|
||||||||||||||||||||||||||
| SEC Info℠ | | | Home | | | Search | | | My Interests | | | Help | | | Sign In | | | Please Sign In | |||||||
|
||||||||||||||||||||||||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/07/19 PGT Innovations, Inc. 10-Q 9/28/19 88:14M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.29M
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
19: R1 Document and Entity Information HTML 79K
66: R2 Condensed Consolidated Statements of Operations HTML 77K
78: R3 Condensed Consolidated Statements of Comprehensive HTML 54K
Income
45: R4 Condensed Consolidated Balance Sheets HTML 117K
20: R5 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
67: R6 Condensed Consolidated Statements of Cash Flows HTML 111K
79: R7 Condensed Consolidated Statements of Shareholders' HTML 133K
Equity
48: R8 Condensed Consolidated Statements of Shareholders' HTML 30K
Equity (Parenthetical)
17: R9 Basis of Presentation HTML 48K
59: R10 Revenue Recognition and Contracts with Customers HTML 298K
86: R11 Warranty HTML 122K
36: R12 Inventories HTML 52K
27: R13 Stock Based Compensation HTML 34K
60: R14 Acquisition HTML 134K
87: R15 Net Income Per Common Share HTML 112K
37: R16 Goodwill and Other Intangible Assets HTML 144K
28: R17 Long-Term Debt HTML 155K
58: R18 Leases HTML 174K
88: R19 Commitments and Contingencies HTML 28K
41: R20 Income Taxes HTML 33K
12: R21 Fair Value HTML 142K
61: R22 Derivatives HTML 199K
70: R23 Accumulated Other Comprehensive Loss HTML 104K
42: R24 Shareholders' Equity HTML 29K
14: R25 Segments HTML 150K
62: R26 Subsequent Events HTML 33K
71: R27 Basis of Presentation (Policies) HTML 48K
43: R28 Revenue Recognition and Contracts with Customers HTML 282K
(Tables)
11: R29 Warranty (Tables) HTML 120K
30: R30 Inventories (Tables) HTML 53K
40: R31 Acquisition (Tables) HTML 129K
85: R32 Net Income Per Common Share (Tables) HTML 111K
57: R33 Goodwill and Other Intangible Assets (Tables) HTML 147K
29: R34 Long-Term Debt (Tables) HTML 147K
39: R35 Leases (Tables) HTML 176K
83: R36 Fair Value (Tables) HTML 133K
56: R37 Derivatives (Tables) HTML 195K
31: R38 Accumulated Other Comprehensive Loss (Tables) HTML 104K
38: R39 Segments (Tables) HTML 150K
16: R40 Basis of Presentation - Additional Information HTML 62K
(Detail)
47: R41 Revenue Recognition and Contracts with Customers - HTML 48K
Additional Information (Detail)
77: R42 Revenue Recognition and Contracts with Customers - HTML 53K
Net Sales by Product Category, Channel and by
Segment (Detail)
69: R43 Warranty - Additional Information (Detail) HTML 35K
15: R44 Warranty - Summary of Current Period Charges, HTML 39K
Adjustments to Previous Estimates, Settlements
representing Actual Costs Incurred with regard to
Accrued Warranty (Detail)
46: R45 Inventories - Additional Information (Detail) HTML 35K
76: R46 Stock Based-Compensation - Additional Information HTML 90K
(Detail)
68: R47 Acquisition - Additional Information (Detail) HTML 67K
18: R48 Acquisition - Schedule of Fair Value of Assets and HTML 75K
Liabilities Assumed (Detail)
44: R49 Acquisition - Schedule for Valuation of HTML 38K
Identifiable Intangible Assets Acquired and
Estimate of Useful Lives (Detail)
32: R50 Net Income Per Common Share - Additional HTML 28K
Information (Detail)
24: R51 Net Income Per Common Share - Calculation of EPS HTML 52K
and Reconciliation of Weighted Average Common
Shares Used in Calculation of Basic and Diluted
EPS (Detail)
54: R52 Goodwill and Other Intangible Assets - Schedule of HTML 67K
Goodwill and Intangible Assets Net (Detail)
81: R53 Goodwill and Other Intangible Assets - Estimated HTML 42K
Amortization for Future Fiscal Year (Detail)
33: R54 Long Term Debt - Schedule of Long-term Debt HTML 49K
(Detail)
25: R55 Long-Term Debt - Additional Information (Detail) HTML 164K
55: R56 Long-Term Debt - Activity Relating to Third-Party HTML 35K
Fees and Costs, Lender Fees and Discount (Detail)
82: R57 Long-Term Debt - Estimated Amortization Expense HTML 38K
Relating to Third-Party Fees and Costs, Lender
Fees and Discount (Detail)
34: R58 Long-Term Debt - Contractual Future Maturities of HTML 43K
Long-Term Debt Outstanding, Including Remaining
Balance of Financing Arrangement Described as
Other Debt (Detail)
23: R59 Leases - Additional Information (Detail) HTML 51K
64: R60 Leases - Components of Lease Expense (Detail) HTML 32K
72: R61 Leases - Other Information Relating to Leases HTML 36K
(Detail)
50: R62 Leases - Future Minimum Lease Payments under HTML 70K
Non-cancellable Leases (Detail)
21: R63 Income Taxes - Additional Information (Detail) HTML 45K
65: R64 Fair Value - Additional Information (Detail) HTML 40K
74: R65 Fair Value - Schedule of Fair Value on Recurring HTML 33K
Basis (Detail)
51: R66 Derivatives - Additional Information (Detail) HTML 47K
22: R67 Derivatives - Summary of Fair Value of Hedges HTML 34K
(Detail)
63: R68 Derivatives - Gains (Losses) on Derivative HTML 35K
Financial Instruments (Detail)
75: R69 Accumulated Other Comprehensive Loss - Components HTML 53K
of Accumulated Other Comprehensive Loss (Detail)
80: R70 Shareholders' Equity - Additional Information HTML 32K
(Detail)
52: R71 Segments - Additional Information (Detail) HTML 26K
26: R72 Segments - Summary of Financial Data Attributable HTML 46K
to Operating Segments (Detail)
35: R73 Subsequent Events - Additional Information HTML 75K
(Detail)
53: XML IDEA XML File -- Filing Summary XML 162K
84: XML XBRL Instance -- pgti-10q_20190928_htm XML 4.13M
13: EXCEL IDEA Workbook of Financial Reports XLSX 91K
7: EX-101.CAL XBRL Calculations -- pgti-20190928_cal XML 221K
8: EX-101.DEF XBRL Definitions -- pgti-20190928_def XML 591K
9: EX-101.LAB XBRL Labels -- pgti-20190928_lab XML 1.33M
10: EX-101.PRE XBRL Presentations -- pgti-20190928_pre XML 1.02M
6: EX-101.SCH XBRL Schema -- pgti-20190928 XSD 198K
49: JSON XBRL Instance as JSON Data -- MetaLinks 361± 576K
73: ZIP XBRL Zipped Folder -- 0001564590-19-041541-xbrl Zip 230K
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 September 28, i 2019 /
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 58,404,734 shares, as of October 31, 2019.
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 and Nine Months Ended September 28, 2019
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
Number |
|
Part I. |
|
|
3 |
|||
|
|
|
Item 1. |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
8 |
|
|
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
29 |
|
|
|
Item 3. |
|
|
42 |
|
|
|
|
Item 4. |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
Part II. |
|
|
43 |
|||
|
|
|
Item 1. |
|
|
43 |
|
|
|
|
Item 1A. |
|
|
43 |
|
|
|
|
Item 2. |
|
|
44 |
|
|
|
|
Item 3. |
|
|
44 |
|
|
|
|
Item 4. |
|
|
44 |
|
|
|
|
Item 5. |
|
|
44 |
|
|
|
|
Item 6. |
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 28, |
|
|
September 29, |
|
|
September 28, |
|
|
|
|||||
|
|
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
|
|
(unaudited) |
|
|
(unaudited) |
|
||||||||||
|
Net sales |
$ |
i 197,823 |
|
|
$ |
i 199,084 |
|
|
$ |
i 570,130 |
|
|
$ |
i 508,606 |
|
|
Cost of sales |
|
i 127,828 |
|
|
|
i 126,086 |
|
|
|
i 365,925 |
|
|
|
i 330,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
i 69,995 |
|
|
|
i 72,998 |
|
|
|
i 204,205 |
|
|
|
i 177,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
i 44,564 |
|
|
|
i 44,055 |
|
|
|
i 132,604 |
|
|
|
i 105,293 |
|
|
Gains on sales of assets under APA |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2,551 |
) |
|
Income from operations |
|
i 25,431 |
|
|
|
i 28,943 |
|
|
|
i 71,601 |
|
|
|
i 74,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
i 6,452 |
|
|
|
i 11,741 |
|
|
|
i 19,922 |
|
|
|
i 19,393 |
|
|
Debt extinguishment costs |
|
— |
|
|
|
i 296 |
|
|
|
— |
|
|
|
i 3,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
i 18,979 |
|
|
|
i 16,906 |
|
|
|
i 51,679 |
|
|
|
i 52,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
i 3,873 |
|
|
|
i 3,335 |
|
|
|
i 11,271 |
|
|
|
i 8,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
i 15,106 |
|
|
$ |
i 13,571 |
|
|
$ |
i 40,408 |
|
|
$ |
i 43,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
i 0.26 |
|
|
$ |
i 0.26 |
|
|
$ |
i 0.69 |
|
|
$ |
i 0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
$ |
i 0.26 |
|
|
$ |
i 0.26 |
|
|
$ |
i 0.68 |
|
|
$ |
i 0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
i 58,433 |
|
|
|
i 51,682 |
|
|
|
i 58,320 |
|
|
|
i 50,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
i 59,142 |
|
|
|
i 53,068 |
|
|
|
i 59,192 |
|
|
|
i 52,378 |
|
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 28, |
|
|
September 29, |
|
|
September 28, |
|
|
|
|||||
|
|
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
|
|
(unaudited) |
|
|
(unaudited) |
|
||||||||||
|
Net income |
$ |
i 15,106 |
|
|
$ |
i 13,571 |
|
|
$ |
i 40,408 |
|
|
$ |
i 43,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives |
|
( i 1,136 |
) |
|
|
( i 649 |
) |
|
|
( i 2,083 |
) |
|
|
( i 1,122 |
) |
|
Reclassification to earnings |
|
i 1,532 |
|
|
|
i 58 |
|
|
|
i 3,670 |
|
|
|
i 15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before tax |
|
i 396 |
|
|
|
( i 591 |
) |
|
|
i 1,587 |
|
|
|
( i 1,107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) related to components of other comprehensive income (loss) |
|
( i 102 |
) |
|
|
i 151 |
|
|
|
( i 406 |
) |
|
|
i 283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
i 294 |
|
|
|
( i 440 |
) |
|
|
i 1,181 |
|
|
|
( i 824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
$ |
i 15,400 |
|
|
$ |
i 13,131 |
|
|
$ |
i 41,589 |
|
|
$ |
i 42,635 |
|
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)
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2018 |
|
|||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 81,803 |
|
|
$ |
i 52,650 |
|
|
Accounts receivable, net |
|
|
i 77,375 |
|
|
|
i 80,717 |
|
|
Inventories |
|
|
i 47,566 |
|
|
|
i 44,666 |
|
|
Contract assets, net |
|
|
i 12,735 |
|
|
|
i 6,757 |
|
|
Prepaid expenses |
|
|
i 4,279 |
|
|
|
i 2,863 |
|
|
Other current assets |
|
|
i 10,312 |
|
|
|
i 7,908 |
|
|
Total current assets |
|
|
i 234,070 |
|
|
|
i 195,561 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
i 122,354 |
|
|
|
i 115,707 |
|
|
Operating lease right-of-use asset, net |
|
|
i 26,899 |
|
|
|
— |
|
|
Intangible assets, net |
|
|
i 259,859 |
|
|
|
i 271,818 |
|
|
Goodwill |
|
|
i 277,600 |
|
|
|
i 277,827 |
|
|
Other assets, net |
|
|
i 1,012 |
|
|
|
i 1,240 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
i 921,794 |
|
|
$ |
i 862,153 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
i 61,249 |
|
|
$ |
i 68,557 |
|
|
Current portion of long-term debt |
|
|
— |
|
|
|
i 163 |
|
|
Current portion of operating lease liability |
|
|
i 4,551 |
|
|
|
— |
|
|
Total current liabilities |
|
|
i 65,800 |
|
|
|
i 68,720 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
i 367,917 |
|
|
|
i 366,614 |
|
|
Operating lease liability, less current portion |
|
|
i 24,639 |
|
|
|
— |
|
|
Deferred income taxes |
|
|
i 22,991 |
|
|
|
i 22,758 |
|
|
Other liabilities |
|
|
i 14,815 |
|
|
|
i 18,517 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
i 496,162 |
|
|
|
i 476,609 |
|
|
|
|
|
|
|
|
|
|
|
|
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 61,712 and i 60,729 shares issued and i 58,354 and i 58,082 shares outstanding at September 28, 2019 and December 29, 2018, respectively |
|
|
i 617 |
|
|
|
i 607 |
|
|
Additional paid-in-capital |
|
|
i 413,700 |
|
|
|
i 409,661 |
|
|
Accumulated other comprehensive loss |
|
|
( i 1,884 |
) |
|
|
( i 3,065 |
) |
|
Retained earnings (accumulated deficit) |
|
|
i 31,508 |
|
|
|
( i 8,900 |
) |
|
Shareholders' equity |
|
|
i 443,941 |
|
|
|
i 398,303 |
|
|
Less: Treasury stock at cost |
|
|
( i 18,309 |
) |
|
|
( i 12,759 |
) |
|
Total shareholders' equity |
|
|
i 425,632 |
|
|
|
i 385,544 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
i 921,794 |
|
|
$ |
i 862,153 |
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
Nine Months Ended |
|
|||||
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2018 |
|
|||
|
|
|
(unaudited) |
|
|||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 40,408 |
|
|
$ |
i 43,459 |
|
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
i 13,854 |
|
|
|
i 9,724 |
|
|
Amortization |
|
|
i 11,959 |
|
|
|
i 6,126 |
|
|
Amortization of operating lease right-of-use asset |
|
|
i 3,637 |
|
|
|
— |
|
|
Provision for allowance for doubtful accounts |
|
|
i 1,659 |
|
|
|
i 1,017 |
|
|
Stock-based compensation, including special employee grant |
|
|
i 3,246 |
|
|
|
i 2,543 |
|
|
Amortization and write-offs of deferred financing costs and debt discount |
|
|
i 1,303 |
|
|
|
i 7,086 |
|
|
Debt extinguishment costs |
|
|
— |
|
|
|
i 3,375 |
|
|
Gains on sales of assets |
|
|
( i 3 |
) |
|
|
( i 2,611 |
) |
|
Change in operating assets and liabilities (net of effects of acquisition): |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( i 2,682 |
