UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission file number
Registrant’s telephone number:
State of Incorporation |
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IRS Employer Identification No. |
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0 |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
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.
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company |
Emerging growth company |
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 Section 13(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 ☐ No
Common Stock, $0.01 par value, outstanding was
PGT INNOVATIONS, INC.
TABLE OF CONTENTS
Form 10-Q for the Three and Nine Months Ended September 30, 2023
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Part I. |
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3 |
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Item 1. |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
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Item 3. |
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37 |
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Item 4. |
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39 |
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Part II. |
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40 |
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Item 1. |
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40 |
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Item 1A. |
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40 |
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Item 2. |
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41 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 5. |
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41 |
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Item 6. |
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42 |
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43 |
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- 2 -
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PGT INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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October 1, |
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September 30, |
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October 1, |
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2023 |
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2022 |
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2023 |
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2022 |
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(unaudited) |
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(unaudited) |
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Net sales |
$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring costs and charges, net |
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— |
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— |
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Income from operations |
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Interest expense, net |
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Income before income taxes |
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Income tax expense |
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Net income |
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Less: Net income attributable to redeemable |
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— |
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( |
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Net income attributable to the Company |
$ |
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$ |
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$ |
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$ |
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Calculation of net income per common share attributable |
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Net income attributable to the Company |
$ |
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$ |
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$ |
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$ |
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Decrease (increase) in redemption value of RNCI |
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— |
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( |
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( |
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Net income attributable to common shareholders |
$ |
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$ |
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$ |
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$ |
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Net income per common share attributable to common shareholders: |
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Basic |
$ |
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$ |
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$ |
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$ |
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Diluted |
$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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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)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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October 1, |
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September 30, |
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October 1, |
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2023 |
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2022 |
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2023 |
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2022 |
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(unaudited) |
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(unaudited) |
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Net income |
$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss) before tax: |
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Increase (decrease) in fair value of derivatives |
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( |
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Reclassification to earnings |
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Other comprehensive income (loss) before tax |
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( |
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Income tax expense (benefit) related to |
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Other comprehensive income (loss), net of tax |
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( |
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Comprehensive income |
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Less: Comprehensive income attributable to |
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— |
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( |
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Comprehensive income attributable to the Company |
$ |
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$ |
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$ |
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$ |
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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)
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September 30, |
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December 31, |
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2023 |
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2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Contract assets, net |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use asset, net |
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Intangible assets, net |
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Goodwill |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Current portion of operating lease liability |
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Total current liabilities |
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Long-term debt, net |
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Operating lease liability, less current portion |
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Deferred income taxes |
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Other liabilities |
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Total liabilities |
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Redeemable non-controlling interest |
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— |
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Shareholders' equity: |
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Preferred stock; par value $ |
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Common stock; par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Retained earnings |
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Treasury stock at cost ( |
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( |
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Total shareholders' equity |
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Total liabilities, redeemable non-controlling interest and shareholders' equity |
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$ |
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$ |
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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)
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Nine Months Ended |
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September 30, |
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October 1, |
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2023 |
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2022 |
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(unaudited) |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash |
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provided by operating activities: |
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Depreciation |
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Amortization |
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Provision for credit losses |
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Stock-based compensation expense |
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Amortization of deferred financing costs |
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Asset impairment charges |
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— |
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Non-cash portion of restructuring costs and charges, net |
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— |
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Loss (gain) on sales of assets |
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( |
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Change in operating assets and liabilities: |
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Accounts receivable |
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( |
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Inventories |
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( |
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( |
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Contract assets, net, prepaid expenses, other current and other assets |
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Accounts payable, accrued and other liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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( |
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( |
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Business combinations |
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( |
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Proceeds from sales of assets |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Payment of fair value of contingent consideration in Anlin Acquisition |
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( |
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( |
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Redemption of redeemable non-controlling interest |
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( |
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— |
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Proceeds of amounts drawn from revolving credit facility |
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— |
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Payments of borrowing under revolving credit facility |
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( |
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— |
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Purchases of treasury stock under share repurchase program |
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( |
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— |
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Income taxes paid from stock withheld relating to vesting of equity awards |
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( |
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( |
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Proceeds from issuance of common stock under employee stock purchase plan (ESPP) |
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Net cash used in financing activities |
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( |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Non-cash activity: |
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Accrual of excise tax liability in treasury stock |
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$ |
( |
) |
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$ |
— |
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Additions to right-of-use asset |
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$ |
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$ |
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Additions to operating lease liability |
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$ |
( |
) |
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$ |
( |
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Property, plant and equipment additions in accounts payable |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
PGT INNOVATIONS, INC.
(in thousands, except shares) (unaudited)
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PGT Innovations, Inc. Shareholders' Equity |
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Accumulated |
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Additional |
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Other |
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Common stock |
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Paid-in |
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Comprehensive |
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Retained |
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Treasury |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Earnings |
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Stock |
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Total |
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QUARTER ENDED OCTOBER 1, 2022 |
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Balance at July 2, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
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Vesting of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock withheld in lieu of taxes |
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( |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Retirement of stock withheld in lieu of taxes |
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— |
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— |
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( |
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— |
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( |
) |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Net income attributable to the Company |
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— |
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— |
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— |
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— |
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— |
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Decrease in value of RNCI |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other comprehensive loss, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at October 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
NINE MONTHS ENDED OCTOBER 1, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Vesting of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeitures of restricted stock |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock withheld in lieu of taxes |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Retirement of stock withheld in lieu of taxes |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock issued under ESPP |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net income attributable to the Company |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Increase in value of RNCI |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Balance at October 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
QUARTER ENDED SEPTEMBER 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at July 1, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Vesting of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock withheld in lieu of taxes |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Retirement of stock withheld in lieu of taxes |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock issued under ESPP |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net income attributable to the Company |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other comprehensive income, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
NINE MONTHS ENDED SEPTEMBER 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Vesting of restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Grants of restricted stock |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeitures of restricted stock |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchases of treasury stock |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock withheld in lieu of taxes |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Retirement of stock withheld in lieu of taxes |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Common stock issued under ESPP |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Net income attributable to the Company |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Increase in value of RNCI |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Other comprehensive income, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance at September 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
PGT INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
About PGT Innovations, Inc.
PGT Innovations, Inc. (“PGTI”, “we,” or the “Company”), formerly named PGT, Inc., is a leading manufacturer of impact-resistant aluminum and vinyl-framed windows and doors and offers a broad range of fully customizable window and door products, as well as fully custom overhead garage doors. The majority of our sales are to customers in the state of Florida; however, we also sell products in many other states, the Caribbean, Canada, and in South and Central America. Our acquisition of Eco Enterprises ("Eco Acquisition") in February 2021 expands our range of product offerings in our major market of southeast Florida. We also have sales of products that are designed to unify indoor and outdoor living spaces, through our Western Windows Systems’ (“WWS”) division, and most of its sales are in the western United States. Our acquisitions of Anlin Windows and Doors ("Anlin") in October 2021 and Martin Door Holdings, Inc. ("Martin") in October 2022 expanded our presence in the west. The acquisition of Martin, which produces residential and commercial garage doors, expands the Company into building products adjacent to its portfolio of window and door brands. Products are sold primarily through an authorized dealer and distributor network. We began selling window and door products in the direct-to-consumer channel, a “factory-direct” sales model, through our acquisition of NewSouth Windows Solutions ("NewSouth") in February 2020.
We were incorporated in the state of Delaware on December 16, 2003, as JLL Window Holdings, Inc. On February 15, 2006, our Company was renamed PGT, Inc. On 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 and began trading on the NYSE under the ticker symbol of “PGTI”.
We are headquartered in North Venice, Florida, where we have manufacturing operations, as well as
All references to PGTI or our Company apply to the consolidated financial statements of PGT Innovations, Inc. unless otherwise noted.
Basis of Presentation
These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Our condensed consolidated financial statements are unaudited; however, 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 periods are not necessarily indicative of the results that may be expected for the remainder of the current year or for any future periods. The Company’s fiscal three and nine months ended September 30, 2023 and October 1, 2022 consisted of 13 and 39 weeks, respectively.
The condensed consolidated balance sheet as of December 31, 2022, 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 31, 2022, and the unaudited condensed consolidated financial statements as of and for the periods ended September 30, 2023, and October 1, 2022, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2022, included in the Company’s most recent Annual Report on Form 10-K. The accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
We have
- 8 -
NOTE 2. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue from Contracts with Customers
As discussed in Note 1, we have
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
||||
Disaggregation of revenue (in millions): |
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Reporting segment: |
|
|
|
|
|
|
|
|
|
|
|
||||
Southeast |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Western |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product category: |
|
|
|
|
|
|
|
|
|
|
|
||||
Impact-resistant |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Nonimpact-resistant |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Market: |
|
|
|
|
|
|
|
|
|
|
|
||||
New construction |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Repair and remodel |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company’s Western segment includes both custom and volume products. This segment’s volume products are not made-to-order and are of standardized sizes and design specifications. Therefore, the Company’s assessment is that the Western segment’s volume products have alternative uses, and that control of these products passes to the customer at a point in time, which is typically when the product has been delivered to the customer. For the three months ended September 30, 2023 and October 1, 2022, the Western segment’s net sales of its volume products were $
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. Contract liabilities relate to customer deposits at the end of reporting periods. At September 30, 2023 and December 31, 2022, those contract liabilities totaled $
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 31, 2022 were satisfied in the first quarter of 2023, and contract assets at December 31, 2022 were transferred to accounts receivable in the first quarter of 2023. Also, substantially all of the contract liabilities at September 30, 2023 will be satisfied in the fourth quarter of 2023, and contract assets at September 30, 2023 will be transferred to accounts receivable in the fourth quarter of 2023. Contract liabilities at September 30, 2023 represents cash received during the three-month period ended September 30, 2023, excluding amounts recognized as revenue during that period. Contract assets at September 30, 2023 represents revenue recognized during the three-month period ended September 30, 2023, excluding amounts transferred to accounts receivable during that period. Contract liabilities at December 31, 2022 represents cash received during the three-month period ended December 31, 2022, excluding amounts recognized as revenue during that period. Contract assets at December 31, 2022 represents revenue recognized during the three-month period ended December 31, 2022, excluding amounts transferred to accounts receivable during that period.
- 9 -
Allowance for Credit Losses
We measure all expected credit losses for financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. 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 credit losses which is based on management’s assessments of the amount which may become uncollectible in the future and is determined through consideration of our write-off history, specific identification of uncollectible accounts based in part on the customer’s past due balance (based on contractual terms), and consideration of prevailing economic and industry conditions, and may include anticipated unfavorable impacts of current macro-economic conditions on the businesses of our customers, such as dealers and distributors.
As of September 30, 2023 and December 31, 2022, we had gross accounts receivable of $
NOTE 3. WARRANTY
Most of our manufactured products are sold with warranties. Warranty periods, which vary by product components, generally range from
During the three months ended September 30, 2023, we recorded warranty expense at a rate of approximately
|
|
Beginning |
|
|
Acquisition- |
|
|
Charged |
|
|
|
|
|
|
|
|
End of |
|
||||||
Accrued Warranty |
|
of Period |
|
|
Related |
|
|
to Expense |
|
|
Adjustments |
|
|
Settlements |
|
|
Period |
|
||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Three months ended September 30, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Three months ended October 1, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nine months ended September 30, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Nine months ended October 1, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
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
- 10 -
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.
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Inventories |
|
$ |
|
|
$ |
|
NOTE 5. STOCK BASED-COMPENSATION
Stock-Based 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 $
As of September 30, 2023, there was $
All-Employee Grant
On September 1, 2023, we issued
NOTE 6. ACQUISITION
MARTIN DOORS
On
The cash portion of the Martin Acquisition was financed with borrowings under the revolving credit facility ("New Revolving Credit Facility") established under fifth amendment ("Fifth Amendment") to the 2016 Credit Agreement ("2016 Credit Agreement due 2027") of $
- 11 -
Purchase Price Allocation
The preliminary estimated fair value of assets acquired, liabilities assumed and subsequent adjustments to that allocation as of our reporting date, are as follows
|
|
Initial |
|
|
Adjustments to |
|
|
Preliminary |
|
|||
Accounts receivable |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Inventories |
|
|
|
|
|
( |
) |
|
|
|
||
Contract assets, net |
|
|
|
|
|
— |
|
|
|
|
||
Prepaid expenses and other assets |
|
|
|
|
|
— |
|
|
|
|
||
Property and equipment |
|
|
|
|
|
( |
) |
|
|
|
||
Operating lease right-of-use asset |
|
|
|
|
|
— |
|
|
|
|
||
Intangible assets |
|
|
|
|
|
— |
|
|
|
|
||
Total assets acquired |
|
|
|
|
|
( |
) |
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Accrued and other liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Deferred tax liabilities |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Operating lease liability |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total liabilities assumed |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net assets acquired |
|
|
|
|
|
( |
) |
|
|
|
||
Goodwill |
|
|
|
|
|
|
|
|
|
|||
Fair value of consideration transferred |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Consideration: |
|
|
|
|
|
|
|
|
|
|||
Cash |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Fair value of consideration transferred |
|
$ |
|
|
$ |
|
|
$ |
|
The fair value of certain working capital related items, including Martin’s accounts receivable, prepaid expenses and other assets, and accounts payable and accrued and other liabilities, approximated their book values at the date of the Martin Acquisition. The fair value of inventory was estimated by major category, at net realizable value, which we believe approximates the price a market participant could achieve in a current sale. The substantial majority of inventories at the acquisition date was comprised of raw materials. The fair value of property and equipment and remaining useful lives were estimated by management, with the assistance of a third-party valuation firm, using the cost approach. Valuations of the intangible assets were done using income and royalty relief approaches based on projections provided by management, which we consider to be Level 3 inputs, with the assistance of a third-party valuation firm. During the nine months of 2023, we made immaterial adjustments to our purchase allocation relating to accounts receivable, inventories, property and equipment, and accrued and other liabilities.
We incurred acquisition costs totaling $
Because the Martin Acquisition was an acquisition of stock, Martin's assets and liabilities retain their tax bases at the time of the acquisition. Therefore, none of the identifiable intangible assets or goodwill acquired in the Martin Acquisition are deductible for tax purposes. As of September 30, 2023, goodwill is estimated to be $
Pro forma results of operations, as well as net sales and income attributable to the Martin Acquisition are not presented as it did not have a material impact on our results of operations.
- 12 -
Valuation of Identified Intangible Assets
The valuation of the identifiable intangible assets acquired in the Martin Acquisition and our estimate of their respective useful lives are as follows:
|
|
|
|
|
Initial |
|
|
|
Preliminary |
|
|
Useful Life |
|
|
|
Valuation |
|
|
(in years) |
|
(in thousands) |
|
|
|
|
|
|
Trade name |
|
$ |
|
|
indefinite |
|
Customer relationships |
|
|
|
|
||
Customer-related backlog (amortized in 2022) |
|
|
|
|
< |
|
Developed technology |
|
|
|
|
||
Non-compete-related intangible |
|
|
|
|
||
|
|
|
|
|
|
|
Intangible assets |
|
$ |
|
|
|
NOTE 7. NET INCOME PER COMMON SHARE
Basic earnings per share (“EPS”) attributable to PGT Innovations, Inc. common stockholders for the nine months ended September 30, 2023, and the three and nine months ended October 1, 2022, is computed using the two-class method by dividing net income attributable to common shareholders, after deducting the redemption adjustment related to the redeemable noncontrolling interest, by the average number of common shares outstanding during the period. Diluted EPS attributable to PGT Innovations, Inc. common stockholders for the nine months ended September 30, 2023, and the three and nine months ended October 1, 2022, is computed using the two-class method by dividing net income attributable to common shareholders, after deducting the redemption adjustment related to the redeemable noncontrolling interest, by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period.
Basic EPS for the three months ended September 30, 2023, is computed by dividing net income attributable to common shareholders by the average number of common shares outstanding during the period. Diluted EPS for the three months ended September 30, 2023, is computed by dividing net income attributable to common shareholders by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period.
Anti-dilutive securities excluded from the calculation of weighted average shares outstanding for the three and nine months ended September 30, 2023 and October 1, 2022 were insignificant.
The table below presents the calculation of EPS and a reconciliation of weighted average common shares used in the calculation of basic and diluted EPS:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
(in thousands, except per share amounts) |
|
|||||||||||||
Net income |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: Net income attributable to RNCI |
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income attributable to the Company |
|
|
|
|
|
|
|
|
|
|
|
||||
Decrease (increase) in redemption value of RNCI |
|
— |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net income attributable to common shareholders |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of common shares outstanding - Basic |
|
|
|
|
|
|
|
|
|
|
|
||||
Add: Dilutive shares from equity plans |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average number of common shares outstanding - Diluted |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per common share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
- 13 -
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and intangible assets are as follows:
|
|
|
|
|
|
|
|
Initial |
||
|
|
September 30, |
|
|
December 31, |
|
|
Useful Life |
||
|
|
2023 |
|
|
2022 |
|
|
(in years) |
||
|
|
(in thousands) |
|
|
|
|||||
Goodwill |
|
$ |
|
|
$ |
|
|
indefinite |
||
|
|
|
|
|
|
|
|
|
||
Other intangible assets: |
|
|
|
|
|
|
|
|
||
Trade names (indefinite-lived) |
|
$ |
|
|
$ |
|
|
indefinite |
||
|
|
|
|
|
|
|
|
|
||
Customer relationships and customer-related assets |
|
|
|
|
|
|
|
< |
||
Trade name (amortizable) |
|
|
|
|
|
|
|
|||
Developed technology |
|
|
|
|
|
|
|
|||
Non-compete agreement |
|
|
|
|
|
|
|
|||
Software license |
|
|
|
|
|
|
|
|||
Less: Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Subtotal |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Other intangible assets, net |
|
$ |
|
|
$ |
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Goodwill at December 31, 2022 |
|
$ |
|
|
|
|
|
|
||
Increase relating to Martin Acquisition net working capital payment |
|
|
|
|
|
|
|
|
||
Net other measurement period changes in Martin Acquisition |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Goodwill at September 30, 2023 |
|
$ |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Estimated amortization of our amortizable intangible assets for future years is as follows:
(in thousands) |
|
Total |
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
Amortization expense relating to amortizable intangible assets for the three months ended September 30, 2023 and October 1, 2022, was $
We perform our annual goodwill and indefinite-lived intangible asset impairment testing as of the first day of our fiscal fourth quarter of each year, and at interim periods if needed based on occurrence of triggering events. During the three and nine months ended September 30, 2023, we did not identify any events which we believe would trigger the need for tests for impairments of our indefinite-lived intangibles assets prior to our annual assessment date. However, in 2023, we have experienced challenging macro-economic conditions in the markets for our products of our Western segment. Although experiencing some improvement in the third quarter of 2023, should these conditions persist, when combined with potential increases in discount rates due to the rising interest rate environment in 2023, no assurances can be given that any future tests for impairment will indicate that it is more likely than not that the fair values of our indefinite-lived intangible assets will exceed their carrying values for the remainder of 2023.
As of September 30, 2023 and December 31, 2022, the carrying value of our Southeast reporting unit goodwill is $
- 14 -
NOTE 9. LONG-TERM DEBT
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
||
2021 Senior Notes due 2029, maturing in October 2029 |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
2016 Credit Agreement due 2027, maturing in October 2027 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred financing costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Long-term debt, net |
|
$ |
|
|
$ |
|
2021 Senior Notes due 2029
On September 24, 2021, we completed the issuance of $
The 2021 Senior Notes due 2029 mature on
As of September 30, 2023, the face value of debt outstanding under the 2021 Senior Notes due 2029 was $
The indenture for the 2021 Senior Notes due 2029 gives us the option to redeem some or all of the 2021 Senior Notes due 2029 at the redemption prices and on the terms specified in the indenture governing the 2021 Senior Notes due 2029. The indenture governing the 2021 Senior Notes due 2029 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
The indenture for the 2021 Senior Notes due 2029 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.
- 15 -
2016 Credit Agreement due 2027
On
On October 13, 2022, the Company entered into the Fifth Amendment of the 2016 Credit Agreement due 2027. The Fifth Amendment provides for, among other things, the New Revolving Credit Facility, which is a new
Contemporaneously with the Fifth Amendment, the Company drew down $
Interest on borrowings under the New Revolving Credit Facility is payable either quarterly or at the expiration of any Secured Overnight Financing Rate ("SOFR") interest period applicable thereto. Borrowings under the New Revolving Credit Facility accrue interest at a rate equal to, at our option, a base rate (with a floor of
The 2016 Credit Agreement due 2027 includes certain covenants limiting
As of September 30, 2023, borrowings outstanding under the $
The Martin Acquisition was financed in part with the $
Deferred Financing Costs
Activity relating to deferred financing costs, which is classified as a reduction of the carrying value of long-term debt, for the nine months ended September 30, 2023, is as follows:
(in thousands) |
|
Total |
|
|
At beginning of year |
|
$ |
|
|
Less: Amortization expense |
|
|
( |
) |
At end of period |
|
$ |
|
- 16 -
Estimated amortization expense relating to deferred financing costs for the years indicated as of September 30, 2023, is as follows:
(in thousands) |
|
Total |
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
The contractual future maturities of long-term debt outstanding, as of September 30, 2023, are as follows (at face value):
(in thousands) |
|
|
|
|
Remainder of 2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
NOTE 10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
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.
