities or any permitted refinancing thereof. The 2018 Senior Notes due 2026 are senior unsecured obligations of the Company and the guarantors, respectively, and rank pari passu in right of payment with all existing and future senior debt and senior to all existing and future subordinated debt of the Company and the guarantors. The 2018 Senior Notes due 2026 were offered under Rule 144A of the Securities Act, and in transactions outside the United States under Regulation S of the Securities Act, and have not been, and will not be, registered under the Securities Act.
On January 24, 2020, we completed the add-on issuance of $50.0 million aggregate principal amount of 6.75% senior notes (“Additional Senior Notes”), issued at 106.375% of their principal amount, resulting in a premium to us of $3.2 million. The Additional Notes are part of the same issuance of, and rank equally and form a single series with, the 2018 Senior Notes due 2026. Proceeds from the Additional Senior Notes, including premium, were used, together with cash on hand, to pay the $90.4 million purchase price in the acquisition of NewSouth.
The 2018 Senior Notes due 2026 mature on August 10, 2026. Interest on the 2018 Senior Notes due 2026 is payable semi-annually, in arrears, beginning on February 16, 2019, with interest accruing at a rate of 6.75% per annum from August 10, 2018. We incurred financing costs relating to bank fees and professional services costs relating to the offering and issuance of the 2018 Senior Notes due 2026 totaling $10.4 million, and the Additional Senior Notes totaling $1.3 million, partially offset by the $3.2 million premium on the Additional Senior Notes, which are being amortized under the effective interest method. See “Deferred Financing Costs” below. As of April 4, 2020, the face value of debt outstanding under the 2018 Senior Notes due 2026 was $365.0 million, and accrued interest totaled $4.3 million.
The indenture for the 2018 Senior Notes due 2026 gives us the option to redeem some or all of the 2018 Senior Notes due 2026 at the redemption prices and on the terms specified in the indenture governing the 2018 Senior Notes due 2026. The indenture governing the 2018 Senior Notes due 2026 does not require us to make any mandatory redemptions or sinking fund payments. However, upon the occurrence of a change of control, as defined in the indenture, the Company is required to offer to repurchase the notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The indenture for the 2018 Senior Notes due 2026 includes certain covenants limiting the ability of the Company and any guarantors to, (i) incur additional indebtedness; (ii) pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments; (iii) enter into agreements that restrict distributions from restricted subsidiaries; (iv) sell or otherwise dispose of assets; (v) enter into transactions with affiliates; (vi) create or incur liens; merge, consolidate or sell all or substantially all of the Company’s assets; (vii) place restrictions on the ability of subsidiaries to pay dividends or make other payments to the Company; and (viii) designate the Company’s subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications.
2016 Credit Agreement due 2022
On February 16, 2016, we entered into the 2016 Credit Agreement due 2022, among us, the lending institutions identified in the 2016 Credit Agreement due 2022, and SunTrust Bank, as Administrative Agent and Collateral Agent. The 2016 Credit Agreement due 2022 establishes new senior secured credit facilities in an aggregate amount of $310.0 million, consisting of a $270.0 million Term B term loan facility maturing in February 2022 that amortizes on a basis of 1% annually during its six-year term, and a $40.0 million revolving credit facility maturing in February 2021 that includes a swing line facility and a letter of credit facility. Our obligations under the 2016 Credit Agreement due 2022 are, subject to exceptions, guaranteed by substantially all of our wholly-owned direct and indirect subsidiaries that are restricted subsidiaries and secured by substantially all of our assets as well as our direct and indirect restricted subsidiaries’ assets.
- 33 -
On March 16, 2018, we entered into an amendment of our 2016 Credit Agreement due 2022 (the “Second Amendment”). The Second Amendment, among other things, decreases the applicable interest rate margins for the Initial Term Loans (as defined in the 2016 Credit Agreement due 2022) from (i) 3.75% to 2.50%, in the case of the Base Rate Loans (as defined in the 2016 Credit Agreement due 2022), and (ii) 4.75% to 3.50%, in the case of the Eurodollar Loans (as defined in the 2016 Credit Agreement due 2022). On February 17, 2017, we entered into the first amendment to our 2016 Credit Agreement due 2022, which also resulted in decreases in the applicable margins, but which, unlike the Second Amendment, did not include any changes in lender positions.
