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Form 10-K PGT Innovations, Inc. For: Dec 30

February 23, 2024 3:50 PM EST
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f

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37971

 

PGT Innovations, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-0634715

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1070 Technology Drive

North Venice, Florida

 

34275

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code:

(941) 480-1600

Former name, former address and former fiscal year, if changed since last report:

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

 

PGTI

 

New York Stock Exchange, Inc.

Securities registered pursuant to Section 12 (g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes No ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2023 was approximately $1,627,882,993 based on the closing price per share on that date of $29.15 as reported on the New York Stock Exchange.

The number of shares of the registrant’s common stock, par value $0.01, outstanding as of February 24, 2024, was 57,261,697.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement for the Company’s 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K. The Company’s Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Regulation 14A.


 

PGT Innovations, Inc.

Table of Contents to Form 10-K

 

 

 

Page

 

PART I

 

 

 

 

 

 

Item 1.

 

Business

 

5

Item 1A.

 

Risk Factors

 

12

Item 1B.

 

Unresolved Staff Comments

 

23

Item 1C.

 

Cybersecurity

 

23

Item 2.

 

Properties

 

26

Item 3.

 

Legal Proceedings

 

27

Item 4.

 

Mine Safety Disclosures

 

27

 

 

 

 

 

 

PART II

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

28

Item 6.

 

[Reserved]

 

30

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

Item 8.

 

Financial Statements and Supplementary Data

 

42

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

80

Item 9A.

 

Controls and Procedures

 

80

Item 9B.

 

Other Information

 

82

Item 9C.

 

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 

82

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

83

Item 11.

 

Executive Compensation

 

83

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

83

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

83

Item 14.

 

Principal Accountant Fees and Services

 

83

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

Item 15.

 

Exhibit and Financial Statement Schedules

 

84

Item 16.

 

Form 10-K Summary

 

87

 

 

Signatures

 

88

 

 

 

- 2 -


 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

From time to time, we have made or will make forward-looking statements within the meaning of Section 21E of the Exchange Act. For those statements we claim the protection of the safe harbor provisions for forward-looking statements contained in such section. Forward-looking statements are not a statement of historical facts but are based on management’s current beliefs, assumptions and expectations regarding our future performance, taking account of the information currently available to management. Forward-looking statements usually can be identified by the use of words such as “goal”, “objective”, “plan”, “expect”, “anticipate”, “intend”, “project”, “believe”, “estimate”, “may”, “could”, or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, results, circumstances or aspirations. Our disclosures in this Annual Report on Form 10-K (this “Report”) contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in our other documents filed or furnished with the Securities and Exchange Commission and in oral presentations. Forward-looking statements are based on assumptions and by their nature are subject to risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to:

 

adverse effects on our business and financial condition that may result if we fail to complete the merger;
unpredictable weather and macroeconomic factors that may negatively impact the repair and remodel and new construction markets and the construction industry generally, especially in the state of Florida and the western United States, where the substantial portion of our sales are currently generated, and in the U.S. generally;
changes in raw material prices, especially for aluminum, glass, vinyl, and steel, including, price increases due to the implementation of tariffs and other trade-related restrictions, Pandemic-related supply chain interruptions, or interruptions from the conflict in Ukraine;
our dependence on a limited number of suppliers for certain of our key materials;
our dependence on our impact-resistant product lines, which increased with the acquisition of Eco Enterprises, LLC ("Eco"), and contemporary indoor/outdoor window and door systems, and on consumer preferences for those types and styles of products;
the effects of increased expenses or unanticipated liabilities incurred as a result of, or due to activities related to, our recent acquisitions, including our acquisitions of Martin Door Holdings, Inc. ("Martin") and Anlin Windows & Doors ("Anlin");
our level of indebtedness, which increased in connection with our recent acquisitions, including our acquisitions of Martin and Anlin;
increases in credit losses from obligations owed to us by our customers in the event of a downturn in the home repair and remodel or new home construction channels in our core markets and our inability to collect such obligations from such customers;
the risks that the anticipated cost savings, synergies, revenue enhancement strategies and other benefits expected from our acquisitions of Martin and Anlin may not be fully realized or may take longer to realize than expected or that our actual integration costs may exceed our estimates;
increases in transportation costs, including increases in fuel prices;
our dependence on our limited number of geographically concentrated manufacturing facilities, which increased further due to our acquisition of Eco;
sales fluctuations to and changes in our relationships with key customers;
federal, state and local laws and regulations, including unfavorable changes in local building codes and environmental and energy code regulations;
risks associated with our information technology systems, including cybersecurity-related risks, such as unauthorized intrusions into our systems by "hackers" and theft of data and information from our systems, and the risks that our information technology systems do not function as intended or experience temporary or long-term failures to perform as intended;
product liability and warranty claims brought against us;

- 3 -


 

in addition to our acquisitions of Martin and Anlin, our ability to successfully integrate businesses we may acquire in the future, or that any business we acquire may not perform as we expected when we acquired it; and
the other risks and uncertainties discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K for the year ended December 30, 2023.

Any forward-looking statement made by us in this Annual Report on Form 10-K 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.

 

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PART I

Item 1. BUSINESS

Our Company

 

PGT Innovations, Inc. (“we,” “us,” “our,” “PGTI” or the “Company”) manufactures and supplies premium windows and doors and fully customizable overhead garage doors. Our impact-resistant products can withstand some of the toughest weather conditions on earth and unify indoor/outdoor living spaces. We strive to create value through deep customer relationships, understanding the needs of the markets we serve, and a drive to develop category-defining products. We believe we are one of the nation’s largest manufacturers of impact-resistant windows and doors and hold leadership positions in our primary markets. We manufacture diverse lines of products, intended to appeal to different segments of the market, at different price-points, including high-end, luxury, premium and mass-custom fully customizable aluminum and vinyl windows and doors and porch enclosure products, targeting both the residential repair and remodeling and new construction end markets. We market our impact-resistant products under five recognized brands: PGT® Custom Windows & Doors, CGI® Windows and Doors, WinDoor®, NewSouth Window Solutions®, and Eco Enterprises, Inc.® We believe all of these brands are positively associated with service, performance, quality, durability and energy efficiency. We also market a line of window and door products designed to unify indoor/outdoor living spaces under the two recognized brands of Western Window Systems® and Anlin®, which we believe are associated with innovation, quality, durability and energy efficiency in the indoor/outdoor living space markets. The acquisition of Martin® in 2022 added premium overhead garage doors to our product portfolio.

Our impact-resistant products combine heavy-duty aluminum or vinyl frames with laminated glass to ensure structural integrity, which provides protection from wind-driven projectiles of all sizes and other debris during a storm. Our impact-resistant products substantially reduce the likelihood of penetration by impacting projectiles, protecting people and property, while providing expansive, unblocked exterior views that other forms of protection, such as shutters or wood coverings, do not provide. Our impact-resistant products also offer many other benefits, including: (1) abatement of sound to substantially decrease outside noise, including during hurricanes; (2) protection against the damaging effects of ultra-violet light; (3) reduction of energy loss due to changing external temperatures; and (4) energy efficiency that can significantly reduce cooling and heating costs, as evidenced by the energy ratings our products have received. These impact-resistant products satisfy the nation’s most stringent building codes in hurricane-prone coastal states and provide an attractive alternative to shutters and other “active” forms of hurricane protection that require installation and removal before and after each storm. We also manufacture vinyl porch and patio enclosure products under our Eze-Breeze ® brand, that are designed to allow air flow while protecting against inclement weather, making outdoor spaces more inviting.

The acquisition of NewSouth has supported our diversification into growing segments in the window and door industry, by enabling us to enter the direct-to-consumer channel, where NewSouth is a market leader in Florida. NewSouth's direct-to-consumer model is supported by its showrooms and in-home sales. With the addition of NewSouth, we continued our strategy of growing in geographic areas outside of our core markets, with showrooms throughout the southern states.

The acquisition of Eco extended our residential market footprint with what we believe will be minimal overlap with our existing network of dealers, as most of Eco’s dealer-customers have not historically been our customers. Eco’s product offerings in the commercial market are expected to provide us with added product and customer diversification in that space, which we believe will be a high-growth market in future periods. By adding Eco’s glass manufacturing capabilities to our operations, we expanded our glass production capabilities and capacity in order to strengthen and gain more control of our supply chain for glass.

The additions of Anlin and Western Window Systems (“WWS”) to our family of brands expanded our portfolio of offerings and our geographical footprint and added award-winning and innovative products that combine performance and quality with clean, functional designs. Those products are designed for strength, easy integration into a variety of spaces, smooth operation and are tested for durability.

With the addition of Martin, we expanded into an adjacent window and door category by adding premium overhead garage doors to our product portfolio, and broadened our geographic footprint and brand presence in the high-growth Western region. Martin adds another recognized brand to our portfolio of brands, and we believe will open cross-selling opportunities for existing Western division brands and NewSouth Window Solutions.

With approximately 5,600 employees (as of December 30, 2023) at our various manufacturing facilities located in North Venice, Tampa, and Fort Myers, on the west coast of Florida, and Hialeah and Medley, on the east coast of Florida, as well as Phoenix, Arizona, Irvine and Clovis, California, and Salt Lake City, Utah, in the western U.S., our vertically integrated manufacturing capabilities include in-house glass cutting, tempering, laminating and insulating capabilities, which provide us with a consistent source of specialized glass, shorter lead times, lower costs relative to third-party sourcing and an overall more efficient production process. Additionally, our manufacturing process relies on just-in-time delivery of raw materials and components as well as synchronous flow to promote labor efficiency and throughput, allowing us to more consistently fulfill orders on-time for our valued customers. In 2023,

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we began construction on our previously announced Diamond Glass Thin Triple glass fabrication facility in Prince George County, Virginia.

The geographic regions in which we currently conduct business include the Southeastern U.S., Western U.S., Gulf Coast, and the Coastal mid-Atlantic. We also ship to the Caribbean, Central America and Canada. We distribute our products through multiple channels, including nearly 4,000 independently-owned dealers and distributors, national building supply distributors, the in-home sales/custom order divisions of major U.S. home building and improvement supply retailers and, with our acquisition of NewSouth, the direct-to-consumer channel. We believe this broad distribution network provides us with the flexibility to meet demand as it shifts between the repair and remodel, and residential and commercial new construction end markets.

History

PGT Innovations, Inc. is a Delaware corporation. We were formed on December 16, 2003 as PGT, Inc. and operate our business through our various subsidiaries, including PGT Industries, Inc., a Florida corporation, which was founded in 1980 as Vinyl Tech, Inc. On June 27, 2006, we became a publicly listed company on the NASDAQ Global Market (NASDAQ) under the symbol “PGTI”. We changed our name to PGT Innovations, Inc. which we announced on December 14, 2016. Effective on December 28, 2016, the listing of the Company’s common stock was transferred to the New York Stock Exchange (NYSE) and our common stock began trading on the NYSE under our existing ticker symbol of “PGTI”.

Industry Segments

We operate as two segments based on geography: the Southeast segment, and the Western segment. See Part II, Item 8. Financial Statements and Supplemental Data, Note 19. Segments for more information.

Our Brands and Products

PGT Custom Windows & Doors

WinGuard. WinGuard is an impact-resistant product line that combines heavy-duty aluminum or vinyl frames with laminated glass to provide protection from hurricane-force winds and wind-borne debris and satisfies increasingly stringent building codes. Our marketing and sales of the WinGuard product line are primarily targeted to hurricane-prone coastal states in the U.S., as well as the Caribbean and Central America. Combining the impact resistance of WinGuard with insulating glass creates energy efficient windows that can significantly reduce cooling and heating costs. Our “WinGuard Vinyl” line of windows and doors is designed to offer some of the highest design pressures available on impact-resistant windows and doors, in a modern profile, with larger sizes that satisfy the most stringent hurricane codes in the country. It protects against flying debris, intruders, outside noise and UV rays.

EnergyVue. EnergyVue is our non-impact-resistant vinyl window featuring energy-efficient insulating glass and multi-chambered frames that meet or exceed ENERGY STAR® standards in all climate zones to help consumers save on energy costs. Its new design has a refined modern profile and robust construction and is offered in larger sizes and higher design pressures, multiple frame colors, and a variety of hardware finishes, glass tints, grid styles and patterns.