NOTE 11. INCOME TAXES
The income tax provision for interim periods is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items. We estimate the annual effective tax rate quarterly based on the forecasted annual pre-tax results of our operations. The tax effects of items that are unrelated to current year ordinary income are recognized entirely as discrete items in the period identified, including share-based compensation, changes in tax laws and adjustments to the actual liability determined upon filing tax returns.
We had income tax expense of $
Income tax expense in the three and nine months ended September 30, 2023, and October 1, 2022, includes discrete items of income tax expense relating to excess taxes from the lapses of restrictions on stock awards and adjustments to tax expense relating to research credit true-ups we made during the third quarter of each period. Income tax expense in the nine months ended October 1, 2022 also includes a refund from the state of Florida, received by the Company in the second quarter of 2022, relating to excess taxes received by the state in 2021, which was $
- 17 -
During the first nine months of 2023, we made payments of estimated taxes totaling $
NOTE 12. 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 30, 2023 or October 1, 2022, we did
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, accounts and notes receivable, and accounts payable and accrued liabilities, whose carrying amounts approximate their fair values due to their short-term nature. Our financial instruments also include borrowings under the 2016 Credit Agreement due 2027, as well as the 2021 Senior Notes due 2029, all classified as long-term debt. The fair value of borrowings under the 2016 Credit Agreement due 2027 approximated its carrying value due to its variable-rate nature, and were approximately $
Items Measured at Fair Value
The following are measured in the condensed consolidated financial statements at fair value on a recurring basis and are categorized in the table below based upon the lowest level of significant input to the valuation (in thousands):
|
Fair Value Measurements |
|
|||||||||||||
|
Assets (Liabilities) |
|
|||||||||||||
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
||||
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
||||
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
||||
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
September 30, 2023 |
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Description |
|
|
|
|
|
|
|
|
|
|
|
||||
Aluminum contracts |
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
MTP contracts |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
- 18 -
|
Fair Value Measurements |
|
|||||||||||||
|
Assets (Liabilities) |
|
|||||||||||||
|
|
|
|
Quoted |
|
|
Significant |
|
|
|
|
||||
|
|
|
|
Prices in |
|
|
Other |
|
|
Significant |
|
||||
|
|
|
|
Active |
|
|
Observable |
|
|
Unobservable |
|
||||
|
|
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
||||
December 31, 2022 |
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Description |
|
|
|
|
|
|
|
|
|
|
|
||||
Aluminum contracts |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
MTP contracts |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
See Note 13 for a description of the methods and assumptions used in the determination of the fair values of our aluminum forward and Midwest Transaction Premium (“MTP”) contracts, as well as the basis for classifying these assets and liabilities as Level 2.
NOTE 13. DERIVATIVES
Aluminum Contracts and Midwest Transaction Premium
We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusion we use in production, and to hedge the fluctuations in the price of the delivery component of our aluminum extrusion purchases, known as the Midwest Transaction Premium, or MTP. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted purchases of aluminum and the related MTP.
We record our aluminum hedge contracts at fair value, based on trading values for aluminum forward contracts. Aluminum forward contracts identical to those held by us trade on the London Metal Exchange (“LME”). The LME provides a transparent forum and is the world’s largest center for the trading of futures contracts for non-ferrous metals. The prices are used by the metals industry worldwide as the basis for contracts for the movement of physical material throughout the production cycle. Based on this high degree of volume and liquidity in the LME, we believe the valuation price at any measurement date for contracts with identical terms as to prompt date, trade date and trade price as those we hold at any time represents a contract’s exit price to be used for purposes of determining fair value.
We record our MTP hedge contracts at fair value, based on the Platts MW US Transaction price per pound assessment, which has been a benchmark for decades in the North American aluminum industry. Platts surveys the North American market daily to capture trades, bids and offers on a delivered Midwest basis. Data is normalized to reflect the typical price per pound between the largest number of market participants, for delivery within 7 to 30 days from date of publication, net-
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. We do not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting arrangement.
At September 30, 2023, the fair value of our aluminum forward contracts was in an asset position of $
We assess the effectiveness of our aluminum forward and MTP 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 income and is reclassified into earnings in the same
- 19 -
line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. We expect the amount of accumulated other comprehensive income of approximately $
The fair values of our aluminum hedges and MTP contracts are classified in the accompanying condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, as follows (in thousands):
|
|
Derivative Assets |
|
|
|
Derivative Liabilities |
|
||||||
|
|
September 30, 2023 |
|
|
|
September 30, 2023 |
|
||||||
Derivatives designated as hedging |
|
|
|
|
|
|
|
|
|
|
|
||
instruments under Subtopic 815-20: |
|
Balance Sheet Location |
|
Fair Value |
|
|
|
Balance Sheet Location |
|
Fair Value |
|
||
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
||
Aluminum contracts |
|
|
$ |
|
|
|
|
$ |
( |
) |
|||
MTP contracts |
|
Other current assets |
|
|
— |
|
|
|
|
|
( |
) |
|
Aluminum contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
— |
|
MTP contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
— |
|
Total derivative instruments |
|
Total derivative assets |
|
$ |
|
|
|
Total derivative liabilities |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Derivative Assets |
|
|
|
Derivative Liabilities |
|
||||||
|
|
December 31, 2022 |
|
|
|
December 31, 2022 |
|
||||||
Derivatives designated as hedging |
|
|
|
|
|
|
|
|
|
|
|
||
instruments under Subtopic 815-20: |
|
Balance Sheet Location |
|
Fair Value |
|
|
|
Balance Sheet Location |
|
Fair Value |
|
||
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
||
Aluminum contracts |
|
Other current assets |
|
$ |
— |
|
|
|
Accrued liabilities |
|
$ |
— |
|
MTP contracts |
|
|
|
|
|
|
Accrued liabilities |
|
|
— |
|
||
Aluminum contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
— |
|
MTP contracts |
|
Other assets |
|
|
— |
|
|
|
Other liabilities |
|
|
— |
|
Total derivative instruments |
|
Total derivative assets |
|
$ |
|
|
|
Total derivative liabilities |
|
$ |
— |
|
The ending accumulated balance for the aluminum forward and MTP contracts included in accumulated other comprehensive income, net of tax, was an accumulated other comprehensive income of $
The 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 30, 2023 and October 1, 2022 (in thousands):
- 20 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Derivatives in Cash Flow Hedging Relationships |
|
|||||||||||||||
|
|
Amount of Gain or (Loss) |
|
|
Location of Gain or (Loss) |
|
Amount of Gain or (Loss) |
|
||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
||||||||||
|
|
September 30, |
|
|
October 1, |
|
|
|
|
September 30, |
|
|
October 1, |
|
||||
|
|
2023 |
|
|
2022 |
|
|
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Aluminum contracts |
|
$ |
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
MTP contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Derivatives in Cash Flow Hedging Relationships |
|
|||||||||||||||
|
|
Amount of Gain or (Loss) |
|
|
Location of Gain or (Loss) |
|
Amount of Gain or (Loss) |
|
||||||||||
|
|
Nine Months Ended |
|
|
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
October 1, |
|
|
|
|
September 30, |
|
|
October 1, |
|
||||
|
|
2023 |
|
|
2022 |
|
|
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Aluminum contracts |
|
$ |
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
MTP contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
|
|
$ |
|
We classify cash flows related to derivative instruments as operating activities in the condensed consolidated statements of cash flows.
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table shows the components of accumulated other comprehensive income for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|||
Three months ended September 30, 2023 |
|
Aluminum |
|
|
MTP |
|
|
|
|
|||
(in thousands) |
|
Contracts |
|
|
Contracts |
|
|
Total |
|
|||
Balance at July 1, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Increase (decrease) in fair value of derivatives |
|
|
|
|
|
( |
) |
|
|
|
||
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
|
( |
) |
|
|
|
||
Tax effect |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net current-period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at September 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Nine months ended September 30, 2023 |
|
Aluminum |
|
|
MTP |
|
|
|
|
|||
(in thousands) |
|
Contracts |
|
|
Contracts |
|
|
Total |
|
|||
Balance at December 31, 2022 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Increase (decrease) in fair value of derivatives |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive income |
|
|
|
|
|
( |
) |
|
|
|
||
Tax effect |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net current-period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at September 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
- 21 -
|
|
|
|
|
|
|
|
|
|
|||
Three months ended October 1, 2022 |
|
Aluminum |
|
|
MTP |
|
|
|
|
|||
(in thousands) |
|
Contracts |
|
|
Contracts |
|
|
Total |
|
|||
Balance at July 2, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
Decrease in fair value of derivatives |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
||
Tax effect |
|
|
( |
) |
|
|
|
|
|
|
||
Net current-period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at October 1, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|||
Nine months ended October 1, 2022 |
|
Aluminum |
|
|
MTP |
|
|
|
|
|||
(in thousands) |
|
Contracts |
|
|
Contracts |
|
|
Total |
|
|||
Balance at January 1, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Decrease in fair value of derivatives |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Tax effect |
|
|
|
|
|
|
|
|
|
|||
Net current-period other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at October 1, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
- 22 -
NOTE 15. SEGMENTS
We have
The Southeast reporting segment, which is also an operating segment, is composed of sales from our facilities in Florida. The Western reporting segment, also an operating segment, is composed of sales from our facilities in Arizona, Utah and California.
Centralized financial and operational oversight, including resource allocation and assessment of performance on an income 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.
The following table represents summary financial data attributable to our operating segments for the three and nine months ended September 30, 2023, and October 1, 2022. Results of the Western segment for the three and nine months ended September 30, 2023 include the results of Martin, acquired October 14, 2022, whereas such results are not included for the three and nine month ended October 1, 2022. Corporate overhead has been allocated to each segment using an allocation method we believe is reasonable (in thousands):
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
October 1, |
|
|
September 30, |
|
|
October 1, |
|
||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
||||
Southeast segment |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Western segment |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
||||
Southeast segment |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Western segment |
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring costs and charges, net (1) |
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total income from operations |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total income before income taxes |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
(1)
Depreciation expense for the three months ended September 30, 2023 and October 1, 2022, was $
Total assets of our Southeast segment as of September 30, 2023 and December 31, 2022 were $
- 23 -
NOTE 16. REEDEMABLE NON-CONTROLLING INTEREST
On February 1, 2021, we completed an acquisition of a
Prior to the redemption effective on May 26, 2023, the Company calculated the estimated future redemption value of the non-controlling interest on a quarterly basis. The redeemable non-controlling interest was accreted to the future redemption value using the effective interest method up to the date on which the put-right became effective. Any accretion adjustment in the current reporting period of the redeemable non-controlling interest was offset against retained earnings and impacted earnings used in the calculation of earnings per share attributable to common shareholders in the reporting period.
|
Nine Months Ended |
|
|||||
|
September 30, |
|
|
October 1, |
|
||
(in thousands) |
2023 |
|
|
2022 |
|
||
Balance at beginning of period |
$ |
|
|
$ |
|
||
Net income attributable to redeemable non-controlling interest |
|
|
|
|
|
||
Change in value of redeemable non-controlling interest |
|
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
( |
) |
|
|
— |
|
Balance at end of period |
$ |
— |
|
|
$ |
|
NOTE 17. SHAREHOLDERS' EQUITY
2023 Share Repurchase Program
On February 7, 2023, the Company announced that its Board of Directors approved a new, share repurchase program which authorizes the Company to purchase up to $
Shareholder Rights Plan
On March 30, 2023, we announced that our Board of Directors had unanimously approved the adoption of a limited-duration shareholder rights plan (the “Rights Plan”) which includes the declaration of a dividend distribution of
The Board adopted the Rights Plan in response to a likely accumulation of the Company's shares by a strategic investor. The intent of the Rights Plan is to reduce the likelihood that any entity, person or group gains control of the Company through open market
- 24 -
accumulation of the Company's shares without paying all other shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that it believes are in the best interests of its other shareholders. Under the Rights Plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of
NOTE 18. RESTRUCTURING COSTS AND CHARGES, NET
During the second quarter of 2023, the Company’s management approved a plan to exit the North Carolina market relating to its NewSouth brand. As a result of this decision, the Company determined to close its NewSouth showrooms in Raleigh-Durham and Charlotte, North Carolina, which resulted in restructuring costs and charges, net, totaling $
- 25 -
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements that reflect our plans, estimates, and beliefs, all of which are based on our current expectations and could be affected by certain uncertainties, risks, and other factors described under Cautionary Note Regarding Forward-Looking Statements and elsewhere throughout this Quarterly Report, as well as the factors described in our Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent periodic reports filed with the Securities and Exchange Commission, particularly under "Risk Factors." Our actual results could differ materially from those discussed in the forward-looking statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “assume,” “believe,” “could,” “estimate,” “guidance,” “may,” “outlook,” “forecast,” “intend,” “could,” “project,” “estimate,” “anticipate,” “should,” “plan,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our acquisitions of Anlin Windows & Doors ("Anlin"), and Martin Door Holdings, Inc. ("Martin"); pricing actions benefiting margins; effects of Hurricane Ian and other economic headwinds such as increasing interest rates and rising inflation; improvement of our operations and business integration; and our net sales guidance.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
- 26 -
Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
EXECUTIVE OVERVIEW
Sales and Operations
During the third quarter of 2023, we experienced solid net sales, despite several macro-economic headwinds which negatively impacted both our Southeast and Western segments, including increased interest rates and continuing inflationary conditions. Despite these macro-economic headwinds, our total net sales for the third quarter of 2023 was $399.9 million, which increased $14.1 million, or 3.7% compared to $385.8 million in the third quarter of 2022. Our Southeast segment's net sales were $302.9 million in the third quarter of 2023, compared to $288.2 million in the third quarter of 2022, an increase of $14.7 million, or 5.1%. This increase in sales at our Southeast segment was entirely organic, primarily due to an improvement in new construction, while the repair and remodel channel continues to be solid in the southeast. Comparisons to prior year periods are also impacted by the fact that Hurricane Ian, a large and destructive Category 4 Atlantic hurricane, made landfall on the southwest Florida coastline on September 28, 2022, causing widespread damage to property from high winds and severe flooding. Hurricane Ian caused disruption to our ability to manufacture and distribute our products as our team members were unable to safely travel to our impacted facilities. Also, Hurricane Ian affected our customers’ ability to accept deliveries of our products. We estimated that storm-related disruptions caused approximately $12.0 million of third-quarter 2022 sales to be deferred.
Our Western segment's net sales were $97.0 million in the third quarter of 2023, compared to $97.6 million in the third quarter of 2022, a decrease of $0.6 million, or 0.6%. Sales for the third quarter of 2023 of our Western segment includes acquisition growth from Martin. Excluding Martin's third quarter 2023 sales, our existing business was negatively impacted by softness in the new construction channel in the third quarter of 2023, compared to the third quarter of 2022. Our Western segment has been impacted by some challenging macro-economic headwinds in the west, when compared to the third quarter of 2022, when we were experiencing solid performance due to strength in our production builder business from heightened demand for conversion to indoor/outdoor living space, a hallmark of our brands in the west.
The softness in the new construction channel in both the Southeast and Western segments during 2023, although improving in our Southeast segment, has resulted in a decrease in unit volume in both segments, which has been partially offset by last year's price increases.
Our gross profit was $161.8 million in the third quarter of 2023, producing a gross margin of 40.4%, compared to $149.8 million in the 2022 third quarter, and a gross margin of 38.8%, an increase in gross margin of 160 basis points from the third quarter of 2022 to the third quarter of 2023. We believe gross profit and gross margin benefited from several positive factors, including a reduction in the cost of aluminum and vinyl in the third quarter of 2023 compared to the third quarter of 2022, continued improvement in operating efficiencies which began in 2022, and which have remained a focus in 2023, and an increase in capacity for production of our own glass, which we can produce at a cost lower than procuring glass from a third-party. Regarding the third quarter of 2022 and the impact of Hurricane Ian, in addition to the impact to profits from lost sales, we incurred disruption and recovery costs as a result of the storm totaling $1.8 million in the three months ended October 1, 2022, of which $1.1 million is classified as cost of sales.
Cash from operations during the first nine months of 2023 was $139.8 million, compared to $152.1 million in the first nine months of 2022, a decrease of $12.3 million, or 8.1%. Our year-to-date 2023 decrease in cash from operations is the result of a decrease in cash flow leverage from accounts payable, which decreased significantly from the end of 2022 to the end of the third quarter of 2023. The decrease in accounts payable was a strategic decision we made to achieve higher material procurement discounts.
- 27 -
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. The three and nine months ended September 30, 2023 and October 1, 2022 are composed of 13 weeks and 39 weeks, respectively (in thousands, except percentages):
|
|
Three Months Ended |
||||||||||
|
|
September 30, 2023 |
|
October 1, 2022 |
||||||||
|
|
(unaudited) |
||||||||||
Net sales |
|
$ |
399,931 |
|
|
100.0 % |
|
$ |
385,837 |
|
|
100.0 % |
Cost of sales |
|
|
238,159 |
|
|
59.6 % |
|
|
236,035 |
|
|
61.2 % |
Gross profit |
|
|
161,772 |
|
|
40.4 % |
|
|
149,802 |
|
|
38.8 % |
Selling, general and administrative expenses |
|
|
101,872 |
|
|
25.5 % |
|
|
102,399 |
|
|
26.5 % |
Restructuring costs and charges, net |
|
|
(794 |
) |
|
(0.2)% |
|
|
— |
|
|
- |
Income from operations |
|
|
60,694 |
|
|
15.2 % |
|
|
47,403 |
|
|
12.3 % |
Interest expense, net |
|
|
7,772 |
|
|
1.9 % |
|
|
6,889 |
|
|
1.8 % |
Income before income taxes |
|
|
52,922 |
|
|
13.2 % |
|
|
40,514 |
|
|
10.5 % |
Income tax expense |
|
|
13,715 |
|
|
3.4 % |
|
|
10,100 |
|
|
2.6 % |
Net income |
|
|
39,207 |
|
|
9.8 % |
|
|
30,414 |
|
|
7.9 % |
Less: Net income attributable to redeemable RNCI |
|
|
— |
|
|
- |
|
|
(373 |
) |
|
(0.1)% |
Net income attributable to the Company |
|
|
39,207 |
|
|
9.8 % |
|
|
30,041 |
|
|
7.8 % |
Decrease in redemption value of RNCI |
|
|
— |
|
|
- |
|
|
271 |
|
|
0.1 % |
Net income attributable to common shareholders |
|
$ |
39,207 |
|
|
9.8 % |
|
$ |
30,312 |
|
|
7.9 % |
|
|
Nine Months Ended |
||||||||||
|
|
September 30, 2023 |
|
October 1, 2022 |
||||||||
|
|
(unaudited) |
||||||||||
Net sales |
|
$ |
1,161,694 |
|
|
100.0 % |
|
$ |
1,151,020 |
|
|
100.0 % |
Cost of sales |
|
|
696,740 |
|
|
60.0 % |
|
|
701,495 |
|
|
60.9 % |
Gross profit |
|
|
464,954 |
|
|
40.0 % |
|
|
449,525 |
|
|
39.1 % |
Selling, general and administrative expenses |
|
|
297,790 |
|
|
25.6 % |
|
|
307,786 |
|
|
26.7 % |
Restructuring costs and charges, net |
|
|
1,722 |
|
|
0.1 % |
|
|
— |
|
|
- |
Income from operations |
|
|
165,442 |
|
|
14.2 % |
|
|
141,739 |
|
|
12.3 % |
Interest expense, net |
|
|
23,642 |
|
|
2.0 % |
|
|
21,124 |
|
|
1.8 % |
Income before income taxes |
|
|
141,800 |
|
|
12.2 % |
|
|
120,615 |
|
|
10.5 % |
Income tax expense |
|
|
36,412 |
|
|
3.1 % |
|
|
29,910 |
|
|
2.6 % |
Net income |
|
|
105,388 |
|
|
9.1 % |
|
|
90,705 |
|
|
7.9 % |
Less: Net income attributable to redeemable RNCI |
|
|
(1,101 |
) |
|
(0.1)% |
|
|
(1,334 |
) |
|
(0.1)% |
Net income attributable to the Company |
|
|
104,287 |
|
|
9.0 % |
|
|
89,371 |
|
|
7.8 % |
Increase in redemption value of RNCI |
|
|
(1,637 |
) |
|
(0.1)% |
|
|
(1,514 |
) |
|
(0.1)% |
Net income attributable to common shareholders |
|
$ |
102,650 |
|
|
8.8 % |
|
$ |
87,857 |
|
|
7.6 % |
- 28 -
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022
Net sales
|
|
Three Months Ended |
|
|
||||||||||
|
|
September 30, 2023 |
|
October 1, 2022 |
|
|
||||||||
|
|
Net Sales |
|
|
% of sales |
|
Net Sales |
|
|
% of sales |
|
% change |
||
By segment: |
|
|
|
|
|
|
|
|
|
|
|
|
||
Southeast segment |
|
$ |
302.9 |
|
|
75.7% |
|
$ |
288.2 |
|
|
74.7% |
|
5.1% |
Western segment |
|
|
97.0 |
|
|
24.3% |
|
|
97.6 |
|
|
25.3% |
|
(0.6%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total net sales |
|
$ |
399.9 |
|
|
100.0% |
|
$ |
385.8 |
|
|
100.0% |
|
3.7% |
Net sales for the third quarter of 2023 were $399.9 million, a $14.1 million, or 3.7%, increase in sales, from $385.8 million in the third quarter of the prior year. Our Southeast segment's net sales were $302.9 million in the third quarter of 2023, compared to $288.2 million in the third quarter of 2022, an increase of $14.7 million, or 5.1%. This increase in sales at our Southeast segment was entirely organic, primarily due to an improvement in new construction, while the repair and remodel channel continues to be solid in the Southeast segment. Comparisons to prior year periods are also impacted by the fact that Hurricane Ian, a large and destructive Category 4 Atlantic hurricane, made landfall on the southwest Florida coastline on September 28, 2022, causing widespread damage to property from high winds and severe flooding. Hurricane Ian caused disruption to our ability to manufacture and distribute our products as our team members were unable to safely travel to our impacted facilities. Also, Hurricane Ian affected our customers’ ability to accept deliveries of our products. We estimated that storm-related disruptions caused approximately $12.0 million of third-quarter 2022 sales to be deferred.