) |
|
|
( i 27,598 |
) |
|
Inventories |
|
|
( i 2,900 |
) |
|
|
( i 1,723 |
) |
|
Contract assets, net, prepaid expenses, other current and other assets |
|
|
( i 7,720 |
) |
|
|
( i 4,448 |
) |
|
Change in operating lease liability |
|
|
i 1,421 |
|
|
|
- |
|
|
Accounts payable, accrued and other liabilities |
|
|
( i 9,910 |
) |
|
|
i 27,602 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
i 54,272 |
|
|
|
i 64,552 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
( i 20,252 |
) |
|
|
( i 21,740 |
) |
|
Business acquisition |
|
|
— |
|
|
|
( i 355,213 |
) |
|
Proceeds from sales of assets |
|
|
i 43 |
|
|
|
i 5,866 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( i 20,209 |
) |
|
|
( i 371,087 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes |
|
|
— |
|
|
|
i 315,000 |
|
|
Proceeds from issuance of common stock |
|
|
— |
|
|
|
i 152,653 |
|
|
Payments of long-term debt |
|
|
( i 163 |
) |
|
|
( i 152,220 |
) |
|
Payments of financing costs |
|
|
— |
|
|
|
( i 12,066 |
) |
|
Purchases of treasury stock under Board of Director approved plan |
|
|
( i 5,550 |
) |
|
|
- |
|
|
Purchases of treasury stock relating to tax withholdings on employee equity awards |
|
|
( i 505 |
) |
|
|
( i 637 |
) |
|
Proceeds from exercise of stock options |
|
|
i 1,262 |
|
|
|
i 1,928 |
|
|
Proceeds from issuance of common stock under employee |
|
|
|
|
|
|
|
|
|
stock purchase plan (ESPP) |
|
|
i 46 |
|
|
|
i 18 |
|
|
Other |
|
|
— |
|
|
|
( i 11 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
( i 4,910 |
) |
|
|
i 304,665 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
i 29,153 |
|
|
|
( i 1,870 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
i 52,650 |
|
|
|
i 34,029 |
|
|
Cash and cash equivalents at end of period |
|
$ |
i 81,803 |
|
|
$ |
i 32,159 |
|
|
|
|
|
|
|
|
|
|
|
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 SEPTEMBER 29, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018 |
|
|
i 50,705,766 |
|
|
$ |
i 533 |
|
|
$ |
i 254,399 |
|
|
$ |
( i 384 |
) |
|
$ |
( i 32,945 |
) |
|
$ |
( i 12,759 |
) |
|
$ |
i 208,844 |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 832 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 832 |
|
|
Exercise of stock options |
|
|
i 183,808 |
|
|
|
i 2 |
|
|
|
i 365 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 367 |
|
|
Common stock issued under ESPP |
|
|
i 385 |
|
|
|
— |
|
|
|
i 8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 8 |
|
|
Issuances under Equity Offering |
|
|
i 7,000,000 |
|
|
|
i 70 |
|
|
|
i 152,583 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 152,653 |
|
|
Issuances under Employee Grant |
|
|
i 24,590 |
|
|
|
— |
|
|
|
i 513 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 513 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 13,571 |
|
|
|
— |
|
|
|
i 13,571 |
|
|
Other comprehensive loss, net of $ i 151 tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 440 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 440 |
) |
|
Balance at September 29, 2018 |
|
|
i 57,914,549 |
|
|
$ |
i 605 |
|
|
$ |
i 408,700 |
|
|
$ |
( i 824 |
) |
|
$ |
( i 19,374 |
) |
|
$ |
( i 12,759 |
) |
|
$ |
i 376,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED SEPTEMBER 29, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2017 |
|
|
i 49,805,338 |
|
|
$ |
i 525 |
|
|
$ |
i 252,275 |
|
|
$ |
— |
|
|
$ |
( i 64,716 |
) |
|
$ |
( i 12,759 |
) |
|
$ |
i 175,325 |
|
|
Cumulative effect of change in accounting principle, net of tax effect of $ i 647 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,883 |
|
|
|
— |
|
|
|
i 1,883 |
|
|
Balance at December 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- as adjusted |
|
|
i 49,805,338 |
|
|
|
i 525 |
|
|
|
i 252,275 |
|
|
|
— |
|
|
|
( i 62,833 |
) |
|
|
( i 12,759 |
) |
|
|
i 177,208 |
|
|
Vesting of restricted stock |
|
|
i 151,174 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
i 1 |
|
|
|
( i 1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
( i 32,439 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 637 |
) |
|
|
( i 637 |
) |
|
Retirement of treasury stock |
|
|
— |
|
|
|
( i 1 |
) |
|
|
( i 636 |
) |
|
|
— |
|
|
|
— |
|
|
|
i 637 |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 2,030 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,030 |
|
|
Exercise of stock options |
|
|
i 964,780 |
|
|
|
i 10 |
|
|
|
i 1,918 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,928 |
|
|
Common stock issued under ESPP |
|
|
i 1,106 |
|
|
|
— |
|
|
|
i 18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 18 |
|
|
Issuances under Equity Offering |
|
|
i 7,000,000 |
|
|
|
i 70 |
|
|
|
i 152,583 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 152,653 |
|
|
Issuances under Employee Grant |
|
|
i 24,590 |
|
|
|
— |
|
|
|
i 513 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 513 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 43,459 |
|
|
|
— |
|
|
|
i 43,459 |
|
|
Other comprehensive loss, net of $ i 283 tax benefit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 824 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 824 |
) |
|
Balance at September 29, 2018 |
|
|
i 57,914,549 |
|
|
$ |
i 605 |
|
|
$ |
i 408,700 |
|
|
$ |
( i 824 |
) |
|
$ |
( i 19,374 |
) |
|
$ |
( i 12,759 |
) |
|
$ |
i 376,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED SEPTEMBER 28, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 29, 2019 |
|
|
i 58,535,669 |
|
|
$ |
i 615 |
|
|
$ |
i 412,295 |
|
|
$ |
( i 2,178 |
) |
|
$ |
i 16,402 |
|
|
$ |
( i 12,759 |
) |
|
$ |
i 414,375 |
|
|
Purchases of treasury stock |
|
|
( i 393,819 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 5,550 |
) |
|
|
( i 5,550 |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 970 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 970 |
|
|
Exercise of stock options |
|
|
i 210,931 |
|
|
|
i 2 |
|
|
|
i 420 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 422 |
|
|
Common stock issued under ESPP |
|
|
i 1,022 |
|
|
|
— |
|
|
|
i 15 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 15 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 15,106 |
|
|
|
— |
|
|
|
i 15,106 |
|
|
Other comprehensive income, net of $ i 102 tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 294 |
|
|
|
— |
|
|
|
— |
|
|
|
i 294 |
|
|
Balance at September 28, 2019 |
|
|
i 58,353,803 |
|
|
$ |
i 617 |
|
|
$ |
i 413,700 |
|
|
$ |
( i 1,884 |
) |
|
$ |
i 31,508 |
|
|
$ |
( i 18,309 |
) |
|
$ |
i 425,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED SEPTEMBER 28, 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 164,226 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
i 5 |
|
|
|
( i 5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
( i 428,059 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 6,055 |
) |
|
|
( i 6,055 |
) |
|
Retirement of treasury stock |
|
|
— |
|
|
|
— |
|
|
|
( i 505 |
) |
|
|
— |
|
|
|
— |
|
|
|
i 505 |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
i 3,246 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 3,246 |
|
|
Exercise of stock options |
|
|
i 532,931 |
|
|
|
i 5 |
|
|
|
i 1,257 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,262 |
|
|
Common stock issued under ESPP |
|
|
i 3,165 |
|
|
|
— |
|
|
|
i 46 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 46 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 40,408 |
|
|
|
— |
|
|
|
i 40,408 |
|
|
Other comprehensive income, net of $ i 406 tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,181 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,181 |
|
|
Balance at September 28, 2019 |
|
|
i 58,353,803 |
|
|
$ |
i 617 |
|
|
$ |
i 413,700 |
|
|
$ |
( i 1,884 |
) |
|
$ |
i 31,508 |
|
|
$ |
( i 18,309 |
) |
|
$ |
i 425,632 |
|
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. BASIS OF PRESENTATION
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. and WWS Acquisition LLC (formerly known as GEF WW Parent LLC) (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® and Eze-Breeze®. Products are sold through an authorized dealer and distributor network.
The majority of our sales are to customers in the state of Florida, but we sell products to customers in many states. We also have sales in the Caribbean, Canada, and in South and Central America. With the acquisition of Western Window Systems (“WWS”), we have an increased level of sales in the western United States. See Note 6 for a discussion of this acquisition.
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 four 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, and i one in Orlando. 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.
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 is not necessarily indicative of the results that may be expected for the remainder of the current year or for any future periods. Each of the Company’s fiscal quarters ended September 28, 2019, and September 29, 2018, consisted of 13 weeks.
The condensed consolidated balance sheet as of December 29, 2018, 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 29, 2018, and the unaudited condensed consolidated financial statements as of and for the periods ended September 28, 2019, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 29, 2018, included in the Company’s most recent Annual Report on Form 10-K. Except for the adoption of the guidance relating to leases discussed below, 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.
Beginning in 2019, we concluded that 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 our sales in Florida, the core market of our legacy business, as well as Alabama, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and the Caribbean. The Western reporting segment, also an operating segment, is composed of sales in the remainder of the United States, along with Canada and Mexico. While both of our operating segments have products, distribution methods and customers of a similar nature, we determined to not aggregate them due to the differences in their geographic markets. Therefore, our operating segments are our reportable segments. See Note 17 for segment disclosures.
/- 8 -
i
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was subsequently amended by ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842”; ASU 2018-10, “Codification Improvements to Topic 842, Leases”; and ASU 2018-11, “Targeted Improvements”. The new standard requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard was effective for us on December 30, 2018 (the first day of our 2019 fiscal year), with early adoption permitted. We adopted the new standard on this date, using the required modified retrospective transition approach, applying the new standard to all leases existing on the effective date. Consequently, financial information was not updated, and the disclosures required under the new standard will not be provided for dates and periods prior to December 30, 2018. As of the date of adoption, all of our leases were operating leases, and we have no financing leases as of September 28, 2019.
The new standard provided a number of optional practical expedients in transition. We elected the “package of practical expedients”, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and direct costs, and implemented internal controls and additional lease accounting and tracking procedures to enable the preparation of financial information on adoption. We did not elect the use-of-hindsight practical expedient, or the practical expedient pertaining to land easements as it was not applicable to us.
The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualified, primarily for leases that are month-to-month leases. This means, for those leases, we did not recognize right-of-use assets or lease liabilities. We also elected the practical expedient to not separate lease and non-lease components for all classes of underlying assets.
This standard had a material effect on our consolidated balance sheet relating to the recognition of an operating lease right-of-use asset and operating lease liability for our real estate leases and related to new disclosures about our leasing activities. On adoption, we recognized an operating lease right-of-use asset of $ i 30.5 million, and an operating lease liability of $ i 32.3 million, based on the present value of the remaining minimum rental payments under prior leasing standards for existing operating leases. Calculation of the present value of the remaining minimum rental payments required the use of judgment relating to the selection of the discount rate applied to future lease payments. We used a weighted-average interest rate of i 6.2%, which was based on a current trade rate for our 2018 Senior Notes due 2026. See Note 10 for additional information relating to our leases.