Aluminum. We offer a complete line of fully customizable, non-impact-resistant aluminum frame windows and doors. These products primarily target regions with warmer climates, where aluminum is often preferred due to its ability to withstand higher structural loads. Adding insulating glass creates energy-efficient windows that can significantly reduce cooling and heating costs.

Eze-Breeze. Eze-Breeze non-glass vertical and horizontal sliding panels for porch enclosures are vinyl-glazed, aluminum-framed products used for enclosing screened-in porches that provide protection from inclement weather.

CGI

Sentinel. Sentinel is a complete line of aluminum impact-resistant windows and doors from CGI that provides quality craftsmanship, energy efficiency and durability at an affordable price point. Sentinel windows and doors are designed and manufactured with the objectives of enhancing home aesthetics, while delivering protection from hurricane winds and wind-borne debris. Sentinel is custom manufactured to exact sizes within our wide range of design parameters, therefore, reducing on-site construction costs. In addition, Sentinel’s frame depth is designed for both new construction and replacement applications, resulting in faster, less intrusive installations.

Targa. Targa is CGI’s line of vinyl, energy-efficient, impact-resistant windows designed specifically to exceed the Florida impact codes, which are the most stringent impact standards in the U.S. Targa windows are designed with the objective of enhancing the aesthetics of a home, are relatively low maintenance, with long-term durability, and environmental compatibility.

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Sparta. Sparta is CGI’s line of aluminum and vinyl impact-resistant windows and doors that are offered at relatively lower price points, and that meet Florida’s impact codes.

Scout. Scout is CGI’s line of aluminum non-impact windows and doors that are offered at a relatively lower price point.

WinDoor

WinDoor’s products carry the WinDoor® brand and carry various product names, including its 3000 and 4000 Series aluminum windows, its 6000, 7000 and 8000 Series aluminum sliding glass doors, and its 9000 Series thermally broken windows and doors.

Aluminum Doors and Windows. WinDoor produces a wide array of high-end, luxury aluminum doors and windows, including impact and non-impact sliding glass doors and terrace doors, fixed picture windows, single hung windows, and horizontal rolling windows. All of WinDoor’s aluminum windows are available in impact and non-impact versions and meet or exceed ENERGY STAR® standards in all climate zones.

Thermally Broken Doors and Windows. WinDoor produces a variety of aluminum thermally broken doors and windows. WinDoor’s thermally broken products provide the strength of aluminum with the energy ratings usually seen in only vinyl products. All of WinDoor’s thermally broken products are available in multiple shapes and sizes, have earned high performance ratings on impact and non-impact certifications, and meet or exceed ENERGY STAR® standards in all climate zones.

Estate by WinDoor. Formerly part of CGI, our Estate Collection of windows and doors is one of WinDoor’s premium aluminum impact-resistant product line. These windows and doors can be found in high-end homes, resorts and hotels, and in schools and office buildings. Our Estate Collection combines protection against hurricane force damage with architectural-grade quality, handcrafted details and modern engineering. These windows and doors protect and insulate against hurricane winds and wind-driven debris, outside noise, and offer UV protection. Estate’s aluminum frames are thicker than many of our competitors’ frames, making it a preferable choice for consumers in coastal areas prone to hurricanes.

Western Window Systems

WWS’s products are non-impact products, and include both customized products for its custom sales channel, and standard products for its volume, production builder, sales channel, and carry the Western Windows Systems® brand under four product categories of the Classic Line, Performance Line, Minimalist Multi-Slide Door, and the Simulated Steel Line.

Classic Line. WWS’s Classic Line is a portfolio of high-quality, disappearing glass walls and windows that combine exceptional performance with clean design. The products of the Classic Line include fixed and operating windows, as well as sliding, folding and hinged doors. Sales of the Classic Line products are focused on the volume/production builder market in relatively temperate areas in the Southwestern United States.

Performance Line. The Performance Line by WWS is a family of moving glass walls and windows engineered to satisfy its customers’ energy and structural requirements, while promoting a contemporary, modern architectural design. The Performance Line has broad thermal capabilities that allow this luxury line of products to satisfy all energy codes throughout the United States.

Simulated Steel Line. The Simulated Steel Line by WWS is a portfolio of thermally-broken, aluminum moving glass walls and windows that look like steel but are far more affordable. This portfolio of products embodies WWS’s nearly 60 years of advancements in door and window design, and we believe exhibits luxury and refinement. The Simulated Steel Line has clean, narrow profiles which gives the glass components of the products a prominent positioning, while maximizing natural light.

Minimalist Multi-Slide Door. The Minimalist Multi-Slide door by WWS offers innovative narrow interlock stiles that provide a minimalist aesthetic with maximum daylight. This combination of large panel sizes, discreet lines, and energy efficient low-E, dual-pane glass delivers a beautiful new way to minimize the boundaries between indoors and outdoors.

NewSouth

Windows and Doors. NewSouth manufactures a wide array of single-hung, double-hung, sliding, picture and visually appealing shaped vinyl windows which are durable and energy-efficient. NewSouth also manufactures durable and attractive patio and entry doors which we believe enhance safety and improve the appearance of entry spaces.

Installation. NewSouth provides quality installation of its windows and doors through an experienced group of installation services companies who are subcontracted to install its products.

 

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Eco Window Systems

Eco manufactures impact resistant windows and doors which are engineered to meet the toughest standards in the industry at the best price while ensuring the durability, elegance, and safety of all products for both the commercial and residential markets.

Windows and Doors. Eco manufactures a wide array of aluminum single-hung, horizontal rolling, fixed, and casement windows which are all impact resistant. Eco also manufactures several varieties of aluminum, impact-resistant patio and entry doors such as French, sliding, garage, bi-fold, and pivot which we believe complement the existing product lines offered by PGT Custom Windows & Doors and CGI Windows and Doors.

Glass production. Eco produces its own processed glass products, which supplies all of its window and door manufacturing operations’ requirements for glass. Eco’s glass production capacity also allows incremental vertical integration of glass for the production of certain of our other product lines, enabling us to strengthen and gain more control of our supply chain for glass. Eco also sells a small amount of glass other to third-party customers.

Commercial Storefront System. Our Commercial Storefront window system and entry doors are engineered to provide a flexible yet economical solution for a variety of applications. Our system is designed with the goal of providing easy fabrication and assembly, while also reducing installation time and challenges.

Anlin Windows and Doors

Anlin is a California-based recognized brand for vinyl windows and doors in the remodel and replacement market. Anlin produces energy-efficient windows and doors with modern, energy saving technology, with a focus on noise reduction, delivering a high-quality product with appealing design and beauty. Anlin also provides consumer driven specialty products such as hinged patio doors with flexible options like in glass pet doors.

Anlin windows and patio doors are tested and certified by the National Fenestration Rating Council (NFRC), the American Architectural Manufactures Association (AAMA), and Energy Star. Each certification assures homeowners that our windows and patio doors are manufactured to the highest quality and energy standards.

Martin

Martin is headquartered in Salt Lake City, Utah with an operating history exceeding 85 years and is a leading custom manufacturer of premium overhead garage doors and hardware, serving the Western United States. Martin is recognized in the industry for high-quality and fully-customizable products to both commercial and residential end markets.

Sales and Marketing

Our sales strategy primarily focuses on strengthening partnerships with our loyal distributors and dealers in the repair and remodel, and new construction markets by consistently providing exceptional customer service, industry-leading product designs and quality, valuable insight on building code requirements and industry trends, and technical expertise. We also market our products directly to national and regional homebuilders, who then purchase our products from our long-standing network of dealers and distributors. With our acquisition of NewSouth Window Solutions in February 2020, our sales strategy expanded to include a focus on direct-to-consumer sales to meet the growing demand from consumers looking for a manufacturer-to-home selling experience. Our acquisition of ECO provides us with more product offerings and customer relationships in the commercial market. Our acquisition of Martin in October 2022, has expanded our product portfolio into a new market of commercial and residential garage doors.

Our marketing strategy is designed to promote the quality and benefits of our products and targets both coastal and inland markets across the U.S. We reach our customers through traditional and web-based advertising; consumer promotions; and showrooms and selling materials. We also work with our dealers and distributors to educate architects, building officials, consumers, and homebuilders on the advantages of using impact-resistant and energy-efficient products. We market products from our house of brands to consumers based on performance and life-style benefits they value, as well as through the purchase channels they desire.

Our Customers

We have a highly diversified base of nearly 4,000 window distributors, building supply distributors, window replacement dealers and enclosure contractors and garage door installation dealers. This number includes the distributor networks of Martin, acquired during 2022. We believe there is minimal overlap with our existing dealer network from the acquisition of Martin.

We generally do not supply our products directly to homebuilders, but believe demand for our products is also a function of our strong relationships with certain national homebuilders for both our impact resistant products, and also for our products sold in the west. With the acquisition of NewSouth, we sell direct to the end customer.

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Materials, Inventory and Supplier Relationships

Our primary manufacturing materials include aluminum and vinyl extrusions, glass, ionoplast, and polyvinyl butyral. With the acquisition of Martin, steel is an additional primary material used in our manufacturing operations of garage doors. Although in many instances we have agreements with our suppliers, these agreements can be terminated by either party on limited notice. While most of our materials are typically available from other sources, transitioning to alternative sources would require us to complete testing and certifications related to impact-resistance and for the alternative source of supply to create the customized equipment and tooling necessary to provide the materials and components to us. Therefore, our goal is to develop and maintain lasting relationships with our material suppliers.

Glass, which includes sheet glass and finished glass, represents a major component of our material purchases, which we sourced from three major national suppliers. Aluminum and vinyl extrusions also accounted for significant portions of our material purchases. Polyvinyl butyral and ionoplast, which are both used as inner layer in laminated glass, represents a minor portion of our material purchases. The remainder of our material purchases are primarily composed of hardware and other materials used in the manufacturing process.

Our inventory consists principally of raw materials purchased for the manufacture of our products and limited finished goods inventory as the majority of our products are custom, made-to-order products. Our inventory levels are more closely aligned with our number of product offerings rather than our level of sales. We have maintained our inventory level to have (i) raw materials required to support new product launches; (ii) a sufficient level of safety stock on certain items to ensure an adequate supply of material in the event of a sudden increase in demand and given our short lead-times; and (iii) adequate lead times for raw materials purchased from overseas suppliers in bulk supply.

Backlog

Our backlog was $175.3 million as of December 30, 2023, and $228.8 million as of December 31, 2022. Our backlog consists of orders that we have received from customers that have not yet shipped. Backlog in both periods includes orders in which revenue has been recognized in accordance with ASC 606. We expect that a significant portion of our backlog at the end of 2023 will be recognized as sales in the first quarter of 2024, due in part to our lead times, which typically range from three to five weeks for a majority of our products.

Intellectual Property

We own and have registered trademarks in the U.S. In addition, we own several patents and patent applications concerning various aspects of window assembly and related processes. We are not aware of any circumstances that would have a material adverse effect on our ability to use our trademarks and patents. If we continue to renew our trade names when necessary, the trade-name protection provided by them is perpetual.

Manufacturing

Our manufacturing facilities are in Florida, Arizona, California, and Utah. In Florida, we produce customized impact-resistant and non-impact products. In Arizona, we produce a combination of aluminum and vinyl, customized non-impact products for the custom channel of our WWS brand, and standard products for its volume channel. In California, we produce vinyl custom non-impact products which, combined with our products manufactured in Arizona, we believe gives us a complete array of aluminum and vinyl, custom and standard window and door products for what we believe is a high-growth western market. In Utah, we produce premium overhead garage doors and hardware, serving the Western United States. In 2023, we began construction on our previously announced Diamond Glass Thin Triple glass fabrication facility in Prince George County, Virginia.

The manufacturing process for our PGT Custom Windows & Doors products typically begins in our glass plant in North Venice, Florida, where we cut, temper, laminate, and insulate sheet glass to meet specific requirements of our customers, and then windows and doors are manufactured in our plants in North Venice, Florida, and our newly opened manufacturing facility in Fort Myers, Florida. Our Hialeah (CGI), and Tampa (NewSouth), Florida facilities and our Phoenix, Arizona (WWS) and Clovis, California (Anlin) facilities primarily source their glass needs from external suppliers.