Our Western segment's net sales were $97.0 million in the third quarter of 2023, compared to $97.6 million in the third quarter of 2022, a decrease of $0.6 million, or 0.6%. Sales for the third quarter of 2023 of our Western segment includes acquisition growth from Martin. Excluding Martin's third quarter 2023 sales, our existing business was negatively impacted by softness in the new construction channel in the third quarter of 2023, compared to the third quarter of 2022. Our Western segment has been impacted by some challenging macro-economic headwinds in the west, when compared to the third quarter of 2022, when we were experiencing solid performance due to strength in our production builder business from heightened demand for conversion to indoor/outdoor living space, a hallmark of our brands in the west.
The softness in the new construction channel in both the Southeast and Western segments, although improving in our Southeast segment, has resulted in a decrease in unit volume in both segments, which has been partially offset by last year's price increases.
Gross profit and gross margin
Gross profit was $161.8 million in the third quarter of 2023, an increase of $12.0 million, or 8.0%, from $149.8 million in the third quarter of 2022. Our gross margin was 40.4% in the third quarter of 2023, compared to 38.8% in the prior year third quarter, an increase of 1.6%. We believe gross profit and gross margin benefited from several positive factors, including a reduction in the cost of aluminum and vinyl in the third quarter of 2023 compared to the third quarter of 2022, continued improvement in operating efficiencies which began in 2022, and which have remained a focus in 2023, and an increase in capacity for production of our own glass, which we can produce at a cost lower than procuring glass from a third-party. Regarding the third quarter of 2022 and the impact of Hurricane Ian, in addition to the impact to profits from lost sales, we incurred disruption and recovery costs as a result of the storm totaling $1.8 million in the three months ended October 1, 2022, of which $1.1 million is classified as cost of sales.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses were $101.9 million in the third quarter of 2023, compared to $102.4 million in the third quarter of 2022, a decrease of $0.5 million, or 0.5%. SG&A in the third quarter of 2023 was 25.5% of net sales, compared to 26.5% of net sales in the third quarter of 2022. SG&A in the third quarter of 2023, decreased when compared to last year's third quarter, as a result of several factors, including a decrease in expense for credit losses, which decreased SG&A by $0.6 million, and a decrease in distribution costs from lower fuel costs and unit volume sales, which decreased SG&A by $0.9 million. The remaining decrease is primarily a result of a decrease in personnel costs. These decreases in SG&A were partially offset by the inclusion of SG&A from our acquisition of Martin in the fourth quarter of 2022, which added $3.1 million of SG&A in the 2023 third quarter, including $1.4 million of non-cash amortization expense relating to its intangible assets.
Restructuring costs and charges, net
The Company’s management approved a plan to exit the North Carolina market relating to its NewSouth brand. As a result of this decision, the Company determined to close its NewSouth showrooms in Raleigh-Durham and Charlotte, North Carolina, which resulted in restructuring costs and charges, net. During the third quarter of 2023, we recorded a gain of $0.8 million relating to the forgiveness of a portion of the operating lease liability by the landlord of the Charlotte, NC location, which we satisfied in the third
- 29 -
quarter of 2023.
Income from operations
Income from operations was $60.7 million in the third quarter of 2023, an increase of $13.3 million, or 28.0%, from $47.4 million in the third quarter of 2022. Income from operations in the third quarter of 2023 includes nearly $43.5 million from our Southeast segment, before the operating lease liability forgiveness gain included as a reduction of restructuring costs and charges, net, of $0.8 million, which relates entirely to the Southeast segment, and $16.4 million from our Western segment, compared to $30.0 million and $17.4 million from our Southeast and Western segments, respectively, in the third quarter of 2022, after allocation of corporate operating costs in both periods.
Interest expense, net
Interest expense was $7.8 million in the third quarter of 2023, an increase of nearly $0.9 million, or 12.8%, from $6.9 million in the third quarter of 2022. The increase in interest expense in the third quarter of 2023, compared to the third quarter of 2022 is primarily the result of a higher level of borrowings under the revolving facility of our current 2016 Credit Facility due 2027 during the third quarter of 2023, compared to the term loan borrowings under our then existing 2016 Credit Facility due 2024 during the third quarter of 2022, as well as a higher interest rate under the revolving facility during the third quarter of 2023, compared to the term loan facility during the third quarter of 2022.
Income tax expense
We had income tax expense of $13.7 million for the three months ended September 30, 2023, compared with income tax expense of $10.1 million for the three months ended October 1, 2022. Our effective tax rate for the three months ended September 30, 2023, was 25.9%, compared with 24.9% for the three months ended October 1, 2022.
Income tax expense in the three and nine months ended September 30, 2023, and October 1, 2022, includes discrete items of income tax expense relating to excess taxes from the lapses of restrictions on stock awards and adjustments to tax expense relating to research credit true-ups we made during the third quarter of each period. Excluding discrete items of income tax, the effective tax rates for the three months ended September 30, 2023 and October 1, 2022, would have been an income tax expense rate of 26.7% and 26.2%, respectively.
Net income attributable to redeemable non-controlling interest
Net income attributable to redeemable non-controlling interest was $373 thousand for the three months ended October 1, 2022, and represents the share of the net income of Eco for the period, attributable to the 25% interest of Eco which was not acquired by the Company.
- 30 -
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022
Net sales
|
|
Nine Months Ended |
|
|
||||||||||
|
|
September 30, 2023 |
|
October 1, 2022 |
|
|
||||||||
|
|
Net Sales |
|
|
% of sales |
|
Net Sales |
|
|
% of sales |
|
% change |
||
By segment: |
|
|
|
|
|
|
|
|
|
|
|
|
||
Southeast segment |
|
$ |
873.0 |
|
|
75.1% |
|
$ |
867.5 |
|
|
75.4% |
|
0.6% |
Western segment |
|
|
288.7 |
|
|
24.9% |
|
|
283.5 |
|
|
24.6% |
|
1.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total net sales |
|
$ |
1,161.7 |
|
|
100.0% |
|
$ |
1,151.0 |
|
|
100.0% |
|
0.9% |
Net sales for the first nine months of 2023 were $1,161.7 million, a $10.7 million, or 0.9%, increase in sales, from $1,151.0 million in the first nine months of the prior year. Our Southeast segment's net sales were $873.0 million in the first nine months of 2023, compared to $867.5 million in the first nine months of 2022, an increase of $5.5 million, or 0.6%. This increase in sales at our Southeast segment was entirely organic, primarily due to an improvement in new construction, while the repair and remodel channel continues to be solid in the Southeast segment. Comparisons to prior year periods are also impacted by the fact that Hurricane Ian, a large and destructive Category 4 Atlantic hurricane, made landfall on the southwest Florida coastline on September 28, 2022, causing widespread damage to property from high winds and severe flooding. Hurricane Ian caused disruption to our ability to manufacture and distribute our products as our team members were unable to safely travel to our impacted facilities. Also, Hurricane Ian affected our customers’ ability to accept deliveries of our products. We estimated that storm-related disruptions caused approximately $12.0 million of third-quarter 2022 sales to be deferred.
Our Western segment's net sales were $288.7 million in the first nine months of 2023, compared to $283.5 million in the first nine months of 2022, an increase of $5.2 million, or 1.8%. Sales for the first nine months of 2023 of our Western segment includes acquisition growth from Martin. Excluding Martin's first nine months 2023 sales, our existing business was negatively impacted by softness in the new construction channel in the first nine months of 2023, compared to the first nine months of 2022.
The softness in the new construction channel in both the Southeast and Western segments, although improving in our Southeast segment, has resulted in a decrease in unit volume in both segments, which has been partially offset by last year's price increases.
Gross profit and gross margin
Gross profit was $465.0 million in the first nine months of 2023, an increase of $15.5 million, or 3.4%, from $449.5 million in the first nine months of 2022. Our gross margin was 40.0% in the first nine months of 2023, compared to 39.1% in the prior year first nine months, an increase of 0.9%. Gross profit and gross margin benefited from several positive factors, including a reduction in the cost of aluminum and vinyl in the first nine months of 2023, compared to the first nine months of 2022, continued improvement in operating efficiencies which began in 2022, and which have remained a focus in 2023, and an increase in capacity for production of our own glass, which we can produce at a cost lower than procuring glass from a third-party. Additionally, gross profit in the first nine months of 2023 includes the impact of the Martin acquisition. Regarding the third quarter of 2022 and the impact of Hurricane Ian, in addition to the impact to profits from lost sales, we incurred disruption and recovery costs as a result of the storm totaling $1.8 million in the three months ended October 1, 2022, of which $1.1 million is classified as cost of sales.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses were $297.8 million in the first nine months of 2023, compared to $307.8 million in the first nine months of 2022, a decrease of $10.0 million, or 3.2%. SG&A in the first nine months of 2023 was 25.6% of net sales, compared to 26.7% of net sales in the first nine months of 2022. SG&A in the first nine months of 2023, decreased when compared to last year's first nine months, as a result of several factors, including a decrease in expense for credit losses, which decreased SG&A by $5.2 million, a decrease in distribution costs from decreasing fuel costs and unit volume sales, which decreased SG&A by $5.1 million, and a gain from an insurance recovery relating to the wind-down of the commercial business of our NewSouth acquisition of $2.9 million. There were additional decreases in personnel costs during the period. SG&A in the first nine months of 2023 was impacted by the inclusion of SG&A from our fourth quarter 2022 acquisition of Martin, which added $9.3 million of SG&A in the 2023 first nine months, including $4.4 million of non-cash amortization expense relating to its intangible assets. SG&A in the first nine months of 2023 also includes $0.9 million of executive severance costs and $1.1 million of costs related to prior acquisitions, but which we did not incur until the first nine months of 2023.
Restructuring costs and charges, net
The Company’s management approved a plan to exit the North Carolina market relating to its NewSouth brand. As a result of this decision, the Company determined to close its NewSouth showrooms in Raleigh-Durham and Charlotte, North Carolina, which resulted in restructuring costs and charges, net, totaling $1.7 million in the first nine months of 2023, which includes a gain of $0.8
- 31 -
million in the three months ended September 30, 2023 relating to the forgiveness of a portion of the operating lease liability by the landlord of the Charlotte, NC location. Of the $1.7 million, after consideration of the lease liability forgiveness, restructuring costs and charges, net, includes $2.0 million of total impairments of the right-of-use assets of the leases of the Raleigh-Durham and Charlotte, North Carolina showroom facilities, and $0.4 relating to write-offs of the related leasehold improvements. The remainder represents personnel-related costs, which were paid by the end of the 2023 second quarter.
Income from operations
Income from operations was $165.4 million in the first nine months of 2023, an increase of $23.7 million, or 16.7%, from $141.7 million in the first nine months of 2022. Income from operations in the first nine months of 2023 includes $123.9 million from our Southeast segment, before reduction for restructuring costs and charges, net, of $1.7 million, which relates entirely to the Southeast segment, and $43.2 million from our Western segment, compared to $96.6 million and $45.1 million from our Southeast and Western segments, respectively, in the first nine months of 2022, after allocation of corporate operating costs in both periods.
Interest expense, net
Interest expense was $23.6 million in the first nine months of 2023, an increase of $2.5 million, or 11.9%, from $21.1 million in the first nine months of 2022. The increase in interest expense in the first nine months of 2023, compared to the first nine months of 2022 is primarily the result of a higher level of borrowings under the revolving facility of our current 2016 Credit Facility due 2027 during the first nine months of 2023, compared to the term loan borrowings under our then existing 2016 Credit Facility due 2024 during the first nine months of 2022, as well as a higher interest rate under the revolving facility during the first nine months of 2023, compared to the term loan facility during the first nine months of 2022.
Income tax expense
We had income tax expense of $36.4 million for the nine months ended September 30, 2023, compared with income tax expense of $29.9 million for the nine months ended October 1, 2022. Our effective tax rate for the nine months ended September 30, 2023, was 25.7%, compared with 24.8% for the nine months ended October 1, 2022. Our income tax expense for the five months ended May 26, 2023, the date we acquired the 25% share of Eco we previously did not own, and the nine months ended October 1, 2022, includes income tax expenses of $0.9 million and $1.0 million, respectively, relating to our 75% share of the pre-tax earnings of Eco.
Income tax expense in the nine months ended October 1, 2022 includes discrete items of income tax benefits relating to excess tax benefits from the lapses of restrictions on stock awards and adjustments to tax expense relating to research credit true-ups we made during the third quarter of each period. Income tax expense in the nine months ended October 1, 2022 also includes a refund from the state of Florida, received by the Company in the third quarter of 2022, relating to excess taxes received by the state in 2021, which was $584 thousand, benefiting tax expense by $462 thousand, net of its Federal tax effect. Excluding discrete items of income tax, the effective tax rates for the nine months ended September 30, 2023 and October 1, 2022, would have been an income tax expense rate of 26.2% and 25.7%, respectively.
Net income attributable to redeemable non-controlling interest
Net income attributable to redeemable non-controlling interest for the five months ended May 26, 2023, the date we acquired the 25% share of Eco we previously did not own, was $1.1 million, compared to $1.3 million for the nine months ended October 1, 2022, and represents the share of the net income of Eco for the period, attributable to the 25% interest of Eco not acquired by the Company.
Change in redemption value of redeemable non-controlling interest
The change in the redemption value of the redeemable non-controlling interest for the five months ended May 26, 2023, the date we acquired the 25% share of Eco we previously did not own, was an increase of $1.6 million, compared to an increase of $1.5 million in the nine months ended October 1, 2022. See Note 16 in Part I, Item 1, for a further discussion of the change in the redemption value of the redeemable non-controlling interest.
- 32 -
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Cash Flows
Our principal source of liquidity is cash flow generated by operations, supplemented by borrowings under our credit facilities. We expect that this cash generating capability will provide us with financial flexibility in meeting operating and investing needs, but there can be no assurance that will be the case in future periods. Our primary capital requirements are to fund working capital needs, meet required debt service payments on our credit facilities and fund capital expenditures.
The following table summarizes our cash flow results for the first nine months of 2023 and 2022:
|
|
Components of Cash Flows |
|
|||||
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|
October 1, |
|
||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Cash provided by operating activities |
|
$ |
139.8 |
|
|
$ |
152.1 |
|
Cash used in investing activities |
|
|
(37.8 |
) |
|
|
(25.5 |
) |
Cash used in financing activities |
|
|
(130.9 |
) |
|
|
(4.0 |
) |
|
|
|
|
|
|
|
||
(Decrease) increase in cash and cash equivalents |
|
$ |
(28.9 |
) |
|
$ |
122.6 |
|
Operating activities. Cash provided by operating activities during the first nine months of 2023 was $139.8 million, compared to cash provided by operating activities of $152.1 million in the first nine months of 2022, a decrease in cash provided by operating activities of $12.3 million, and was due to the factors set forth in the table below.
Direct cash flows from operations for the first nine months of 2023 and 2022 are as follows:
|
|
Direct Operating |
|
|||||
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|
October 1, |
|
||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Collections from customers |
|
$ |
1,174.2 |
|
|
$ |
1,145.8 |
|
Other collections of cash |
|
|
13.8 |
|
|
|
12.2 |
|
Disbursements to vendors |
|
|
(677.8 |
) |
|
|
(681.1 |
) |
Personnel related disbursements |
|
|
(314.2 |
) |
|
|
(289.1 |
) |
Income taxes paid, net of refunds |
|
|
(39.7 |
) |
|
|
(20.9 |
) |
Debt service payments |
|
|
(16.6 |
) |
|
|
(14.7 |
) |
Other cash activity, net |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
||
Cash provided by operations |
|
$ |
139.8 |
|
|
$ |
152.1 |
|
Inventory as of September 30, 2023, was $117.9 million, compared to $112.7 million at December 31, 2022, an increase of $5.2 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, which requires us to relieve inventory and recognize revenue over time, we have a low amount of work-in-process and finished goods inventories. As such, we believe the value of our inventories will be realized through sales.
Investing activities. Cash used in investing activities was $37.8 million for the first nine months of 2023, compared to cash used in investing activities of $25.5 million for the first nine months of 2022, an increase in cash used in investing activities of $12.3 million. There was cash used relating to business combinations in the first nine months of 2023 relating to the finalization of the Martin Acquisition working capital adjustment, resulting in a final payment to sellers of $0.7 million, compared to $0.8 million in the first nine months of 2022 relating to the finalization of the Anlin Acquisition working capital adjustment. There was an increase in cash used in capital expenditures of $13.5 million which went from $24.7 million in the first nine months of 2022, to $38.2 million in the first nine months of 2023. Proceeds from the sales of assets was $1.2 million in the first nine months of 2023, compared with less than $0.1 million in the first nine months of 2022.
Financing activities. Cash used in financing activities was $130.9 million in the first nine months of 2023, compared to cash used in financing activities of $4.0 million in the first nine months of 2022, an increase in cash used in financing activities of $127.0 million.
In the first nine months of 2023, we made payments of contingent consideration relating to our acquisition of Anlin totaling $9.5 million, representing the second payment we were required to make under the Anlin purchase agreement based on their 2022 EBITDA, as defined in the agreement. Because these contingent payments were not required to be made within a reasonably short
- 33 -
period of time after the effective date of the acquisition, we classified the portion of these payments representing the fair value of the second payment, which was $4.3 million, as a financing activity, with the difference classified within operating activities. In the first nine months of 2022, we made payments of contingent consideration relating to our acquisition of Anlin totaling $2.7 million, representing the first payment we were required to make under the Anlin purchase agreement based on their 2021 EBITDA, as defined in the agreement. Because these payments were not required to be made within a reasonably short period of time after the effective date of the acquisition, we classified the portion of these payments representing the fair value of the first payment, which was $2.4 million, as a financing activity, with the difference classified within operating activities.
Effective on May 26, 2023, the Company exercised its call-right to purchase the remaining 25% ownership stake in Eco it previously did not own. The redemption price of the remaining 25% was calculated by the Company pursuant to the operating agreement based on the performance metric included therein, and was determined to be $37.5 million, which was agreed with by the seller. Subsequent to this redemption, the Company's ownership of Eco Enterprises is now 100%.
During the first nine months of 2023, we had net repayments under the New Revolving Credit Facility of $11.4 million, which included gross borrowings of $50.0 million, partially offset by gross repayments totaling $61.4 million.
As further discussed below under Share Repurchase Program, during the first nine months of 2023, we made repurchases of 3,040,280 shares of our common stock at a total cash used of $75.1 million.
Taxes paid relating to common stock withheld from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock awards were $3.4 million in the first nine months of 2023, versus $1.9 million in the first nine months of 2022, an increase in cash used of $1.5 million.
There were proceeds from stock issued under our 2019 Employee Stock Purchase Plan of $0.7 million during the first nine months of 2023, compared to $0.3 million during the first nine months of 2022, an increase in cash provided of $0.5 million.