On October 31, 2019, we entered into an amendment of our 2016 Credit Agreement due 2022 (“Third Amendment”). The Third Amendment provides for, among other things, (i) a new three-year Term A loan in the aggregate principal amount of $64.0 million (the “Initial Term A Loan”), which refinances in full our existing Term B term loan facility under the 2016 Credit Agreement, and has no regularly scheduled amortization, and (ii) a new five-year revolving credit facility due 2024 in an aggregate principal amount of up to $80.0 million (the “New Revolving Facility”), which replaces our existing $40.0 million revolving credit facility under the 2016 Credit Agreement, and includes a swing-line facility and letter of credit facility. Our obligations under the 2016 Credit Agreement continue to be secured by substantially all of our assets, as well as our direct and indirect subsidiaries’ assets.
Pursuant to the Third Amendment, interest on all loans under the 2016 Credit Agreement is payable either quarterly or at the expiration of any LIBOR interest period applicable thereto. The Third Amendment decreases the applicable interest rate margins for the Initial Term Loan A from (i) 2.50% to a spread of 1.00% to 1.75% based on our first lien net leverage ratio, in the case of the Base Rate Loans (with a floor of 100 basis points), and (ii) 3.50% to a spread ranging from 2.00% to 2.75% based on our first lien leverage ratio, in the case of the Eurodollar Loans (with a floor of zero basis points).
Also, in connection with the Third Amendment, we will pay quarterly fees on the unused portion of the revolving credit facility equal to a percentage spread (ranging from 0.25% to 0.35%) based on our first lien net leverage ratio. The Third Amendment also modifies the springing financial covenant under the 2016 Credit Agreement to provide that such financial covenant will not be tested until the Initial Term A Loan is paid in full. As of April 4, 2020, there were $4.0 million of letters of credit outstanding and $76.0 million available under the New Revolving Facility.
Fees and costs relating to the Third Amendment were $0.9 million, which are deferred and being amortized. In connection with the Third Amendment, certain existing lenders modified their positions in or exited the 2016 Credit Agreement. Deferred financing costs and original issue discount allocated to these lenders of $1.5 million were written-off and classified as debt extinguishment costs in our consolidated statement of operations for the year ended December 28, 2019. As of April 4, 2020, the principal amount of debt outstanding under the 2016 Credit Agreement due 2022 was $64.0 million, and accrued interest was $136 thousand.
The weighted average all-in interest rate for borrowings under the term-loan portion of the 2016 Credit Agreement due 2022 was 3.30% as of April 4, 2020, and was 3.77% at December 28, 2019.
Pursuant to the Third Amendment, the 2016 Credit Agreement due 2022 contains a springing financial covenant that would apply if we draw in excess of thirty-five percent (35%) of the revolving facility commitment (excluding $7.5 million of undrawn letters of credit and letters of credit and draws thereunder that are cash collateralized at 103% of the stated amount thereof from such availability test). To the extent in effect, the springing financial covenant would prohibit us from exceeding a maximum first lien net leverage ratio (based on the ratio of total first lien (less unrestricted cash) debt to EBITDA) as of the last day of each applicable fiscal quarter. To the extent the springing financial covenant is in effect, the first lien net leverage ratio cannot exceed 4.00:1.00 (4.50:1.00 during a significant acquisition period as defined). We have not been required to test our first lien net leverage ratio because we have not exceeded 35% of our revolving capacity.
The 2016 Credit Agreement due 2022 also contains a number of affirmative and restrictive covenants, including limitations on the incurrence of additional debt, liens on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of our capital stock, entry into restrictive agreements, prepayments of certain debt and transactions with affiliates, in each case, subject to exceptions and qualifications. The 2016 Credit Agreement due 2022 also contains customary events of default. Upon the occurrence of an event of default, the amounts outstanding under the 2016 Credit Agreement due 2022 may be accelerated and may become immediately due and payable.