Glass is transported to our window and door assembly lines in a make-to-order sequence where it is combined with an aluminum or vinyl frame. These frames are also fabricated to order. We start with a piece of extruded material which is cut and shaped into a frame that fits the customers’ specifications. Once complete, product is immediately staged for delivery and generally shipped on our trucking fleet or with contracted carriers within 48 hours of completion.

With the Martin Acquisition, we added premium overhead garage doors to our product portfolio. Doors are designed and uniquely built to customer specifications using a variety of materials including aluminum extrusion, steel coil, and glass. Fabrication of materials usually starts within 24 hours of a customer order being received, and production usually takes two to three days to complete. Once complete, the door is staged for will-call pick-up or delivery via a third-party contracted delivery method.

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Competition

The window and door industry is highly fragmented, and the competitive landscape is based on geography. The competition falls into the following categories.

Local and Regional Window and Door Manufacturers: This group of competitors consists of numerous local job shops and small manufacturing facilities that tend to focus on selling products to local or regional dealers and wholesalers. Competitors in this group typically lack marketing support and the service levels and quality controls demanded by larger customers, as well as the ability to offer a full complement of products.

National Window and Door Manufacturers: This group of competitors tends to focus on selling branded products nationally to dealers and wholesalers and has multiple locations.

International Window and Door Manufacturers: This group of competitors consists of non-U.S. companies that have created entities and established manufacturing operations within Florida and have an increasing presence in the South Florida region as suppliers of residential and commercial windows and doors.

Active Protection: This group of competitors consists of manufacturers that produce shutters and plywood, both of which are used to actively protect openings. Our impact-resistant windows and doors represent passive protection, meaning, once installed, no activity is required to protect a home from storm related hazards.

The principal methods of competition in the window and door industry are the development of long-term relationships with window and door dealers and distributors, and the retention of customers by delivering a full range of high-quality products in a timely manner, while offering competitive pricing and flexibility in transaction processing. Trade professionals such as contractors, homebuilders, architects and engineers also engage in direct interaction with manufacturers and look to the manufacturer for training and education related to products and codes. We believe our position as one of the leaders in the U.S. impact-resistant window and door market, and the innovative designs and quality of our products, position us well to meet the needs of our customers.

Environmental Considerations

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, and we believe that our facilities are in material compliance with such laws and regulations.

Human Capital Management

Employees. As of the end of 2023, we employed approximately 5,600 people, none of whom were represented by a collective bargaining unit. We believe we have good relations with our employees.

Employee Safety. The safety of our team members is our top priority, and we have taken significant steps in recent years to drive improvements in this area. Some of these safety initiatives we have taken, include:

Increasing the size, experience and other qualifications of our environment, health and safety, or “E&HS”, staff;

Adopting an incident management system that records workplace injuries based on type and other classifications to provide the data to drive targeted corrective and preventative actions to address and mitigate actual and potential causes of injuries;

Implementing proactive safety practices such as regular floor leader-led safety inspections of their work areas;

Implementing ergonomics-related safety improvements, using an experience and risk-based approach to prioritize those improvements;

Partnering with vendors to obtain high quality personal protective equipment and related training on how to appropriately utilize that equipment;

Increasing workplace and compliance related safety training through the use of both virtual and classroom courses as well as on-the-floor safety discussions;

Training team members to identify, report and quickly address potentially unsafe activities and practices;

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Utilizing train the trainer programs to develop internal team members as trainers for safety compliance items such as Forklift operation and LOTO Authorized; and

Increasing the frequency, number and types of internal workplace safety audits, inspections and walk-throughs conducted by the Company’s EH&S staff.

Labor Practices and Human Rights. All of our employees earn more than the federal minimum wage and we believe our hourly wages are competitive with the local communities in which our facilities operate.

We strive to help our employees maintain job stability, so they are encouraged to stay with the Company and positioned to grow their skills and knowledge on the job. The 2023 annualized voluntary turnover rate in our workforce decreased slightly as compared to 2022. In an effort to reduce employee turnover, we engage in annual surveys with employees, we maintain an open-door policy that enables us to help identify any issues before they cause an employee to leave the Company, and we review exit interview data, hotline calls and root cause analysis to help deter turnover. We also assign dedicated Company human resources representatives to each department so that we can better monitor employee morale within each department.

Workforce Diversity and Inclusion. We believe in being an inclusive workplace for all of our employees and are committed to having a diverse workforce that is representative of the communities in which we operate and sell our products. A variety of perspectives enriches our culture, leads to innovative solutions for our business and enables us to better meet the needs of a diverse customer base and reflects the communities we serve. Our aim is to develop inclusive leaders and an inclusive culture, while also recruiting, developing, mentoring, training, and retaining a diverse workforce, including a diverse group of management-level employees.

PGT Innovations Leading Ladies, a program designed to identify, develop and mentor female employees who have demonstrated potential for serving as leaders within our organization;

Annual Diversity & Inclusion Training; and

Dale Carnegie, a program that helps our managers understand how to appreciate, respect and value individual differences and behaviors.

Additionally, we have a gender- and ethnically-diverse Board of Directors.

Benefits and Well-Being. We believe in offering career opportunities, resources, programs, and tools to help employees grow and develop, as well as competitive wages and benefits to retain them. Our efforts in these areas include:

Offering platforms, including on-line and in-person professional growth and development training, to help employees develop their skills and grow their careers at the Company;

Providing management development training to all of our management-level employees, including compliance, ethics and leadership training;

Providing employees with recurring training on critical issues such as safety and security, compliance, ethics and integrity and information security;

Gathering engagement feedback from our employees on a regular basis and responding to that feedback in a variety of ways including personal, one-on-one interactions, team meetings, leadership communications, and town hall meetings with employees, led by senior executives;

Offering a tuition reimbursement program that provides eligible employees up to $50,000 lifetime for courses related to current or future roles at the Company;

Offering health benefits for all eligible employees, including our eligible hourly employees;

Providing confidential counseling for employees through our Employee Assistance Program;

Providing paid time off to eligible employees;

Matching employees’ 401(k) plan contributions of up to 3% of eligible pay after 3 months of service;

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Offering an employee stock purchase program for eligible employees; and

Providing a Company-subsidized childcare center for the employees of our Venice, Florida facility, which is our largest location.

 

AVAILABLE INFORMATION

Our Internet address is www.pgtinnovations.com. Through our Internet website under “Financial Information” in the Investors section, we make available free of charge, as soon as reasonably practical after such information has been filed with the SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. Also available through our Internet website under “Corporate Governance” in the Investors section is our Code of Business Conduct and Ethics. We are not including this or any other information on our website as a part of, nor incorporating it by reference into this, or any of our other SEC filings. The SEC maintains an Internet site that contains our reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

Item 1A. RISK FACTORS

The risk factors included herein are grouped into risks related to:

The Agreement and Plan of Merger We Have Entered Into;
Our Business Operations;
Demand for Our Products;
Acquisitions;
Our Indebtedness;
Information Systems and Intellectual Property; and
Warranty, Legal and Regulatory Matters

Moreover, other factors may adversely affect our results of operations, including potential liability under environmental and other laws and other unforeseen events, many of which are discussed elsewhere in the following risk factors. Any or all of these factors could materially adversely affect our results of operations.

Risks Related to the Agreement and Plan of Merger We Have Entered Int

The announcement and pendency of our agreement to be acquired could have an adverse effect on our business.

On January 16, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MIWD Holding Company LLC, a Delaware limited liability company (“MITER”), and RMR MergeCo, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of MITER (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into us (the “Merger”), with us surviving as a wholly owned indirect subsidiary of MITER. Pursuant to the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our common stock, par value $0.01 per share (each, a “PGTI Common Share”) (other than any PGTI Common Shares that are held by us as treasury stock or held by MITER, Merger Sub or any other subsidiary of MITER or us or any PGTI Common Shares as to which appraisal rights have been properly exercised in accordance with Delaware law), will automatically be canceled and retired and converted into the right to receive $42.00 per share in cash, without interest.

On December 17, 2023, we had previously entered into an Agreement and Plan of Merger with Masonite International Corporation, a British Columbia corporation (“Masonite”), and Peach Acquisition, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Masonite, which agreement was subsequently terminated on January 16, 2024.

Uncertainty about the effect of the proposed Merger on our employees, suppliers, customers and business partners may have an adverse effect on our business and operations that may be material to our company. Our employees may experience uncertainty about their roles following the Merger. There is no assurance we will be able to attract and retain key talent, including senior leaders, to the same extent that we have previously been able to attract and retain employees. Any loss or distraction of such employees could have a material adverse effect on our business and operations. In addition, we have diverted, and will continue to divert, significant management resources towards the completion of the Merger, which could materially adversely affect our business and operations.

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While the proposed Merger is pending, our suppliers, customers or business partners may delay or defer certain business decisions with respect to us, or seek to change or renegotiate their relationships with us as a result of the Merger. Such parties may also experience uncertainty associated with the Merger that may affect current or future business relationships with us. Uncertainty may cause such parties to be more cautious in their arrangements with us, and such parties may seek to change existing business relationships. During this period, we may also face challenges in accessing debt or equity markets on favorable terms, or at all, including due to restrictions on our ability to incur debt contained in the Merger Agreement. Any such effects could result in an adverse effect on our business, operations and financial condition in a way that may be material to our company, regardless of whether the Merger is completed.

Pursuant to the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business, including the ability in certain cases to enter into contracts, acquire or dispose of assets, enter into new lines of business, incur indebtedness or incur capital expenditures, until the Merger becomes effective or the Merger Agreement is terminated. These restrictions may prevent us from taking actions with respect to our business that we may consider advantageous and result in our inability to respond effectively to competitive pressures and industry developments, and may otherwise harm our business and operations.

The failure to complete the Merger could adversely affect our business and financial condition.

Completion of the Merger is subject to several conditions beyond our control that may prevent, delay or otherwise adversely affect its completion in a material way, including the approval of our stockholders and the termination of the waiting period related to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition, either we or MITER may terminate the Merger Agreement under certain circumstances, including if the Merger is not completed by the end date determined pursuant to the Merger Agreement. A special meeting of our stockholders is scheduled for Monday, March 18, 2024 at 10:30 A.M eastern time, to consider the Merger. Our board of directors has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby are fair to and in the best interests of us and our stockholders, (ii) declared it advisable to enter into the Merger Agreement and consummate the transactions contemplated thereby upon the terms and subject to the conditions set forth therein, (iii) approved the execution and delivery of the Merger Agreement by us, the performance by us of our covenants and other obligations thereunder and the consummation of the transactions contemplated thereby upon the terms and conditions set forth therein, (iv) resolved to recommend that our stockholders vote to adopt the Merger Agreement in accordance with the Delaware General Corporation Law and (v) directed that the adoption of the Merger Agreement be submitted for consideration by our stockholders at a meeting thereof.

If the Merger or a similar transaction is not completed, the share price of our common stock may drop to the extent that the current market price of our common stock reflects an assumption that such a transaction will be completed. In addition, under circumstances specified in the Merger Agreement, we may be required to pay a termination fee of $86 million in the event the Merger is not consummated. Further, a failure to complete the Merger may result in negative publicity and a negative impression of us in the investment community. Any disruption to our business resulting from the announcement and pendency of the Merger and from intensifying competition from our competitors, including any adverse changes in our relationships with our employees, suppliers, customers and business partners, could continue or accelerate in the event of a failure to complete the Merger. In addition, even if we fail to complete the Merger, we will still incur certain significant costs associated with the Merger, primarily consisting of legal fees, accounting fees, financial advisory, financial printing and other related costs. There can be no assurance that our business, key relationships or financial condition will not be adversely affected, as compared to the condition prior to the announcement of the Merger, if the Merger is not consummated.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger and could discourage a potential competing transaction counterparty from making a favorable alternative transaction proposal to us.