Capital Resources and Debt Covenant
2021 Senior Notes due 2029
On September 24, 2021, we completed the issuance of $575.0 million aggregate principal amount of 4.375% senior notes (“2021 Senior Notes due 2029”), issued at 100% of their principal amount. The 2021 Senior Notes due 2029 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 2021 Senior Notes due 2029 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 2021 Senior Notes due 2029 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 2021 Senior Notes due 2029 mature on October 1, 2029. Interest on the 2021 Senior Notes due 2029 is payable semi-annually, in arrears, which began on April 1, 2022, with interest accruing at a rate of 4.375% per annum from September 24, 2021. We incurred financing costs relating to bank fees and professional services costs relating to the offering and issuance of the 2021 Senior Notes due 2029 totaling $8.7 million, which included a 1.25% lender spread on the total principal value of the 2021 Senior Notes due 2029, or $7.2 million, and $1.5 million of other costs, all of which are being amortized under the effective interest method.
As of September 30, 2023, the face value of debt outstanding under the 2021 Senior Notes due 2029 was $575.0 million, and accrued interest was $12.6 million. Proceeds from the 2021 Senior Notes due 2029 were used, in part, to redeem in full the $425.0 million of 2018 Senior Notes due 2026, including the related fees, costs, and the prepayment call premium of $21.5 million, representing 5.063% of the $425.0 million face value then outstanding, prepay the outstanding term loan borrowings under the then existing 2016 Credit Agreement of $60.0 million and the related fees and costs, and finance the Anlin Acquisition in the fourth quarter of 2021.
The indenture for the 2021 Senior Notes due 2029 gives us the option to redeem some or all of the 2021 Senior Notes due 2029 at the redemption prices and on the terms specified in the indenture governing the 2021 Senior Notes due 2029. The indenture governing the 2021 Senior Notes due 2029 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. We also may make optional redemptions at various premiums including a make-whole call at the then current treasury rate plus 50 basis points prior to October 1, 2024, then 102.188% on or after August 1, 2024, 101.094% on or after August 2025, then at 100.000% on or after August 1, 2026.
The indenture for the 2021 Senior Notes due 2029 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
- 34 -
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 2027
On February 16, 2016, we entered into the 2016 Credit Agreement. From 2016 to 2022, we entered into various amendments to the 2016 Credit Agreement, including the amendment in October 2022, as described below.
On October 13, 2022, the Company entered into the Fifth Amendment of the 2016 Credit Agreement due 2027. The Fifth Amendment provides for the New Revolving Credit Facility, a new five-year revolving credit facility in an aggregate principal amount of $250.0 million. The New Revolving Credit Facility refinances and replaces the previously existing $80.0 million revolving credit facility under the 2016 Credit Agreement due 2027. The Company’s obligations under the 2016 Credit Agreement due 2027 continue to be secured by substantially all of its and its direct and indirect subsidiaries’ assets, and is senior in position to the 2021 Senior Notes due 2029.
Contemporaneously with the Fifth Amendment, the Company drew down $160.0 million of funds available under the New Revolving Credit Facility. Proceeds totaling $61.6 million from the $160.0 million drawdown were used to repay then existing term loan borrowings under the 2016 Credit Agreement totaling $60.0 million, plus accrued interest and fees totaling $1.6 million. As discussed below, the remaining $98.4 million of proceeds were used to fund the cash portion of the Martin Acquisition. The Company has made net repayments of the $160.0 million of initial borrowings under the New Revolving Credit Facility totaling $95.0 million through September 30, 2023.
Interest on borrowings under the New Revolving Credit Facility is payable either quarterly or at the expiration of any Secured Overnight Financing Rate ("SOFR") interest period applicable thereto. Borrowings under the New Revolving Credit Facility accrue interest at a rate equal to, at our option, a base rate (with a floor of 100 basis points) plus a percentage spread (ranging from 0.75% to 1.75%) based on our first lien net leverage ratio or SOFR (with a floor of 0 basis points) plus a percentage spread (ranging from 1.75% to 2.75%) based on our first lien net leverage ratio. After giving effect to the Fifth Amendment, we pay a quarterly commitment fee on the unused portion of the New Revolving Credit Facility equal to a percentage spread (ranging from 0.25% to 0.35%) based on our first lien net leverage ratio. The Fifth Amendment also modifies the application of the financial covenant under the 2016 Credit Agreement such that testing will occur on a quarterly basis, and requires we maintain a first lien net leverage ratio of not more than 4.00 to 1.00. We were in compliance with this covenant as of September 30, 2023.
The 2016 Credit Agreement due 2027 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) sell or otherwise dispose of assets; (iv) enter into transactions with affiliates; (v) create or incur liens; (vi) 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; (viii) make investments and (ix) designate the Company’s subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications.
As of September 30, 2023, borrowings outstanding under the $250.0 million New Revolving Credit Facility totaled $65.0 million, and accrued interest was $252 thousand. There were $8.5 million in letters of credit outstanding. Availability under the New Revolving Credit Facility at September 30, 2023 totaled $176.5 million. The weighted average all-in interest rate for borrowings under the existing revolving credit facility of the 2016 Credit Agreement due 2027 was 7.01% at September 30, 2023, and 6.07% at December 31, 2022.
The Martin Acquisition was financed in part with the $250.0 million available under the New Revolving Credit Facility provided by the Fifth Amendment of our 2016 Credit Agreement due 2027, under which we drew $160.0 million on October 14, 2022, the proceeds of which were used to pay $98.4 million of the $187.8 million total fair value of consideration transferred at closing, and $61.6 million to prepay our $60.0 million existing term loans under the Fourth Amendment of our 2016 Credit Agreement due 2027, plus $1.6 million in fees, costs and accrued interest. The remainder of the total fair value of consideration transferred at closing, totaling $89.4 million, was funded with cash on hand previously generated through operations.
Deferred Financing Costs
Activity relating to deferred financing costs, which is classified as a reduction of the carrying value of long-term debt, for the nine months ended September 30, 2023, is as follows:
(in thousands) |
|
Total |
|
|
At beginning of year |
|
$ |
9,218 |
|
Less: Amortization expense |
|
|
(986 |
) |
At end of period |
|
$ |
8,232 |
|
- 35 -
Estimated amortization expense relating to deferred financing costs for the years indicated as of September 30, 2023, is as follows:
(in thousands) |
|
Total |
|
|
Remainder of 2023 |
|
$ |
334 |
|
2024 |
|
|
1,366 |
|
2025 |
|
|
1,442 |
|
2026 |
|
|
1,466 |
|
2027 |
|
|
1,440 |
|
Thereafter |
|
|
2,184 |
|
|
|
|
|
|
Total |
|
$ |
8,232 |
|
The contractual future maturities of long-term debt outstanding, as of September 30, 2023, are as follows (at face value):
(in thousands) |
|
|
|
|
Remainder of 2023 |
|
$ |
— |
|
2024 |
|
|
— |
|
2025 |
|
|
— |
|
2026 |
|
|
— |
|
2027 |
|
|
65,000 |
|
Thereafter |
|
|
575,000 |
|
|
|
|
|
|
Total |
|
$ |
640,000 |
|
2023 Share Repurchase Program. On February 7, 2023, the Company announced that its Board of Directors approved a new, share repurchase program which authorizes the Company to purchase up to $250.0 million of its common stock. This program permits the Company to purchase shares of its common stock from time to time through open-market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. During the nine months ended September 30, 2023, we repurchased a total of 3,040,280 shares under this program at a total cost of $75.1 million, which excludes the 1% excise tax imposed on corporate stock buy-backs by the Inflation Reduction Act of 2022. Subsequent to September 30, 2023, we have not purchased any additional shares under this program. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program had an initial term of 3 years, through February 3, 2026, and may be suspended or discontinued at any time, and does not obligate the company to acquire any amount of common stock.
Shareholder Rights Plan. On March 30, 2023, we announced that our Board of Directors had unanimously approved the adoption of a limited-duration shareholder rights plan (the “Rights Plan”) which includes the declaration of a dividend distribution of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record as of the close of business on April 10, 2023). Each Right entitles the registered holder to purchase from the Company 0.001 of a share of Series A Participating Preferred Stock, par value $0.01 per share, of the Company at an exercise price of $90.00, subject to adjustment. The complete terms of the Rights are set forth in a Rights Agreement, dated as of March 30, 2023, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (the "Rights Agreement"). The Rights expire on the earliest of (1) March 30, 2024, unless such date is extended, or (2) the redemption or exchange of the Rights as described above.
The Board adopted the Rights Plan in response to a likely accumulation of the Company's shares by a strategic investor. The intent of the Rights Plan is to reduce the likelihood that any entity, person or group gains control of the Company through open market accumulation of the Company's shares without paying all other shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that it believes are in the best interests of its other shareholders. Under the Rights Plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of 10% or more of the Company's outstanding common stock in a transaction not approved by the Board. In the event that the Rights become exercisable due to the triggering ownership threshold being crossed, each Right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose Rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the Right.
Eco Redemption. Effective on May 26, 2023, the Company exercised its call-right to purchase the remaining 25% ownership stake in Eco it previously did not own. The redemption price of the remaining 25% was calculated by the Company pursuant to the operating agreement based on the performance metric included therein, and was determined to be $37.5 million, which was agreed with by the
- 36 -
seller. Subsequent to this redemption, the Company's ownership of Eco Enterprises is now 100%.
Capital Expenditures. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. For the first nine months of 2023, capital expenditures were $38.2 million, compared to $24.7 million for the first nine months of 2022. Our capital expenditure program is directed towards making investments in capital assets that we believe will increase both gross sales and margins, but also includes capital expenditures for maintenance.
Aluminum Forward and Midwest Transaction Premium Contracts. We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusions we use in production. We also enter into forward contracts to hedge the fluctuations in the price of the delivery component of our aluminum extrusion purchases, known as the Midwest Transaction Premium (MTP).
At September 30, 2023, the fair value of our aluminum forward contracts was in an asset position of $0.4 million. We had 18 outstanding forward contracts for the purchase of 13.2 million pounds of aluminum through June 2024, at an average price of $1.04 per pound, which excludes the Midwest premium, with maturity dates of between one month and nine months. At September 30, 2023, the fair value of our MTP contracts was in a de minimis liability position. We had 1 outstanding MTP contract to hedge the Platts US MW Transaction price per pound for the delivery of 2.5 million pounds of aluminum through December 2023, at an average price of $0.21 per pound, with a maturity date of three months. We assessed the risk of non-performance of the Company and our counterparty to these contracts, as applicable, and determined it was immaterial and, therefore, did not record any adjustment to their fair values as of September 30, 2023.
We assess the effectiveness of our aluminum forward and MTP 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 income and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. We expect the amount of accumulated other comprehensive income of approximately $0.4 million in the accompanying condensed consolidated balance sheet as of September 30, 2023, to be reclassified to earnings within the next twelve months.
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 31, 2022. There have been no changes to our critical accounting policies during the first nine months of 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We utilize derivative financial instruments to hedge price movements in aluminum materials used in our manufacturing process and to hedge the delivery component of our aluminum needs, known as the Midwest Transaction Premium (“MTP”). As of September 30, 2023, we are covered for approximately 29% of our anticipated aluminum needs for the last three months of 2023 and first six months of 2024 at an average price of $1.04 per pound. We are not hedged beyond the first six months of 2024 as of the date of this report. These calculations are based only on the LME price of aluminum and excludes an estimate for the MTP, which we hedge separately. As of September 30, 2023, we are covered for approximately 17% of our anticipated MTP delivery costs for the remainder of 2023 at an average price of $0.21 per pound. We have no coverage of our MTP delivery costs beyond the end of 2023 as of the date of this report.
Regarding our aluminum hedging instruments for the purchase of aluminum, as of September 30, 2023, a 10% decrease in the price of aluminum per pound would decrease the fair value of our forward contracts of aluminum by an estimated $1.4 million. This calculation utilizes our actual commitment of 13.2 million pounds under contract (to be settled through June 2024) and the market price of aluminum as of September 30, 2023. This calculation is based only on the LME price of aluminum and excludes an estimate for the MTP. Regarding our MTP contracts for hedging of the delivery component of our aluminum needs, as of September 30, 2023, a 10% decrease in the Platts MW US Transaction price per pound would have a de minimis effect on the fair value of our MTP contracts. This calculation is based on our actual commitment of 2.5 million pounds under contract (to be settled through December 2023) and the then current Platts MW US Transaction price per pound as of September 30, 2023.
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 $65.0 million, a 100
- 37 -
basis-point increase in interest rate would result in approximately $0.7 million of additional interest costs annually.
- 38 -
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 interim 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 interim 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 interim chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
During the period covered by this report, there have been no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, during the year ended December 31, 2022, we acquired Martin. We are currently integrating Martin into our operations, compliance programs and internal control processes. As such Martin was not included in our assessment of internal control over financial reporting as of December 31, 2022. We will include Martin into our assessment of internal controls as of December 30, 2023, the end of our 2023 fiscal year. Martin was included in the 2022 consolidated financial statements of the Company and constituted 14.0% of total assets as of December 31, 2022 and 0.6% of revenues for the fiscal year then ended.
- 39 -
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 31, 2022. 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.
- 40 -
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Recent sales of unregistered securities; use of proceeds from registered securities. None
Purchases of equity securities by the issuer and affiliated purchasers.
On February 7, 2023, the Company announced that its Board of Directors approved a new, share repurchase program which authorizes the Company to purchase up to $250.0 million of its common stock. This program permits the Company to purchase shares of its common stock from time to time through open-market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. We began repurchasing shares under this program beginning on February 27, 2023. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program had an initial term of 3 years, through February 3, 2026, and may be suspended or discontinued at any time, and does not obligate the company to acquire any amount of common stock.
The following table represents information relating to share repurchases under this program during our third fiscal quarter ended September 30, 2023:
|
|
|
|
Purchases of Equity Securities |
||||||
Period |
|
Beginning and |
|
(a) Total Number of Shares Purchased |
|
(b) Average Price Paid per Share (in $) |
|
(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 |
Beginning balance |
|
July 2 |
|
|
|
|
|
|
|
$204.57 |
July 2023 |
|
July 2 to July 29 |
|
— |
|
— |
|
— |
|
$204.57 |
August 2023 |
|
July 30 to August 26 |
|
428,739 |
|
$27.3632 |
|
428,739 |
|
$192.84 |
September 2023 |
|
August 27 to September 30 |
|
661,380 |
|
$27.1681 |
|
661,380 |
|
$174.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,090,119 |
|
$27.2448 |
|
1,090,119 |
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
Insider Adoption or Termination of Trading Arrangements.
During the fiscal quarter ended September 30, 2023,
- 41 -
ITEM 6. EXHIBITS.
3.1 |
|
|
|
4.1 |
|
|
|
10.1* |
Employment Agreement between PGT Innovations, Inc. and Craig Henderson, dated August 2, 2023 |
|
|
31.1* |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
31.2* |
|
|
|
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) |
*Filed herewith.
**Furnished herewith.
- 42 -
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 2, 2023 |
By: /s/ Craig Henderson |
|
Name: Craig Henderson |
|
Title: Interim Chief Financial Officer |
- 43 -
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into effective as of August ____, 2023 (the “Effective Date”), by and between PGT Innovations, Inc., a Delaware corporation (the “Company,” or the “Employer”), and Craig Henderson, an individual and resident of the State of Florida (the “Employee”).
RECITALS:
AGREEMENT
In consideration of the foregoing and the mutual promises and covenants set forth herein, the parties, intending to be legally bound, agree as follows:
1. Definitions.
For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.
“Affiliate(s)” means any Person, directly or indirectly controlled by, or under common control with, the Employer or any other referenced Person.
“Agreement” means this Employment Agreement, as amended from time to time.
“Annual Performance Bonus” has the meaning set forth in Section 3.2 of this Agreement.
“Benefits” has the meaning set forth in Section 3.1(b).
“Board of Directors” means the board of directors of PGT Innovations, Inc.
“Cause” means the occurrence of any of the following events during the Employment Period: (a) conduct amounting to fraud or dishonesty against the Employer or any Affiliate of the Employer; (b) the Employee’s intentional misconduct, refusal or failure to follow the lawful directions of the Chief Executive Officer (“CEO”) of the Company, or such other senior officer as the Employee may report to from time to time (collectively, the “Senior Managers”) or a breach of this Agreement; (c) intoxication with alcohol or drugs while on the Employer’s property or while carrying out the business of the Employer; (d) a conviction or plea of guilty or nolo contendere to a felony or to a misdemeanor involving charges of embezzlement, fraud, stealing or theft, or assault or battery to others; (e) a material breach or violation of the Company’s code of conduct, employee handbook or similar policies or rules, including without limitation, due to sexual or other forms of prohibited harassment; or (f) the Employee’s failure to observe and comply with the requirements in Sections 8 or 9 hereof.
“Change of Control” means a “Change in Control” as defined in Section 12 of the Employer’s 2019 Equity and Incentive Compensation Plan, provided that such “Change in Control” constitutes a change in control event for purposes of Section 409A of the Internal Revenue Code of 1986, as amended.
“Compensation” means Salary and Benefits.
“Confidential Information” means any and all:
(a) trade secrets concerning the business and affairs of the Employer or any Affiliate of the Employer, product or service specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, current and planned manufacturing, marketing or distribution methods and processes, customer lists, prospective customer lists, current and
anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, structures, and architectures (and related formulae, compositions, processes, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is a “trade secret” either under common law or as such term is defined by statute under the laws of any applicable jurisdiction;
(b) information concerning the business and affairs of the Employer or its Affiliates (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and other material prepared by or for the Employer or Affiliates of the Employer, containing or based, in whole or in part, on any information included in the foregoing.
“Disability” has the meaning set forth in Section 6.3.
“Employee Invention” means any idea, invention, technique, modification, process, or improvement (whether patentable or not), and any work of authorship (whether or not copyright protection may be obtained for it) created, conceived, or developed by the Employee, either solely or in conjunction with others, during the Employment Period, or a period that includes a portion of the Employment Period, that relates in any way to, or is useful in any manner in, the business then being conducted or proposed to be conducted by the Employer or any Affiliate of the Employer, and any such item created by the Employee, either solely or in conjunction with others, following termination of the Employee’s employment with the Employer, that is based upon or uses Confidential Information; provided, however, that any item so created by the Employee that is based upon or uses Confidential Information that the Employee demonstrates was or became generally available to the public, other than as a result of a disclosure by the Employee, will not be deemed to be an Employee Invention for any purposes.
“Employer” is the entity identified on the first page of this Agreement and its successors and assigns.
“Employment Period” means the term of the Employee’s employment with the Employer.
“Good Reason” means the occurrence of any of the following events during the Employment Period: (a) a material diminution of the duties or responsibilities of the Employee; or (b) the assignment of the Employee to a worksite outside of a fifty (50) mile radius from the Employer’s current headquarters; provided, however, that none of the foregoing events or conditions will constitute “Good Reason” unless: (i) Employee provides the Employer with written objection to the event or condition within thirty (30) days following the occurrence thereof, (ii) the Employer does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection, and (iii) Employee resigns his employment within thirty (30) days following the expiration of that cure period.
“Incentive Amount” means the target amount payable to the Employee under the Employer’s Annual Incentive Plan for the award period ending in the year in which the termination of employment occurs.
“Noncompetition Agreement” means the agreements and covenants of the Employee found in Section 9.2.
“Noncompetition Period” means a period of time equal to the Employment Period plus two (2) years, unless this Agreement is terminated by the Employer without Cause or by the Employee with Good Reason, in which case the Noncompetition Period will be for a period of time equal to the Employment Period plus one (1) year.
“Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or governmental body.
“Proprietary Items” has the meaning set forth in Section 8.2(a)(iv).
“Salary” has the meaning set forth in Section 3.1(a).
2. Employment Term and Duties.
2.1 Employment. The Employer hereby continues the employment of the Employee, effective as of the date hereof, and the Employee shall accept such continued employment by the Employer, effective as of the date hereof, upon the terms and conditions set forth in this Agreement.
2.2 Term. Subject to the provisions of Section 6, the term of the Employee’s employment under this Agreement shall continue until terminated in accordance with Section 6.
2.3 Duties. The Employee will continue to serve as the Interim Chief Financial Officer, with duties and responsibilities associated with and related to such position, and such other duties and responsibilities as the Employee may be requested to perform by the Employer’s CEO or such other Senior Manager as the CEO may designate from time to time. The Employee will (a) devote the Employee’s business effort, time, energy and skill (vacations and reasonable absences due to illness excepted) as is necessary to fulfill the duties of his position and those assigned by the Senior Managers, (b) use his best efforts to promote the success of the business, and (c) cooperate fully with the lawful requests of the Senior Managers in the advancement of the best interests of the Employer and its Affiliates. During the Employment Period, the Employee shall not be engaged in or provide services to any other business or enterprise which interferes with the Employee’s performance of the Employee’s job duties, and other obligations under this Agreement.