On September 18, 2018, we completed an underwritten, public offering of 7,000,000 shares of our common stock, at a public offering price of $23.00 per share (the “2018 Equity Issuance”). The offering resulted in gross proceeds to the Company of $161.0 million. Net of an underwriting fee of $1.15 per share, net cash proceeds to the Company approximated $153.0 million. Contemporaneously with the 2018 Equity Issuance, we prepaid $152.0 million in borrowings outstanding under the term loan portion of the 2016 Credit Agreement due 2022. On December 19, 2018, we voluntarily prepaid an additional $8.0 million in borrowings under the 2016 Credit Agreement due 2022.
- 34 -
Deferred Financing Costs
The activity relating to third-party fees and costs, lender fees and discount for the three months ended April 4, 2020, are as follows. All debt-related fees, costs and original issue discount are classified as a reduction of the carrying value of long-term debt:
|
(in thousands) |
|
Total |
|
|
|
At beginning of year |
|
$ |
10,029 |
|
|
Add: Deferred financing costs from the issuance of the add-on 2018 Senior Notes due 2026 |
|
|
1,266 |
|
|
Less: Premium on the issuance of the add-on 2018 Senior Notes due 2026 |
|
|
(3,187 |
) |
|
Less: Amortization expense relating to 2016 Credit Agreement |
|
|
(73 |
) |
|
Less: Amortization expense relating to 2018 Senior Notes |
|
|
(238 |
) |
|
|
|
|
|
|
|
At end of period |
|
$ |
7,797 |
|
Estimated amortization expense relating to third-party fees and costs, lender fees and discount for the years indicated as of April 4, 2020, is as follows:
|
(in thousands) |
|
Total |
|
|
|
Remainder of 2020 |
|
$ |
847 |
|
|
2021 |
|
|
1,195 |
|
|
2022 |
|
|
1,245 |
|
|
2023 |
|
|
1,183 |
|
|
2024 |
|
|
1,250 |
|
|
Thereafter |
|
|
2,077 |
|
|
|
|
|
|
|
|
Total |
|
$ |
7,797 |
|
As a result of prepayments of the 2016 Credit Agreement due 2022 totaling $204.0 million since its inception in February 2016, we have no future scheduled repayments until the maturity of the facility on October 31, 2022. The contractual future maturities of long-term debt outstanding, including the remaining balance of the financing arrangement described as other debt, as of April 4, 2020, are as follows (at face value):
|
(in thousands) |
|
|
|
|
|
Remainder of 2020 |
|
$ |
— |
|
|
2021 |
|
|
— |
|
|
2022 |
|
|
64,000 |
|
|
2023 |
|
|
— |
|
|
2024 |
|
|
— |
|
|
Thereafter |
|
|
365,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
429,000 |
|
Capital Expenditures. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. For the first quarter of 2020, capital expenditures were $2.3 million, compared to $8.3 million for the first quarter of 2019. In the first quarter of 2020, management made the decision to cease spending on a majority of capital projects as part of its cash preservation strategy implemented in response to the uncertainty around the COVID-19 pandemic’s impact on the Company’s business and liquidity. The Company’s management team is continuing to evaluate the level of capital expenditures the Company may incur for the remainder of 2020 but is not able to provide an estimate of those capital expenditures at this time. Our capital expenditure program is geared towards making investments in capital assets targeted at increasing both gross sales and margins, but also includes capital expenditures for maintenance capital.
Aluminum Forward and Midwest Transaction Premium Contracts. We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusions we use in production. Beginning late in the first quarter of 2020, we began entering into forward contracts to hedge the fluctuations in the price of the delivery component of our aluminum extrusion purchases, known as the Midwest Transaction Premium (MTP).