The Merger Agreement contains provisions that make it more difficult for us to be acquired by, or enter into certain combination transactions with, a third party. The Merger Agreement contains certain provisions that restrict our ability to, among other things, solicit, initiate or take any action to knowingly induce the making, submission or announcement of, or knowingly facilitate or encourage the submission of an alternative transaction, or participate or engage in any discussions or negotiations, or cooperate with any person, with respect to an alternative transaction. In addition, following our receipt of any alternative transaction proposal that constitutes a Superior Proposal (as defined in the Merger Agreement), MITER would have an opportunity to offer to modify the terms of the Merger Agreement before our board may withhold, qualify or modify in a manner adverse to MITER its recommendation with respect to the Merger and before we may terminate the Merger Agreement. If the Merger Agreement is terminated by us to enter into a Superior Proposal or by MITER if our board withholds, qualifies. modifies in a manner adverse to MITER its recommendation with respect to the Merger or takes certain similar actions, we would be required to pay a termination fee of $86 million to MITER, as contemplated by the Merger Agreement.

These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring or combining with all or a significant portion of us or pursuing an alternative transaction from considering or proposing such a transaction.

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We have received certain shareholder demand letters, and we may become the target of lawsuits or derivative lawsuits that could result in substantial costs and may delay or prevent the Merger Agreement from being consummated.

We have received certain shareholder demand letters, and we may become the target of lawsuits or derivative lawsuits that could result in substantial costs and may delay or prevent the Merger Agreement from being consummated. Defending against such claims could result in substantial costs and divert management time and resources, even if the lawsuits are without merit. An adverse judgment could result in monetary damages, which could have a negative impact on our business, results of operations and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Merger Agreement, the injunction may delay or prevent the Merger from being completed, which may adversely affect our business, results of operations and financial condition. No assurances can be given that lawsuits or derivative lawsuits will not be filed that may make claims, such as breach of fiduciary duties by our officers and/or directors, which would subject us to such risks.

Risks Related to Our Business Operations

We depend on hiring an adequate number of hourly employees to operate our business and are subject to government regulations concerning these and our other employees, including wage and hour regulations, and we may be required to increase the wages we pay in order to attract, hire and retain hourly employees needed to manufacture our products and otherwise conduct our operations, and we may not be able to recover that increase in labor costs through increasing the prices we charge for our products or otherwise.

Our workforce is comprised primarily of employees who work on an hourly basis. To grow our operations and meet the needs and expectations of our customers, we must attract, train, and retain a large number of hourly associates, while at the same time controlling labor costs. These positions have historically had high turnover rates, which can lead to increased training, retention and other costs. In certain areas where we operate, there is significant competition for employees. The lack of availability of an adequate number of hourly employees, or our inability to attract and retain them, or us having to increase wages paid to new and/or to current employees to attract, hire and/or retain the labor resources necessary to conduct our operations, could adversely affect our business, results of operations, cash flows and financial condition. We are subject to applicable rules and regulations relating to our relationship with our employees, including wage and hour regulations, health benefits, unemployment and payroll taxes, overtime and working conditions and immigration status. Accordingly, federal, state or locally legislated increases in the minimum wage, such as the passage of Florida’s “Amendment 2” minimum wage law in November 2020, as well as increases in additional labor cost components such as employee benefit costs, workers’ compensation insurance rates, compliance costs and fines, would increase our labor costs, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

A material portion of our business currently is geographically concentrated in Florida and that concentration increased with our acquisition of NewSouth and Eco.

Many of our manufacturing facilities, except for our Arizona, California and Utah facilities, are located in Florida, where the substantial portion of our sales are made. We believe that focusing operations into manufacturing locations in Florida optimized manufacturing efficiencies and logistics, and we believe that a focused approach to growing our market share within our core wind-borne debris markets in Florida, from the Gulf Coast to the mid-Atlantic, and certain international markets, will maximize value and return. Our acquisitions of NewSouth and Eco increased our manufacturing and sales concentration in Florida. Our manufacturing facilities in Arizona, California and Utah and the markets served by those businesses in the Western United States may not provide adequate geographic diversification for our business, as we expect that the primary concentration of our business will continue to be in Florida, and another prolonged decline in the economy of the state of Florida or of certain coastal regions, a change in state and local building code requirements for hurricane protection, or any other adverse condition in the state or certain coastal regions, could cause a decline in the demand for our products, which could have an adverse impact on our sales and results of operations.

We are subject to fluctuations in the prices of our raw materials which could have an adverse effect on our results of operations.

We experience significant fluctuations in the cost of our raw materials, including glass, aluminum extrusion, vinyl extrusion, and polyvinyl butyral. In the past, we have experienced inflationary conditions, which increased our costs of raw materials. In an attempt to offset these rising costs, we took action to increase prices and, as such, were largely successful in passing these increased costs onto our customers. However, we anticipate that these fluctuations will continue in the future. A variety of factors over which we have no control, including global demand for aluminum, fluctuations in oil prices, speculation in commodities futures, tariffs and the creation of new laminates or other products based on new technologies impact the cost of raw materials that we purchase for the manufacture of our products. These factors may also magnify the impact of economic cycles on our business. Although we endeavor from time to time to hedge the risks of fluctuations in the prices of our raw materials, or pass rising costs onto our customers by increasing the prices of our products, we cannot guarantee that we will always be able to successfully minimize our risk through such actions.

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We rely on a limited number of outside suppliers for certain key components and materials.

We obtain a significant portion of our key raw materials, such as glass, aluminum and vinyl extrusion components, from a few key suppliers, and obtain the polyvinyl butyral interlayers used in certain of our products from a sole supplier. If any of these suppliers is unable to meet its obligations under present or any future supply agreements, or if those supply agreements are terminated, we may not be able to obtain certain raw materials on commercially reasonable terms, or at all, and may suffer a significant interruption in our ability to manufacture our products, including because it may be difficult to find substitute or alternate suppliers as the glass, interlayers and aluminum and vinyl extrusions we use are customized. A supplier may also choose, subject to existing contracts, to modify its relationship due to general economic concerns or concerns relating to the supplier or us, at any time. These modifications could include requirements from our suppliers that we provide them additional security in the form of prepayments or letters of credit.

In addition, while our business does not currently rely heavily on international suppliers or sales, significant disruptions in global economic conditions, travel or trade, including as a result of contagious disease events, such as a global pandemic, may have material adverse impacts on our supply chain. Furthermore, some of our direct and indirect suppliers have unionized work forces, and strikes, work stoppages, or slowdowns experienced by these suppliers could result in slowdowns or closures of their facilities, which may impact our ability to fulfil orders or increase our costs.

Any interruption of supply or any price increase of raw materials could have a material adverse effect on our business and results of operations. If we are required to obtain an alternate source for these materials or components, we may not be able to obtain pricing on as favorable terms or on terms comparable to our competitors. Additionally, we may be forced to pay additional transportation costs or to invest in capital projects or costly product redesigns and perform costly new product certification testing with respect to our impact-resistant products, in connection with moving to any alternate source of supply.

We could experience a delay between the increased cost to us to obtain these raw materials, and our ability to increase the price of our products. If we are unable to pass on significant cost increases to our customers, our results of operations between periods may be negatively impacted. Any significant change in the terms that we have with our key suppliers or any interruption of supply or any price increase of raw materials could materially adversely affect our financial condition and liquidity.

Economic and credit market conditions impact our ability to collect receivables.

Economic and credit conditions can negatively impact our bad debt expense, which can adversely impact our results of operations. Some of the markets we serve, which includes dealers whose customers are second and vacation home owners in the repair and remodeling sector, are more sensitive to changes in economic and credit conditions. If economic and credit conditions deteriorate, we may experience difficulties collecting on our accounts receivable, increasing our days sales outstanding and base debts owed to us, which could adversely impact our results of operations and business.

The industry in which we compete is highly competitive and we have experienced increased competition in our core market of Florida.

The window and door industry is highly competitive. We face significant competition from numerous small, regional producers, as well as certain national producers. Furthermore, the impact-resistant window and door market in our primary market of Florida has recently attracted domestic and foreign competitors. Any of these competitors may (i) foresee the course of market development more accurately than do we, (ii) develop products that are superior to our products, (iii) have the ability to produce similar products at a lower cost or compete more aggressively in pricing, or (iv) adapt more quickly to new technologies or evolving customer requirements than do we. Additionally, some of the competitors of our businesses are larger and have greater financial and other resources and less debt than us. Accordingly, these competitors may be better able to withstand changes in conditions within the industries and markets in which we operate and may have significantly greater operating and financial flexibility than we have. Moreover, barriers to entry are low in most product lines and new competitors may enter our industry, especially if the market for impact-resistant windows and doors continues to expand. An increase in competition, including in the form of aggressive pricing by new market entrants and offerings of alternative building materials, could cause us to lose customers and lead to decreases in net sales and profitability if we are not able to respond adequately to such challenges. To the extent we lose customers in the renovation and remodeling markets, we would likely have to market more to the new home construction market, which historically has experienced more significant fluctuations in demand.

We operate our own fleet of trucks, which we reply on to a great extent for distribution of our products. But we also rely, and expect to continue to rely on third-party transportation, which subjects us to risks and costs that we cannot control, and which risks and costs may materially adversely affect our profitability.

Although we operate a fleet of trucks which we rely on to a great extent for the distribution of our products, we also rely, and expect to continue to rely on third party trucking companies to transport raw materials to the manufacturing facilities used by each of our businesses and to ship finished products to customers. These transport operations are subject to various hazards and risks,

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including extreme weather conditions, work stoppages and operating hazards, as well as interstate transportation regulations. In addition, the methods of transportation we utilize may be subject to additional, more stringent and more costly regulations in the future. If we are delayed or unable to ship finished products or unable to obtain raw materials as a result of any such new regulations or public policy changes related to transportation safety, or these transportation companies fail to operate properly, or if there were significant changes in the cost of these services due to new or additional regulations, or otherwise, we may not be able to arrange efficient alternatives and timely means to obtain raw materials or ship goods, which could result in a material adverse effect on our revenues and costs of operations. Transportation costs represent a significant part of our cost structure. If our transportation costs increased substantially, due to prolonged increases in fuel prices or otherwise, we may not be able to control them or pass the increased costs onto customers, which may materially adversely affect our profitability.

Sales fluctuations to and changes in our relationships with key customers could have a material adverse effect on our financial condition, liquidity or results of operations.

Some of our business lines and markets are dependent on a few key customers, including dealers. We generally do not enter into written or long-term agreements with our customers. The loss, reduction, or fluctuation of sales to one of these major customers, or any adverse change in our business relationship with any one or more of them, could have a material adverse effect on our financial condition, liquidity or results of operations.

Some of our key customers are companies that have experienced and may continue to experience consolidation in their ownership or expand through internal growth. Consolidation could decrease the number of potential customers for our products and increase our reliance on key customers. Further, any increase in the ownership concentration or size of our key customers could result in our key customers seeking more favorable terms, including pricing, for the products that they purchase from us. Accordingly, any increase in ownership concentration of our key customers or other increases in the size of our customers may further limit our ability to maintain or raise prices in the future. This could have a material adverse effect on our business, financial condition and results of operations.

We are subject to the credit risk of our customers, suppliers, and other counterparties.

We are subject to the credit risk of our customers, because we provide credit to our customers in the normal course of business. All of our customers are sensitive to economic changes and to the cyclical nature of the building industry. Especially during protracted or severe economic declines and cyclical downturns in the building industry, our customers may be unable to perform on their payment obligations, including their debts to us. Any failure by our customers to meet their obligations to us may have a material adverse effect on our business, financial condition, and results of operations. In addition, we may incur increased expenses related to collections in the future if we find it necessary to take legal action to enforce the contractual obligations of a significant number of our customers.

We conduct all of our operations through our subsidiaries and rely on payments from our subsidiaries to meet all of our obligations.

We are a holding company and derive all of our operating income from our subsidiaries. All of our assets are held by our subsidiaries, and we rely on the earnings and cash flows of our subsidiaries to meet our obligations. The ability of our subsidiaries to make payments to us will depend on their respective operating results and may be restricted by, among other things, the laws of their jurisdictions of organization, which may limit the amount of funds available for distributions to us, the terms of existing and future indebtedness and other agreements of our subsidiaries, including our credit facilities and indenture, and the covenants of any future outstanding indebtedness we or our subsidiaries incur.

Risks Related to Demand for Our Products

We are subject to regional and national economic conditions that may negatively impact demand for our products.