3. Compensation.
3.1 Basic Compensation.
(a) Salary. The Employer shall pay to the Employee an annualized salary at a rate of $336,000 per year, subject to the provisions of Section 6 and adjusted as provided below (the “Salary”), which Salary will be payable in equal periodic installments in accordance with the Employer’s customary payroll practices. The Salary will be reviewed by the President and CEO of PGT Innovations, Inc. at least once each year and may be adjusted by the Employer following such review and the approval of any such adjustment by the Board of Directors or the Board’s designated committee. Any such adjustment in the Salary shall be made by, and at the sole discretion and approval of, the President and CEO and the Board of Directors or the Board’s designated committee, as the case may be, and, as adjusted, shall become the Employee’s new “Salary” hereunder (unless and until further adjusted).
(b) Benefits. The Employee will be entitled to participate in such life insurance, hospitalization and medical plans or insurance coverage, disability, and other employee benefit plans, programs and policies of the Employer in effect from time to time (collectively, the “Plans”), vacation and holidays (as further provided in Section 5 below), and any other plan which may be made available by the Employer to its key management employees from time to time in the future, if, and to the extent that, the Employee is eligible under the terms of such Plans. All of the plans,
agreements, and undertakings of Employer set forth above shall be called, collectively, the “Benefits.” Any Benefits hereunder shall be subject to such local, state or federal tax reporting requirements as maybe in effect from time to time. This Agreement will not limit the Employer’s ability to amend, modify or terminate such Plans at any time for any reason.
3.2 Annual Performance Bonus.
As additional incentive compensation for the services to be rendered by the Employee pursuant to this Agreement, the Employee shall be eligible, each calendar year, to receive a bonus (the “Annual Performance Bonus”), if and to the extent that the performance metrics or other requirements that must be satisfied in order for the Employee to receive the Annual Performance Bonus have been achieved. The determination of whether to pay an Annual Performance Bonus, if any, and the amount of any such Annual Performance Bonus, shall be determined by the Company’s Board of Directors or the Board’s designated committee, in their discretion, and for 2023 shall be at a target value equal to 60% of the Employee’s Salary. Any Annual Performance Bonus that is due to the Employee hereunder shall be paid as soon as practicable, but in no event later than 30 days following completion of the Employer’s audited financial statements of the year to which the Annual Performance Bonus relates.
3.3 Annual Equity Grant
During the first fiscal quarter of each year, or such other time as the Board, in its discretion, may determine, the Employee will receive an annual equity grant with a target value, measured as of the grant date, equal to the percentage of the Employee’s Salary determined by the Board or its designated committee, which for 2023 shall be 60% (the “Annual Equity Grant”). One-half of the Annual Equity Grant is expected to be in the form of restricted stock units or restricted share units with no performance restrictions or metrics associated with them, and which are expected to vest in three equal increments on each of the first, second and third anniversaries of the grant date. The other one-half of the Annual Equity Grant is expected to be in the form of performance shares or performance restricted stock units, which will have Board-determined performance restrictions and metrics associated with them. The determination of how many of those performance shares or performance restricted stock units have been earned will be made by the Board (or its delegate) on or about the first anniversary of the grant date, based on the financial performance of the Company during the prior fiscal year, and any performance shares or performance stock units deemed by the Board (or its delegate) to be earned are expected to vest in two equal increments on or about each of the second and third anniversaries of the grant date. Notwithstanding any other provision of this Agreement to the contrary, the determination of whether and when to make any Annual Equity Grant to Employee, and the design, nature and amount of any such Annual Equity Grant, shall be determined by the Board (or its delegate) in its discretion. All Annual Equity
Grants to Employee shall be subject to the terms of the grant agreement between Employer and Employee.
4. Facilities and Expenses.
The Employer will furnish the Employee with office space, equipment, supplies, computer and facsimile equipment, telephones (including cellular telephone), and such other facilities, support staff and personnel as the Employer deems necessary or appropriate for the performance of the Employee’s duties under this Agreement. The Employer will reimburse the Employee for reasonable business expenses incurred by him on behalf of the Employer in the performance of the Employee’s duties; provided, that Employee furnishes to Employer documentation of such expenses as is required by the Internal Revenue Service and the Employer’s internal policies, as well as such other documentation as the Employer may reasonably request. In addition, the Employer shall reimburse the Employee or otherwise provide and pay for all approved professional affiliation expenses incurred by the Employee that have been pre-approved by the Employer. The Employee must file authorization requests, to the extent required by the Employer’s employment policies and, in all instances, expense reports with respect to such expenses in accordance with the Employer’s policies.
5. Vacations and Holidays.
The Employee will be entitled to four weeks paid vacation each year or such other amount of paid vacation as may be provided for in the Employer’s written vacation policy, if greater. Such vacation shall be taken in accordance with the vacation policies of the Employer in effect for its senior managers from time to time. Vacation must be taken by the Employee at such time or times as mutually agreed by the Employee and the Employer. The Employee will also be entitled to any paid holidays expressly provided for in the Employer’s policies.
6. Termination.
6.1 Events of Termination.
(a) Death; Disability. In the event of the Employee’s death or Disability, the Employee’s employment with the Employer shall be deemed terminated as of the end of the month in which such death occurs or such Disability is determined, and all rights, duties and obligations of the parties hereunder shall thereupon cease, except for the Employee’s obligations under Section 8 and Section 9 hereof (in the case of a termination due to Disability), and the Employer’s obligations under Sections 6.2(a) and 6.2(b) hereof, as the case may be.
(b) By The Employer for Cause. The Employee’s employment with the Employer may be terminated at the option of and by written notice from the Employer if the Senior Managers finds Cause. Upon any such termination, all rights, obligations and duties of the parties hereunder shall immediately cease (including, but not limited to, the payment by the Employer of all Compensation), except for the Employee’s obligations under Section 8 and Section 9 hereof.
(c) By The Employer Without Cause. The Employer may also terminate the Employee’s employment at any time upon not less than ten (10) days advance written notice without Cause. Upon expiration of such notice period, all rights, obligations and duties of the parties hereunder shall immediately cease, except for the Employee’s obligations under Section 8 and Section 9 hereof and the Employer’s obligations under Section 6.2(c). The Employer may accelerate the effective date of such termination if, in lieu of such notice, and in addition to the payments required by Section 6.2(c) below, Employer continues to pay Salary to Employee for a number of days equal to the number of days by which Employer accelerated the effective date of Employee’s termination.
(d) Voluntary Termination without Good Reason By Employee. The Employee may terminate his employment with the Employer without Good Reason upon not less than thirty (30) days advance written notice to the Employer; provided, however, that after the receipt of such notice, the Employer may, in its discretion accelerate the effective date of such termination at any time by written notice to the Employee. Upon the effective date of any such termination, all rights, obligations and duties of the parties hereunder shall immediately cease, except for the Employee’s obligations under Section 8 and Section 9 hereof and the Employer’s obligations under Section 6.2(d).
(e) Termination with Good Reason by the Employee. The Employee may terminate his employment with the Employer with Good Reason upon advance written notice to the Employer; provided, however, that after the receipt of such notice, the Employer may, in its discretion accelerate the effective date of such termination at any time by written notice to the Employee. Upon the effective date of any such termination, all rights, obligations and duties of the parties hereunder shall immediately cease, except for the Employee’s obligations under Section 8 and Section 9 hereof and the Employer’s obligations under Section 6.2(e).
6.2 Termination Pay. Upon cessation of Employee’s employment with Employer, the Employer will be obligated to pay the Employee (or, in the event of the Employee’s death, the Employee’s designated beneficiary) only such compensation, if any, as is provided in this Section 6.2. For purposes of this Section 6.2, the Employee’s designated beneficiary will be such
individual beneficiary or trust, located at such address, as the Employee may designate by notice to the Employer from time to time or, if the Employee fails to give notice to the Employer of such a beneficiary, the Employee’s estate.
(a) Termination by Death. If the Employee’s employment terminates because of the Employee’s death, in addition to the Benefits otherwise due the Employee, the Employer will, in accordance with normal payroll practice, pay to the Employee’s designated beneficiary the Employee’s Salary for a period of six (6) months.
(b) Termination upon Disability. If the Employee’s employment is terminated by either party as a result of the Employee’s Disability, as determined under Section 6.3, in addition to the Benefits otherwise due the Employee, the Employer will, in accordance with normal payroll practice, continue to pay to the Employee his Salary for a period of twelve 12) months following the effective date of such termination.
(c) Termination by the Employer Without Cause. If the Employer terminates the Employee’s employment without Cause, the Employer will (i) pay to Employee his Salary, in accordance with normal payroll practice, for a period of twelve (12) months, commencing no later than the tenth business day following sixty (60) days after the date of Employee’s separation from service; (ii) waive the applicable COBRA continuation coverage for Employee (and, if applicable, the Employee’s spouse and eligible dependents) for a period of twelve (12) months; (iii) pay 100% of Employee’s Incentive Amount, in a lump-sum payment payable no later than the tenth business day following the date of Employee’s separation from services. Notwithstanding the preceding provisions of this Section 6.2(c), in the event the Employee’s employment is terminated by the Employer (or the successor employer to the Employer) without Cause at the time of or within twenty-four (24) months after the effective date of a Change of Control, the Employer (or successor employer to the Employer following the Change of Control) shall provide the Employee with the following: (i) pay to Employee an amount equal to his Salary for a period of twenty-four (24) months, in a lump sum payable on the 60th day following the date of Employee’s separation from service (ii) waive the applicable COBRA continuation coverage for Employee (and, if applicable his spouse and eligible dependents) for a period of twenty-four (24) months; (iii) pay 200% of Employee’s Incentive Amount, in a lump-sum payment payable on the 60th day following the date of Employee’s separation from service; (iv) any outstanding stock options held by the Employee that are vested and exercisable as of the date of the Employee’s separation from service shall remain exercisable, notwithstanding anything in any other agreement governing such options, until the earlier of (A) a period of one year after the date of Employee’s separation from service, or (B) the original term of the option; and (v) any equity awards held by the Employee that are unvested as of the date of the Employee’s separation from service shall vest, with any performance-based equity awards paid out in such amount as if maximum performance (including any adjustment or modifier) has been achieved for the relevant performance period. Notwithstanding anything to the contrary in the applicable award agreement, any unvested equity awards that so vest will be settled within three (3) business days following sixty (60) days after the date of Employee’s separation
from service; provided, however, that to the extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended, the amounts described in (i), (iii), (iv) and (v) of this sentence will be paid on the same schedule as set forth in the first sentence of this paragraph. For purposes of the preceding sentence, Salary and the Incentive Amount shall be the greater of (i) Salary and the Incentive Amount as determined at the time of the Employee’s separation from service and (ii) Salary and the Incentive Amount as determined assuming a separation from service immediately prior to the effective date of the Change of Control.
(d) Termination by the Employee without Good Reason. If the Employee terminates his employment other than with Good Reason, the Employer shall continue to pay to the Employee his Salary for the shorter of: (i) thirty (30) days; or (ii) the notice period provided by the Employee with respect to his termination.
(e) Termination by the Employee with Good Reason. If the Employee terminates the Employee’s employment with Good Reason, he will be entitled to the same payments and benefits described above in Section 6.2(c), including where Employee terminates his employment with Good Reason at the time of or following a Change of Control, within twenty-four months after the effective date of such Change of Control, in which case the Employee would be entitled to the same payments and benefits described under the change in control portion of Section 6.2(c).
6.3 Definition of Disability. For purposes of this Agreement, “Disability” has the meaning defined in Treas. Reg. § 1.409A-3(i)(4).
6.4 Release Required as a Condition of Severance. Notwithstanding any other provision of this Agreement, payments under Section 6.2, above, are conditioned on the Employee’s (a) immediate resignation, upon Employer’s request, from all employee and director positions with the Employer and its affiliates; (b) execution and delivery to the Employer, within the applicable review period (e.g., 45 days or 21 days, depending on the context in which the termination occurs) following the termination of his employment, and non-revocation of, a general release of claims against the Employer and its affiliates in such form as the Employer may reasonably require (the “Release”); and (c) the Employee’s full compliance with the provisions of this Agreement following the termination of his employment, including Sections 8 and 9 hereof. For avoidance of doubt, the payments and benefits described in this Section 6.2 are in lieu of, and not in addition to, any other severance arrangement maintained by the Employer.
7. 280G. If any amounts payable under this Agreement or under any other agreement, plan or arrangement applicable to the Employee (including, for the avoidance of doubt, the value of any acceleration of vesting of equity awards held by the Employee), either alone or together with any other payments which the Employee is entitled to receive from the Company or any affiliate thereof or otherwise, would constitute an “excess parachute payment” as defined in Section 280G
of the Code, such payments shall be reduced to the largest amount (the “Reduced Amount”) that will result in no portion of such payments being subject to the excise tax imposed by Section 4999 of the Code; provided, however, that if it is determined that the net after-tax amounts the Executive would receive without any such reduction (the “Unreduced Amounts”), after taking into account both income taxes and any excise tax imposed under Section 4999 of the Code is greater than the net after-tax amount of the Reduced Amount, the Executive will instead receive the Unreduced Amounts. Any such reduction in payments and benefits shall be applied first against the latest scheduled cash payments; then current cash payments; then any equity or equity derivatives that are included under Section 280G of the Code at full value rather than accelerated value; then any equity or equity derivatives included under Section 280G of the Code at an accelerated value (and not at full value) shall be reduced with the highest value reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24); and finally any other non-cash benefits will be reduced. Any determinations pursuant to this Section 7 shall be made by a nationally recognized accounting firm.
8. Non-Disclosure Covenant; Employee Inventions.
8.1 Acknowledgments by the Employee. The Employee acknowledges that (a) during the Employment Period and as a part of the Employee’s employment, the Employee will be afforded access to Confidential Information; (b) public disclosure of such Confidential Information could have an adverse effect on the Employer and its business; (c) since the Employee possesses substantial expertise and skill with respect to the Employer’s business, the Employer desires to obtain exclusive ownership of each Employee Invention, and the Employer will be at a substantial competitive disadvantage if it fails to acquire exclusive ownership of each Employee Invention; (d) the Compensation provided to Employee hereunder constitutes good and sufficient consideration for the Employee’s agreements and covenants in this Section 8; and (e) the provisions of this Section 8 are reasonable and necessary to prevent the improper use or disclosure of Confidential Information and to provide the Employer with exclusive ownership of all Employee Inventions.
8.2 Agreements of the Employee. In consideration of the Compensation to be paid or provided to the Employee by the Employer under this Agreement, the Employee covenants as follows:
(a) Confidentiality.
(i) During and at all times following the Employment Period, the Employee will hold in confidence the Confidential Information and will not disclose it to any person except with the
specific prior written consent of the Employer or except as otherwise expressly permitted by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to all of the protections and benefits under applicable trade secret laws. If any information that the Employer deems to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this Agreement, such information will, nevertheless, be considered Confidential Information for
purposes of this Agreement. The Employee hereby waives any requirement that the Employer submit proof of the economic value of any trade secret or post a bond or other security.
(iii) None of the foregoing obligations and restrictions apply to any part of the Confidential Information that the Employee demonstrates was or became generally available to the public other than as a result of a disclosure by the Employee.
(iv) The Employee will not remove from the Employer’s (or any Affiliate’s) premises (except to the extent such removal is for purposes of the performance of the Employee’s duties at home or while traveling, or except as otherwise specifically authorized by the Employer in writing) any document, record, notebook, plan, model, component, device, or computer software or code, whether embodied in a disk or in any other form (collectively, the “Proprietary Items”). The Employee recognizes that, as between the Employer and the Employee, all of the Proprietary Items, whether or not developed by the Employee, are the exclusive property of the Employer. Upon termination of this Agreement by either party, the Employee will return to the Employer all of the Proprietary Items in the Employee’s possession or subject to the Employee’s control, and the Employee shall not retain any copies, abstracts, sketches, or other physical embodiment of any of the Proprietary Items.
(v) Without limiting the generality of the foregoing, nothing in this Agreement precludes or otherwise limits the Employee’s ability to (A) communicate directly with and provide information, including documents, not otherwise protected from disclosure by any applicable law or privilege to the Securities and Exchange Commission (the “SEC”) or any other federal, state or local governmental agency or commission (“Government Agency”) or self-regulatory organization regarding possible legal violations, without disclosure to the Employer, or (B) disclose information which is required to be disclosed by applicable law, regulation, or order or requirement (including by deposition, interrogatory, requests for documents, subpoena, civil investigative demand or similar process) of courts, administrative agencies, the SEC, any Government Agency or self-regulatory organizations. Neither the Employer nor any of its Affiliates may retaliate against the Employee for any of these activities.
(vi) Furthermore, the Employee is advised that the Employee shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of any Confidential Information or information about this Agreement or the Employer or any of its Affiliates that constitutes a trade secret to which the Defend Trade Secrets Act (18 U.S.C. § 1833(b)) applies that is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case, solely for the purpose of reporting or investigating a suspected violation of law or (B) in a complaint or other document filed in a lawsuit or proceeding, if such filings are made under seal.
(b) Employee Inventions. Each Employee Invention will belong exclusively to the Employer. The Employee acknowledges that all of the Employee’s writing, works of authorship, creations, designs, layouts and methods related to the fabrication, manufacture, processing and production of the Company’s products, sales and marketing plans and strategies, and other Employee Inventions are works made for hire and the property of the Employer, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Employee hereby assigns to the Employer all of the Employee’s right, title, and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. The Employee covenants that he will promptly:
(i) disclose to the Employer in writing any Employee Invention;
(ii) assign to the Employer or to a party designated by the Employer, at the Employer’s request and without additional compensation, all of the Employee’s right to the Employee Invention for the United States and all foreign jurisdictions;
(iii) execute and deliver to the Employer such applications, assignments, and other documents as the Employer may request in order to apply for and obtain patents or other registrations with respect to any Employee Invention in the United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the above obligations; and
(v) give testimony and render any other assistance at Employer’s expense, in support of the Employer’s rights to any Employee Invention.
8.3 Disputes or Controversies. The Employee recognizes that should a dispute or controversy arising from or relating to this Agreement be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Confidential Information may be jeopardized. All pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy and will be available for inspection by the Employer, the Employee, and their respective attorneys and experts, who will agree, in advance and in writing, to receive and maintain all such information in secrecy, except as may be limited by written agreement among them.
9. Non-Competition and Non-Interference.
9.1 Acknowledgments By the Employee. The Employee acknowledges that: the services to be performed by Employee under this Agreement are of a special, unique and unusual character; and (b) the Compensation provided to the Employee hereunder constitutes good and sufficient consideration for the Employee’s agreements and covenants in this Section 9; and (c) the provisions of this Section 9 are reasonable and necessary to protect the Employer’s business.
9.2 Covenants of the Employee. In consideration of the acknowledgments by the Employee, and in consideration of the Compensation to be paid or provided to the Employee by the Employer, the Employee covenants that the Employee will not, directly or indirectly:
(b) whether for the Employee’s own account or the account of any other person (i) solicit or induce, directly or indirectly, whether or not for consideration, any employee or agent of the Employer to terminate his or her relationship with the Employer; or (ii) induce or attempt to induce any customer, supplier, service provider, vendor, consultant or contractor of the Employer to terminate or adversely change its relationship with the Employer or otherwise interfere with any
relationship between the Employer and any of the Employer’s customers, prospective customers, suppliers, service providers or contractors.
9.3 Enforceability; Notice. If any covenant in Section 9.2 is held to be unreasonable, arbitrary, or against public policy, such covenant will be considered to be divisible with respect to scope, time, and geographic area, and such lesser scope, time, or geographic area, or all of them, as a court of competent jurisdiction may determine to be reasonable, not arbitrary, and not against public policy, will be effective, binding, and enforceable against the Employee. The period of time applicable to any covenant in Section 9.2 will be extended by the duration of any violation by the Employee of such covenant. The Employee will, while the covenant under Section 9.2 is in effect, give notice to the Employer, within ten (10) days after accepting any other employment, of the identity of the Employee’s employer. Employer may notify such employer that the Employee is bound by this Agreement and, at the Employer’s election, furnish such employer with a copy of this Agreement or relevant portions thereof.
10. General Provisions.
10.1 Injunctive Relief and Additional Remedy. The Employee acknowledges that the injury that would be suffered by the Employer as a result of a breach of the provisions of this Agreement (including any provision of Section 8 and Section 9) would be irreparable and that an award of monetary damages to the Employer for such a breach would be an inadequate remedy.
Consequently, the Employer will have the right, in addition to any other rights it may have, at Employer’s cost, to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Employer will not be obligated to post bond or other security in seeking such relief.
10.2 Covenants of Sections 8 and 9 are Essential and Independent. The covenants by the Employee in Section 8 and Section 9 are essential elements of this Agreement, and without the Employee’s agreement to comply with such covenants, the Employer would not have entered into this Agreement, offered continued employment to the Employee or offered the Employee the Salary and Benefits and other consideration provided hereunder. The Employee’s covenants in Section 8 and Section 9 are independent covenants and the existence of any claim by the Employee against the Employer under this Agreement or otherwise, or against any Affiliate of Employer, will not excuse the Employee’s breach of any covenant in Section 8 or Section 9. If the Employee’s employment hereunder expires or is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Employee in Section 8 and Section 9.