- 35 -
At April 4, 2020, the fair value of our aluminum forward contracts was in a net liability position of $4.9 million. We had 33 outstanding forward contracts for the purchase of 41.5 million pounds of aluminum through December 2021, at an average price of $0.81 per pound, which excludes the Midwest premium, with maturity dates of between one month and twenty-one months. We assessed the risk of non-performance of the Company to these contracts and determined it was insignificant and, therefore, did not record any adjustment to fair value as of April 4, 2020.
At April 4, 2020, the fair value of our MTP contracts was in a net liability position of $53 thousand. We had 7 outstanding MTP contracts to hedge the Platt US MW Transaction price per pound for the delivery of 15.3 million pounds of aluminum through December 2021, at an average price of $0.12 per pound, with maturity dates of between one month and twenty-one months. We assessed the risk of non-performance of the Company to these contracts and determined it was insignificant and, therefore, did not record any adjustment to fair value as of April 4, 2020.
We assess the effectiveness of our aluminum forward contracts 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. The effective portion of the gain or loss on our aluminum forward contracts is reported as a component of accumulated other comprehensive loss and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. The amount of losses, net, recognized in the “accumulated other comprehensive loss” line item in the accompanying condensed consolidated balance sheet as of April 4, 2020, that we expect will be reclassified to earnings within the next twelve months, will be approximately $4.0 million.
Subsequent Event
Florida Manufacturing Facilities Consolidation
On April 15, 2020, the Company’s management decided to exit its manufacturing facility in Orlando, Florida, where its WinDoor and Eze-Breeze products are assembled, and to relocate the manufacturing of those products to the Company’s Venice and Tampa, Florida plants, respectively. The Company expects to cease production at the Orlando facility during June 2020. In connection with this announcement, the Company currently expects to record pre-tax special item charges in the range of approximately $4.2 million to $4.6 million. Approximately $3.0 million to $3.4 million of the charges are expected to be paid in cash and are primarily attributable to separation and retention-until-closure payments for employees, remaining rent on the Orlando facility, and equipment relocation expenses. Non-cash charges of approximately $1.2 million are related to certain product rationalization initiatives. Most of the pre-tax special item charges are expected to be recorded in 2020 and most of the cash outflows are expected to occur in 2020. The Company expects to realize annualized cost savings in the range of approximately $3.5 million to $3.8 million in connection with its closure of the Orlando facility.
Contractual Obligations
Except for the issuance of the Additional Senior Notes, as described in Part I., Item 1., Note 9, and the addition of $14.6 million of operating lease liabilities in the three months ended April 4, 2020, as described in Part I., Item 1., Note 10, including the $10.6 million in operating lease liabilities assumed in the NewSouth Acquisition, described in Part I., Item 1., Note 6, there have been no significant changes to the “Disclosures of Contractual Obligations and Commercial Commitments” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 28, 2019.
Significant Accounting Policies and Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Significant accounting policies are those that are both important to the accurate portrayal of a Company’s financial condition and results, and those that require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the condensed consolidated financial statements and the possibility that future events may be significantly different from our expectations. We identified our significant accounting policies in our Annual Report on Form 10-K for the year ended December 28, 2019. There have been no changes to our critical accounting policies during the first three months of 2020.
As discussed below, we updated certain impairment tests as a result of the COVID-19 global pandemic, which we determined to be an interim triggering event.
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Goodwill and Indefinite-Lived Intangible Assets
We perform our annual goodwill and indefinite-lived intangible asset impairment testing on the first day of our fiscal fourth quarter of each year, and on interim periods if needed based on occurrence of triggering events. Given the general deterioration in economic and market conditions surrounding the COVID-19 pandemic, and the narrow excess fair value over carrying value of its WinDoor and WWS trade names as described in our 2019 Form 10-K, the Company determined it should complete interim impairment tests of its WinDoor and WWS trade names as of April 4, 2020.