Leases Accounting Policy
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liability, and operating lease liability, less current portion, on our consolidated balance sheets. Should we engage in any finance leases in the future, finance leases would be included in property and equipment, other current liabilities, and other liabilities on our consolidated balance sheets.
Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease right-of-use asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
- 9 -
Recently Issued 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 are 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 is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date. The Company does not believe that the adoption of this guidance will have a significant impact on its 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 are effective for us for our fiscal year beginning after December 15, 2019. We do not believe that the adoption of this guidance will have a significant impact on our consolidated financial statements.
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. Uncollectible accounts are written off after repeated attempts to collect from the customer have been unsuccessful. As of September 28, 2019, and December 29, 2018, the allowance for doubtful accounts was $ i 3.7 million and $ i 2.8 million, respectively.
i
NOTE 2. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
iRevenue Recognition Accounting Policy
The Company primarily manufactures fully customized windows and doors, and manufactures products 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 from the customer. 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 by the Company on behalf of its customers. Due to the customized build-to-order nature of the Company’s 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.
Disaggregation of Revenue from Contracts with Customers
As discussed in Note 1, beginning in 2019, we determined that we have i two reportable segments: our Southeast business unit and our Western business unit. See Note 17 for more information. i The following tables provide information about our net sales by product category and by market for the three and nine months ended September 28, 2019, by segment, and for the three and nine months ended September 29, 2018 (dollars in millions):
/- 10 -
|
|
|
Segments |
|
|
|
|
|
|||||
|
Three Months Ended September 28, 2019 |
|
Southeast |
|
|
Western |
|
|
Total |
|
|||
|
Product category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact-resistant window and door products |
|
$ |
i 129.5 |
|
|
$ |
i 1.6 |
|
|
$ |
i 131.1 |
|
|
Non-impact window and door products |
|
|
i 28.8 |
|
|
|
i 37.9 |
|
|
|
i 66.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
158.3 |
|
|
$ |
39.5 |
|
|
$ |
i 197.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market: |
|
|
|
|
|
|
|
|
|
|
|
|
|
New construction |
|
$ |
i 59.7 |
|
|
$ |
i 35.9 |
|
|
$ |
i 95.6 |
|
|
Repair and remodel |
|
|
i 98.6 |
|
|
|
i 3.6 |
|
|
|
i 102.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
158.3 |
|
|
$ |
39.5 |
|
|
$ |
i 197.8 |
|
|
|
|
Segments |
|
|
|
|
|
|||||
|
Three Months Ended September 29, 2018 |
|
Southeast |
|
|
Western |
|
|
Total |
|
|||
|
Product category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact-resistant window and door products |
|
$ |
i 157.2 |
|
|
$ |
i 1.1 |
|
|
$ |
i 158.3 |
|
|
Non-impact window and door products |
|
|
i 19.8 |
|
|
|
i 21.0 |
|
|
|
i 40.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 177.0 |
|
|
$ |
i 22.1 |
|
|
$ |
i 199.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market: |
|
|
|
|
|
|
|
|
|
|
|
|
|
New construction |
|
$ |
i 62.7 |
|
|
$ |
i 18.7 |
|
|
$ |
i 81.4 |
|
|
Repair and remodel |
|
|
i 114.3 |
|
|
|
i 3.4 |
|
|
|
i 117.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 177.0 |
|
|
$ |
i 22.1 |
|
|
$ |
i 199.1 |
|
|
|
|
Segments |
|
|
|
|
|
|||||
|
Nine Months Ended September 28, 2019 |
|
Southeast |
|
|
Western |
|
|
Total |
|
|||
|
Product category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact-resistant window and door products |
|
$ |
i 392.0 |
|
|
$ |
i 3.7 |
|
|
$ |
i 395.7 |
|
|
Non-impact window and door products |
|
|
i 64.4 |
|
|
|
i 110.0 |
|
|
|
i 174.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 456.4 |
|
|
$ |
i 113.7 |
|
|
$ |
i 570.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market: |
|
|
|
|
|
|
|
|
|
|
|
|
|
New construction |
|
$ |
i 176.4 |
|
|
$ |
i 105.1 |
|
|
$ |
i 281.5 |
|
|
Repair and remodel |
|
|
i 280.0 |
|
|
|
i 8.6 |
|
|
|
i 288.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 456.4 |
|
|
$ |
i 113.7 |
|
|
$ |
i 570.1 |
|
|
|
|
Segments |
|
|
|
|
|
|||||
|
Nine Months Ended September 29, 2018 |
|
Southeast |
|
|
Western |
|
|
Total |
|
|||
|
Product category: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact-resistant window and door products |
|
$ |
i 422.3 |
|
|
$ |
i 3.3 |
|
|
$ |
i 425.6 |
|
|
Non-impact window and door products |
|
|
i 57.7 |
|
|
|
i 25.3 |
|
|
|
i 83.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 480.0 |
|
|
$ |
i 28.6 |
|
|
$ |
i 508.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market: |
|
|
|
|
|
|
|
|
|
|
|
|
|
New construction |
|
$ |
i 174.0 |
|
|
$ |
i 18.7 |
|
|
$ |
i 192.7 |
|
|
Repair and remodel |
|
|
i 306.0 |
|
|
|
i 9.9 |
|
|
|
i 315.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 480.0 |
|
|
$ |
i 28.6 |
|
|
$ |
i 508.6 |
|
- 11 -
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 and nine months ended September 28, 2019, the Western segment’s net sales of its volume products were $ i 13.8 million and $ i 40.6 million, respectively. For the post-acquisition period from the August 13, 2018 acquisition date to September 29, 2018, the Western segment’s net sales of its volume products were $ i 9.8 million.
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 September 28, 2019, and December 29, 2018, those contract liabilities totaled $ i 7.6 million and $ i 8.3 million, respectively, of which $ i 6.1 million and $ i 7.8 million, respectively, are classified within accrued liabilities, and $ i 1.5 million and $ i 0.5 million, respectively, are classified within contract assets, net, in the accompanying condensed consolidated balance sheets at September 28, 2019, and December 29, 2018.
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 29, 2018 were satisfied in the first quarter of 2019, and contract assets at December 29, 2018 were transferred to accounts receivable in the first quarter of 2019. Contract liabilities at September 28, 2019 represents cash received during the three-month period ended September 28, 2019, excluding amounts recognized as revenue during that period. Contract assets at September 28, 2019 represents revenue recognized during the three-month period ended September 28, 2019, excluding amounts transferred to accounts receivable during that period.
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, which is typically accounted for as a single performance obligation. In situations when our contract includes distinct goods that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods. 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.
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 September 28, 2019 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.
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. This policy is unchanged from the Company’s policy for recognizing shipping and handling costs prior to the adoption of the new revenue guidance.
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.
- 12 -
NOTE 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 September 28, 2019, we recorded warranty expense at a rate of approximately i 1.8% of sales, which was nearly equal to the rate in the three months ended September 29, 2018 of i 1.7% of sales. During the nine months ended September 28, 2019, we recorded warranty expense at a rate of approximately i 1.7% of sales, which was equal to the rate in the nine months ended September 28, 2018 of i 1.7% 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 and nine months ended September 28, 2019, and September 29, 2018. 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 September 28, 2019 |
|
$ |
i 5,980 |
|
|
$ |
- |
|
|
$ |
i 3,600 |
|
|
$ |
i 660 |
|
|
$ |
( i 3,381 |
) |
|
$ |
i 6,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended September 29, 2018 |
|
$ |
i 5,368 |
|
|
$ |
i 509 |
|
|
$ |
i 3,307 |
|
|
$ |
( i 21 |
) |
|
$ |
( i 3,129 |
) |
|
$ |
i 6,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended September 28, 2019 |
|
$ |
i 6,149 |
|
|
$ |
- |
|
|
$ |
i 9,595 |
|
|
$ |
i 868 |
|
|
$ |
( i 9,753 |
) |
|
$ |
i 6,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months Ended September 29, 2018 |
|
$ |
i 5,386 |
|
|
$ |
i 509 |
|
|
$ |
i 8,524 |
|
|
$ |
( i 229 |
) |
|
$ |
( i 8,156 |
) |
|
$ |
i 6,034 |
|
/ / i
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:
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2018 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
Raw materials |
|
$ |
i 43,290 |
|
|
$ |
i 42,036 |
|
|
Work-in-progress |
|
|
i 3,850 |
|
|
|
i 2,278 |
|
|
Finished goods |
|
|
i 426 |
|
|
|
i 352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
i 47,566 |
|
|
$ |
i 44,666 |
|
/
- 13 -
NOTE 5. STOCK BASED-COMPENSATION
Exercises
For the three months ended September 28, 2019, there were i 210,931 options exercised at a weighted average exercise price of $ i 2.00 per share. For the nine months ended September 28, 2019, there were i 532,931 options exercised at a weighted average exercise price of $ i 2.37 per share.
Issuance
On February 14, 2019, we granted i 258,628 restricted stock awards to certain executives and non-executive employees of the Company under the 2019 Long-Term Incentive Plan (LTIP). The restrictions on these stock awards lapse over time based solely on continued service. However, the quantity of restricted shares granted on half of these shares, or i 129,314 shares, is fixed, whereas the quantity granted on the remaining half, or i 129,314 shares, is subject to Company-specific performance criteria. The restricted stock awards have a fair value on date of grant of $ i 17.76 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.
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 2019 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. /
On March 1, 2019, we granted an additional i 33,663 restricted stock awards to certain executives and non-executive employees of the Company under last year’s 2018 LTIP, because the Company achieved more than i 120% of the target level of our 2018 LTIP performance metric, bringing the total number of performance shares issued to each participant of the 2018 LTIP remaining with the Company on March 1, 2019 to i 150% of the target number of performance shares granted to each participant.
On May 22, 2019, we granted a total of i 37,000 restricted stock awards to the i eight non-management members of the board of directors of the Company relating to their annual compensation for service on the board. The restricted stock awards have a fair value on date of grant of $ i 15.35 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. The restrictions on these stock awards lapse based solely on continued service on the first anniversary date of the grant.
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 1.0 million for the three months ended September 28, 2019, and $ i 1.3 million for the three months ended September 29, 2018. We recorded compensation expense for stock-based awards of $ i 3.2 million for the nine months ended September 28, 2019, and $ i 2.5 million for the nine months ended September 29, 2018. As of September 28, 2019, there was $ i 6.1 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 1.9 years at September 28, 2019.
/- 14 -
NOTE 6. ACQUISITION
WESTERN WINDOW SYSTEMS
On i August 13, 2018 (the “closing date”), we completed the acquisition of Western Window Systems (“WWS”), which became a wholly-owned subsidiary of PGT Innovations, Inc. The fair value of consideration transferred in the acquisition was $ i 354.6 million. The acquisition was financed with proceeds of $ i 315.0 million from the issuance of the 2018 Senior Notes due 2026, and with $ i 39.6 million in cash on hand. See Note 9 for a discussion of the 2018 Senior Notes due 2026.
iThe estimated fair value of assets acquired, and liabilities assumed as of the closing date, are as follows:
|
|
|
Initial Allocation |
|
|
Adjustments to Allocation |
|
|
Final Allocation |
|
|||
|
Accounts and notes receivable |
|
$ |
i 7,555 |
|
|
$ |
( i 217 |
) |
|
$ |
i 7,338 |
|
|
Inventories |
|
|
i 12,580 |
|
|
|
— |
|
|
|
i 12,580 |
|
|
Contract assets, net |
|
|
i 890 |
|
|
|
— |
|
|
|
i 890 |
|
|
Prepaid expenses and other assets |
|
|
i 1,190 |
|
|
|
— |
|
|
|
i 1,190 |
|
|
Property and equipment |
|
|
i 16,416 |
|
|
|
( i 447 |
) |
|
|
i 15,969 |
|
|
Intangible assets |
|
|
i 167,000 |
|
|
|
— |
|
|
|
i 167,000 |
|
|
Goodwill |
|
|
i 164,379 |
|
|
|
i 5,162 |
|
|
|
i 169,541 |
|
|
Accounts payable |
|
|
( i 5,622 |
) |
|
|
— |
|
|
|
( i 5,622 |
) |
|
Accrued and other liabilities |
|
|
( i 9,175 |
) |
|
|
i 53 |
|
|
|
( i 9,122 |
) |
|
Deferred income taxes |
|
|
— |
|
|
|
( i 5,180 |
) |
|
|
( i 5,180 |
) |
|
Purchase price |
|
$ |
i 355,213 |
|
|
$ |
( i 629 |
) |
|
$ |
i 354,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
i 355,213 |
|
|
$ |
( i 629 |
) |
|
$ |
i 354,584 |
|
|
Total fair value of consideration |
|
$ |
i 355,213 |
|
|
$ |
( i 629 |
) |
|
$ |
i 354,584 |
|
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 WWS 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.