10.3 Representations and Warranties by the Employee. The Employee represents and warrants to the Employer that the execution and delivery by the Employee of this Agreement do not, and the performance by the Employee of the Employee’s obligations hereunder will not, with
or without the giving of notice or the passage of time, or both: (a) violate any judgment, writ, injunction, or order of any court, arbitrator, or governmental agency applicable to the Employee; or (b) conflict with, result in the breach of any provisions of or the termination of, or constitute a default under, any agreement to which the Employee is a party or by which the Employee is or may be bound.
10.4 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by either party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.
10.5 Binding Effect; Delegation of Employee’s Duties Prohibited. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any Affiliate to which Employer may assign this Agreement or any entity with which the Employer may merge or consolidate or to which all or substantially all of its assets may be transferred. The duties and covenants of the Employee under this Agreement, being personal, may not be delegated or assigned.
10.6 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given (a) when delivered by certified U.S. mail, return receipt requested, to the address(es) below, or (b) one business day after deposit with a nationally recognized overnight delivery service (receipt and next day delivery requested), in each case to the appropriate addresses set forth below (or to such other addresses as a party may designate by notice to the other parties):
If to Employer: PGT Innovations, Inc.
1070 Technology Drive
Nokomis, Florida 34275
Attention: Senior Vice President, Human Resources
If to Employee: The most recent address that the Company has on file for the Employee
10.7 Entire Agreement; Amendments. This Agreement, as it may be amended from time to time, contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior employment arrangements (as the same may have been amended from time to time), including the Original Agreement and other agreements or understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.
10.8 Governing Law; Venue and Jurisdiction. This Agreement shall be governed by and construed under Florida law, without regard to conflict of laws principles. The parties agree that any lawsuit between them arising under this Agreement shall be filed in any state or federal court located in Sarasota County, Florida or Tampa, Florida, and each of the parties hereby agrees, acknowledges and submits itself to the exclusive jurisdiction and venue of such courts for the purposes of such lawsuit and agrees to accept service of process in accordance with the provisions for delivery of notice set forth in Section 10.6 hereof.
10.9 Section Headings; Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the
word “including” does not limit the preceding words or terms.
10.10 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
10.11 Section 409A Compliance.
(a) Notwithstanding any other provision of this Agreement, if the termination giving rise to the payments described in Sections 6.2(c) or (e) is not a “Separation from Service” within
the meaning of Treas. Reg. § 1.409A-1(h)(1) (or any successor provision), then the amounts otherwise payable pursuant to those paragraphs will instead be deferred without interest and will not be paid until Employee experiences a Separation from Service. In addition, to the extent compliance with the requirements of Treas. Reg. § 1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Section 409A of the Code to payments due to Employee upon or following his Separation from Service, then notwithstanding any other provision of this Agreement (or any otherwise applicable plan, policy, agreement or arrangement), any such payments that are otherwise due within six months following Employee’s Separation from Service (taking into account the preceding sentence of this paragraph) will be deferred without interest and paid to Employee in a lump sum immediately following that six month period. This paragraph should not be construed to prevent the application of Treas. Reg. §§ 1.409A-1(b)(4) or -1(b)(9)(iii)(or any successor provisions) to any amount payable to Employee. For purposes of the application of Treas. Reg. § 1.409A-1(b)(4)(or any successor provision) to this Agreement, each payment in a series of payments will be deemed a separate payment.
(b) Notwithstanding anything to the contrary contained in this Agreement or otherwise, to the extent an expense, reimbursement or in-kind benefit due to Employee constitutes a “deferral of compensation” within the meaning of Section 409A of the Code: (i) the amount of expenses eligible for reimbursement or in-kind benefits provided to the Employee during any calendar year will not affect the amount of expenses eligible for reimbursement or in-kind benefits provided to the Employee in any other calendar year, (ii) reimbursement of expenses will be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred, and (iii) the right to payment, reimbursement or in-kind benefits may not be liquidated or exchanged for any other benefit. Unless otherwise specifically provided herein, expense reimbursements will be limited to expenses incurred during the Employment Period.
10.12 Counterparts. This Agreement may be executed (including electronically) in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed and delivered this Employment Agreement on the date first written above.
PGT INNOVATIONS, INC.
(“Employer”)
By: /s/ Jeffrey T. Jackson________________
Printed Name: Jeffrey T. Jackson
Title: President and Chief Executive Officer
/s/ Craig Henderson_____________________
Printed Name: Craig Henderson
(“Employee”)
Exhibit 31.1
CERTIFICATION
I, Jeffrey T. Jackson, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2023, of PGT Innovations, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Jeffrey T. Jackson |
|
Jeffrey T. Jackson |
|
President and Chief Executive Officer |
Date: November 2, 2023
Exhibit 31.2
CERTIFICATION
I, Craig Henderson, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended September 30, 2023, of PGT Innovations, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ Craig Henderson |
|
Craig Henderson |
|
Interim Chief Financial Officer |
Date: November 2, 2023
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the quarterly report on Form 10-Q of PGT Innovations, Inc. (the “Company”) for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey T. Jackson, as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Jeffrey T. Jackson |
|
Jeffrey T. Jackson |
|
President and Chief Executive Officer |
Date: November 2, 2023
A signed original of this written statement required by Section 906 has been provided to PGT Innovations, Inc. and will be retained by PGT Innovations, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the quarterly report on Form 10-Q of PGT Innovations, Inc. (the “Company”) for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig Henderson, as Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Craig Henderson |
|
Craig Henderson |
|
Interim Chief Financial Officer |
Date: November 2, 2023
A signed original of this written statement required by Section 906 has been provided to PGT Innovations, Inc. and will be retained by PGT Innovations, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|||
Income Statement [Abstract] | ||||||
Net sales | $ 399,931 | $ 385,837 | $ 1,161,694 | $ 1,151,020 | ||
Cost of sales | 238,159 | 236,035 | 696,740 | 701,495 | ||
Gross profit | 161,772 | 149,802 | 464,954 | 449,525 | ||
Selling, general and administrative expenses | 101,872 | 102,399 | 297,790 | 307,786 | ||
Restructuring costs and charges, net | [1] | (794) | 1,722 | |||
Income from operations | 60,694 | 47,403 | 165,442 | 141,739 | ||
Interest expense, net | 7,772 | 6,889 | 23,642 | 21,124 | ||
Income before income taxes | 52,922 | 40,514 | 141,800 | 120,615 | ||
Income tax expense | 13,715 | 10,100 | 36,412 | 29,910 | ||
Net income | 39,207 | 30,414 | 105,388 | 90,705 | ||
Less: Net income attributable to redeemable non-controlling interest ("RNCI") | (373) | (1,101) | (1,334) | |||
Net income attributable to the Company | 39,207 | 30,041 | 104,287 | 89,371 | ||
Calculation of net income per common share attributable to common shareholders: | ||||||
Net Income (Loss) | 39,207 | 30,041 | 104,287 | 89,371 | ||
Decrease (increase) in redemption value of RNCI | 271 | (1,637) | (1,514) | |||
Net income attributable to common shareholders | $ 39,207 | $ 30,312 | $ 102,650 | $ 87,857 | ||
Net income per common share attributable to common shareholders: | ||||||
Basic | $ 0.68 | $ 0.51 | $ 1.75 | $ 1.47 | ||
Diluted | $ 0.67 | $ 0.5 | $ 1.74 | $ 1.46 | ||
Weighted average number of common shares outstanding: | ||||||
Basic | 58,012 | 59,964 | 58,796 | 59,908 | ||
Diluted | 58,291 | 60,402 | 59,092 | 60,201 | ||
|
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 39,207 | $ 30,414 | $ 105,388 | $ 90,705 |
Other comprehensive income (loss) before tax: | ||||
Increase (decrease) in fair value of derivatives | 892 | (2,633) | (11) | (9,487) |
Reclassification to earnings | 289 | 2,416 | 130 | (3,344) |
Other comprehensive income (loss) before tax | 1,181 | (217) | 119 | (12,831) |
Income tax expense (benefit) related to other comprehensive income (loss) | 304 | (56) | 31 | (3,296) |
Other comprehensive income (loss), net of tax | 877 | (161) | 88 | (9,535) |
Comprehensive income | 40,084 | 30,253 | 105,476 | 81,170 |
Less: Comprehensive income attributable to redeemable non-controlling interest | (373) | (1,101) | (1,334) | |
Comprehensive income attributable to the Company | $ 40,084 | $ 29,880 | $ 104,375 | $ 79,836 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, Shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, Shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 64,512,000 | 63,940,000 |
Common stock, shares outstanding | 57,262,000 | 59,912,000 |
Treasury stock, Shares | 5,800,000 | 2,760,000 |
Condensed Consolidated Statements of Shareholders' Equity (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Statement of Stockholders' Equity [Abstract] | ||||
Income tax expense (benefit) related to other comprehensive loss | $ (304) | $ 56 | $ (31) | $ 3,296 |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
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Pay vs Performance Disclosure | ||||
Net Income (Loss) | $ 39,207 | $ 30,041 | $ 104,287 | $ 89,371 |
Insider Trading Arrangements |
9 Months Ended |
---|---|
Sep. 30, 2023 | |
Trading Arrangements, by Individual | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |
Description of Business and Basis of Presentation |
9 Months Ended |
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Sep. 30, 2023 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Description of Business and Basis of Presentation | NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION About PGT Innovations, Inc. PGT Innovations, Inc. (“PGTI”, “we,” or the “Company”), formerly named PGT, Inc., is a leading manufacturer of impact-resistant aluminum and vinyl-framed windows and doors and offers a broad range of fully customizable window and door products, as well as fully custom overhead garage doors. The majority of our sales are to customers in the state of Florida; however, we also sell products in many other states, the Caribbean, Canada, and in South and Central America. Our acquisition of Eco Enterprises ("Eco Acquisition") in February 2021 expands our range of product offerings in our major market of southeast Florida. We also have sales of products that are designed to unify indoor and outdoor living spaces, through our Western Windows Systems’ (“WWS”) division, and most of its sales are in the western United States. Our acquisitions of Anlin Windows and Doors ("Anlin") in October 2021 and Martin Door Holdings, Inc. ("Martin") in October 2022 expanded our presence in the west. The acquisition of Martin, which produces residential and commercial garage doors, expands the Company into building products adjacent to its portfolio of window and door brands. Products are sold primarily through an authorized dealer and distributor network. We began selling window and door products in the direct-to-consumer channel, a “factory-direct” sales model, through our acquisition of NewSouth Windows Solutions ("NewSouth") in February 2020. We were incorporated in the state of Delaware on December 16, 2003, as JLL Window Holdings, Inc. On February 15, 2006, our Company was renamed PGT, Inc. On 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 and began trading on the NYSE under the ticker symbol of “PGTI”. We are headquartered in North Venice, Florida, where we have manufacturing operations, as well as two glass tempering and laminating plants and one insulated glass plant. We also have Florida-based manufacturing operations in Ft. Myers, Tampa, and the greater Miami area. Outside of Florida, we have manufacturing operations in Arizona, California and, more recently, Utah, with the acquisition of Martin. All references to PGTI or our Company apply to the consolidated financial statements of PGT Innovations, Inc. unless otherwise noted. Basis of Presentation These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Our condensed consolidated financial statements are unaudited; however, 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 periods are not necessarily indicative of the results that may be expected for the remainder of the current year or for any future periods. The Company’s fiscal three and nine months ended September 30, 2023 and October 1, 2022 consisted of 13 and 39 weeks, respectively. The condensed consolidated balance sheet as of December 31, 2022, 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 31, 2022, and the unaudited condensed consolidated financial statements as of and for the periods ended September 30, 2023, and October 1, 2022, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2022, included in the Company’s most recent Annual Report on Form 10-K. The accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. We have two reportable segments: the Southeast segment and the Western segment. The Southeast reporting segment, which is also an operating segment, is composed of sales from our facilities in Florida. The Western reporting segment, also an operating segment, is composed of sales from our facilities in Arizona, Utah and California. See Note 15 for segment disclosures. |
Revenue Recognition and Contracts with Customers |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition and Contracts with Customers | NOTE 2. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS Disaggregation of Revenue from Contracts with Customers As discussed in Note 1, we have two reportable segments: our Southeast segment and our Western segment. The following table provides information about our net sales by reporting segment, product category and market for the three and nine months ended September 30, 2023 and October 1, 2022:
The Company’s Western segment includes both custom and volume products. This segment’s volume products are not made-to-order and are of standardized sizes and design specifications. Therefore, the Company’s assessment is that the Western segment’s volume products have alternative uses, and that control of these products passes to the customer at a point in time, which is typically when the product has been delivered to the customer. For the three months ended September 30, 2023 and October 1, 2022, the Western segment’s net sales of its volume products were $20.9 million and $26.6 million, respectively. For the nine months ended September 30, 2023 and October 1, 2022, the Western segment’s net sales of its volume products were $61.7 million and $82.6 million, respectively.
Contract Balances Contract assets represent sales recognized in excess of billings related to finished goods not yet shipped and certain unused glass components not yet placed into the production process for which revenue is recognized over time. Contract liabilities relate to customer deposits at the end of reporting periods. At September 30, 2023 and December 31, 2022, those contract liabilities totaled $27.0 million and $39.1 million, respectively, of which $20.7 million and $33.4 million, respectively, are classified within accrued liabilities, and $6.3 million and $5.7 million, respectively, are classified as a reduction to the contract assets to which they relate. Contract assets, net, totaled $53.9 million at September 30, 2023 and $47.9 million at December 31, 2022, in the accompanying condensed consolidated balance sheets. 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 31, 2022 were satisfied in the first quarter of 2023, and contract assets at December 31, 2022 were transferred to accounts receivable in the first quarter of 2023. Also, substantially all of the contract liabilities at September 30, 2023 will be satisfied in the fourth quarter of 2023, and contract assets at September 30, 2023 will be transferred to accounts receivable in the fourth quarter of 2023. Contract liabilities at September 30, 2023 represents cash received during the three-month period ended September 30, 2023, excluding amounts recognized as revenue during that period. Contract assets at September 30, 2023 represents revenue recognized during the three-month period ended September 30, 2023, excluding amounts transferred to accounts receivable during that period. Contract liabilities at December 31, 2022 represents cash received during the three-month period ended December 31, 2022, excluding amounts recognized as revenue during that period. Contract assets at December 31, 2022 represents revenue recognized during the three-month period ended December 31, 2022, excluding amounts transferred to accounts receivable during that period.
Allowance for Credit Losses We measure all expected credit losses for financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. 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 credit losses which is based on management’s assessments of the amount which may become uncollectible in the future and is determined through consideration of our write-off history, specific identification of uncollectible accounts based in part on the customer’s past due balance (based on contractual terms), and consideration of prevailing economic and industry conditions, and may include anticipated unfavorable impacts of current macro-economic conditions on the businesses of our customers, such as dealers and distributors. As of September 30, 2023 and December 31, 2022, we had gross accounts receivable of $163.8 million and $173.8 million, respectively, and an allowance for credit losses of $14.5 million and $13.7 million, respectively. |
Warranty |
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Guarantees and Product Warranties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warranty | NOTE 3. WARRANTY Most of our manufactured products are sold with warranties. Warranty periods, which vary by product components, generally range from 1 to 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 1 to 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 30, 2023, we recorded warranty expense at a rate of approximately 2.5% of sales, which was higher than the rate during the three months ended October 1, 2022 of 1.8% of sales. The increase in the warranty expense rate in the three months ended September 30, 2023, compared with the rate during the three months ended October 1, 2022, is a result of servicing a higher number of overall warranty claims in the third quarter of 2023, resulting in a higher level of service warranty expense, whereas the rate in the third quarter of 2022 was lower on average as there was a decrease in the use of higher-cost contract labor. During the nine months ended September 30, 2023, we recorded warranty expense at a rate of approximately 2.3% of sales, which was slightly higher than the rate during the nine months ended October 1, 2022 of 2.0% of sales. The following table summarizes current period charges, adjustments to previous estimates, as well as settlements, which represent actual costs incurred during the period for the three and nine months ended September 30, 2023 and October 1, 2022. The reserve is determined through assessing our claims history. Of the accrued warranty reserve of $16.0 million at September 30, 2023, $12.5 million is classified within accrued expenses as current liabilities on the condensed consolidated balance sheet at September 30, 2023, with the remainder classified within other liabilities as non-current liabilities. Of the accrued warranty reserve of $15.4 million at December 31, 2022, $12.4 million is classified within accrued expenses as current liabilities on the condensed consolidated balance sheet at December 31, 2022, with the remainder classified within other liabilities as non-current liabilities.
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Inventories |
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Inventories | 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. Inventories consisted of the following:
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Stock Based Compensation |
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Share-Based Payment Arrangement [Abstract] | |
Stock Based Compensation | NOTE 5. STOCK BASED-COMPENSATION Stock-Based 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 $3.1 million for the three months ended September 30, 2023, of which $2.7 million is classified within selling, general and administrative expenses, and $2.7 million for the three months ended October 1, 2022, of which $2.3 million is classified within selling, general and administrative expenses. We recorded compensation expense for stock-based awards of $9.1 million for the nine months ended September 30, 2023, of which $7.8 million is classified within selling, general and administrative expenses, and $7.6 million for the nine months ended October 1, 2022, of which $6.6 million is classified within selling, general and administrative expenses. Portions of stock compensation expense not classified within selling, general and administrative expenses are classified within cost of sales. As of September 30, 2023, there was $22.6 million in total unrecognized compensation cost related entirely to restricted share awards, including time-vesting and those with performance conditions. These costs are expected to be recognized in earnings on an accelerated basis over the weighted average remaining vesting period of 2.2 years at September 30, 2023.
All-Employee Grant
On September 1, 2023, we issued 347,475 shares of restricted stock to all employees of the Company (the "All-Employee Grant") who do not participate in the Company’s long-term incentive plan. These shares are not subject to adjustment based on any performance or other criteria, but rather, cliff-vest on September 1, 2026, the third anniversary of the grant date, assuming the grantee is employed by the Company on that date. Employees were granted an amount of shares based on their years-of-service as of September 1, 2023, which included 50 shares to those employees who reached at least their one-year anniversary, 75 shares to those who reached at least their two-year anniversary, and 100 shares to those who reached at least their five-year anniversary. Any employee who had not yet reached their one-year anniversary as of September 1, 2023, will be eligible to receive a grant of 50 shares in a second grant to be made on September 1, 2024. The grant date fair value of the All-Employee Grant was $28.19 per share. |
Acquisition |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition | NOTE 6. ACQUISITION MARTIN DOORS On October 14, 2022, we completed the acquisition of the Martin Doors brand. The acquisition was done by WWS Acquisition, LLC, a Missouri limited liability company, indirectly wholly-owned by PGT Innovations, Inc., which acquired all of the shares of stock of Martin Door Holdings, Inc., a Utah corporation, headquartered in Salt Lake City, Utah, a custom manufacturer of overhead garage doors and hardware serving the Western U.S. (the "Martin Acquisition"), pursuant to that certain Share Purchase Agreement dated as of October 14, 2022 (the “Martin Purchase Agreement”). The fair value of consideration transferred in the Martin Acquisition was $188.5 million, composed entirely of cash, including $185.0 million for purchase price and $3.5 million in working capital adjustments, of which $2.8 million was estimated and paid at closing, and approximately $0.7 million was paid in the first quarter of 2023 upon finalization of the net working capital calculation. The cash portion of the Martin Acquisition was financed with borrowings under the revolving credit facility ("New Revolving Credit Facility") established under fifth amendment ("Fifth Amendment") to the 2016 Credit Agreement ("2016 Credit Agreement due 2027") of $98.4 million, with the remaining $90.1 million, which includes the approximately $0.7 million final net working capital adjustment paid in the first quarter of 2023, funded with cash on hand. Generally, cash on hand for the Martin Acquisition was provided by cash generated through operations.