Although these interim impairment tests did not indicate that impairments of those asset exist at this time, due to earlier and stricter stay-at-home orders relating to the COVID-19 pandemic in the western states, our WWS reporting unit sales could decrease further and for longer than we currently forecast, which would result in an impairment if such decrease in sales were to occur. Our modeling has indicated that if sales of our WWS reporting unit decrease to approximately $133 million in 2020, and assuming a long-term compound average growth rate of 7% thereafter, with a terminal growth rate of 3%, the $73.0 million carrying value of our WWS trade name would exceed it fair value by approximately $6 million. However, if our WWS reporting unit achieves 2020 net sales that are flat to prior year and returns to growth assumptions for 2021 and beyond, as modeled in our 2019 annual impairment test, which includes a terminal growth rate of 3%, then no impairment is indicated. A key assumption in our modeling is an assessment of macro industry growth in our WWS reporting unit’s key markets.
Recently Issued Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 is intended to provide temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The transition to new reference interest rates will require certain contracts to be modified and ASU 2020-04 is intended to mitigate the effects of this transition. The accommodations provided by ASU 2020-04 are effective as of March 12, 2020 through December 31, 2022 and may be applied at the beginning of any interim period within that time frame. We are currently assessing the impact this standard will have on our consolidated financial statements.
Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles and also clarifies and amends existing guidance. This standard is effective beginning January 1, 2021, with early adoption permitted. We do not expect this standard to have a material impact on our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We utilize derivative financial instruments to hedge price movements in aluminum materials used in our manufacturing process and to hedge the delivery component of our aluminum needs, known as the Midwest Transaction Premium (“MTP”). As of April 4, 2020, we are covered for approximately 68% of our anticipated aluminum needs through December 2020 at an average price of $0.82 per pound, and for approximately 34% of our anticipated aluminum needs in 2021 at an average price of $0.79 per pound. These calculations are based only on the LME price of aluminum and excludes an estimate for the MTP, which we hedge separately. As of April 4, 2020, we are covered for approximately 29% of our anticipated MTP costs through December 2020 at an average price of $0.12 per pound, and for approximately 10% of our anticipated MTP costs in 2021 at an average price of $0.12 per pound.
Regarding our aluminum hedging instruments for the purchase of aluminum, as of April 4, 2020, a 10% decrease in the price of aluminum per pound would decrease the fair value of our forward contracts of aluminum by an estimated $2.9 million. This calculation utilizes our actual commitment of 41.5 million pounds under contract (to be settled throughout December 2021) and the market price of aluminum as of April 4, 2020. This calculation is based only on the LME price of aluminum and excludes an estimate for the MTP. Regarding our MTP contracts for hedging of the delivery component of our aluminum needs, as of April 4, 2020, a 10% decrease in the Platts MW US Transaction price per pound would decrease the fair value of our MTP contracts an estimated $177 thousand. This calculation utilizes our actual commitment of 15.3 million pounds under contract (to be settled throughout December 2021) and the then current Platts MW US Transaction price per pound as of April 4, 2020.
We experience changes in interest expense when market interest rates change. Changes in our debt could also increase these risks. Based on debt outstanding with a variable rate as of the date of filing of this Quarterly Report on Form 10-Q, of $64.0 million, a 100 basis-point increase in interest rate would result in approximately $0.6 million of additional interest costs annually.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
A control system, however, no matter how well conceived and operated, can at best provide reasonable, not absolute, assurance that the objectives of the control system are met. Additionally, a control system reflects the fact that there are resource constraints, and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within our Company have been detected, and due to these inherent limitations, misstatements due to error or fraud may occur and not be detected.
Our chief executive officer and chief financial officer, with the assistance of management, evaluated the design, operation and effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (“Evaluation Date”). Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective for the purposes of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
During the period covered by this report, there have been no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, during the quarter ended April 4, 2020, we acquired NewSouth Window Solutions (“NewSouth”). We are currently integrating NewSouth into our operations, compliance programs and internal control processes, and we will include NewSouth in our assessment of internal controls over financial reporting as of January 2, 2021, the end of our 2020 fiscal year.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities with respect to claims and lawsuits. We do not believe that the ultimate resolution of the matters pending or threatened against us at this time will have a material adverse impact on our financial position or results of operations.