The WWS Acquisition included its then-existing subsidiary, WWS Blocker LLC (Blocker). Blocker was a single-purpose U.S. tax blocker which held an i 18.06% ownership percentage of the combined ownership of WWS, and for which that portion of the fair value of assets acquired and liabilities assumed in the WWS Acquisition was not eligible for a step-up in basis. As a result, we recorded a net deferred tax liability of $ i 5.2 million in the WWS Acquisition, primarily relating to the fair value of the acquired identifiable indefinite-lived and amortizable intangible assets. Subsequent to the acquisition, Blocker was merged out of existence.
We incurred acquisition costs totaling $ i 4.4 million relating to legal expenses, representations and warranties insurance, diligence, accounting and printing services in the WWS Acquisition, which includes $ i 0.7 million in additional costs in the first quarter of 2019, classified as selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the nine months ended September 28, 2019. We began incurring these costs in the second quarter of 2018.
The remaining consideration, after identified intangible assets and the net assets and liabilities recorded at fair value, has been determined to be $ i 169.5 million, of which we estimate $ i 139.4 million is expected to be deductible for tax purposes. Goodwill represents the increased value of the combined entity through additional sales channel opportunities as well as penetration of a new geographic market with enhanced opportunities for cross-selling of our multiple brands in all markets.
The purchase agreement relating to the WWS Acquisition (PA) has a post-closing working capital calculation whereby we were required to prepare, and which we delivered to the sellers, a final statement of purchase price, including our calculation of actual net working capital as of the closing date. The calculation resulted in a net decrease in purchase price of $ i 0.6 million.
Net sales and net income included in the consolidated condensed statements of comprehensive income for the three and nine months ended September 29, 2018, from WWS from the August 13, 2018 acquisition date was $ i i 18.7 / million and $ i i 2.3 / million, respectively.
- 15 -
Valuation of identified intangible assets
iThe valuation of the identifiable intangible assets acquired in the WWS acquisition and our estimate of their respective useful lives are as follows:
|
|
|
Valuation |
|
|
Useful Life |
|
|
|
|
Amount |
|
|
(in years) |
|
|
(in thousands) |
|
|
|
|
|
|
|
Trade name |
|
$ |
i 73,000 |
|
|
indefinite |
|
Customer relationships |
|
|
i 94,000 |
|
|
10 |
|
|
|
|
|
|
|
|
|
Other intangible assets, net |
|
$ |
i 167,000 |
|
|
|
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 86 thousand anti-dilutive securities excluded from the calculation of weighted average shares outstanding for the three months ended September 28, 2019, and i none for the three months ended September 29, 2018. There were i 90 thousand anti-dilutive securities excluded from the calculation of weighted average shares outstanding for the nine months ended September 28, 2019, and i none for the nine months ended September 29, 2018.
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 for our Company:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 28, |
|
|
September 29, |
|
|
September 28, |
|
|
|
|||||
|
|
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
|
|
(in thousands, except per share amounts) |
|
|||||||||||||
|
Net income |
$ |
i 15,106 |
|
|
$ |
i 13,571 |
|
|
$ |
i 40,408 |
|
|
$ |
i 43,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares - Basic |
|
i 58,433 |
|
|
|
i 51,682 |
|
|
|
i 58,320 |
|
|
|
i 50,619 |
|
|
Add: Dilutive effect of stock compensation plans |
|
i 709 |
|
|
|
i 1,386 |
|
|
|
i 872 |
|
|
|
i 1,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares - Diluted |
|
i 59,142 |
|
|
|
i 53,068 |
|
|
|
i 59,192 |
|
|
|
i 52,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
i 0.26 |
|
|
$ |
i 0.26 |
|
|
$ |
i 0.69 |
|
|
$ |
i 0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
$ |
i 0.26 |
|
|
$ |
i 0.26 |
|
|
$ |
i 0.68 |
|
|
$ |
i 0.83 |
|
/
- 16 -
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
iGoodwill and intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
Initial |
|
|
|
September 28, |
|
|
December 29, |
|
|
Useful Life |
||
|
|
|
2019 |
|
|
2018 |
|
|
(in years) |
||
|
|
|
(in thousands) |
|
|
|
|||||
|
Goodwill |
|
$ |
277,600 |
|
|
$ |
277,827 |
|
|
indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
$ |
i 148,841 |
|
|
$ |
i 148,841 |
|
|
indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
i 200,647 |
|
|
|
i 200,647 |
|
|
3-10 |
|
Developed technology |
|
|
i 3,000 |
|
|
|
i 3,000 |
|
|
9-10 |
|
Non-compete agreement |
|
|
i 1,668 |
|
|
|
i 1,668 |
|
|
2-5 |
|
Software license |
|
|
i 590 |
|
|
|
i 590 |
|
|
2 |
|
Less: Accumulated amortization |
|
|
( i 94,887 |
) |
|
|
( i 82,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
i 111,018 |
|
|
|
i 122,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets, net |
|
$ |
i 259,859 |
|
|
$ |
i 271,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at December 29, 2018 |
|
$ |
i 277,827 |
|
|
|
|
|
|
|
|
Decrease related to change in liabilities assumed in acquisition of WWS |
|
|
( i 53 |
) |
|
|
|
|
|
|
|
Decrease from change in deferred tax liability in acquisition of WWS |
|
|
( i 174 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at September 28, 2019 |
|
$ |
i 277,600 |
|
|
|
|
|
|
|
i
Estimated amortization of our amortizable intangible assets for future years is as follows:
|
(in thousands) |
|
Total |
|
|
|
Remainder of 2019 |
|
$ |
i 3,871 |
|
|
2020 |
|
|
i 15,859 |
|
|
2021 |
|
|
i 15,374 |
|
|
2022 |
|
|
i 14,515 |
|
|
2023 |
|
|
i 12,354 |
|
|
Thereafter |
|
|
i 49,045 |
|
|
|
|
|
|
|
|
Total |
|
$ |
i 111,018 |
|
/
- 17 -
NOTE 9. LONG-TERM DEBT
i
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2018 |
|
|||
|
|
|
(in thousands) |
|
|||||
|
2018 Senior Notes due 2026 |
|
$ |
i 315,000 |
|
|
$ |
i 315,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Term loan payable under the 2016 Credit Agreement |
|
|
i 63,975 |
|
|
|
i 63,975 |
|
|
|
|
|
|
|
|
|
|
|
|
Other debt |
|
|
- |
|
|
|
i 163 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
i 378,975 |
|
|
|
i 379,138 |
|
|
|
|
|
|
|
|
|
|
|
|
Fees, costs and original issue discount |
|
|
( i 11,058 |
) |
|
|
( i 12,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net |
|
|
i 367,917 |
|
|
|
i 366,777 |
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt |
|
|
- |
|
|
|
( i 163 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
$ |
i 367,917 |
|
|
$ |
i 366,614 |
|
/
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.
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, which is being amortized under the effective interest method. See “Deferred Financing Costs” below. As of September 28, 2019, the face value of debt outstanding under the 2018 Senior Notes due 2026 was $ i 315.0 million, and accrued interest totaled $ i 3.5 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.
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
/- 18 -
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.
In connection with the Second Amendment, certain existing lenders changed their positions in or exited the 2016 Credit Agreement due 2022, which resulted in the write-offs of portions of the deferred financing costs and original issue discount allocated to these lenders. Additionally, at the time of the issuance of the 2018 Senior Notes due 2026, certain existing lenders reduced their positions in the revolving credit portion of the 2016 Credit Agreement due 2022, which resulted in the write-offs of the deferred financing costs allocated to these lenders. As such, write-offs totaling $ i 3.4 million is classified as debt extinguishment costs in the accompanying condensed consolidated statement of operations for the nine months ended September 29, 2018.
Regarding the first amendment as described above, as there were no changes in lender positions, this action did not result in any modifications or extinguishments of debt. Therefore, there was no charge for debt extinguishment costs in 2017.
Interest on all loans under the 2016 Credit Agreement due 2022 is payable either quarterly or at the expiration of any LIBOR interest period applicable thereto. Prior to amending the 2016 Credit Agreement due 2022 on March 16, 2018, as described above, borrowings under the term loans and the revolving credit facility accrued interest at a rate equal to, at our option, LIBOR (with a floor of i 100 basis points in respect of the term loan), or a base rate (with a floor of i 200 basis points in respect of the term loan) plus an applicable margin. The applicable margin was i 475 basis points in the case of LIBOR and i 375 basis points in the case of the base rate. The weighted average all-in interest rate for borrowings under the term-loan portion of the 2016 Credit Agreement due 2022 was i 5.69% as of September 28, 2019, and was i 5.84% at December 29, 2018.
We also pay quarterly fees on the unused portion of the revolving credit facility equal to i 50 basis points per annum as well as a quarterly letter of credit fee at i 575 basis points per annum plus a i 12.5 basis point facing fee per annum on the face amount of any outstanding letters of credit. As of September 28, 2019, there were $ i 2.1 million in letters of credit outstanding and $ i 37.9 million available under the revolver.
The 2016 Credit Agreement due 2022 contains a springing financial covenant that would apply if we draw in excess of twenty percent (20%) 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 105% 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 as of the last day of the fiscal quarter ending on September 28, 2019. i We were not required to test our first lien net leverage ratio for the quarter ending September 28, 2019 because we did not exceed 20% 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 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. As of September 28, 2019, the principal amount of debt outstanding under the 2016 Credit Agreement due 2022 was $ i 64.0 million, and accrued interest was $ i 0.5 million.
See Note 18, Subsequent Events, for a discussion of a third amendment to the 2016 Credit Agreement due 2022, which we entered into effective on October 31, 2019.
- 19 -
Deferred Financing Costs
iThe activity relating to third-party fees and costs, lender fees and discount for the nine months ended September 28, 2019, 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 12,361 |
|
|
Less: Amortization expense relating to 2016 Credit Agreement |
|
|
( i 552 |
) |
|
Less: Amortization expense relating to 2018 Senior Notes |
|
|
( i 751 |
) |
|
|
|
|
|
|
|
At end of period |
|
$ |
i 11,058 |
|
i
Estimated amortization expense relating to third-party fees and costs, lender fees and discount for the years indicated as of September 28, 2019, is as follows:
|
(in thousands) |
|
Total |
|
|
|
Remainder of 2019 |
|
$ |
i 449 |
|
|
2020 |
|
|
i 1,913 |
|
|
2021 |
|
|
i 1,893 |
|
|
2022 |
|
|
i 1,353 |
|
|
2023 |
|
|
i 1,359 |
|
|
Thereafter |
|
|
i 4,091 |
|
|
|
|
|
|
|
|
Total |
|
$ |
i 11,058 |
|
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 February 21, 2022. The contractual future maturities of long-term debt outstanding, including the remaining balance of the financing arrangement described as other debt, as of September 28, 2019, are as follows (at face value):
/
|
(in thousands) |
|
|
|
|
|
Remainder of 2019 |
|
$ |
— |
|
|
2020 |
|
|
i — |
|
|
2021 |
|
|
i — |
|
|
2022 |
|
|
i 63,975 |
|
|
2023 |
|
|
i — |
|
|
Thereafter |
|
|
i 315,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
i 378,975 |
|
Other Debt
In July 2017, we entered into a two-year financing arrangement for the purchase of an enterprise-wide software license relating to office productivity software. This financing arrangement requires i 24 monthly payments of $ i 26 thousand each. We estimated the value of this financing arrangement to be $ i 590 thousand, using an imputed annual interest rate of i 6.00%, which approximated our then borrowing rate under the 2016 Credit Agreement due 2022, a Level 3 input. At September 28, 2019, this agreement had been fully repaid. At December 29, 2018, there was $ i 163 thousand, outstanding under this financing arrangement.