The window and door industry is subject to many economic factors. Changes in macroeconomic conditions in our core markets including Florida, with respect to our impact-resistant products, and in the western U.S., including California, Texas, Arizona, Nevada, Colorado, Oregon, Washington and Hawaii, with respect to our WWS products designed to unify indoor and outdoor living spaces, as well as throughout the U.S. generally, could negatively impact demand for our products and macroeconomic forces, such as employment rates and the availability of credit could have an adverse effect on our sales and results of operations. In addition, the window and door industry is subject to the cyclical market pressures of the larger new construction and repair and remodeling markets. A decline in the economic environment or new home construction, as well as any other adverse changes in economic conditions, including demographic trends, employment levels, interest rates, and consumer confidence, could result in a decline in demand for, or adversely affect the pricing of, our products, which in turn could adversely affect our sales and results of operations.

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Changes in weather patterns, including as a result of global climate change, could significantly affect demand for our products, and thus, our sales and our financial results or financial condition.

Weather patterns may affect our operating results and our ability to maintain our sales volume throughout the year. Because our customers depend on suitable weather to engage in new construction and repair and remodel projects, increased frequency or duration of extreme weather conditions could result in a decrease in the demand for our products for periods of inclement weather, and have a material adverse effect on our financial results or financial condition. For example, unseasonably cool weather or extraordinary amounts of rainfall may decrease construction activity, thereby decreasing demand for our products and our sales during that period of time. Alternatively, extreme weather, such as hurricanes, has historically increased the visibility of our brands and customers’ demand for our impact-resistant products. Therefore, the lack of hurricane-related extreme weather conditions in a given year or over a period of time could result in a decrease of our sales and could have a material adverse effect on our financial results. Weather patterns are difficult to predict and may fluctuate as a result of numerous factors, including climate change, and we cannot guarantee that extreme weather conditions will or will not occur. Also, we cannot predict the effects that global climate change may have on our business. In addition to changes in weather patterns, climate change could, for example, reduce the demand for construction, and increase the cost and reduce the availability of construction materials, raw materials and energy. New laws and regulations related to global climate change may also increase our expenses or reduce our sales.

Our operating results are substantially dependent on demand for our branded impact-resistant products, contemporary indoor/outdoor window and door systems and factory-direct, energy-efficient residential windows and doors.

A majority of our net sales are derived from the sales of our branded impact-resistant products and on window and door systems for residential, commercial and multi-family markets. Accordingly, our future operating results will depend largely on the demand for our impact-resistant products by current and future customers, especially in the State of Florida, where the majority of our impact resistant products are made and sold. Our future operating results also will depend on demand for the contemporary indoor/outdoor window and door systems sold by our Western Window Systems business. Sales generated by our NewSouth business depend on a direct-to-consumer model and is supported by showrooms and in-home sales. Consequently, a portion of our future operating results are reliant on current and future customer demand for factory-direct, energy-efficient residential windows and doors. If our competitors release new products that are superior to our products in performance or price, or if we fail to update our impact-resistant products with any technological advances that are developed by us or our competitors or introduce new products in a timely manner, demand for our products may decline. In addition, the window and door industry can be subject to changing trends and consumer preferences. If we do not correctly gauge consumer trends for the various products and systems we offer and respond appropriately, customers may not purchase our products and our brand names may be impaired. Even if we react appropriately to changes in trends and consumer preferences, consumers may consider our brands or product designs to be outdated or associate our brands or product designs with styles that are no longer popular. Any of these outcomes could create significant excess inventories for some products and missed opportunities for other products, which would have a material adverse effect on our brands, our business, results of operations and financial condition. A decline in demand for our impact-resistant products, our contemporary indoor/outdoor window and door systems or our direct-to-consumer, energy-efficient residential windows and doors as a result of competition, technological change, changes in consumer preferences or other factors could have a material adverse effect on our ability to generate sales, which could materially negatively affect our results of operations.

Our business is subject to seasonal industry patterns and demand for our products, and thus our revenue and profit, can vary significantly throughout the year, which may adversely impact the timing of our cash flows and limit our liquidity at certain times of the year.

Our business is seasonal, and our net revenues and operating results vary significantly from quarter to quarter based upon the timing of the building season in our markets. Our sales typically follow seasonal new construction and the repair and remodel industry patterns. Additionally, events like preparation for hurricane season and rebuilding and repairs in the months following a hurricane in the majority of the geographies where we market and sell our products generally creates peak demand for our products and resulting sale volumes during the quarters in which those activities occur. Other quarterly sales volumes might be generally lower due to reduced repair and remodeling and new construction activity as a result of less favorable climate conditions in the majority of our geographic end markets. Failure to effectively manage our demand and production planning, inventory and overall operations in anticipation of or in response to seasonal fluctuations or changing seasonal fluctuations as a result of climate change, could negatively impact our liquidity profile during certain seasonal periods.

Changes in building codes could reduce the demand for our impact-resistant windows and doors, which could have a material adverse effect on our financial condition, liquidity or results of operations.

The market for our impact-resistant windows and doors depends in large part on our ability to satisfy state and local building codes that require protection from wind-borne debris. If the standards in such building codes become more stringent, we may not be able to meet their requirements, and demand for our products could decline. Conversely, if the standards in such building codes are lowered or are not enforced in certain areas because of industry lobbying or otherwise, demand for our impact-resistant products may

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decrease. In addition, if states and regions that are affected by hurricanes but do not currently have such building codes fail to adopt and enforce hurricane protection building codes, our ability to expand our business in such markets may be limited. We are also subject to energy efficiency codes and performance standards in Colorado, California and other states where we operate, several of which are more stringent than those to which we have historically been subject. Any such changes in building codes or energy efficiency codes could lower the demand for our impact-resistant windows and doors, which could have a material adverse effect on our financial condition, liquidity or results of operations.

The homebuilding industry and the home repair and remodeling sector are subject to various local, state, and federal statutes, ordinances, rules, and regulations concerning zoning, building design and safety, construction, and similar matters, including regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can be built within the boundaries of a particular area. Increased regulatory restrictions could limit demand for new homes and home repair and remodeling products and could negatively affect our sales and results of operations.

We may be adversely impacted by the loss of sales or market share if we are unable to keep up with demand.

We are currently experiencing growth through higher sales volume and growth in market share. To meet the increased demand, we have been hiring and training new employees for direct and indirect support and adding to our glass capacity. However, should we be unable to find and retain quality employees to meet demand, or should there be disruptions to the increase in capacity for the raw materials needed to produce our products, we may be unable to keep up with our higher sales demand. If our lag time on delivery falls behind, or we are unable to meet customer timing demands, we could lose market share to competitors.

Risks Related to Acquisitions

Our recently completed acquisitions may result in, or involve activities that cause, distractions to our management team, increased expenses or unanticipated liabilities.

As a result of our acquisitions of NewSouth, Eco, CRi SoCal, Inc., Anlin, and Martin, we have significantly more sales, assets and employees than we did prior to the transactions, which may require our management to devote a significant amount of time, resources and attention to the new product offerings or novel challenges, and/or away from the operations of our historical windows and doors business. These potential diversions and distractions may result in, or involve activities that cause, increased expenses and unanticipated liabilities.

All of the Eco entities in which we acquired a controlling interest are designated as unrestricted subsidiaries under our existing senior secured credit facilities and indenture and are not subject to the restrictive covenants under such agreements.

All of the Eco entities in which we acquired a controlling interest have been designated as unrestricted subsidiaries under our existing senior secured credit facilities and indenture. As a result, those entities are not subject to the restrictive covenants in the indenture and are able to engage in many of the activities that we and our restricted subsidiaries are prohibited or limited from undertaking under the terms of the indenture. These actions, if undertaken by Eco, could be detrimental to our ability to make payments of principal and interest under the 2021 Senior Notes due 2029.

If we do not realize the expected benefits from our recent acquisitions, including synergies, from acquisitions, our business and results of operations will suffer.

Acquisitions may cause an interruption of, or loss of momentum in, the activities of our other businesses. If our management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer and its liquidity, results of operations and financial condition may be materially adversely impacted. In addition, as we continue our integration activities, we may identify additional risks and uncertainties not yet known to us.

Even if we are able to successfully integrate and position the business operations of our recent acquisitions and our legacy businesses, it may not be possible to realize the full benefits of the increased sales volume and other benefits, including synergies, that we expected to result from recent acquisitions, or realize these benefits within the time frame that is expected. For example, the elimination of duplicative costs may not be possible or may take longer than anticipated, or the benefits from these recent acquisitions may be offset by costs incurred or delays in integrating the companies. In addition, even if such acquisitions are successfully integrated, we may become subject to unexpected costs, charges or liabilities arising from such businesses. Our expected cost savings, as well as any revenue or other strategic synergies, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. If we fail to realize the benefits, we anticipated from our recent acquisitions, our liquidity, results of operations or financial condition may be adversely effected.

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We may evaluate and engage in asset acquisitions, dispositions, joint ventures and other transactions that may impact our results of operations, and we may not achieve the expected results from these transactions.

From time to time, and subject to the agreements governing our then existing debt or otherwise, we may enter into agreements to and engage in business combinations, purchases of assets or contractual arrangements or joint ventures, including in geographical areas outside the state of Florida, with which we do not have the level of familiarity that we have with the Florida market. In addition, some of those business acquisitions or combinations could involve a seller whose products may be different from the types of products we currently sell, and they could be products that are sold to different types of customers. Subject to the agreements governing our then existing debt or otherwise, some of these transactions may be financed with additional borrowings. The integration of any business we may acquire may be disruptive to us and may result in a significant diversion of management attention and operational resources. Additionally, we may suffer a loss of key employees, customers or suppliers, loss of revenues, increases in costs or other difficulties. If the expected revenue enhancement plans, strategies, goals, efficiencies and synergies from any such transactions are not fully realized, our results of operations could be adversely affected, because of the costs associated with such transactions or otherwise. Other transactions may advance future cash flows from some of our businesses, thereby yielding increased short-term liquidity, but consequently resulting in lower cash flows from these operations over the longer term. In addition, if the goodwill, indefinite-lived intangible assets, or other intangible assets that we have acquired or may acquire in the future are determined to be impaired, we may be required to record a non-cash charge to earnings during the period in which the impairment is determined, which could be significant. The failure to realize the expected long-term benefits of any one or more of these transactions could have a material adverse effect on our financial condition or results of operations.

Risks Related to Our Indebtedness

Our substantial level of indebtedness could adversely affect our business and financial condition and prevent us from meeting our debt obligations.

Our total gross indebtedness is $620.0 million, including $575.0 million aggregate principal amount of senior notes we issued on September 24, 2021, and $45.0 million under our $250.0 million revolving credit facility entered into in October 2022 (the "Revolving Credit Facility"), under which we had $196.5 million available for borrowing at December 30, 2023.

Although our senior secured credit facilities and indenture contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial.

This high level of indebtedness could have important consequences, including:

increasing our vulnerability to adverse economic, industry, or competitive developments;
requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund operations, capital expenditures and future business opportunities;
exposing us to the risk of increased interest rates to the extent of any future borrowings, including any borrowings under the senior secured credit facilities;
making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the senior secured credit facilities and the notes, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the indenture governing the notes and the agreements governing such other indebtedness;
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
limiting our ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions and general corporate or other purposes; and
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our leverage may prevent us from exploiting.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us

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to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the senior secured credit facilities and the indentures governing our outstanding notes, may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our senior secured credit facilities and the indenture governing the senior notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:

• incur additional indebtedness or issue certain preferred equity;

• pay dividends on, repurchase, or make distributions in respect of our common stock, prepay, redeem, or repurchase certain debt or make other restricted payments;

• make certain investments including potential acquisitions;

• create certain liens;

• enter into agreements restricting our subsidiaries’ ability to pay dividends to us;

• consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; and

• enter into certain transactions with our affiliates.

In addition, the restrictive covenants in our senior secured credit facilities require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond our control.

A breach of any of these covenants could result in a default under one or more of these agreements, including as a result of cross default provisions and, in the case of the senior secured credit facilities, permit the lenders to cease making loans to us. Upon the occurrence of an event of default under the senior secured credit facilities, the lenders could elect to declare all amounts outstanding under senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit. Such action by the lenders could cause cross defaults under the indenture governing the notes. For a description of our senior secured credit facilities, see Footnote 9 to our audited consolidated financial statements included herein.