Although our business and facilities are subject to federal, state, and local environmental regulation, environmental regulation does not have a material impact on our operations. We believe that our facilities are in material compliance with such laws and regulations. As owners and lessees of real property, we can be held liable for the investigation or remediation of contamination on such properties, in some circumstances without regard to whether we knew of or were responsible for such contamination. Our current expenditures with respect to environmental investigation and remediation at our facilities are minimal, although no assurance can be provided that more significant remediation may not be required in the future as a result of spills or releases of petroleum products or hazardous substances, or the discovery of previously unknown environmental conditions.
ITEM 1A. RISK FACTORS
Our operations are subject to a number of risks. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, including the risk factors set forth in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 28, 2019. If any of the events described in the risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected.
The COVID-19 pandemic has had, and is expected to continue to have, among other risks, an adverse effect on our business, results of operations, and financial condition.
The COVID-19 pandemic has had, and is expected to continue to have, an adverse effect on our business, results of operations, and financial condition, among other risks, although the extent, nature and timing of such impacts cannot be predicted at this time. As the virus continues to unfold in the United States and globally, our business, results of operations and financial condition may be materially and adversely affected.
The extent to which the COVID-19 pandemic ultimately impacts us will depend on a number of factors and developments that we are not able to predict or control, including, among others: the severity and duration of the outbreak, including whether there is a "second wave" or other additional periods of increases or spikes in the number or severity of COVID-19 cases in future periods in some or all of the regions where we conduct our operations and/or sell our products, or where our customers or suppliers conduct their businesses, and how widespread any such additional area or wave of infections may become; governmental, business and other actions, including the possibility of additional state, provincial or local emergency or executive orders that, unlike recent governmental orders of that nature, may not deem our products or business operations to be essential; and, the health of and the effect of the pandemic on our workforce and the availability of our workforce.
Furthermore, there has been significant volatility in U.S. equity markets which may have indirectly been caused by the COVID-19 pandemic. The price and trading volume of the Company’s common stock has similarly experienced significant fluctuations, which may continue until more normalized business conditions return. In addition, if the pandemic and its adverse economic effects create disruptions or turmoil in the credit markets, it could adversely affect our ability to access capital on favorable terms, or at all, and continue to meet our liquidity needs, all of which cannot be predicted.
We also cannot predict the impact that COVID-19 will have on third parties critical to our success, such as: (1) the builders, dealers and distributors to whom we sell our products, and (2) the suppliers who provide us with the materials necessary for us to manufacture our products, some of whom have experienced their own business and operational disruptions as a result of the COVID-19 pandemic, including facility or location closures, reduced hours of operations and/or labor shortages. While we have not experienced any significant disruptions to our supply chain for materials to-date, there can be no assurance that we will not experience significant disruptions or delays of production and delivery of materials and products in our supply chain, including for example, due to future government actions that may require one or more of our suppliers to temporarily close or dramatically reduce its operations for extended periods of time, or due to voluntary actions by those suppliers, as part of an effort to control the spread of the COVID-19 pandemic.
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The pandemic has required us and certain of our customers and third-party vendors to activate business continuity programs and make ongoing adjustments to operations. To the extent that these plans and back-up strategies and adjustments are either not available, insufficient or cannot be implemented in whole or in part, we may be exposed to legal, regulatory, reputational, operational, information security or financial risk. Finally, as a portion of our accounting, finance, human resources and other administrative team members are now working from home, we are increasingly reliant on select vendors, including those we have no direct relationship with such as our associates' internet service providers, to maintain reliable access to our internal networks. Failure by such third-party providers could adversely impact our operations.