- 20 -
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 and nine months ended September 28, 2019, are as follows (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
i 1,546 |
|
|
$ |
i 4,506 |
|
|
Variable lease cost |
|
|
i 714 |
|
|
|
i 2,046 |
|
|
Total lease cost |
|
$ |
i 2,260 |
|
|
$ |
i 6,552 |
|
i
Other information relating to leases for the three and nine months ended September 28, 2019, are as follows (in thousands, except years and percentages):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2019 |
|
|||
|
Supplemental cash flows information |
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows relating to operating leases |
|
$ |
( i 1,546 |
) |
|
$ |
( i 4,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term in years |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
4.13 |
|
|
|
4.13 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
i 6.2 |
% |
|
|
i 6.2 |
% |
i
- 21 -
Future minimum lease payments under non-cancellable leases were as follows at September 28, 2019, and December 29, 2018 (in thousands):
|
|
|
September 28, |
|
|
|
|||
|
|
|
|
|
2018 |
|
|||
|
Remainder of 2019 |
|
$ |
i 1,589 |
|
|
$ |
i 6,343 |
|
|
2020 |
|
|
i 6,093 |
|
|
|
i 6,354 |
|
|
2021 |
|
|
i 4,555 |
|
|
|
i 4,748 |
|
|
2022 |
|
|
i 3,673 |
|
|
|
i 3,831 |
|
|
2023 |
|
|
i 3,644 |
|
|
|
i 3,801 |
|
|
Thereafter |
|
|
i 17,421 |
|
|
|
i 17,885 |
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments |
|
|
i 36,975 |
|
|
$ |
i 42,962 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest |
|
|
( i 7,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - total |
|
$ |
i 29,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as of September 28, 2019 |
|
|
|
|
|
|
|
|
|
Current portion of operating lease liability |
|
$ |
i 4,551 |
|
|
|
|
|
|
Operating lease liability, less current portion |
|
|
i 24,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liability - total |
|
$ |
i 29,190 |
|
|
|
|
|
As of September 28, 2019, we had i i no additional operating or finance leases that have not yet commenced / . Our operating leases expire at various times through 2027. Lease expense prior to the adoption of ASU 2016-02 would have been $ i 2.3 million for the three months ended, and $ i 6.6 million for the nine months ended September 28, 2019 and was $ i 1.9 million for the three months ended, and $ i 4.9 million for the nine months ended September 29, 2018. Lease expense was $ i 6.4 million for the year ended December 29, 2018.
i
NOTE 11. COMMITMENTS AND CONTINGENCIES
Litigation
Our Company is a party to various legal proceedings in the ordinary course of business. Although the ultimate disposition of those proceedings cannot be predicted with certainty, management believes the outcome of any claim that is pending or threatened, either individually or in the aggregate, will not have a material adverse effect on our operations, financial position or cash flows.
iNOTE 12. INCOME TAXES
Our income tax expense was $ i 3.9 million for the three months ended September 28, 2019, compared with $ i 3.3 million for the three months ended September 29, 2018. Our effective tax rate for the three months ended September 28, 2019, was i 20.4%, and was i 19.7% for the three months ended September 29, 2018. Our income tax expense was $ i 11.3 million for the nine months ended September 28, 2019, compared with $ i 8.7 million for the nine months ended September 29, 2018. Our effective tax rate for the nine months ended September 28, 2019, was i 21.8%, and was i 16.8% for the nine months ended September 29, 2018.
Income tax expense in the three months ended September 28, 2019, and September 29, 2018, 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 665 thousand and $ i 1.0 million, respectively. Excluding this discrete item, as well as other minor tax credit adjustments recorded in the 2019 third quarter, the effective tax rates for the three months ended September 28, 2019, and September 29, 2018, would have been i 24.8% and i 25.5%, respectively. Income tax expense in the nine months ended September 28, 2019, and September 29, 2018, includes excess tax benefits totaling $ i 1.7 million and $ i 4.6 million, respectively. Excluding this discrete item, as well as other minor tax credit adjustments recorded in the 2019 third quarter, the effective tax rates for the nine months ended September 28, 2019, and September 29, 2018, would have been i 25.3% and i 25.6%, respectively.
As a result of the Tax Cuts and Jobs Act, enacted effective on December 22, 2017, our Federal corporate income tax rate has been reduced from i 35%, to i 21%. This reduction in rate has lowered our overall effective tax rate. Additionally, the section 199 domestic manufacturing deduction was repealed. As such, our estimated annual effective tax rate, excluding the discrete items discussed above, approximates our current combined statutory federal and state rate of i 25.6%.
During the nine months ended September 28, 2019, we made payments of estimated federal and state income taxes totaling $ i 10.8 million. We received i no refunds of federal or state income taxes in the first nine months of 2019. During the nine months ended September 29, 2018, we made payments of estimated federal and state income taxes totaling $ i 17.2 million, including an estimated Federal income tax payment totaling $ i 9.0 million relating to the 2017 tax year. The Internal Revenue Service provided tax relief
/- 22 -
relating to taxpayers in certain designated areas of Florida impacted by Hurricane Irma in September 2017, which included all counties in Florida in which we operate. As a result, the deadline for remitting our required 2017 third quarter estimated payment for corporate income taxes was extended to January 31, 2018.
iNOTE 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 September 28, 2019, or September 29, 2018, we did i i 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, accrued liabilities and other debt, 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 64.1 million as of September 28, 2019, compared to a principal outstanding value of $ i 64.0 million, and fair value of $ i 63.2 million as of December 29, 2018, 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 340.2 million as of September 28, 2019, compared to a principal outstanding value of $ i 315.0 million, and the fair value was approximately $ i 311.9 million as of December 29, 2018, 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 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 |
|
|||
|
|
September 28, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
|
|
2019 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts, net |
$ |
( i 2,531 |
) |
|
$ |
- |
|
|
$ |
( i 2,531 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( i 2,531 |
) |
|
$ |
- |
|
|
$ |
( i 2,531 |
) |
|
$ |
- |
|
/ /
- 23 -
|
|
Fair Value Measurements |
|
|||||||||||||
|
|
Assets (Liabilities) |
|
|||||||||||||
|
|
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
December 29, |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
|
|
2018 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum forward contracts |
$ |
( i 4,118 |
) |
|
$ |
- |
|
|
$ |
( i 4,118 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( i 4,118 |
) |
|
$ |
- |
|
|
$ |
( i 4,118 |
) |
|
$ |
- |
|
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.
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.
iNOTE 14. DERIVATIVES
Aluminum Contracts
We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusion we use in production. 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.
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 September 28, 2019, the fair value of our aluminum forward contracts was in a net liability position of $ i 2.5 million. We had i 36 outstanding forward contracts for the purchase of i 34.5 million pounds of aluminum through June 2020, at an average price of $ i 0.87 per pound, which excludes the Midwest premium, with maturity dates of between i one month and i fifteen 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 September 28, 2019.
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 September 28, 2019, that we expect will be reclassified to earnings within the next twelve months, is approximately $ i 2.4 million.
/- 24 -
The fair value of our aluminum hedges are classified in the accompanying consolidated balance sheets at September 28, 2019, and December 29, 2018, 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 2,436 |
) |
|
Aluminum forward contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
( i 95 |
) |
|
Total derivative instruments |
|
Total derivative assets |
|
$ |
— |
|
|
|
Total derivative liabilities |
|
$ |
( i 2,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3,907 |
) |
|
Aluminum forward contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
( i 211 |
) |
|
Total derivative instruments |
|
Total derivative assets |
|
$ |
— |
|
|
|
Total derivative liabilities |
|
$ |
( i 4,118 |
) |
The ending accumulated balance for the aluminum forward contracts included in accumulated other comprehensive losses, net of tax, was $ i 1.9 million as of September 28, 2019, and $ i 3.1 million at December 29, 2018.
iThe following represents the gains (losses) on derivative financial instruments, and their classifications within the accompanying condensed consolidated financial statements, for the three and nine months ended September 28, 2019, and September 29, 2018 (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 |
|
||||||||||
|
|
|
September 28, |
|
|
September 29, |
|
|
|
|
September 28, |
|
|
|
|||||
|
|
|
|
|
2018 |
|
|
|
|
2019 |
|
|
2018 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts |
|
$ |
( i 1,136 |
) |
|
$ |
( i 649 |
) |
|
Cost of sales |
|
$ |
( i 1,532 |
) |
|
$ |
( i 58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
||||||||||
|
|
|
Nine Months Ended |
|
|
|
|
Nine Months Ended |
|
||||||||||
|
|
|
September 28, |
|
|
September 29, |
|
|
|
|
September 28, |
|
|
|
|||||
|
|
|
|
|
2018 |
|
|
|
|
2019 |
|
|
2018 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum contracts |
|
$ |
( i 2,083 |
) |
|
$ |
( i 1,122 |
) |
|
Cost of sales |
|
$ |
( i 3,670 |
) |
|
$ |
( i 15 |
) |
- 25 -
i
NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS
iThe following table shows the components of accumulated other comprehensive loss for the three and nine months ended September 28, 2019 and September 29, 2018 (in thousands):
|
|
|
Aluminum |
|
|
|
Three months ended September 28, 2019 |
|
Forward |
|
|
|
(in thousands) |
|
|
||
|
Balance at June 29, 2019 |
|
$ |
( i 2,178 |
) |
|
Change in fair value of derivatives |
|
|
( i 1,136 |
) |
|
Amounts reclassified from other comprehensive loss |
|
|
i 1,532 |
|
|
Tax effect |
|
|
( i 102 |
) |
|
Net current-period other comprehensive income |
|
|
i 294 |
|
|
Balance at September 28, 2019 |
|
$ |
( i 1,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum |
|
|
|
Nine months ended September 28, 2019 |
|
Forward |
|
|
|
(in thousands) |
|
|
||
|
Balance at December 29, 2018 |
|
$ |
( i 3,065 |
) |
|
Change in fair value of derivatives |
|
|
( i 2,083 |
) |
|
Amounts reclassified from other comprehensive loss |
|
|
i 3,670 |
|
|
Tax effect |
|
|
( i 406 |
) |
|
Net current-period other comprehensive income |
|
|
i 1,181 |
|
|
Balance at September 28, 2019 |
|
$ |
( i 1,884 |
) |
|
|
|
Aluminum |
|
|
|
Three months ended September 29, 2018 |
|
Forward |
|
|
|
(in thousands) |
|
|
||
|
Balance at June 30, 2018 |
|
$ |
( i 384 |
) |
|
Change in fair value of derivatives |
|
|
( i 649 |
) |
|
Amounts reclassified from other comprehensive loss |
|
|
i 58 |
|
|
Tax effect |
|
|
i 151 |
|
|
Net current-period other comprehensive loss |
|
|
( i 440 |
) |
|
Balance at September 29, 2018 |
|
$ |
( i 824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum |
|
|
|
Nine months ended September 29, 2018 |
|
Forward |
|
|
|
(in thousands) |
|
|
||
|
Balance at December 30, 2017 |
|
$ |
— |
|
|
Change in fair value of derivatives |
|
|
( i 1,122 |
) |
|
Amounts reclassified from other comprehensive loss |
|
|
i 15 |
|
|
Tax effect |
|
|
i 283 |
|
|
Net current-period other comprehensive loss |
|
|
( i 824 |
) |
|
Balance at September 29, 2018 |
|
$ |
( i 824 |
) |
- 26 -
NOTE 16. SHAREHOLDERS’ EQUITY
On May 22, 2019, our Board of Directors authorized and approved a share repurchase program of up to $ i 30 million. The repurchases may be made in open market or private transactions from time to time. Repurchases of shares may be made under a Rule 10b5-1 plan, which would permit repurchases when we might otherwise be precluded from doing so under applicable laws. We base repurchase decisions, including the timing of repurchases, on factors such as our stock price, general economic and market conditions, the potential impact on our capital structure, the expected return on competing uses of capital such as strategic acquisitions and capital investments, and other corporate considerations, as determined by our management. The repurchase program may be suspended or discontinued at any time. We do not intend to repurchase any shares from directors, officers, or other affiliates. The program does not obligate us to acquire any specific number of shares. The timing, manner, price and amount of repurchases will be determined at our discretion, and the program may be suspended, terminated or modified at any time for any reason. i No repurchases were made under the program during the period from the inception of the program on May 22, 2019, through the end of the second quarter of 2019. During the three months ended September 28, 2019, we made repurchases of i 393,819 shares of our common stock at a total cost of $ i 5.5 million.
/i
NOTE 17. 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 our sales in Florida, the core market of our legacy business, as well as Alabama, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and the Caribbean. The Western reporting segment, also an operating segment, is composed of sales in the remainder of the United States, along with Canada and Mexico. The operations of the Western reporting segment are composed primarily of the results of WWS and the results of the legacy operations of the Company in the west. While both of our operating segments have products, distribution methods and customers of a similar nature, we determined to not aggregate them due to the differences in their geographic markets. Therefore, our operating segments are also our reportable segments.
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 and nine months ended September 28, 2019, and September 29, 2018. Results of the Western segment are composed substantially of the results of WWS, which was acquired on August 13, 2018 (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
September 28, |
|
|
September 29, |
|
|
September 28, |
|
|
|
|||||
|
|
|
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast segment |
|
$ |
i 158,377 |
|
|
$ |
i 176,961 |
|
|
$ |
i 456,435 |
|
|
$ |
i 479,974 |
|
|
Western segment |
|
|
i 39,446 |
|
|
|
i 22,123 |
|
|
|
i 113,695 |
|
|
|
i 28,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
i 197,823 |
|
|
$ |
i 199,084 |
|
|
$ |
i 570,130 |
|
|
$ |
i 508,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast segment |
|
$ |
i 22,745 |
|
|
$ |
i 26,334 |
|
|
$ |
i 61,081 |
|
|
$ |
i 71,397 |
|
|
Western segment |
|
|
i 2,686 |
|
|
|
i 2,609 |
|
|
|
i 10,520 |
|
|
|
i 3,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from operations |
|
|
i 25,431 |
|
|
|
i 28,943 |
|
|
|
i 71,601 |
|
|
|
i 74,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
i 6,452 |
|
|
|
i 11,741 |
|
|
|
i 19,922 |
|
|
|
i 19,393 |
|
|
Debt extinguishment costs |
|
|
— |
|
|
|
i 296 |
|
|
|
— |
|
|
|
i 3,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes |
|
$ |
i 18,979 |
|
|
$ |
i 16,906 |
|
|
$ |
i 51,679 |
|
|
$ |
i 52,208 |
|
/
- 27 -
NOTE 18. SUBSEQUENT EVENTS
Amendment to 2016 Credit Agreement
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. We estimate that fees and costs relating to the Third Amendment will be approximately $ i 0.8 million, which we expect can be deferred and amortized.