If our operating performance declines, we may be required to seek to obtain waivers from the lenders under the senior secured credit facilities or from the holders of other obligations, to avoid defaults thereunder. If we are not able to obtain such waivers, the lenders could exercise their rights upon default, and we could be forced into bankruptcy or liquidation.

Furthermore, if we were unable to repay the amounts due and payable under our senior secured credit facilities, the lenders under our senior secured credit facilities could proceed against the collateral granted to them to secure our borrowings thereunder. We have pledged substantially all of our assets as collateral under our senior secured credit facilities. If the lenders under senior secured credit facilities accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our senior secured credit facilities and our other indebtedness, including the notes, or will have the ability to borrow sufficient funds to refinance such indebtedness. Even if we were able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Our borrowings under the existing senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. For example, the Federal Reserve has increased its benchmark interest rate multiple times recently in a bid to reduce rising inflation rates in the United States, and it is possible that additional rate hikes may be adopted in the future. As interest rates increase, our debt service obligations on the variable rate indebtedness increase even though the amount borrowed remained the same, and our

- 20 -


 

net income decreases. The applicable margin with respect to the loans under the senior secured credit facilities is a percentage per annum equal to a reference rate plus the applicable margin.

From time to time in order to manage our exposure to interest rate risk, we may enter into derivative financial instruments, such as interest rate swaps and caps, involving the exchange of floating for fixed rate and fixed for floating rate interest payments. If we are unable to enter into interest rate swaps when necessary, it may adversely affect our cash flow and may impact our ability to make required principal and interest payments on our indebtedness.

A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our debt currently has a non-investment grade rating, and there can be no assurance that any rating assigned by the rating agencies to our debt or our corporate rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital, which could have a materially adverse impact on our financial condition and results of operations.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the notes.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the senior secured credit facilities and the indenture governing the notes, may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

Risks Related to Information Systems and Intellectual Property

We may be adversely affected by any disruption in our information technology systems or by unauthorized intrusions or “hacking” into those systems and theft of confidential and sensitive information from them, or other cybersecurity-related incidents.

Our operations are dependent upon our information technology systems, which encompass all of our major business functions. A disruption in our information technology systems for any prolonged period could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Various third parties, including computer hackers, who are continually becoming more aggressive and sophisticated, may attempt to penetrate our network security and, if successful, misappropriate confidential and sensitive customer, employee and/or supplier information. Such attempts may include malware, ransomware, denial-of-service attacks, social engineering, unauthorized access, human error, theft or misconduct. For example, as previously disclosed on November 5, 2022, and updated on April 6, 2023, we detected a ransomware infection that impacted portions of our network and caused disruption to daily business operations. In addition, one of our employees, contractors or other third parties with whom we do business may attempt to circumvent our security measures in order to obtain such information, or inadvertently cause a breach involving such information. While we have implemented systems and processes to protect against unauthorized access to or use of secured data and to prevent data loss and theft, there is no guarantee that these procedures are adequate to safeguard against all data security breaches or misuse of the data. Security breaches could also harm our reputation with our customers and retail partners, potentially leading to decreased revenues, and with federal and state government agencies and bodies.

The regulatory environment related to cybersecurity, data collection and use, and privacy is increasingly rigorous, with new and frequently changing requirements, and compliance with those requirements could result in additional costs. Our business and results of operations may be directly and adversely affected by future legislative, regulatory, or judicial actions. A significant compromise of confidential and sensitive employee, customer or supplier information in our possession could result in legal damages and regulatory

- 21 -


 

fines and penalties. The costs associated with cybersecurity, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to prevent or remediate information security breaches and defend against any related actions, could be substantial and adversely impact our business.

Operation on multiple Enterprise Resource Planning (“ERP”) information systems, and the conversion from multiple systems to a single system, may negatively impact our operations.

We are highly dependent on our ERP information systems infrastructure in order to process orders, track inventory, ship products in a timely manner, prepare invoices to our customers, maintain regulatory compliance and otherwise carry on our business in the ordinary course. We currently operate on eight different ERP information systems. Since we must process and reconcile our information from multiple systems, the chance of errors is increased, and we may incur significant additional costs related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result in heightened risk to our ability to maintain our books and records and comply with regulatory requirements. Any of the foregoing could result in a material increase in information technology compliance or other related costs and could materially negatively impact our operations. In the future, we may transition all or a portion of our systems to one ERP system. The transition to a different ERP system involves numerous risks, including:

diversion of management’s attention away from normal daily business operations;
loss of, or delays in accessing data;
increased demand on our operations support personnel;
initial dependence on unfamiliar systems while training personnel to use new systems; and
increased operating expenses resulting from training, conversion and transition support activities.

Any of the foregoing could result in a material increase in information technology compliance or other related costs and could materially negatively impact our operations.

Other parties may infringe on our intellectual property rights or may allege that we have infringed on theirs.

Competitors or other third parties may infringe on or otherwise make unauthorized use of our intellectual property rights, including product designs, manufacturing practices, registered intellectual property and other rights. We rely on a variety of measures to protect our intellectual property and proprietary information. However, these measures may not prevent misappropriation, infringement or other violations of our intellectual property or proprietary information and a resulting loss of competitive advantage. If we determine that such infringement or violation has occurred, legal action to enforce our rights may require us to spend significant amounts in legal costs, even if we ultimately prevail.

Conversely, given the nature of our business and product designs, competitors or other third parties may allege that we, or consultants or other third parties retained or indemnified by us, have infringed, misappropriated, or otherwise violated their intellectual property rights. Even though we believe such claims and allegations of intellectual property infringement or violations would be without merit, defending against such claims would be time consuming and expensive and could result in the diversion of time and attention of our management and employees. Given the rapidly changing and highly competitive business environment in which we operate, and the increasingly complex designs of our products and other companies’ similar products, the outcome of any contemplated intellectual property-related litigation would be difficult to predict and could cause us to lose significant revenue, to be prohibited from using the relevant designs, systems, processes, technologies or other intellectual property, to cease offering certain products or services or to incur significant license, royalty or technology development expenses.

Risks Related to Warranty, Legal and Regulatory Matters

The nature of our business exposes us to product liability, warranty and other claims.

We are, from time to time, involved in product liability, product warranty and other claims relating to the products we manufacture and distribute that, if adversely determined, could adversely affect our financial condition, results of operations, and cash flows. In addition, we may be exposed to potential claims arising from the conduct of homebuilders and home remodelers and their sub-contractors. Although we currently maintain what we believe to be suitable and adequate insurance in excess of our self-insured amounts, we may not be able to maintain such insurance on acceptable terms or such insurance may not provide adequate protection against potential liabilities. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods, regardless of the ultimate outcome. Claims of this nature could also have a negative impact on customer confidence in our products and our company.

 

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We are subject to potential exposure to environmental liabilities and are subject to environmental regulation.

We are subject to various federal, state, and local environmental laws, ordinances, and regulations. Although we believe that our facilities are in material compliance with such laws, ordinances, and regulations, as owners and lessees of real property, we can be held liable for the investigation or remediation of contamination on such properties, in some circumstances, without regard to whether we knew of or were responsible for such contamination. Remediation may be required in the future as a result of spills or releases of petroleum products or hazardous substances, the discovery of unknown environmental conditions, or more stringent standards regarding existing residual contamination. More burdensome environmental regulatory requirements may increase our general and administrative costs and may increase the risk that we may incur fines or penalties or be held liable for violations of such regulatory requirements.

From time to time we are subject to legal and regulatory proceedings which seek material damages from us. These proceedings may be negatively perceived by the public and materially and adversely affect our business.

We are subject to legal and regulatory proceedings from time to time which may result in material damages. Although we do not presently believe that any of our current legal or regulatory proceedings will ultimately have a material adverse impact on our financial performance or operations, we cannot assure you that we will not incur material damages or penalties in a lawsuit or other proceeding in the future and/or significant defense costs related to such lawsuits or regulatory proceedings. For example, many of our products are installed in large, multi-unit condominiums or apartments or similar developments, and we may face legal claims for breach of warranties or other claims alleging product defects on a large-scale in connection with such projects. Also, we operate a fleet of delivery trucks and, in addition to the significant compliance-related costs associated with operating such a fleet, we may incur significant adverse judgments, damages and penalties related to accidents that those trucks may be involved in from time to time. Significant adverse judgments, penalties, settlement amounts, amounts needed to post a bond pending an appeal or defense costs could materially and adversely affect our liquidity and capital resources. It is also possible that, as a result of a present or future governmental or other proceeding or settlement, significant restrictions will be placed upon, or significant changes made to, our business practices, operations or methods, including pricing or similar terms. Any such restrictions or changes may adversely affect our profitability or increase our compliance costs.

Our Bylaws contain an exclusive forum provision that may discourage lawsuits against us and our directors and officers.

Our Amended and Restated Bylaws (our “Bylaws”) provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) an action asserting a claim arising pursuant to any provision of the DGCL or the Corporation’s Certificate of Incorporation or these By-laws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine. Our exclusive forum provision is not intended to apply to any actions brought under the Securities Act of 1933 (the “Securities Act”), as amended, or the Securities Exchange Act of 1934 (the “Exchange Act”). Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, the exclusive forum provision in our Bylaws will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.

This forum selection provision may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our certificate of incorporation, a court could rule that such a provision is inapplicable or unenforceable.

Item 1B. Unresolved Staff Comments.

None.

Item 1C. CYBERSECURITY.

Cyber criminals and malicious nation-state governments sponsored cyberthreat activity is becoming more sophisticated and effective every day, which we recognize includes increased targeting of the manufacturing sector and companies. All companies that utilize technology are subject to cyberthreat of breaches of their cybersecurity programs. To mitigate the threats to our Company, we take a comprehensive approach to cybersecurity risk management and technology infrastructure protections as a top priority.

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Our board of directors (the “Board”) in conjunction with the Audit Committee and members of management are actively involved in the oversight of our risk management program, of which cybersecurity represents a vital component. As described in more detail below, we have established policies, standards, processes, and practices for assessing, identifying, and managing material risks from cybersecurity threats, including but not limited to, our ability to sufficiently defend against all types of sophisticated tactics, techniques, and procedures (“TTPs”) used by malicious nation-state governments sponsored cyberthreat activity

We have devoted significant financial and personnel resources to implement and maintain security measures to meet regulatory requirements and customer expectations, and we intend to continue to make significant investments to maintain the security of our data and cybersecurity infrastructure. There can be no guarantee that our policies and procedures will be properly followed in every instance or that those policies and procedures will be effective.

Having been a target of cyber criminals in November 2022, we are keenly aware of the risks and consequences that a cybersecurity incident unleashes on the technology function within a company. While this previous cyber-attack did not materially affect us and, in our belief, is not reasonably likely to materially affect us, future cybersecurity incidents and threats may materially affect us, including by affecting our business strategy, results of operations, or financial condition. See Item 1A., “Risk Factors” for additional details regarding cybersecurity risks.

Risk Management and Strategy

Our policies, standards, processes, and practices for assessing, identifying, and managing material risks from cybersecurity threats are integrated into our overall risk management program and are based on frameworks established by the National Institute of Standards and Technology (“NIST”), the U.S. Center for Internet Security (“CIS”) and other applicable industry standards. Our defense-in-depth cybersecurity program is designed to focus on the following key areas:

Collaboration

Our cybersecurity risks are identified and addressed through a comprehensive, cross-functional approach. Key security, risk, and compliance stakeholders meet regularly to develop strategies for preserving the confidentiality, integrity, and availability (“CIA”) of Company and customer information, identifying, preventing, and mitigating cybersecurity threats, and effectively responding to cybersecurity incidents. We maintain cybersecurity incident controls and procedures that are designed to ensure prompt escalation of incidents so that decisions regarding public disclosure and reporting of such incidents can be made by management and the Board in a timely manner.