Purchase Price Allocation The preliminary estimated fair value of assets acquired, liabilities assumed and subsequent adjustments to that allocation as of our reporting date, are as follows:
The fair value of certain working capital related items, including Martin’s accounts receivable, prepaid expenses and other assets, and accounts payable and accrued and other liabilities, approximated their book values at the date of the Martin Acquisition. The fair value of inventory was estimated by major category, at net realizable value, which we believe approximates the price a market participant could achieve in a current sale. The substantial majority of inventories at the acquisition date was comprised of raw materials. The fair value of property and equipment and remaining useful lives were estimated by management, with the assistance of a third-party valuation firm, using the cost approach. Valuations of the intangible assets were done using income and royalty relief approaches based on projections provided by management, which we consider to be Level 3 inputs, with the assistance of a third-party valuation firm. During the nine months of 2023, we made immaterial adjustments to our purchase allocation relating to accounts receivable, inventories, property and equipment, and accrued and other liabilities. We incurred acquisition costs totaling $4.8 million relating to legal expenses, representations and warranties insurance, diligence, accounting and other services in the Martin Acquisition in the year ended December 31, 2022. Because the Martin Acquisition was an acquisition of stock, Martin's assets and liabilities retain their tax bases at the time of the acquisition. Therefore, none of the identifiable intangible assets or goodwill acquired in the Martin Acquisition are deductible for tax purposes. As of September 30, 2023, goodwill is estimated to be $92.5 million. Martin's goodwill is included as part of the Western reporting unit. We believe Martin's goodwill relates to the expansion of our footprint in a key, strategic market we have identified as a geographic area of growth for our Company, as well as being a key component of our strategy to expand into adjacent building material products, other than windows and doors. Pro forma results of operations, as well as net sales and income attributable to the Martin Acquisition are not presented as it did not have a material impact on our results of operations.
Valuation of Identified Intangible Assets The valuation of the identifiable intangible assets acquired in the Martin Acquisition and our estimate of their respective useful lives are as follows:
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Net Income Per Common Share |
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Net Income Per Common Share | NOTE 7. NET INCOME PER COMMON SHARE Basic earnings per share (“EPS”) attributable to PGT Innovations, Inc. common stockholders for the nine months ended September 30, 2023, and the three and nine months ended October 1, 2022, is computed using the two-class method by dividing net income attributable to common shareholders, after deducting the redemption adjustment related to the redeemable noncontrolling interest, by the average number of common shares outstanding during the period. Diluted EPS attributable to PGT Innovations, Inc. common stockholders for the nine months ended September 30, 2023, and the three and nine months ended October 1, 2022, is computed using the two-class method by dividing net income attributable to common shareholders, after deducting the redemption adjustment related to the redeemable noncontrolling interest, by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period. Basic EPS for the three months ended September 30, 2023, is computed by dividing net income attributable to common shareholders by the average number of common shares outstanding during the period. Diluted EPS for the three months ended September 30, 2023, is computed by dividing net income attributable to common shareholders by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period. Anti-dilutive securities excluded from the calculation of weighted average shares outstanding for the three and nine months ended September 30, 2023 and October 1, 2022 were insignificant. The table below presents the calculation of EPS and a reconciliation of weighted average common shares used in the calculation of basic and diluted EPS:
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets | NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and intangible assets are as follows:
Estimated amortization of our amortizable intangible assets for future years is as follows:
Amortization expense relating to amortizable intangible assets for the three months ended September 30, 2023 and October 1, 2022, was $6.5 million and $5.8 million, respectively. Amortization expense relating to amortizable intangible assets for the nine months ended September 30, 2023 and October 1, 2022, was $19.8 million and $19.7 million, respectively.
We perform our annual goodwill and indefinite-lived intangible asset impairment testing as of the first day of our fiscal fourth quarter of each year, and at interim periods if needed based on occurrence of triggering events. During the three and nine months ended September 30, 2023, we did not identify any events which we believe would trigger the need for tests for impairments of our indefinite-lived intangibles assets prior to our annual assessment date. However, in 2023, we have experienced challenging macro-economic conditions in the markets for our products of our Western segment. Although experiencing some improvement in the third quarter of 2023, should these conditions persist, when combined with potential increases in discount rates due to the rising interest rate environment in 2023, no assurances can be given that any future tests for impairment will indicate that it is more likely than not that the fair values of our indefinite-lived intangible assets will exceed their carrying values for the remainder of 2023.
As of September 30, 2023 and December 31, 2022, the carrying value of our Southeast reporting unit goodwill is $228.3 million and $228.3 million, respectively. As of September 30, 2023 and December 31, 2022, the carrying value of our Western reporting unit goodwill is $234.3 million and $232.1 million, respectively. |
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Long-Term Debt | NOTE 9. LONG-TERM DEBT
2021 Senior Notes due 2029 On September 24, 2021, we completed the issuance of $575.0 million aggregate principal amount of 4.375% senior notes (“2021 Senior Notes due 2029”), issued at 100% of their principal amount. The 2021 Senior Notes due 2029 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 2021 Senior Notes due 2029 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 2021 Senior Notes due 2029 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 2021 Senior Notes due 2029 mature on October 1, 2029. Interest on the 2021 Senior Notes due 2029 is payable semi-annually, in arrears, which began on April 1, 2022, with interest accruing at a rate of 4.375% per annum from September 24, 2021. We incurred financing costs relating to bank fees and professional services costs relating to the offering and issuance of the 2021 Senior Notes due 2029 totaling $8.7 million, which included a 1.25% lender spread on the total principal value of the 2021 Senior Notes due 2029, or $7.2 million, and $1.5 million of other costs, all of which are being amortized under the effective interest method. As of September 30, 2023, the face value of debt outstanding under the 2021 Senior Notes due 2029 was $575.0 million, and accrued interest was $12.6 million. Proceeds from the 2021 Senior Notes due 2029 were used, in part, to redeem in full the $425.0 million of 2018 Senior Notes due 2026, including the related fees, costs, and the prepayment call premium of $21.5 million, representing 5.063% of the $425.0 million face value then outstanding, prepay the outstanding term loan borrowings under the then existing 2016 Credit Agreement of $60.0 million and the related fees and costs, and finance our acquisition of Anlin (the "Anlin Acquisition") in the fourth quarter of 2021. The indenture for the 2021 Senior Notes due 2029 gives us the option to redeem some or all of the 2021 Senior Notes due 2029 at the redemption prices and on the terms specified in the indenture governing the 2021 Senior Notes due 2029. The indenture governing the 2021 Senior Notes due 2029 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. We also may make optional redemptions at various premiums including a make-whole call at the then current treasury rate plus 50 basis points prior to October 1, 2024, then 102.188% on or after August 1, 2024, 101.094% on or after August 2025, then at 100.000% on or after August 1, 2026. The indenture for the 2021 Senior Notes due 2029 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 2027 On February 16, 2016, we entered into the 2016 Credit Agreement. From 2016 to 2022, we entered into various amendments to the 2016 Credit Agreement, including the amendment in October 2022, as described below. On October 13, 2022, the Company entered into the Fifth Amendment of the 2016 Credit Agreement due 2027. The Fifth Amendment provides for, among other things, the New Revolving Credit Facility, which is a new five-year revolving credit facility in an aggregate principal amount of $250.0 million. The New Revolving Credit Facility refinances and replaces the previously existing $80.0 million revolving credit facility under the 2016 Credit Agreement due 2027. The Company’s obligations under the 2016 Credit Agreement due 2027 continue to be secured by substantially all of its and its direct and indirect subsidiaries’ assets, and is senior in position to the 2021 Senior Notes due 2029. Contemporaneously with the Fifth Amendment, the Company drew down $160.0 million of funds available under the New Revolving Credit Facility. Proceeds totaling $61.6 million from the $160.0 million drawdown were used to repay then existing term loan borrowings under the 2016 Credit Agreement totaling $60.0 million, plus accrued interest and fees totaling $1.6 million. As discussed below, the remaining $98.4 million of proceeds were used to fund the cash portion of the Martin Acquisition. The Company has made net repayments of the $160.0 million of initial borrowings under the New Revolving Credit Facility totaling $95.0 million through September 30, 2023. Interest on borrowings under the New Revolving Credit Facility is payable either quarterly or at the expiration of any Secured Overnight Financing Rate ("SOFR") interest period applicable thereto. Borrowings under the New Revolving Credit Facility accrue interest at a rate equal to, at our option, a base rate (with a floor of 100 basis points) plus a percentage spread (ranging from 0.75% to 1.75%) based on our first lien net leverage ratio or SOFR (with a floor of 0 basis points) plus a percentage spread (ranging from 1.75% to 2.75%) based on our first lien net leverage ratio. After giving effect to the Fifth Amendment, we pay a quarterly commitment fee on the unused portion of the New Revolving Credit Facility equal to a percentage spread (ranging from 0.25% to 0.35%) based on our first lien net leverage ratio. The Fifth Amendment also modifies the application of the financial covenant under the 2016 Credit Agreement such that testing will occur on a quarterly basis, and requires we maintain a first lien net leverage ratio of not more than 4.00 to 1.00. We were in compliance with this covenant as of September 30, 2023. The 2016 Credit Agreement due 2027 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) sell or otherwise dispose of assets; (iv) enter into transactions with affiliates; (v) create or incur liens; (vi) 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; (viii) make investments and (ix) designate the Company’s subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications. As of September 30, 2023, borrowings outstanding under the $250.0 million New Revolving Credit Facility totaled $65.0 million, and accrued interest was $252 thousand. There were $8.5 million in letters of credit outstanding. Availability under the New Revolving Credit Facility at September 30, 2023 totaled $176.5 million. The weighted average all-in interest rate for borrowings under the existing revolving credit facility of the 2016 Credit Agreement due 2027 was 7.01% at September 30, 2023, and 6.07% at December 31, 2022. The Martin Acquisition was financed in part with the $250.0 million available under the New Revolving Credit Facility provided by the Fifth Amendment of our 2016 Credit Agreement due 2027, under which we drew $160.0 million on October 14, 2022, the proceeds of which were used to pay $98.4 million of the $187.8 million total fair value of consideration transferred at closing, and $61.6 million to prepay our $60.0 million existing term loans under the Fourth Amendment of our 2016 Credit Agreement due 2027, plus $1.6 million in fees, costs and accrued interest. The remainder of the total fair value of consideration transferred at closing, totaling $89.4 million, was funded with cash on hand previously generated through operations. Deferred Financing Costs Activity relating to deferred financing costs, which is classified as a reduction of the carrying value of long-term debt, for the nine months ended September 30, 2023, is as follows:
Estimated amortization expense relating to deferred financing costs for the years indicated as of September 30, 2023, is as follows:
The contractual future maturities of long-term debt outstanding, as of September 30, 2023, are as follows (at face value):
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |
Commitments And Contingencies | NOTE 10. COMMITMENTS AND CONTINGENCIES Legal Proceedings 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. |
Income Taxes |
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Sep. 30, 2023 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | NOTE 11. INCOME TAXES The income tax provision for interim periods is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items. We estimate the annual effective tax rate quarterly based on the forecasted annual pre-tax results of our operations. The tax effects of items that are unrelated to current year ordinary income are recognized entirely as discrete items in the period identified, including share-based compensation, changes in tax laws and adjustments to the actual liability determined upon filing tax returns. We had income tax expense of $13.7 million for the three months ended September 30, 2023, compared with income tax expense of $10.1 million for the three months ended October 1, 2022. Our effective tax rate for the three months ended September 30, 2023, was 25.9%, compared with 24.9% for the three months ended October 1, 2022. We had income tax expense of $36.4 million for the nine months ended September 30, 2023, compared with income tax expense of $29.9 million for the nine months ended October 1, 2022. Our effective tax rate for the nine months ended September 30, 2023, was 25.7%, compared with 24.8% for the nine months ended October 1, 2022. Our income tax expense for the five months ended May 26, 2023, the date we acquired the 25% share of Eco we previously did not own, and the nine months ended October 1, 2022, includes income tax expenses of $0.9 million and $1.0 million, respectively, relating to our 75% share of the pre-tax earnings of Eco. Income tax expense in the three and nine months ended September 30, 2023, and October 1, 2022, includes discrete items of income tax expense relating to excess taxes from the lapses of restrictions on stock awards and adjustments to tax expense relating to research credit true-ups we made during the third quarter of each period. Income tax expense in the nine months ended October 1, 2022 also includes a refund from the state of Florida, received by the Company in the second quarter of 2022, relating to excess taxes received by the state in 2021, which was $584 thousand, benefiting tax expense by $462 thousand, net of its Federal tax effect. Excluding discrete items of income tax, the effective tax rates for the three months ended September 30, 2023 and October 1, 2022, would have been an income tax expense rate of 26.7% and 26.2%, respectively. Excluding discrete items of income tax, the effective tax rates for the nine months ended September 30, 2023 and October 1, 2022, would have been an income tax expense rate of 26.2% and 25.7%, respectively. During the first nine months of 2023, we made payments of estimated taxes totaling $39.7 million. During the first nine months of 2022, we made payments of estimated taxes, net of refunds, totaling $20.9 million. |
Fair Value |
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Fair Value | NOTE 12. 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 30, 2023 or October 1, 2022, we did not make any transfers between Level 2 and Level 3 financial assets. We conduct reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure. Fair Value of Financial Instruments Our financial instruments include cash and cash equivalents, accounts and notes receivable, and accounts payable and accrued liabilities, whose carrying amounts approximate their fair values due to their short-term nature. Our financial instruments also include borrowings under the 2016 Credit Agreement due 2027, as well as the 2021 Senior Notes due 2029, all classified as long-term debt. The fair value of borrowings under the 2016 Credit Agreement due 2027 approximated its carrying value due to its variable-rate nature, and were approximately $65.0 million and $76.4 million as of September 30, 2023, and December 31, 2022, respectively. The fair value of the 2021 Senior Notes due 2029 is based on debt with similar terms and characteristics and was approximately $531.9 million as of September 30, 2023, compared to a principal outstanding value of $575.0 million, and the fair value was approximately $480.8 million as of December 31, 2022, compared to a principal outstanding value of $575.0 million. Items Measured at Fair Value The following are measured in the condensed consolidated financial statements at fair value on a recurring basis and are categorized in the table below based upon the lowest level of significant input to the valuation (in thousands):
See Note 13 for a description of the methods and assumptions used in the determination of the fair values of our aluminum forward and Midwest Transaction Premium (“MTP”) contracts, as well as the basis for classifying these assets and liabilities as Level 2. |
Derivatives |
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Derivatives | NOTE 13. DERIVATIVES Aluminum Contracts and Midwest Transaction Premium We enter into aluminum forward contracts to hedge the fluctuations in the purchase price of aluminum extrusion we use in production, and to hedge the fluctuations in the price of the delivery component of our aluminum extrusion purchases, known as the Midwest Transaction Premium, or MTP. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted purchases of aluminum and the related MTP. We record our aluminum hedge contracts at fair value, based on trading values for aluminum forward contracts. Aluminum forward contracts identical to those held by us trade on the London Metal Exchange (“LME”). The LME provides a transparent forum and is the world’s largest center for the trading of futures contracts for non-ferrous metals. The prices are used by the metals industry worldwide as the basis for contracts for the movement of physical material throughout the production cycle. Based on this high degree of volume and liquidity in the LME, we believe the valuation price at any measurement date for contracts with identical terms as to prompt date, trade date and trade price as those we hold at any time represents a contract’s exit price to be used for purposes of determining fair value.
We record our MTP hedge contracts at fair value, based on the Platts MW US Transaction price per pound assessment, which has been a benchmark for decades in the North American aluminum industry. Platts surveys the North American market daily to capture trades, bids and offers on a delivered Midwest basis. Data is normalized to reflect the typical price per pound between the largest number of market participants, for delivery within 7 to 30 days from date of publication, net-30-day payment terms, for typical order quantities, chemistries and freight allowances. The survey is extensive and encompasses both domestic and offshore producers, traders and brokers that are varied in scope. Based on the extensive nature of this pricing mechanism, we believe the Platts MW US Transaction price at any time represents a contract’s exit price to be used for purposes of determining fair value. Guidance under the Financial Instruments Topic 825 of the Codification requires us to record our hedge contracts at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings. We assess our risk of non-performance when measuring the fair value of our financial instruments in a liability position by evaluating our credit ratings, our current liquidity including cash on hand and availability under our revolving credit facility as compared to the maturities of the financial liabilities. We do not offset the estimated fair value amounts recognized for derivatives executed with the same counterparty under the same master netting arrangement. At September 30, 2023, the fair value of our aluminum forward contracts was in an asset position of $0.4 million. We had 18 outstanding forward contracts for the purchase of 13.2 million pounds of aluminum through June 2024, at an average price of $1.04 per pound, which excludes the Midwest premium, with maturity dates of between one month and nine months. At September 30, 2023, the fair value of our MTP contracts was de minimis. We had 1 outstanding MTP contract to hedge the Platts US MW Transaction price per pound for the delivery of 2.5 million pounds of aluminum through December 2023, at an average price of $0.21 per pound, with a maturity date of three months. We assessed the risk of non-performance of the Company and our counterparty to these contracts, as applicable, and determined it was immaterial and, therefore, did not record any adjustment to their fair values as of September 30, 2023. We assess the effectiveness of our aluminum forward and MTP 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 income and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. We expect the amount of accumulated other comprehensive income of approximately $0.4 million in the accompanying condensed consolidated balance sheet as of September 30, 2023, to be reclassified to earnings within the next twelve months. The fair values of our aluminum hedges and MTP contracts are classified in the accompanying condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, as follows (in thousands):
The ending accumulated balance for the aluminum forward and MTP contracts included in accumulated other comprehensive income, net of tax, was an accumulated other comprehensive income of $0.3 million as of September 30, 2023, and was an accumulated other comprehensive income of $0.2 million at December 31, 2022. The income tax effects of accumulated comprehensive income are released as amounts are reclassified out of accumulated comprehensive income at the income tax rate used at the time those income tax effects were provided, which generally represents our blended statutory income tax rate. The 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 30, 2023 and October 1, 2022 (in thousands):
We classify cash flows related to derivative instruments as operating activities in the condensed consolidated statements of cash flows. |
Accumulated Other Comprehensive Income |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income | NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME The following table shows the components of accumulated other comprehensive income for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):
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Segments |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segments | NOTE 15. SEGMENTS We have two reportable segments: the Southeast segment and the Western segment. The Southeast reporting segment, which is also an operating segment, is composed of sales from our facilities in Florida. The Western reporting segment, also an operating segment, is composed of sales from our facilities in Arizona, Utah and California. Centralized financial and operational oversight, including resource allocation and assessment of performance on an income 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. The following table represents summary financial data attributable to our operating segments for the three and nine months ended September 30, 2023, and October 1, 2022. Results of the Western segment for the three and nine months ended September 30, 2023 include the results of Martin, acquired October 14, 2022, whereas such results are not included for the three and nine month ended October 1, 2022. Corporate overhead has been allocated to each segment using an allocation method we believe is reasonable (in thousands):
(1) For the nine months ended September 30, 2023, restructuring costs and charges, net, totaling $1.7 million relates to the Southeast segment income from operations, which includes a gain of $0.8 million in the three months ended September 30, 2023 relating to the forgiveness of a portion of the operating lease liability by the landlord of the Charlotte, NC location, which we satisfied in the third quarter of 2023. See Note 18 for additional information.
Depreciation expense for the three months ended September 30, 2023 and October 1, 2022, was $6.9 million and $6.7 million for our Southeast segment, respectively, and $1.9 million and $1.6 million for our Western segment, respectively. Depreciation expense for the nine months ended September 30, 2023 and October 1, 2022, was $20.6 million and $20.6 million for our Southeast segment, respectively, and $6.0 million and $4.7 million for our Western segment, respectively. Amortization expense for the three months ended September 30, 2023 and October 1, 2022, was $2.0 million, and $2.7 million for our Southeast segment, respectively, and $4.5 million and $3.1 million for our Western segment, respectively. Amortization expense for the nine months ended September 30, 2023 and October 1, 2022, was $6.0 million, and $8.1 million for our Southeast segment, respectively, and $13.8 million and $11.6 million for our Western segment, respectively. Total assets of our Southeast segment as of September 30, 2023 and December 31, 2022 were $908.3 million and $909.6 million, respectively. Total assets of our Western segment as of September 30, 2023 and December 31, 2022 were $700.4 million and $730.6 million, respectively. |
Reedemable Non-Controlling Interest |
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Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reedemable Non-Controlling Interest | NOTE 16. REEDEMABLE NON-CONTROLLING INTEREST On February 1, 2021, we completed an acquisition of a 75% ownership stake in Eco. The seller of Eco obtained the remaining equity interest in the newly formed company, Eco Enterprises. The seller’s redeemable non-controlling interest ("RNCI") was initially established at fair value.