In connection with the Third Amendment, certain existing lenders modified their positions in or exited the 2016 Credit Agreement. We expect that deferred financing costs and original issue discount allocated to these lenders of approximately $ i 1.5 million will be written-off and classified as debt extinguishment costs in the condensed consolidated statement of operations for our fiscal year ended December 28, 2019.
Announcement of Executive Departure
On October 27, 2019, Scott Gates notified the Company that he will resign his position as President of the Company’s Western Business Unit and its Western Window Systems business, effective January 31, 2020. Following his resignation, Mr. Gates plans to establish a social entrepreneurship organization that will provide jobs, skills training and career paths for those in prison and former inmates.
/- 28 -
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 29, 2018, included in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 27, 2019. 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:
|
• |
adverse changes in new home starts and home repair and remodeling trends, especially in the state of Florida, where the substantial portion of our sales are currently generated, and in the western United States, where the substantial portion of the sales of Western Window Systems’ operations are generated, and in the U.S. generally; |
|
• |
macroeconomic conditions in Florida, where the substantial portion of our sales are generated, and in the Western United States, where the substantial portion of the sales of Western Window Systems are currently generated, and in the U.S. generally; |
|
• |
our level of indebtedness, which significantly increased in connection with the acquisition of Western Window Systems (the “Western Window Systems Acquisition”); |
|
• |
the effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to, the Western Window Systems Acquisition; |
|
• |
the risk that the anticipated cost savings, synergies, revenue enhancement strategies and other benefits expected from the Western Window Systems Acquisition may not be fully realized or may take longer to realize than expected or that our actual integration costs may exceed our estimates; |
|
• |
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; |
|
• |
sales fluctuations to and changes in our relationships with key customers; |
|
• |
increases in bad debt owed to us by our customers in the event of a downturn in the home repair and remodel or new home construction businesses in our core markets and our inability to collect such debt; |
|
• |
in addition to our Western Window Systems Acquisition, our ability to successfully integrate businesses we may acquire, or that any business we acquire in the future may not perform as we expected when we acquired it; |
|
• |
increases in transportation costs, including due to increases in fuel prices; |
|
• |
product liability and warranty claims brought against us; |
|
• |
federal, state and local laws and regulations, including unfavorable changes in local building codes and environmental and energy code regulations; |
|
• |
our dependence on our limited number of geographically concentrated manufacturing facilities; |
|
• |
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; and, |
|
• |
the other risks and uncertainties discussed under “Risk Factors” in Part I, Item 1A, in our Annual Report on Form 10-K for the year ended December 29, 2018. |
Any forward-looking statements made by us or on our behalf, including our full-year guidance range for 2019, 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.
- 29 -
EXECUTIVE OVERVIEW
Sales and Operations
With our acquisition of Western Windows Systems (“WWS”) in August 2018, we believe we have positioned PGT Innovations as a national leader in the premium window and door space. The addition of Western Window Systems’ footprint supports the component of our strategic vision focused on expanding outside of Florida with niche products that we expect to maintain and strengthen our margin profile. The WWS acquisition also helped us achieve more geographic and product diversity.
Although we achieved sales growth in our Western segment in the third quarter of 2019 compared to the third quarter of 2018, our 2019 third quarter results reflect an expected decrease of sales into both the repair and remodel market, and to a lesser extent our new construction market, of our legacy business, after as compared to the record-setting growth we experienced in 2018, which was driven by increased customer awareness of the benefits of our impact resistant products and increased repair and remodeling activity after two major hurricanes in 2017. Sales in the 2019 third quarter were also negatively affected by the disruptions to many of our customers’ businesses caused by Hurricane Dorian in late August 2019, which resulted in a decrease in customer orders and shipments for us.
Gross margin decreased 1.3 percentage points, to 35.4% in this year’s third quarter, compared to 36.7% in the third quarter of 2018, primarily due to the unfavorable effects of shifts in the mix of products sold, the decrease in sales volume in our legacy business, and decreases in our product prices due to certain promotions during the quarter. These negative factors were partially offset by the inclusion of the gross profits of our WWS for the entire third quarter in 2019, compared to only the post-acquisition period in the third quarter of 2018. The unfavorable impact of the challenging factors affecting our gross profit in the 2019 third quarter was partially offset by the benefits we experienced from our ability to leverage fixed costs.
Net income per diluted share of $0.26, which was flat compared to last year’s third quarter, was impacted by a higher level of weighted-average outstanding shares as a result of our issuance of an additional 7,000,000 shares of our Company’s common stock (“Equity Issuance”) in September 2018. Despite the decline in our legacy sales into the repair and remodel and new construction markets, as compared to the record year we experienced in 2018, we believe we will continue to benefit from the strength of our brands, and are implementing advertising, marketing and sales initiatives that we believe will drive sales in the fourth quarter of 2019 and in 2020.
- 30 -
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 |
|
|||||||||||||
|
|
|
September 28, |
|
|
|
|||||||||||
|
|
|
|
|
2018 |
|
|||||||||||
|
|
|
(unaudited) |
|
|||||||||||||
|
Net sales |
|
$ |
197,823 |
|
|
100.0% |
|
|
$ |
199,084 |
|
|
100.0% |
|
||
|
Cost of sales |
|
|
127,828 |
|
|
64.6% |
|
|
|
126,086 |
|
|
63.3% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
69,995 |
|
|
35.4% |
|
|
|
72,998 |
|
|
36.7% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
44,564 |
|
|
22.5% |
|
|
|
44,055 |
|
|
22.1% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
25,431 |
|
|
12.9% |
|
|
|
28,943 |
|
|
14.5% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
6,452 |
|
|
3.3% |
|
|
|
11,741 |
|
|
5.9% |
|
||
|
Debt extinguishment costs |
|
|
— |
|
|
- |
|
|
|
296 |
|
|
0.1% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
18,979 |
|
|
9.6% |
|
|
|
16,906 |
|
|
8.5% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
3,873 |
|
|
2.0% |
|
|
|
3,335 |
|
|
1.7% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,106 |
|
|
7.6% |
|
|
$ |
13,571 |
|
|
6.8% |
|
||
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
September 28, |
|
|
|
|||||||||||
|
|
|
|
|
2018 |
|
|||||||||||
|
|
|
(unaudited) |
|
|||||||||||||
|
Net sales |
|
$ |
570,130 |
|
|
100.0% |
|
|
$ |
508,606 |
|
|
100.0% |
|
||
|
Cost of sales |
|
|
365,925 |
|
|
64.2% |
|
|
|
330,888 |
|
|
65.1% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
204,205 |
|
|
35.8% |
|
|
|
177,718 |
|
|
34.9% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
132,604 |
|
|
23.3% |
|
|
|
105,293 |
|
|
20.7% |
|
||
|
Gains on sales of assets under APA |
|
|
— |
|
|
- |
|
|
|
(2,551 |
) |
|
(0.5)% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
71,601 |
|
|
12.6% |
|
|
|
74,976 |
|
|
14.7% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
19,922 |
|
|
3.5% |
|
|
|
19,393 |
|
|
3.8% |
|
||
|
Debt extinguishment costs |
|
|
— |
|
|
- |
|
|
|
3,375 |
|
|
0.7% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
51,679 |
|
|
9.1% |
|
|
|
52,208 |
|
|
10.3% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
11,271 |
|
|
2.0% |
|
|
|
8,749 |
|
|
1.7% |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
40,408 |
|
|
7.1% |
|
|
$ |
43,459 |
|
|
8.5% |
|
||
- 31 -
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 28, 2019 AND SEPTEMBER 29, 2018
Net sales
|
|
|
Three Months Ended |
|
|||||
|
|
|
|
|
|
||||
|
|
|
Net Sales |
|
|
Net Sales |
|
||
|
(in millions) |
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
197.8 |
|
|
$ |
199.1 |
|
Net sales for the third quarter of 2019 were $197.8 million, a $1.3 million, or 0.6%, decrease in sales, from $199.1 million in the third quarter of the prior year. Net sales of our Southeast segment were $158.3 million in the third quarter of 2019, compared with $177.0 million in the 2018 third quarter, a decrease of $18.7 million. Net sales of our Western segment were $39.5 million in the third quarter of 2019, compared with $22.1 million in the third quarter of 2018, an increase of $17.4 million. Sales of our Western segment are composed of the sales of WWS, which were $35.9 million in the third quarter of 2019, compared with $18.7 million in the third quarter of 2018 from the date of the acquisition, and sales of our legacy business into the west, which were $3.5 million in the three months ended September 28, 2019, and $3.4 million in the three months ended September 29, 2018.
The $1.3 million decrease in net sales for the third quarter of 2019 of was driven by the $18.7 million decline in sales of our Southeast segment, which includes a $15.7 million decrease in sales into the repair and remodel market of our legacy business, partially offset by the net increase in sales of $17.2 million from inclusion of our WWS business for an entire quarter in 2019, compared to only the post-acquisition period in 2018. Sales in the 2019 third quarter were also negatively affected by the disruptions to many of our customers caused by Hurricane Dorian in late August 2019, which resulted in decreased orders and shipments for us.
Gross profit and gross margin
Gross profit was $70.0 million in the third quarter of 2019, a decrease of $3.0 million, or 4.1%, from $73.0 million in the third quarter of 2018. The gross margin percentage was 35.4% in the third quarter of 2019, compared to 36.7% in the prior year third quarter, a decrease of 1.3%. Gross margin decreased in the third quarter of 2019 due primarily to the unfavorable effects of a change in the mix of products sold, lower gross margin on lower volume, and decreases in our product prices due to certain promotions in the quarter. These decreases were partially offset by the inclusion of the gross profits of WWS for the entire third quarter of 2019, as compared to only the post-acquisition period in the 2018 third quarter.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses were $44.6 million in the third quarter of 2019, an increase of $0.5 million, from $44.1 million in the third quarter of 2018. SG&A in the third quarter of 2019 was 22.5% of net sales, compared to 22.1% of net sales in the third quarter of 2018. The increase in SG&A is primarily the result of the inclusion of the SG&A expenses of WWS for the entire third quarter of 2019, compared with only the post-acquisition-period in 2018, which resulted in an increase in SG&A totaling $6.1 million, including an increase of $1.2 million in amortization of the amortizable intangible asset acquired in the acquisition. Excluding the increase in SG&A from the inclusion of WWS, SG&A decreased $5.6 million in the third quarter of 2019, compared to the third quarter of 2018. The decrease in SG&A was primarily driven by a decrease of personnel-related costs, and a decrease of acquisition costs of $2.8 million relating to the WWS acquisition included in the third quarter of 2018. These decreases were partially offset by an increase in marketing costs, including higher promotional costs, and other selling cost increases.
Interest expense, net
Interest expense was $6.5 million in the third quarter of 2019, a decrease of $5.3 million, or 45.0%, from $11.7 million in the third quarter of 2018. Interest expense in the third quarter of 2018 included $5.3 million in accelerated amortization of lenders fees and discount relating to the prepayment of $152.0 million in borrowings under the term loan portion of the 2016 Credit Agreement we made on September 18, 2018. There were no prepayments of term loan borrowings during 2019. Excluding the decrease in interest expense from the $5.3 million of accelerated amortization of lenders fees and discount included in the third quarter of 2018, interest expense was flat in the third quarter of 2019, compared to the third quarter of 2018. There was an increase in interest expense due to the issuance of the 2018 Senior Notes due 2026, composed of $315.0 million aggregate principal amount of 6.75% unsecured senior notes due 2026, which carries a higher per-annum interest rate and has a higher principal amount outstanding than borrowings under the term loan portion of the 2016 Credit Agreement due 2022. This increase in interest expense was offset by the effect on interest expense from the prepayment of $152.0 million in borrowings under the 2016 Credit Agreement due 2022 from the proceeds of the Equity Issuance in September 2018.
Debt extinguishment costs
Debt extinguishment costs were $296 thousand in the third quarter of 2018. At the time of the issuance of the 2018 Senior Notes, certain existing lenders reduced their positions in the revolving credit portion of the 2016 Credit Agreement, which resulted in the write-offs of the deferred financing costs allocated to these lenders. As such, write-offs totaling $296 thousand is classified as debt
- 32 -
extinguishment costs in the accompanying condensed consolidated statement of operations for the three months ended September 29, 2018.
Income from operations
Income from operations was $25.4 million in the third quarter of 2019, a decrease of $3.5 million, from $28.9 million in the third quarter of 2018. Income from operations in the third quarter of 2019 includes $22.7 million from our Southeast segment and $2.7 million from our Western segment, compared to $26.3 million and $2.6 million from our Southeast and Western segments, respectively, in the third quarter of 2018, all after allocation of corporate operating costs in both periods. The decrease in income from operations in the third quarter of 2019 compared to the third quarter of 2018 is primarily a result of the previously discussed decrease in gross profits and related gross margin effects.