Risk Assessment

Annually, we conduct a cybersecurity risk assessment with quarterly updates to the Audit Committee of the Board that considers information from internal stakeholders, known information security vulnerabilities, and information from external sources (e.g., cybersecurity alerts and advisories from the U.S. Cybersecurity & Infrastructure Security Agency, relevant technology vendors, related companies, industry trends, and evaluations by third parties and consultants). The results of these assessments are used to drive alignment on, and prioritization of, initiatives to enhance our security controls, make recommendations to improve processes, and inform a broader enterprise-level risk assessment that is presented to our Board, Audit Committee, and members of management.

Technical Safeguards

We regularly assess and deploy technical cyber-safeguards designed to protect our information systems from cybersecurity threats. Such safeguards are regularly evaluated and improved based on vulnerability assessments, third-party cybersecurity threat assessments and incident response experience.

Incident Response and Recovery Planning

We have established comprehensive incident response and recovery plans and continue to regularly test and evaluate them for effectiveness of those plans. Our incident response and business recovery plans address — and guide our employees, management, Audit Committee, and the Board on — our response to a cybersecurity incident.

Third-Party Risk Management

We have implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers. Such providers are subject to security risk assessments at the time of onboarding, contract renewal, and upon detection of an increase in risk profile. We use various inputs in such random risk assessments, including information supplied by providers and third parties.

- 24 -


 

In addition, we require our providers to meet appropriate security requirements, controls and responsibilities and investigate security incidents that have impacted our third-party providers, as appropriate.

Education and Awareness

Our policies require each of our employees to contribute to our cyber and data security efforts. We regularly remind employees of the importance of handling and protecting data, including through annual privacy and security training to enhance employee awareness on how to detect and respond to cybersecurity threats.

External Assessments

Our cybersecurity policies, standards, processes, and practices are regularly assessed by external consultants and auditors. These assessments include various activities including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness. For example, in 2022 and 2023, we conducted an independent cyber security maturity assessment and external penetration test to assess our controls against the NIST Cybersecurity Framework. The results of significant assessments are reported to management, the Audit Committee and Board. Cybersecurity processes are adjusted based on the information provided from these assessments. We have also completed cybersecurity attestations that demonstrate our dedication to protecting the data entrusted to us.

Governance

Board Oversight

Our Board, in coordination with the Audit Committee, oversees our management of cybersecurity risk. They receive at least quarterly reports, or more frequently if deemed necessary, from management about the prevention, detection, mitigation, and remediation of cybersecurity incidents, including material security risks and information security vulnerabilities. Our Audit Committee directly oversees our cybersecurity program. The Audit Committee receives regular updates from management on cybersecurity risk resulting from risk assessments, progress of risk reduction initiatives, external auditor feedback, control maturity assessments, and relevant internal and industry cybersecurity incidents.

Management’s Role

Our Senior Vice President (“SVP”) of Production Innovations & Technology, Vice President (“VP”) of Information Technology, Director of Information Security & Infrastructure, and General Counsel have primary responsibility for assessing and managing material cybersecurity risks and are members of management’s Security Steering Committee (the “Security Committee”), which is a governing body that drives alignment on security decisions across the Company. The Security Committee meets quarterly to review security performance metrics, identify security risks, and assess the status of approved security enhancements. The Security Committee also considers and makes recommendations on security policies and procedures, security service requirements, and risk mitigation strategies.

Our SVP has served in various roles in both engineering, operations, and information technology for over 20 years. He holds an undergraduate degree in mechanical engineering and a master’s in business administration. Our VP of Information Technology has served in various roles in information technology and information security for 20 years. He holds an undergraduate degree in both industrial technology and distribution. Our Director of Information Security & Infrastructure has served in similar roles within information technology for over 25 years including risks arising from cybersecurity threats at several large publicly traded companies. He holds an undergraduate degree in criminal justice. Our General Counsel has over 20 years of experience managing risks, including risks arising from cybersecurity incidents and threats, at several large publicly traded companies.

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Item 2. Properties

We had the following properties as of December 30, 2023:

 

 

 

Manu-
facturing

 

 

Support

 

 

Storage

 

 

Storefront

 

 

 

(in square feet)

 

Owned:

 

 

 

 

 

 

 

 

 

 

 

 

Main plant and corporate office, N. Venice, FL

 

 

348,000

 

 

 

15,000

 

 

 

 

 

 

 

Glass tempering and laminating, N. Venice, FL

 

 

107,000

 

 

 

5,000

 

 

 

 

 

 

 

ILAB research and testing, N. Venice, FL

 

 

 

 

 

22,000

 

 

 

 

 

 

 

Manufacturing and storage (Triple D) facility, N. Venice, FL

 

 

102,000

 

 

 

 

 

 

15,000

 

 

 

 

Childcare facility, N. Venice, FL

 

 

 

 

 

7,000

 

 

 

 

 

 

 

Insulated glass building/expansion, N. Venice, FL

 

 

138,000

 

 

 

 

 

 

 

 

 

 

PGT Wellness Center, N. Venice, FL

 

 

 

 

 

3,600

 

 

 

 

 

 

 

Plant and administrative offices, Clovis, CA (Anlin)

 

 

76,000

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leased:

 

 

 

 

 

 

 

 

 

 

 

 

Support facility (Endeavor Court), Nokomis, FL

 

 

 

 

 

12,000

 

 

 

 

 

 

 

Storage facility (Eco storage), Medley, FL

 

 

 

 

 

 

 

 

182,000

 

 

 

 

Storage facility (Technology Park), Nokomis, FL

 

 

 

 

 

 

 

 

10,500

 

 

 

 

Storage facility (Commerce Drive), Nokomis, FL

 

 

 

 

 

 

 

 

6,400

 

 

 

 

Storage facility (Riverview warehouse), Riverview, FL

 

 

 

 

 

 

 

 

75,300

 

 

 

 

Storage facility, Medley, FL

 

 

 

 

 

 

 

 

5,200

 

 

 

 

Storage facility (Field Service), Pompano Beach, FL

 

 

 

 

 

 

 

 

4,800

 

 

 

 

Storage facility (Eagle Falls Place), Tampa, FL

 

 

 

 

 

 

 

 

4,600

 

 

 

 

Storage facility (Metro Parkway), Ft. Myers, FL

 

 

 

 

 

 

 

 

3,800

 

 

 

 

Storage facility (42nd St), Palm City, FL

 

 

 

 

 

 

 

 

2,300

 

 

 

 

Storage facility (Silver Star), Orlando, FL

 

 

 

 

 

 

 

 

3,200

 

 

 

 

Warehouse, Commerce City, CO

 

 

 

 

 

 

 

 

33,600

 

 

 

 

Distribution facility, Medley, FL

 

 

 

 

 

40,000

 

 

 

 

 

 

 

Plant and administrative offices, Medley, FL (Eco)

 

 

350,700

 

 

 

 

 

 

 

 

 

 

Plant and administrative offices, Ft. Myers, FL

 

 

130,000

 

 

 

 

 

 

 

 

 

 

Plant and administrative offices, Irvine, CA (CRi)

 

 

28,000

 

 

 

1,400

 

 

 

 

 

 

 

Plant and administrative offices, Hialeah, FL (CGI)

 

 

305,000

 

 

 

20,000

 

 

 

 

 

 

 

Plant and administrative offices, Phoenix, AZ (WWS)

 

 

238,800

 

 

 

10,000

 

 

 

 

 

 

 

Plant and administrative offices, Tampa, FL (NewSouth)

 

 

230,000

 

 

 

8,500

 

 

 

 

 

 

 

Plant and administrative offices, Salt Lake City, UT (Martin)

 

 

194,800

 

 

 

10,000

 

 

 

 

 

 

 

SEBU showrooms located in FL, SC, GA and TX (NewSouth)

 

 

 

 

 

 

 

 

 

 

 

232,200

 

WEBU showrooms located in CA (WWS)

 

 

 

 

 

 

 

 

 

 

 

19,200

 

Triple Diamond Glass fabrication facility, Prince George Co., VA

 

 

291,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

 

2,540,000

 

 

 

164,500

 

 

 

346,700

 

 

 

251,400

 

In addition to the above owned and leased properties, we also own three parcels of undeveloped land in North Venice, Florida, available for future construction needs we may have.

The Triple Diamond Glass fabrication facility is currently under construction, and is expected to be operational in 2024.

Our major property leases above expire between May 2024 and June 2035. Many of our property leases require us to pay taxes, insurance and common area maintenance expenses associated with the properties.

All of our owned properties secure borrowings under our credit agreement (dated February 16, 2016, as amended by the first amendment thereto, dated as of February 17, 2017, the second amendment thereto, dated as of March 16, 2018, the third amendment thereto, dated October 31, 2019, the fourth amendment thereto dated October 25, 2021, and the fifth amendment dated October 12, 2022, as otherwise amended, restated, modified or supplemented, the “2016 Credit Agreement due 2027”). We believe these operating facilities are adequate in capacity and condition to service existing customer needs.

 

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We are involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not expect that the ultimate resolution of these matters will have a material adverse impact on our financial position, cash flows or results of operations.

Item 4. MINE SAFETY DISCLOSURES

None

 

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock trades on the New York Stock Exchange under its symbol of “PGTI”. On February 16, 2024, the closing price of our Common Stock was $41.39 as reported on the New York Stock Exchange. The number of stockholders of record of our Common Stock on that date was approximately 2,500, although we believe that the number of beneficial owners of our Common Stock is substantially greater.

 

Dividends

We do not pay a regular dividend. Any determination relating to dividend policy will be made at the discretion of our Board of Directors. The terms of the agreements governing our outstanding borrowings restrict our ability to pay dividends.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this item appears in our definitive proxy statement for our annual meeting of stockholders under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

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 fourth fiscal quarter ended December 30, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of Equity Securities

Period

 

Beginning and
Ending Dates

 

(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
(in $M)

Beginning balance

 

September 30

 

 

 

 

 

 

 

$174.87

 October 2023

 

October 1 to October 28

 

194,735

 

$27.0490

 

194,735

 

$169.60

 November 2023

 

October 29 to November 25

 

65,218

 

$29.9088

 

65,218

 

$167.65

 December 2023

 

November 26 to December 30

 

 

$0.0000

 

 

$167.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

259,953

 

$27.7665

 

259,953

 

 

 

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Performance Graph

The following graphs compare the percentage change in PGT Innovations, Inc.’s cumulative total stockholder return on its Common Stock with the cumulative total stockholder return of the NYSE Composite Index, the SPDR S&P Homebuilders ETF, and the Standard & Poor’s Building Products Index over the period from December 28, 2018 (the last trading day of our 2018 fiscal year), to December 29, 2023 (the last trading day of our 2023 fiscal year).

COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN

AMONG PGT INNOVATIONS, INC., THE NYSE COMPOSITE INDEX, THE SPDR S&P

HOMEBUILDERS ETF AND THE S&P 500 BUILDING PRODUCTS INDEX

 

 

 

img150089662_0.jpg 

 

* Graph shows returns generated as if $100 were invested on December 28, 2018 (the last trading day of our 2018 fiscal year) for 60 months ended December 29, 2023 (the last trading day of our 2023 fiscal year), in PGTI stock or in the SPDR S&P Homebuilders ETF Fund, which is an exchange-traded fund that seeks to replicate the performance of the S&P Homebuilders Select Industry Index, or in the S&P 500 Building Products index, which is a fund that seeks to replicate the performance of the building products manufacturers who are included in the Standard and Poors 500 index.

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Item 6. [RESERVED]

 

 

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8. Management's Discussion and Analysis comparing the results for the year ended December 31, 2022, to the results for the year ended January 1, 2022 can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023, which is hereby incorporated by reference. In the comparisons which follow, the years ended December 30, 2023 and December 31, 2022 each consisted of 52 weeks.

Our MD&A is presented in the following sections:

Executive Overview;
Results of Operations;
Liquidity and Capital Resources;
Subsequent Event;
Critical Accounting Estimates;
Recently Issued Accounting Standards; and

EXECUTIVE OVERVIEW

Sales and Operations

During 2023, we saw solid repair and remodel sales, offset by new construction headwinds at both our Southeast and Western segments. These factors, as well as a full year of sales from Martin in 2023, compared with only post-acquisition sales from October 2022, resulted in a slight growth in sales for 2023 compared to 2022. Our total net sales for 2023 were $1,504.2 million, increasing 0.8% compared to $1,492.0 million in 2022. We continued to make strategic marketing investments which have paid dividends through customer awareness during the 2023 repair and remodeling season, as demand for our premium products remains strong. However, we have faced challenging conditions in the new construction channel as we believe the current high-interest rate environment has had a softening effect on demand. This has been especially true in the west as our organic volume is down year-over-year, partially offset by a full year of sales in 2023 from our Martin acquisition, versus only from October 14, 2022, in 2022. Sales growth at our Southeast segment was entirely organic.