The unfavorable effects of the COVID-19 pandemic could become more severe if the crisis continues or worsens, and we could experience detrimental impacts that might include the following:
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complete or partial closures of, or other operational challenges at, one or more of our manufacturing facilities, resulting from government action, labor shortages, suppliers being unable to provide us with materials, or our voluntary actions to protect the health and safety of our team members; |
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difficulty sourcing materials we require to fulfill production needs or higher prices being charged to us for those materials, as a result of suppliers experiencing closures or reductions in their production capacity or utilization levels; |
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economic challenges, contractions or recession unfavorably impacting our customers’ financial condition and liquidity, reducing their ability or desire to purchase additional products from us and increasing the likelihood they may need additional time to pay us or that they fail to pay us at all, which could significantly increase the amount of accounts receivable and the aging of those accounts and require us to record additional allowances for doubtful accounts; |
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economic challenges and contractions, including high unemployment rates, and reduced economic activity in general, resulting in a lengthy recession, which could negatively impact consumer purchases and spending for our products; |
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difficulty accessing debt or equity capital on attractive terms, or at all, due to an unfavorable change in our credit ratings, and/or a severe disruption or instability in capital and financial markets, or deterioration in other conditions that impact our ability to access capital needed to fund business operations or to address other capital requirements in a timely manner |
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our inability to comply with financial covenants under our debt agreements and notes indentures, which could result in a default and potentially an acceleration of indebtedness; and |
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the health and availability of our team members, particularly if a significant number of them or their family members are impacted by COVID-19, which could disrupt our business continuity during the pandemic. |
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If any one or more of those impacts are sustained, they could have accounting consequences such as impairments of the goodwill and/or trade names of our reporting units and could seriously disrupt our operations and sales for extended periods. The adverse effect on our business, financial condition or results of operations of any of the matters described above could be material.
The extent of the impact of the COVID-19 pandemic on our business, results of operations and financial condition, including any goodwill or trade name impairment or other asset impairments to our business segments as described in this Report, will depend largely on future developments, including the severity and duration of the outbreak in the U.S., whether there are “second waves” or other meaningful increases in the number or severity of COVID-19 cases in future periods, and the related impact on consumer confidence and spending and on our customers, suppliers and labor force, all of which are highly uncertain and cannot be predicted. The COVID-19 pandemic and the unfavorable impacts it has had on the United States and global economies presents material uncertainty and risk with respect to our business going forward and our future results of operations and financial condition. The pandemic and its unfavorable economic impacts may also have the effect of heightening many of the other risks described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities and Use of Proceeds
None during the quarter.
Issuer Purchases of Equity
None during the quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document |
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Inline XBRL Taxonomy Extension Schema |
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Inline XBRL Taxonomy Extension Calculation Linkbase |
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Inline XBRL Taxonomy Definition Linkbase |
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Inline XBRL Taxonomy Extension Label Linkbase |
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Inline XBRL Taxonomy Extension Presentation Linkbase |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
**Furnished herewith.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PGT INNOVATIONS, INC. |
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(Registrant) |
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Date: May 13, 2020 |
/s/ Sherri Baker |
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Senior Vice President and Chief Financial Officer |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 8/10/26 | ||||
| 12/31/22 | ||||
| 10/31/22 | ||||
| 1/2/21 | ||||
| 1/1/21 | ||||
| 12/28/20 | ||||
| Filed on: | 5/13/20 | 8-K | ||
| 5/1/20 | ||||
| 4/30/20 | ||||
| 4/15/20 | ||||
| 4/8/20 | 8-K | |||
| For Period end: | 4/4/20 | |||
| 3/30/20 | ||||
| 3/12/20 | ||||
| 2/26/20 | 10-K | |||
| 2/14/20 | 4, 8-K, SC 13G, SC 13G/A | |||
| 2/1/20 | 8-K | |||
| 1/24/20 | 8-K | |||
| 12/28/19 | 10-K, DEF 14A | |||
| 12/15/19 | ||||
| 10/31/19 | 8-K | |||
| 3/30/19 | 10-Q | |||
| 2/16/19 | ||||
| 12/29/18 | 10-K | |||
| 12/19/18 | ||||
| 9/18/18 | 8-K | |||
| 8/13/18 | 8-K, 8-K/A | |||
| 8/10/18 | 8-K | |||
| 3/16/18 | 4, 8-K | |||
| 2/17/17 | 8-K | |||
| 12/28/16 | ||||
| 12/14/16 | 8-K | |||
| 2/16/16 | 8-K, 8-K/A | |||
| 2/15/06 | ||||
| 12/16/03 | ||||
| List all Filings | ||||