Income tax expense
Our income tax expense was $3.9 million for the third quarter of 2019, compared with $3.3 million for the third quarter of 2018. Our effective tax rate for the three months ended September 28, 2019, was 20.4%, and was 19.7% for the three months ended September 29, 2018.
Income tax expense in the three months ended September 28, 2019, and September 29, 2018, 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 $665 thousand and $1.0 million, respectively. Excluding this discrete item, as well as other minor tax credit adjustments recorded in the 2019 third quarter, the effective tax rates for the three months ended September 28, 2019, and September 29, 2018, would have been 24.8% and 25.5%, respectively.
As a result of the Tax Cuts and Jobs Act, enacted effective on December 22, 2017, our Federal corporate income tax rate has been reduced from 35%, to 21%. This reduction in rate has lowered our overall effective tax rate. Additionally, the section 199 domestic manufacturing deduction was repealed. As such, our estimated annual effective tax rate, excluding the discrete items discussed above, approximates our current combined statutory federal and state rate of 25.6%.
- 33 -
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2019 AND SEPTEMBER 29, 2018
Net sales
|
|
|
Nine Months Ended |
|
|||||
|
|
|
|
|
|
||||
|
|
|
Net Sales |
|
|
Net Sales |
|
||
|
(in millions) |
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
570.1 |
|
|
$ |
508.6 |
|
Net sales for the first nine months of 2019 were $570.1 million, a $61.5 million, or 12.1%, increase in sales, from $508.6 million in the first nine months of the prior year. Net sales of our Southeast segment were $456.4 million in the first nine months of 2019, compared with $480.0 million in the first nine months of 2018, a decrease of $23.6 million. Net sales of our Western segment were $113.7 million in the first nine months of 2019, compared with $28.6 million in the first nine months of 2018, an increase of $85.1 million. Sales of our Western segment are composed of sales of WWS, which were $105.0 million in the first nine months of 2019, compared with $18.7 million in the third quarter of 2018 from the date of the acquisition, and sales of our legacy business into the western U.S., which were $8.6 million in the nine months ended September 28, 2019, and $9.9 million in the nine months ended September 29, 2018.
The increase in net sales for the first nine months of 2019 of $61.5 million was driven by the net increase in sales of $86.3 million from WWS, partially offset by the $23.6 million decline in sales of our Southeast segment, which includes a $26.0 million decrease in sales into the repair and remodel market of our legacy business. Sales in the first nine months of 2019 were also negatively affected by the disruptions to many of our customers’ operations caused by Hurricane Dorian in late August 2019, which resulted in a decrease in orders and shipments for us.
Gross profit and gross margin
Gross profit was $204.2 million in the first nine months of 2019, an increase of $26.5 million, or 14.9%, from $177.7 million in the first nine months of 2018. The gross margin percentage was 35.8% in the first nine months of 2019, compared to 34.9% in the first nine months of 2018, an increase of 0.9%. Gross margin improved in the first nine months of 2019 due primarily to the addition of WWS. Increases in gross margin due to benefits from price increases in the first quarter of 2019, and operating efficiencies in the first nine months of 2019 compared to the same period last year, were offset by the unfavorable effects of a change in the mix of products sold, lower gross margin on lower volume, and increased material costs.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses were $132.6 million in the first nine months of 2019, an increase of $27.3 million, from $105.3 million in the first nine months of 2018. SG&A in the first nine months of 2019 was 23.3% of net sales, compared to 20.7% of net sales in the first nine months of 2018. The increase in SG&A is primarily the result of the inclusion of the SG&A expenses of WWS for the entire first nine months of 2019, compared with only the post-acquisition-period in 2018, which resulted in an increase in SG&A totaling $31.1 million, including an increase of $5.9 million in amortization of the amortizable intangible asset acquired in the WWS acquisition. Excluding the increase in SG&A from the inclusion of WWS, SG&A decreased $3.8 million in the first nine months of 2019, compared to the first nine months of 2018. The decrease in SG&A was primarily driven by a decrease of personnel-related costs, and a decrease of acquisition costs of $3.8 million relating to the WWS acquisition included in the third quarter of 2018. These decreases were partially offset by an increase in legacy business selling and distribution costs in the first nine months of 2019 compared to 2018. There was also an increase in SG&A relating to an unusually high level of bad debt expense recorded in the second quarter of 2019, and an increase in marketing costs, including higher promotional costs. The remaining increase is related to a higher level of overall spending on SG&A related costs, including higher legal and other professional fees.
Gains on sales of assets under APA
On September 22, 2017, we entered into the APA with Cardinal for the sale to Cardinal of certain manufacturing equipment we used in processing glass components for PGT-branded doors. Substantially all of the remaining machinery and equipment was transferred to Cardinal during the second quarter of 2018, which had a net book value of $3.2 million and fair value of $5.8 million. We recognized gains on disposals for the difference totaling $2.6 million during the nine months ended September 29, 2018, classified as a separate line item in the accompanying condensed consolidated statements of operations for the nine months ended September 29, 2018.
- 34 -
Interest expense, net
Interest expense was $19.9 million in the first nine months of 2019, an increase of $0.5 million, or 2.7%, from $19.4 million in the first nine months of 2018. Interest expense in the first nine months of 2018 included $5.3 million in accelerated amortization of lenders fees and discount relating to the prepayment of $152.0 million in borrowings under the term loan portion of the 2016 Credit Agreement we made on September 18, 2018. There were no prepayments of term loan borrowings during 2019. Excluding the decrease in interest expense from the $5.3 million in accelerated amortization of lenders fees and discount included in the first nine months of 2018, interest expense increased $5.8 million in the first nine months of 2019, compared to the first nine months of 2018. The increase in interest expense is due primarily to the issuance of the 2018 Senior Notes due 2026, composed of $315.0 million aggregate principal amount of 6.75% unsecured senior notes due 2026. The 2018 Senior Notes due 2026 carry a higher per-annum interest rate and have a higher principal amount outstanding than borrowings under the term loan portion of the 2016 Credit Agreement due 2022. This increase in interest expense was partially offset by the effect of the prepayment of $152.0 million in borrowings under the 2016 Credit Agreement due 2022 from the proceeds of the Equity Issuance in September 2018.
Debt extinguishment costs
Debt extinguishment costs were $3.4 million in the first nine months of 2018. In connection with the Second Amendment, certain existing lenders modified their positions in or exited the 2016 Credit Agreement, which resulted in the write-offs of portions of the deferred financing costs and original issue discount allocated to these lenders. Additionally, at the time of the issuance of the 2018 Senior Notes, certain existing lenders reduced their positions in the revolving credit portion of the 2016 Credit Agreement, which resulted in the write-offs of the deferred financing costs allocated to these lenders. As such, write-offs totaling $3.4 million is classified as debt extinguishment costs in the accompanying condensed consolidated statement of operations for the nine months ended September 29, 2018, including $296 thousand during the three months ended September 29, 2018.
Income from operations
Income from operations was $71.6 million in the first nine months of 2019, a decrease of $3.4 million, from $75.0 million in the first nine months of 2018. Income from operations in the first nine months of 2019 includes $61.1 million from our Southeast segment and $10.5 million from our Western segment, compared to $71.4 million and $3.6 million from our Southeast and Western segments, respectively, in the first nine months of 2018, all after allocation of corporate operating costs in both periods. The decrease in income from operations in the first nine months of 2019 compared to the first nine months of 2018 is a result of the increase in SG&A, including higher amortization, substantially offset by a higher amount of gross profit in the first nine months of 2019 compared to the same period of last year. Income from operations also includes the gains on sales of assets under the APA with Cardinal of $2.6 million in the nine months ended September 29, 2018.
Income tax expense
Our income tax expense was $11.3 million for the first nine months of 2019, compared with $8.7 million for the first nine months of 2018. Our effective tax rate for the nine months ended September 28, 2019, was 21.8%, and was 16.8% for the nine months ended September 29, 2018.
Income tax expense in the nine months ended September 28, 2019, and September 29, 2018, 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 $1.7 million and $4.6 million, respectively. Excluding this discrete item, as well as other minor tax credit adjustments recorded in the 2019 third quarter, the effective tax rates for the nine months ended September 28, 2019, and September 29, 2018, would have been 25.3% and 25.6%, respectively.
As a result of the Tax Cuts and Jobs Act, enacted effective on December 22, 2017, our Federal corporate income tax rate has been reduced from 35%, to 21%. This reduction in rate has lowered our overall effective tax rate. Additionally, the section 199 domestic manufacturing deduction was repealed. As such, our estimated annual effective tax rate, excluding the discrete items discussed above, approximates our current combined statutory federal and state rate of 25.6%.
- 35 -
LIQUIDITY AND CAPITAL RESOURCES
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. Our primary capital requirements are to fund working capital needs, meet required debt service payments on our credit facilities and fund capital expenditures.
Consolidated Cash Flows
Operating activities. Cash provided by operating activities during the first nine months of 2019 was $54.3 million, compared to cash provided of $64.6 million in the first nine months of 2018. The decrease in cash provided by operating activities for the first nine months of 2019, as compared to the first nine months of 2018, of $10.3 million, was due to the factors set forth in the table below.
Direct cash flows from operations for the first nine months of 2019 and 2018 are as follows:
|
|
|
Direct Operating Cash Flows |
|
|||||
|
|
|
Nine Months Ended |
|
|||||
|
|
|
September 28, |
|
|
September 29, |
|
||
|
(in millions) |
|
2019 |
|
|
2018 |
|
||
|
Collections from customers |
|
$ |
574.6 |
|
|
$ |
490.7 |
|
|
Other collections of cash |
|
|
6.4 |
|
|
|
5.2 |
|
|
Disbursements to vendors |
|
|
(356.0 |
) |
|
|
(308.8 |
) |
|
Personnel related disbursements |
|
|
(136.5 |
) |
|
|
(114.5 |
) |
|
Income taxes paid, net |
|
|
(10.8 |
) |
|
|
(17.2 |
) |
|
Debt service payments |
|
|
(23.3 |
) |
|
|
(9.8 |
) |
|
Cash received from Cardinal under supply agreement |
|
|
- |
|
|
|
19.0 |
|
|
Other cash activity, net |
|
|
(0.1 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Cash from operations |
|
$ |
54.3 |
|
|
$ |
64.6 |
|
Days sales outstanding (DSO), which we calculate as accounts receivable divided by quarterly average daily sales, was 42 days at September 28, 2019, compared to 39 days at September 29, 2018.
Inventory on hand as of September 28, 2019, was $47.6 million, compared to $44.7 million at December 29, 2018, an increase of $2.9 million.
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 $20.2 million for the first nine months of 2019, compared to cash used in investing activities of $371.1 million for the first nine months of 2018, a decrease in cash used in investing activities of $350.9 million. There was a decrease in cash used in investing activities due to a decrease in capital expenditures of $1.5 million, which went from $21.7 million in the first nine month of 2018, to $20.2 million in the first nine months of 2019. Proceeds from disposals of assets in the first nine months of 2019 was less than $0.1 million, compared with $5.9 million in the first nine months of 2018, which was almost entirely composed of cash received from the sales of assets under the Cardinal APA. Finally, in the third quarter of 2018, we used $355.2 million in cash to acquire WWS.
- 36 -
Financing activities. Cash used in financing activities was $4.9 million in the first nine months of 2019, compared to cash provided by financing activities of $304.7 million in the first nine months of 2018, a decrease in cash provided of $309.6 million. In the third quarter of 2018, we issued the 2018 Senior Notes, which provided proceeds of $315.0 million. Also in the third quarter of 2018, we issued Company common stock in the 2018 Equity Issuance, which provided net proceeds of $152.7 million. Using primarily the proceeds from the 2018 Equity Issuance, we made repayments of long-term debt of nearly $152.2 million in the first nine months of 2018, compared with repayments of long-term debt of $0.2 million in the first nine months of 2019.During the three months ended September 28, 2019, we made repurchases of 393,819 shares of our common stock totaling $5.5 million under a repurchase program authorized by our Board of Directors. See the section below titled Share Repurchase Program for additional information regarding this program. There were payments of financing costs totaling $12.1 million in the first nine months of 2018, related to the Second Amendment. Taxes paid relating to common stock withheld from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock awards were $0.5 million in the first nine months of 2019, versus $0.6 million in the first nine months of 2018, a decrease in cash used of $0.1 million. Proceeds from the exercises of stock options were $1.3 million in the first nine months of 2019, compared to $1.9 million in the first nine months of 2018, a decrease in proceeds of $0.6 million.
During the nine months ended September 28, 2019, we made payments of estimated federal and state income taxes of $10.8 million. We received no refunds of federal or state income taxes in the first nine months of 2019. During the nine months ended September 29, 2018, we made payments of estimated federal and state income taxes totaling $17.2 million, including an estimated Federal income tax payment totaling $9.0 million relating to the 2017 tax year. The Internal Revenue Service provided tax relief relating to taxpayers in certain designated areas of Florida impacted by Hurricane Irma in September 2017, which included all counties in Florida in which we operate. As a result, the deadline for remitting our required 2017 third quarter estimated payment for corporate income taxes was extended to January 31, 2018.