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Shareholders' Equity |
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Sep. 30, 2023 | |
Equity [Abstract] | |
Shareholders' Equity | NOTE 17. SHAREHOLDERS' EQUITY 2023 Share Repurchase Program On February 7, 2023, the Company announced that its Board of Directors approved a new, share repurchase program which authorizes the Company to purchase up to $250.0 million of its common stock. This program permits the Company to purchase shares of its common stock from time to time through open-market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. During the nine months ended September 30, 2023, we repurchased a total of 3,040,280 shares under this program at a total cost of $75.1 million, which excludes the 1% excise tax imposed on corporate stock buy-backs by the Inflation Reduction Act of 2022. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The share repurchase program had an initial term of 3 years, through February 3, 2026, and may be suspended or discontinued at any time, and does not obligate the company to acquire any amount of common stock. Shareholder Rights Plan On March 30, 2023, we announced that our Board of Directors had unanimously approved the adoption of a limited-duration shareholder rights plan (the “Rights Plan”) which includes the declaration of a dividend distribution of one right (each, a “Right”) for each outstanding share of the Company’s common stock to stockholders of record as of the close of business on April 10, 2023. Each Right entitles the registered holder to purchase from the Company 0.001 of a share of Series A Participating Preferred Stock, par value $0.01 per share, of the Company at an exercise price of $90.00, subject to adjustment. The complete terms of the Rights are set forth in a Rights Agreement, dated as of March 30, 2023, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (the "Rights Agreement"). The Rights expire on the earliest of (1) March 30, 2024, unless such date is extended, or (2) the redemption or exchange of the Rights as described above. The Board adopted the Rights Plan in response to a likely accumulation of the Company's shares by a strategic investor. The intent of the Rights Plan is to reduce the likelihood that any entity, person or group gains control of the Company through open market accumulation of the Company's shares without paying all other shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that it believes are in the best interests of its other shareholders. Under the Rights Plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of 10% or more of the Company's outstanding common stock in a transaction not approved by the Board. In the event that the Rights become exercisable due to the triggering ownership threshold being crossed, each Right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose Rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the Right. |
Restructuring Costs and Charges,, Net |
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Sep. 30, 2023 | |
Restructuring Charges [Abstract] | |
Restructuring Costs and Charges, Net | NOTE 18. RESTRUCTURING COSTS AND CHARGES, NET During the second quarter of 2023, the Company’s management approved a plan to exit the North Carolina market relating to its NewSouth brand. As a result of this decision, the Company determined to close its NewSouth showrooms in Raleigh-Durham and Charlotte, North Carolina, which resulted in restructuring costs and charges, net, totaling $1.7 million in the nine months ended September 30, 2023, which includes a gain of $0.8 million in the three months ended September 30, 2023 relating to the forgiveness of a portion of the operating lease liability by the landlord of the Charlotte, NC location, which we satisfied in the third quarter of 2023. Of the $1.7 million, after consideration of the lease liability forgiveness, restructuring costs and charges, net, includes $2.0 million of total impairments of the right-of-use assets of the leases of the Raleigh-Durham and Charlotte, North Carolina showroom facilities, and $0.4 relating to write-offs of the related leasehold improvements. The remainder represents personnel-related costs, which were paid by the end of the 2023 second quarter. |
Description of Business and Basis of Presentation (Policies) |
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Sep. 30, 2023 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Our condensed consolidated financial statements are unaudited; however, 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 periods are not necessarily indicative of the results that may be expected for the remainder of the current year or for any future periods. The Company’s fiscal three and nine months ended September 30, 2023 and October 1, 2022 consisted of 13 and 39 weeks, respectively. The condensed consolidated balance sheet as of December 31, 2022, 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 31, 2022, and the unaudited condensed consolidated financial statements as of and for the periods ended September 30, 2023, and October 1, 2022, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2022, included in the Company’s most recent Annual Report on Form 10-K. The accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. We have two reportable segments: the Southeast segment and the Western segment. The Southeast reporting segment, which is also an operating segment, is composed of sales from our facilities in Florida. The Western reporting segment, also an operating segment, is composed of sales from our facilities in Arizona, Utah and California. See Note 15 for segment disclosures. |
Revenue Recognition and Contracts with Customers (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales by Reporting Segment, Product Category and Market | The following table provides information about our net sales by reporting segment, product category and market for the three and nine months ended September 30, 2023 and October 1, 2022:
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Warranty (Tables) |
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Summary of Current Period Charges, Adjustments to Previous Estimates, Settlements representing Actual Costs Incurred with regard to Accrued Warranty | The following table summarizes current period charges, adjustments to previous estimates, as well as settlements, which represent actual costs incurred during the period for the three and nine months ended September 30, 2023 and October 1, 2022.
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Inventories (Tables) |
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Summary of Inventories | Inventories consisted of the following:
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Acquisition (Tables) |
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Schedule of Fair Value of Assets and Liabilities Assumed | :
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Schedule for Valuation of Identifiable Intangible Assets Acquired and Estimate of Useful Lives | The valuation of the identifiable intangible assets acquired in the Martin Acquisition and our estimate of their respective useful lives are as follows:
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Net Income Per Common Share (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Calculation of EPS and Reconciliation of Weighted Average Common Shares Used in Calculation of Basic and Diluted EPS | The table below presents the calculation of EPS and a reconciliation of weighted average common shares used in the calculation of basic and diluted EPS:
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Goodwill and Other Intangible Assets (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Goodwill and Intangible Assets Net | Goodwill and intangible assets are as follows:
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Estimated Amortization for Future Fiscal Year | Estimated amortization of our amortizable intangible assets for future years is as follows:
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Long-Term Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt |
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Activity Relating to Deferred Financing Costs | Activity relating to deferred financing costs, which is classified as a reduction of the carrying value of long-term debt, for the nine months ended September 30, 2023, is as follows:
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Estimated Amortization Expense Relating to Deferred Financing Costs | Estimated amortization expense relating to deferred financing costs for the years indicated as of September 30, 2023, is as follows:
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Contractual Future Maturities of Long-Term Debt | The contractual future maturities of long-term debt outstanding, as of September 30, 2023, are as follows (at face value):
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Fair Value (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value on Recurring Basis | The following are measured in the condensed consolidated financial statements at fair value on a recurring basis and are categorized in the table below based upon the lowest level of significant input to the valuation (in thousands):
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Derivatives (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Fair Value of Hedges | The fair values of our aluminum hedges and MTP contracts are classified in the accompanying condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, as follows (in thousands):
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Gains (Losses) on Derivative Financial Instruments | The 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 30, 2023 and October 1, 2022 (in thousands):
We classify cash flows related to derivative instruments as operating activities in the condensed consolidated statements of cash flows. |
Accumulated Other Comprehensive Income (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Accumulated Other Comprehensive Income | The following table shows the components of accumulated other comprehensive income for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):
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Segments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Financial Data Attributable to Operating Segments | The following table represents summary financial data attributable to our operating segments for the three and nine months ended September 30, 2023, and October 1, 2022. Results of the Western segment for the three and nine months ended September 30, 2023 include the results of Martin, acquired October 14, 2022, whereas such results are not included for the three and nine month ended October 1, 2022. Corporate overhead has been allocated to each segment using an allocation method we believe is reasonable (in thousands):
(1) For the nine months ended September 30, 2023, restructuring costs and charges, net, totaling $1.7 million relates to the Southeast segment income from operations, which includes a gain of $0.8 million in the three months ended September 30, 2023 relating to the forgiveness of a portion of the operating lease liability by the landlord of the Charlotte, NC location, which we satisfied in the third quarter of 2023. See Note 18 for additional information. |
Reedemable Non-Controlling Interest (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Changes in Redeemable Non-Controlling Interest | The following table presents the changes in the Company’s redeemable non-controlling interest for the nine months ended September 30, 2023, and October 1, 2022:
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Description of Business and Basis of Presentation - Additional Information (Detail) |
9 Months Ended |
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Sep. 30, 2023
Plant
Segment
| |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Number of reportable segments | Segment | 2 |
Glass Tempering and Laminating Plant [Member] | North Venice [Member] | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Number of plants | 2 |
Insulation Glass Plants [Member] | North Venice [Member] | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Number of plants | 1 |
Revenue Recognition and Contracts with Customers - Net Sales by Reporting Segment, Product Category and Market (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Disaggregation Of Revenue [Line Items] | ||||
Net sales | $ 399,931 | $ 385,837 | $ 1,161,694 | $ 1,151,020 |
Southeast Segment [Member] | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net sales | 302,942 | 288,246 | 872,964 | 867,505 |
Western Segment [Member] | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net sales | 96,989 | 97,591 | 288,730 | 283,515 |
Impact-Resistant [Member] | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net sales | 251,800 | 227,700 | 716,600 | 688,500 |
Nonimpact-Resistant [Member] | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net sales | 148,100 | 158,100 | 445,100 | 462,500 |
New Construction [Member] | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net sales | 149,900 | 160,900 | 453,800 | 484,300 |
Repair and Remodel [Member] | ||||
Disaggregation Of Revenue [Line Items] | ||||
Net sales | $ 250,000 | $ 224,900 | $ 707,900 | $ 666,700 |
Warranty - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
Dec. 31, 2022 |
|
Product Warranty Liability [Line Items] | |||||
Warranty expense, average rate | 2.50% | 1.80% | 2.30% | 2.00% | |
Warranty expense rate description | The increase in the warranty expense rate in the three months ended September 30, 2023, compared with the rate during the three months ended October 1, 2022, is a result of servicing a higher number of overall warranty claims in the third quarter of 2023, resulting in a higher level of service warranty expense, whereas the rate in the third quarter of 2022 was lower on average as there was a decrease in the use of higher-cost contract labor. | ||||
Accrued warranty reserve | $ 16.0 | $ 16.0 | $ 15.4 | ||
Accrued Expenses [Member] | |||||
Product Warranty Liability [Line Items] | |||||
Accrued warranty reserve, current | $ 12.5 | $ 12.5 | $ 12.4 | ||
Minimum [Member] | |||||
Product Warranty Liability [Line Items] | |||||
Warranty periods | 1 year | ||||
Warranty period of the majority of products sold | 1 year | ||||
Maximum [Member] | |||||
Product Warranty Liability [Line Items] | |||||
Warranty periods | 10 years | ||||
Warranty period of the majority of products sold | 3 years |
Warranty - Summary of Current Period Charges, Adjustments to Previous Estimates, Settlements representing Actual Costs Incurred with regard to Accrued Warranty (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Guarantees and Product Warranties [Abstract] | ||||
Accrued Warranty, Beginning of Period | $ 16,113 | $ 16,151 | $ 15,388 | $ 13,504 |
Accrued Warranty, Acquisition-Related | (2,537) | (2,537) | ||
Accrued Warranty, Charged to Expense | 10,045 | 6,880 | 27,050 | 22,872 |
Accrued Warranty, Adjustments | (524) | 750 | 420 | 1,263 |
Accrued Warranty, Settlements | (9,601) | (5,763) | (26,825) | (19,621) |
Accrued Warranty, End of Period | $ 16,033 | $ 15,481 | $ 16,033 | $ 15,481 |
Inventories - Summary of Inventories (Detail) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 112,893 | $ 109,679 |
Work-in-progress | 3,281 | 916 |
Finished goods | 1,768 | 2,077 |
Inventories | $ 117,942 | $ 112,672 |
Net Income Per Common Share - Calculation of EPS and Reconciliation of Weighted Average Common Shares Used in Calculation of Basic and Diluted EPS (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Earnings Per Share [Abstract] | ||||
Net income | $ 39,207 | $ 30,414 | $ 105,388 | $ 90,705 |
Less: Net income attributable to RNCI | (373) | (1,101) | (1,334) | |
Net income attributable to the Company | 39,207 | 30,041 | 104,287 | 89,371 |
Decrease (increase) in redemption value of RNCI | 271 | (1,637) | (1,514) | |
Net income attributable to common shareholders | $ 39,207 | $ 30,312 | $ 102,650 | $ 87,857 |
Weighted-average number of common shares outstanding - Basic | 58,012 | 59,964 | 58,796 | 59,908 |
Add: Dilutive shares from equity plans | 279 | 438 | 296 | 293 |
Weighted-average number of common shares outstanding - Diluted | 58,291 | 60,402 | 59,092 | 60,201 |
Net income per common share attributable to common shareholders: | ||||
Basic | $ 0.68 | $ 0.51 | $ 1.75 | $ 1.47 |
Diluted | $ 0.67 | $ 0.5 | $ 1.74 | $ 1.46 |
Goodwill and Other Intangible Assets - Estimated Amortization for Future Fiscal Year (Detail) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Remainder of 2023 | $ 6,505 | |
2024 | 25,971 | |
2025 | 25,640 | |
2026 | 21,241 | |
2027 | 20,987 | |
Thereafter | 101,888 | |
Subtotal | $ 202,232 | $ 222,034 |
Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
Dec. 31, 2022 |
|
Indefinite-lived Intangible Assets [Line Items] | |||||
Amortization of intangible assets | $ 6,500 | $ 5,800 | $ 19,800 | $ 19,700 | |
Goodwill | 462,630 | 462,630 | $ 460,415 | ||
Southeast Segment [Member] | |||||
Indefinite-lived Intangible Assets [Line Items] | |||||
Goodwill | 228,300 | 228,300 | 228,300 | ||
Western Segment [Member] | |||||
Indefinite-lived Intangible Assets [Line Items] | |||||
Goodwill | $ 234,300 | $ 234,300 | $ 232,100 |
Long Term Debt - Schedule of Long-term Debt (Detail) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Debt Instrument [Line Items] | ||
Long-term debt | $ 640,000 | $ 651,352 |
Deferred financing costs | (8,232) | (9,218) |
Long-term debt, net | 631,768 | 642,134 |
2016 Credit Agreement due 2027, Maturing in October 2027 [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt | 65,000 | 76,352 |
2021 Senior Notes due 2029, Maturing in October 2029 [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt | $ 575,000 | $ 575,000 |
Long-Term Debt - Activity Relating to Deferred Financing Costs (Detail) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2023
USD ($)
| |
Debt Instrument [Line Items] | |
At beginning of year | $ 9,218 |
Less: Amortization expense | (986) |
At end of period | $ 8,232 |
Long-Term Debt - Estimated Amortization Expense Relating to Deferred Financing Costs (Detail) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Debt Disclosure [Abstract] | ||
Remainder of 2023 | $ 334 | |
2024 | 1,366 | |
2025 | 1,442 | |
2026 | 1,466 | |
2027 | 1,440 | |
Thereafter | 2,184 | |
Total | $ 8,232 | $ 9,218 |
Long-Term Debt - Contractual Future Maturities of Long-Term Debt (Detail) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
Debt Disclosure [Abstract] | ||
Remainder of 2023 | $ 0 | |
2024 | 0 | |
2025 | 0 | |
2026 | 0 | |
2027 | 65,000 | |
Thereafter | 575,000 | |
Total | $ 640,000 | $ 651,352 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 5 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Jul. 02, 2022 |
May 26, 2023 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Income Taxes [Line Items] | ||||||
Income tax expense | $ 13,715 | $ 10,100 | $ 36,412 | $ 29,910 | ||
Effective tax rates | 25.90% | 24.90% | 25.70% | 24.80% | ||
Pre-tax earnings | $ 52,922 | $ 40,514 | $ 141,800 | $ 120,615 | ||
Income tax benefit net of federal tax effect | $ 462 | |||||
Income tax expense benefit excess tax received by state | $ 584 | |||||
Effective tax rates, excluding discrete item | 26.70% | 26.20% | 26.20% | 25.70% | ||
Payment of estimated income taxes | $ 39,700 | $ 20,900 | ||||
ECO [Member] | ||||||
Income Taxes [Line Items] | ||||||
Percentage of ownership stake | 75.00% | 25.00% | 75.00% | |||
Pre-tax earnings | $ 900 | $ 1,000 |
Fair Value - Additional Information (Detail) - USD ($) |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
Dec. 31, 2022 |
|
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||||
Fair value of assets, level 2 to level 3 transfers | $ 0 | $ 0 | $ 0 | $ 0 | |
Long-term debt | 640,000,000 | 640,000,000 | $ 651,352,000 | ||
2016 Credit Agreement Due 2027 [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||||
Fair value of current long-term debt | 65,000,000 | 65,000,000 | 76,400,000 | ||
Long-term debt | 65,000,000 | 65,000,000 | 76,352,000 | ||
2021 Senior Notes Due 2029 [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |||||
Fair value of current long-term debt | 531,900,000 | 531,900,000 | 480,800,000 | ||
Long-term debt | $ 575,000,000 | $ 575,000,000 | $ 575,000,000 |
Segments - Additional Information (Detail) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2023
USD ($)
|
Oct. 01, 2022
USD ($)
|
Sep. 30, 2023
USD ($)
Segment
|
Oct. 01, 2022
USD ($)
|
Dec. 31, 2022
USD ($)
|
|
Segment Reporting Information [Line Items] | |||||
Number of reportable segments | Segment | 2 | ||||
Depreciation expense | $ 26,607 | $ 25,359 | |||
Amortization expense | 19,802 | 19,725 | |||
Assets | $ 1,608,662 | 1,608,662 | $ 1,640,249 | ||
Southeast Segment [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Depreciation expense | 6,900 | $ 6,700 | 20,600 | 20,600 | |
Amortization expense | 2,000 | 2,700 | 6,000 | 8,100 | |
Assets | 908,300 | 908,300 | 909,600 | ||
Western Segment [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Depreciation expense | 1,900 | 1,600 | 6,000 | 4,700 | |
Amortization expense | 4,500 | $ 3,100 | 13,800 | $ 11,600 | |
Assets | $ 700,400 | $ 700,400 | $ 730,600 |
Segments - Summary of Financial Data Attributable to Operating Segments (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2023 |
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|||
Net sales: | ||||||
Total net sales | $ 399,931 | $ 385,837 | $ 1,161,694 | $ 1,151,020 | ||
Income from operations: | ||||||
Total income from operations | 60,694 | 47,403 | 165,442 | 141,739 | ||
Restructuring costs and charges | [1] | 794 | (1,722) | |||
Interest expense, net | 7,772 | 6,889 | 23,642 | 21,124 | ||
Total income before income taxes | 52,922 | 40,514 | 141,800 | 120,615 | ||
Southeast Segment [Member] | ||||||
Net sales: | ||||||
Total net sales | 302,942 | 288,246 | 872,964 | 867,505 | ||
Income from operations: | ||||||
Total income from operations | 43,465 | 30,037 | 123,940 | 96,607 | ||
Restructuring costs and charges | (1,700) | |||||
Western Segment [Member] | ||||||
Net sales: | ||||||
Total net sales | 96,989 | 97,591 | 288,730 | 283,515 | ||
Income from operations: | ||||||
Total income from operations | $ 16,435 | $ 17,366 | $ 43,224 | $ 45,132 | ||
|
Segments - Summary of Financial Data Attributable to Operating Segments (Parenthetical) (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2023 |
|||
Segment Reporting Information [Line Items] | ||||
Restructuring costs and charges, net | [1] | $ (794) | $ 1,722 | |
Gain of Forgiveness Portion of Operating Lease Liability by Landlord of the Charlotte, NC [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Restructuring costs and charges, net | (800) | |||
Southeast Segment [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Restructuring costs and charges, net | $ 1,700 | |||
Southeast Segment [Member] | Gain of Forgiveness Portion of Operating Lease Liability by Landlord of the Charlotte, NC [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Restructuring costs and charges, net | $ (800) | |||
|
Reedemable Non-Controlling Interest - Additional Information (Detail) - USD ($) $ in Thousands |
9 Months Ended | |||||
---|---|---|---|---|---|---|
May 26, 2023 |
Feb. 01, 2021 |
Sep. 30, 2023 |
Dec. 31, 2022 |
Oct. 01, 2022 |
Jan. 01, 2022 |
|
Redeemable Noncontrolling Interest [Line Items] | ||||||
Accretion value of redeemable non-controlling interest | $ 34,721 | $ 39,711 | $ 36,863 | |||
ECO [Member] | ||||||
Redeemable Noncontrolling Interest [Line Items] | ||||||
Sellers equity interest call right exercise description | The agreement between PGT Innovations, Inc. and the seller provided the Company with a call right for seller’s equity interest during the third year following the acquisition date. | |||||
Sellers equity interest put right exercise period following call right exercise period | 15 days | |||||
Eco Enterprises, LLC [Member] | ||||||
Redeemable Noncontrolling Interest [Line Items] | ||||||
Noncontrolling interest, ownership percentage by parent | 25.00% | 75.00% | 100.00% | |||
Redeemable noncontrolling interest value | $ 37,500 | |||||
Eco Enterprises, LLC [Member] | ECO [Member] | ||||||
Redeemable Noncontrolling Interest [Line Items] | ||||||
Sellers equity interest call right exercise purchase price description | Effective on May 26, 2023, the Company exercised its call-right to purchase the remaining 25% ownership stake in Eco it previously did not own. The redemption price of the remaining 25% was calculated by the Company pursuant to the operating agreement based on the performance metric included therein, and was determined to be $37.5 million, which was agreed with by the seller. Subsequent to this redemption, the Company's ownership of Eco Enterprises is now 100%. |
Reedemable Non-Controlling Interest - Summary of Changes in Redeemable Non-Controlling Interest (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Oct. 01, 2022 |
Sep. 30, 2023 |
Oct. 01, 2022 |
|
Noncontrolling Interest [Abstract] | |||
Balance at beginning of period | $ 34,721 | $ 36,863 | |
Net income attributable to redeemable non-controlling interest | $ 373 | 1,101 | 1,334 |
Change in value of redeemable non-controlling interest | (271) | 1,637 | 1,514 |
Redemption of redeemable non-controlling interest | $ (37,459) | ||
Balance at end of period | $ 39,711 | $ 39,711 |
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