Capital Resources and Debt Covenant.
2018 Equity Issuance
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. Pursuant to the offering, we granted the underwriters an option for a 30-day period to purchase up to an additional 1,050,000 shares of common stock. The 30-day option period expired with no additional shares issued.
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. We used $152.0 million of these proceeds to prepay borrowings outstanding under the term loan portion of the 2016 Credit Agreement. The remainder of the proceeds were used for working capital or general corporate purposes, including payment of offering expenses of approximately $447 thousand, classified as a reduction of additional paid-in capital.
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.
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, which is being amortized under the effective interest method. See “Deferred Financing Costs” below. As of September 28, 2019, the face value of debt outstanding under the 2018 Senior Notes due 2026 was $315.0 million, and accrued interest totaled $3.5 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.
- 37 -
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.
On March 16, 2018, we entered into the Second Amendment, which, 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.
In connection with the Second Amendment, certain existing lenders changed their positions in or exited the 2016 Credit Agreement due 2022, which resulted in the write-offs of portions of the deferred financing costs and original issue discount allocated to these lenders. Additionally, at the time of the issuance of the 2018 Senior Notes due 2026, certain existing lenders reduced their positions in the revolving credit portion of the 2016 Credit Agreement due 2022, which resulted in the write-offs of the deferred financing costs allocated to these lenders. As such, write-offs totaling $3.4 million is classified as debt extinguishment costs in the accompanying condensed consolidated statement of operations for the nine months ended September 29, 2018.
Regarding the first amendment to the 2016 Credit Agreement due 2022, as described above, as there were no changes in lender positions, this action did not result in any modifications or extinguishments of debt. Therefore, there was no charge for debt extinguishment costs in 2017.
Interest on all loans under the 2016 Credit Agreement due 2022 is payable either quarterly or at the expiration of any LIBOR interest period applicable thereto. Prior to amending the 2016 Credit Agreement due 2022 on March 16, 2018, as described above, borrowings under the term loans and the revolving credit facility accrued interest at a rate equal to, at our option, LIBOR (with a floor of 100 basis points in respect of the term loan), or a base rate (with a floor of 200 basis points in respect of the term loan) plus an applicable margin. The applicable margin was 475 basis points in the case of LIBOR and 375 basis points in the case of the base rate. The weighted average all-in interest rate for borrowings under the term-loan portion of the 2016 Credit Agreement due 2022 was 5.69% as of September 28, 2019, and was 5.84% at December 29, 2018.
We also pay quarterly fees on the unused portion of the revolving credit facility equal to 50 basis points per annum as well as a quarterly letter of credit fee at 575 basis points per annum plus a 12.5 basis point facing fee per annum on the face amount of any outstanding letters of credit. As of September 28, 2019, there were $2.1 million in letters of credit outstanding and $37.9 million available under the revolver.
The 2016 Credit Agreement due 2022 contains a springing financial covenant that would apply if we draw in excess of twenty percent (20%) 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 105% 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 as of the last day of the fiscal quarter ending on September 28, 2019. We were not required to test our first lien net leverage ratio for the quarter ending September 28, 2019 because we did not exceed 20% of our revolving capacity. We believe that our total net leverage ratio during the third quarter of 2019 has been, and during the remainder of 2019 will continue to be, in compliance with the 2016 Credit Agreement due 2022, and that we are in compliance with all covenants.
- 38 -
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, 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. As of September 28, 2019, the principal amount of debt outstanding under the 2016 Credit Agreement due 2022 was $64.0 million, and accrued interest was $0.5 million.
Amendment to 2016 Credit Agreement
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. We estimate that fees and costs relating to the Third Amendment will be approximately $0.8 million, which we expect can be deferred and amortized.
In connection with the Third Amendment, certain existing lenders modified their positions in or exited the 2016 Credit Agreement. We expect that deferred financing costs and original issue discount allocated to these lenders of approximately $1.5 million will be written-off and classified as debt extinguishment costs in the condensed consolidated statement of operations for our fiscal year ended December 28, 2019.
Deferred Financing Costs
The activities relating to third-party fees and costs, lender fees and discount for the nine months ended September 28, 2019, 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 |
|
$ |
12,361 |
|
|
Less: Amortization expense relating to 2016 Credit Agreement |
|
|
(552 |
) |
|
Less: Amortization expense relating to 2018 Senior Notes |
|
|
(751 |
) |
|
|
|
|
|
|
|
At end of period |
|
$ |
11,058 |
|
- 39 -
Estimated amortization expense relating to third-party fees and costs, lender fees and discount for the years indicated as of September 28, 2019, is as follows:
|
(in thousands) |
|
Total |
|
|
|
Remainder of 2019 |
|
$ |
449 |
|
|
2020 |
|
|
1,913 |
|
|
2021 |
|
|
1,893 |
|
|
2022 |
|
|
1,353 |
|
|
2023 |
|
|
1,359 |
|
|
Thereafter |
|
|
4,091 |
|
|
|
|
|
|
|
|
Total |
|
$ |
11,058 |
|
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 February 21, 2022. The contractual future maturities of long-term debt outstanding, including the remaining balance of the financing arrangement described as other debt, as of September 28, 2019, are as follows (at face value):
|
(in thousands) |
|
|
|
|
|
Remainder of 2019 |
|
$ |
— |
|
|
2020 |
|
|
— |
|
|
2021 |
|
|
— |
|
|
2022 |
|
|
63,975 |
|
|
2023 |
|
|
— |
|
|
Thereafter |
|
|
315,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
378,975 |
|
Capital Expenditures. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. For the first nine months of 2019, capital expenditures were $20.2 million, compared to $21.7 million for the first nine months of 2018. In 2019, including the capital expenditures of WWS, we expect to spend approximately $32 to $38 million on capital expenditures. 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 Contracts. We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusions we use in production. At September 28, 2019, the fair value of our aluminum forward contracts was in a net liability position of $2.5 million. We had 36 outstanding forward contracts for the purchase of 34.5 million pounds of aluminum through December 2019, at an average price of $0.87 per pound, which excludes the Midwest premium, with maturity dates of between one month and fifteen 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 September 28, 2019.
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 September 28, 2019, that we expect will be reclassified to earnings within the next twelve months, will be approximately $2.4 million.
Share Repurchase Program. On May 22, 2019, our Board of Directors authorized and approved a share repurchase program of up to $30 million. The repurchases may be made in open market or private transactions from time to time. Repurchases of shares may be made under a Rule 10b5-1 plan, which would permit repurchases when we might otherwise be precluded from doing so under applicable laws. We base repurchase decisions, including the timing of repurchases, on factors such as our stock price, general economic and market conditions, the potential impact on our capital structure, the expected return on competing uses of capital such as strategic acquisitions and capital investments, and other corporate considerations, as determined by our management. The repurchase program may be suspended or discontinued at any time. We do not intend to repurchase any shares from directors, officers, or other affiliates. The program does not obligate us to acquire any specific number of shares. The timing, manner, price and amount of repurchases will be determined at our discretion, and the program may be suspended, terminated or modified at any time for any reason. No repurchases were made under the program during the period from the inception of the program on May 22, 2019, through
- 40 -
the end of the second quarter of 2019. During the three months ended September 28, 2019, we made repurchases of 393,819 shares of our common stock at a total cost of $5.5 million. During the remainder of 2019, we may continue to make opportunistic repurchases of our common stock as we see fit.
Subsequent Event
Announcement of Executive Departure
On October 27, 2019, Scott Gates notified the Company that he will resign his position as President of the Company’s Western Business Unit and its Western Window Systems business, effective January 31, 2020. Following his resignation, Mr. Gates plans to establish a social entrepreneurship organization that will provide jobs, skills training and career paths for those in prison and former inmates.
Contractual Obligations
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 29, 2018.
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 29, 2018. Except for the adoption of the guidance relating to leases pursuant to ASU 2016-02, discussed below, there have been no changes to our critical accounting policies during the first nine months of 2019.
Leases Accounting Policy
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liability, and operating lease liability, less current portion, on our consolidated balance sheets. Should we engage in any finance leases in the future, finance leases would be included in property and equipment, other current liabilities, and other liabilities on our consolidated balance sheets.
Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease right-of-use asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Recently Issued 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 are 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 is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date. The Company does not believe that the adoption of this guidance will have a significant impact on its 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
- 41 -
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 are effective for us for our fiscal year beginning after December 15, 2019. We do not believe that the adoption of this guidance will have a significant 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. As of September 28, 2019, we are covered for approximately 81% of our anticipated needs through December 2019 at an average price of $0.95 per pound, and for approximately 50% of our anticipated needs in 2020 at an average price of $0.83 per pound. These calculations are based only on the LME price of aluminum and excludes an estimate for the Midwest premium.
Regarding our aluminum hedging instruments for the purchase of aluminum as of September 28, 2019, a 10% decrease in the price of aluminum per pound would decrease the fair value of our forward contracts of aluminum by an estimated $2.8 million. This calculation utilizes our actual commitment of 34.5 million pounds under contract (to be settled throughout December 2020) and the market price of aluminum as of September 28, 2019. This calculation is based only on the LME price of aluminum and excludes an estimate for the Midwest premium.
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.
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. We implemented internal controls to ensure we properly assessed the impact of the new accounting standards related to leases on our financial statements to facilitate its adoption on December 30, 2018 (the first day of our 2019 fiscal year, and the effective date of our adoption of ASU 2016-02).
- 42 -
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 29, 2018. 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.
- 43 -
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
On May 22, 2019, our Board of Directors authorized and approved a share repurchase program of up to $30 million. The repurchases may be made in open market or private transactions from time to time. Repurchases of shares may be made under a Rule 10b5-1 plan, which would permit repurchases when the Company might otherwise be precluded from doing so under applicable laws. The Company bases repurchase decisions, including the timing of repurchases, on factors such as the Company’s stock price, general economic and market conditions, the potential impact on the Company’s capital structure, the expected return on competing uses of capital such as strategic acquisitions and capital investments, and other corporate considerations, as determined by management. The repurchase program may be suspended or discontinued at any time.
The following table presents information regarding the total number of shares repurchased, average price paid per share, the number of shares repurchased under the program, and maximum approximate dollar value of shares that may yet be purchased under the plan, by month for the three-month period ended September 28, 2019:
|
|
|
|
|
Purchases of Equity Securities |
|
|||||||||||||
|
Period |
|
Beginning and Ending Dates |
|
(a) Total Number of Shares Purchased |
|
|
(b) Average Price Paid per Share |
|
|
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
(d) Maximum Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs at End of Period (in millions) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2019 |
|
June 30 to July 27 |
|
|
- |
|
|
- |
|
|
|
- |
|
|
$ |
30.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2019 |
|
July 28 to August 24 |
|
|
358,719 |
|
|
$ |
14.0815 |
|
|
|
358,719 |
|
|
$ |
24.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2019 |
|
August 25 to September 28 |
|
|
35,100 |
|
|
$ |
13.9818 |
|
|
|
35,100 |
|
|
$ |
24.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,819 |
|
|
$ |
14.0726 |
|
|
|
393,819 |
|
|
|
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER INFORMATION
None.
- 44 -
ITEM 6. EXHIBITS
|
10.1 |
|
|
|
|
|
31.1* |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
31.2* |
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS |
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 |
|
|
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema |
|
|
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
|
101.DEF |
Inline XBRL Taxonomy Definition Linkbase |
|
|
|
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase |
|
|
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
|
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
**Furnished herewith.
- 45 -
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.
|
|
PGT INNOVATIONS, INC. |
|
|
(Registrant) |
|
|
|
|
|
|
|
Date: November 7, 2019 |
/s/ Sherri Baker |
|
|
|
|
|
Senior Vice President and Chief Financial Officer |
- 46 -
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 8/10/26 | ||||
| 2/21/22 | ||||
| 1/31/20 | ||||
| 12/29/19 | ||||
| 12/28/19 | 10-K, DEF 14A | |||
| 12/15/19 | ||||
| Filed on: | 11/7/19 | 8-K | ||
| 10/31/19 | 8-K | |||
| 10/27/19 | 8-K | |||
| 9/29/19 | ||||
| For Period end: | 9/28/19 | |||
| 6/29/19 | 10-Q | |||
| 5/22/19 | 4, 8-K | |||
| 3/1/19 | 4 | |||
| 2/27/19 | 10-K, 8-K | |||
| 2/16/19 | ||||
| 2/14/19 | 4, SC 13G/A | |||
| 12/30/18 | ||||
| 12/29/18 | 10-K | |||
| 12/19/18 | ||||
| 9/29/18 | 10-Q | |||
| 9/28/18 | ||||
| 9/18/18 | 8-K | |||
| 8/13/18 | 8-K, 8-K/A | |||
| 8/10/18 | 8-K | |||
| 6/30/18 | 10-Q | |||
| 3/16/18 | 4, 8-K | |||
| 1/31/18 | ||||
| 12/30/17 | 10-K | |||
| 12/22/17 | ||||
| 9/22/17 | 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 | ||||