Our Southeast segment's net sales were $1,130.4 million in 2023, compared to $1,110.4 million in 2022, an increase of $20.0 million, or 1.8%. Solid repair and remodeling sales was offset by soft new construction sales, resulting in slight organic growth in 2023 compared with 2022. Strong sales of our premium WinGuard products at our PGT brand offset decreases in other Southeast segment brands and led to modest organic growth in our Southeast segment.

Our Western segment's net sales were $373.8 million in 2023, compared to $381.6 million in 2022, a decrease of $7.8 million, or 2.0%. While sales for 2023 of our Western segment includes acquisition growth from Martin, our existing business saw an organic decline in sales due to soft conditions in the new construction channel. While we believe that our production builder business remains strong, and that there is pent up demand for conversion to indoor/outdoor living products, we believe that the high-interest rate environment we are in continues to be a drag on new construction demand.

Our gross profit increased to $590.6 million in 2023, producing a gross margin of 39.3%, compared to $570.7 million in 2022, an increase of $20.0 million, or 3.5%, which produced a gross margin of 38.2%, an improvement in gross margin of 110 basis points from 2022 to 2023. We were able to produce this operational improvement, despite new construction headwinds, by continued solid performance from our operating teams, the impact of prior-year pricing actions offsetting material and wage inflation, and additional cost management discipline, partially offset by reduced fixed cost leverage from lower volumes.

Our backlog, which we define as customer orders that we have accepted but not yet shipped, has decreased significantly, to $175.3 million as of December 30, 2023, from $228.8 million as of December 31, 2022. The majority of this decrease in backlog resulted from an increase in the Company’s overall production capacity, with corresponding lower lead times.

Liquidity and Cash Flow

During 2023, we generated $196.9 million in cash flow from operations, an increase of $0.5 million, or 0.3% compared to $196.4 million in 2022. We continue to generate strong cash from operations due to profitable operations and expansion of our gross margin through our focus on cost discipline. This strong cash generation has enabled up to paydown $115.0 million of the $160.0

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million borrowed under the New Revolving Credit Facility on October 12, 2022, the proceeds from which were used to fund the cash portion of the Martin Acquisition.

 

We ended the 2023 fiscal year with $32.7 million in cash. We have no scheduled debt repayment obligations until the maturity of our 2016 Credit Agreement due 2027, and had $196.5 million in availability under the revolving credit facility under our 2016 Credit Agreement due 2027, which does not expire until October 2027.

Cash generated from operations was generally used to fund operations and investing cash flows, which was primarily composed of capital expenditures in 2023 and, as discussed above, repay borrowings under the New Revolving Credit Facility. During 2023, our capital spending increased to $69.5 million, compared to $45.4 million in 2022, an increase of $24.1 million in cash used.

RESULTS OF OPERATIONS

Analysis of Selected Items from our Consolidated Statements of Operations

 

 

 

Year Ended

 

 

 

 

 

December 30,

 

 

December 31,

 

 

Percent Change

 

 

2023

 

 

2022

 

 

2023-2022

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

Net sales

 

$

1,504,241

 

 

$

1,491,954

 

 

0.8%

Cost of sales

 

 

913,600

 

 

 

921,285

 

 

(0.8%)

 

 

 

 

 

 

 

 

 

Gross profit

 

 

590,641

 

 

 

570,669

 

 

3.5%

Gross margin

 

 

39.3

%

 

 

38.2

%

 

 

 

 

 

 

 

 

 

 

 

SG&A expenses

 

 

404,193

 

 

 

402,886

 

 

0.3%

SG&A expenses as a percentage of net sales

 

 

26.9

%

 

 

27.0

%

 

 

Impairment of trade name

 

 

5,500

 

 

 

7,423

 

 

 

Restructuring costs and charges, net

 

 

1,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

179,226

 

 

 

160,360

 

 

11.8%

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

31,077

 

 

 

28,879

 

 

7.6%

Debt extinguishment costs

 

 

 

 

 

410

 

 

 

Income tax expense

 

 

38,010

 

 

 

32,666

 

 

16.4%

 

 

 

 

 

 

 

 

 

Net income

 

 

110,139

 

 

 

98,405

 

 

11.9%

Less: Net income attributable to redeemable non-controlling interest

 

 

(1,101

)

 

 

(1,523

)

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to the Company

 

$

109,038

 

 

$

96,882

 

 

12.5%

 

 

 

 

 

 

 

 

 

Calculation of net income per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

Net income attributable to the Company

 

$

109,038

 

 

$

96,882

 

 

 

Change in redemption value of redeemable non-controlling interest

 

 

(1,637

)

 

 

2,000

 

 

 

Net income attributable to common shareholders

 

$

107,401

 

 

$

98,882

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

Basic

 

$

1.84

 

 

$

1.65

 

 

 

Diluted

 

$

1.83

 

 

$

1.64

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

58,363

 

 

 

59,926

 

 

 

Diluted

 

 

58,700

 

 

 

60,319

 

 

 

 

 

 

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Full Year 2023 Compared with Full Year 2022

Net sales

Net sales for 2023 were $1,504.2 million, a $12.3 million, or 0.8%, increase in sales, from $1,492.0 million in the prior year.

The following table shows net sales by segment (in millions, except percentages):

 

 

 

Year Ended

 

 

 

 

December 30, 2023

 

December 31, 2022

 

 

 

 

Sales

 

 

% of sales

 

Sales

 

 

% of sales

 

% change

Product category:

 

 

 

 

 

 

 

 

 

 

 

 

Southeast segment

 

$

1,130.4

 

 

75.1%

 

$

1,110.4

 

 

74.4%

 

1.8%

Western segment

 

 

373.8

 

 

24.9%

 

 

381.6

 

 

25.6%

 

(2.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

1,504.2

 

 

100.0%

 

$

1,492.0

 

 

100.0%

 

0.8%

Net sales of our Southeast segment were $1,130.4 million in 2023, compared with $1,110.4 million in 2022, an increase of $20.0 million, or 1.8%. This increase in sales at our Southeast segment was entirely organic. Demand for our premium products remains strong. However, we have faced challenging conditions in the new construction channel as we believe the current high-interest rate environment has had a softening effect on demand. 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 disruption to our ability to manufacture and distribute our products and affected our customers’ ability to accept deliveries of our products.

Net sales of our Western segment were $373.8 million in 2023, compared with $381.6 million in 2022, an decrease of $7.8 million, or 2.0%, as a result of the new construction channel headwinds discussed above. Sales for 2023 of our Western segment includes acquisition growth from Martin. Excluding Martin's 2023 sales, our existing business was negatively impacted by softness in the new construction channel in 2023, compared to 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 $590.6 million in 2023, an increase of $20.0 million, or 3.5%, from $570.7 million in the prior year. Gross margin was 39.3% in 2023, compared to 38.2% in the prior year, a percentage-point increase of 1.1%. Gross profit and gross margin benefited from several positive factors, including continued solid performance from our operating teams, the impact of prior-year pricing actions offsetting material and wage inflation, and additional cost management discipline, partially offset by reduced fixed cost leverage from lower volumes. Additionally, gross profit in 2023 includes the impact of the Martin acquisition. Regarding 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 $1.9 million 2022, of which $1.1 million is classified as cost of sales.

Selling, general and administrative expenses

SG&A expenses for 2023 were $404.2 million, an increase of $1.3 million, or 0.3%, from $402.9 million in 2022. As a percentage of net sales, SG&A was 26.9% in 2023, compared to 27.0% in 2022. The increase in SG&A is primarily due to an increase in our investments in marketing and increased selling efforts. The increase also relates to costs relating to the redemption of the RNCI of ECO, merger costs relating to the Masonite International Corp. ("Masonite") merger agreement, which was terminated in early 2024, and our Triple Diamond Glass facility start-up costs.

Impairment of trade name

There was an impairment of our Martin trade name of $5.5 million in 2023. Because of post-acquisition sales levels below those used in its initial valuation, we conducted a quantitative impairment assessment of our Martin trade name on the first day of our fourth quarter of 2023. Because it was recently acquired, the carrying value of the Martin trade name exceeded its fair value as a result of the lower than projected sales levels, resulting in an impairment of the Martin trade name.

There was an impairment of our WinDoor trade name of $7.4 million in 2022. Because of a then recent decrease in sales of our WinDoor brand and given the narrow excess of fair value over carrying value of our WinDoor trade name in our prior quantitative test of the WinDoor trade name as a result of these events, a quantitative impairment assessment was conducted as of the first day of our fourth quarter of 2022, resulting in an impairment of the WinDoor tradename.

 

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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 2023, which includes 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. 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 $179.2 million in 2023, an increase of $18.9 million, or 11.8%, from $160.4 million in 2022. Income from operations in 2023 includes $137.2 million from our Southeast segment and $49.3 million from our Western segment, compared to $112.6 million and $55.2 million from our Southeast and Western segments, respectively, in 2022, all after allocation of corporate operating costs in both periods. Income from operations was also impacted by an impairment charge of $5.5 million relating to our Western segment, and restructuring costs and charges, net, of $1.7 million relating to our Southeast segment in 2023, and in 2022 was impacted by a $7.4 million impairment charge relating to our Southeast segment. Several positive factors which benefited gross profit, including a reduction in the cost of aluminum and vinyl in 2023, compared to 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, also benefited income from operations in 2023 compared to 2022.

Interest expense

Interest expense was $31.1 million in 2023, an increase of $2.2 million from $28.9 million in 2022. The increase in interest expense in 2023, compared to 2022 is primarily the result of a higher level of average borrowings under the 2016 Credit Facility, as well as a higher interest rate under the revolving facility during 2023, compared to the term loan facility during 2022.

Debt extinguishment costs

Debt extinguishment costs totaled $0.4 in 2022. In 2022, we repaid our term loan borrowings under the 2016 Credit Agreement, resulting in a write-off of its remaining deferred financing costs.

Income tax expense

Income tax expense was $38.0 million for 2023, representing an effective tax rate of 25.7%. This compares to income tax expense of $32.7 million for 2022, representing an effective tax rate of 24.9%. Our income tax expense for 2023 includes $0.9 million relating to our 75% share of the pre-tax earnings of Eco, compared to $1.2 million in 2022.

Income tax expense in both 2023 and 2022 include discrete items of income tax benefits totaling $2.1 million in 2023, and totaled $1.1 million in 2022. Such discrete items of income tax benefits relates to excess tax benefits from the lapses of restrictions on stock awards and from research and development tax credits true-up adjustments and, in 2022, also includes a refund from the state of Florida, relating to excess taxes received by the state. Excluding discrete components of income tax, the effective tax rates for the years ended December 30, 2023, and December 31, 2022, would have been income tax expense rates of 27.1% and 25.8%, respectively.

Net income attributable to redeemable non-controlling interest ("RNCI")

Net income attributable to RNCI for 2023 was $1.1 million, compared to $1.5 million for 2022, and represents the share of the net income of Eco for the periods, attributable to the 25% interest of Eco not acquired by the Company in February 2021. Effective on May 26, 2023, the Company redeemed the remaining 25% interest it previously did not own.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is cash flow generated by operations, supplemented by borrowing capacity under our New Revolving Credit Facility, if ever needed. We believe our cash generating capability will continue to provide us with financial flexibility in meeting operating and investing needs. Our primary capital requirements are to fund working capital needs, and to meet required debt payments, including debt service payments on borrowings and fund capital expenditures.

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Consolidated Cash Flows

The following table summarizes our cash flow results for 2023 and 2022:

 

 

 

Components of Cash Flows

 

 

 

Year Ended

 

(in millions)

 

December 30,
2023

 

 

December 31,
2022

 

Cash provided by operating activities

 

$

196.9

 

 

$

196.4

 

Cash used in investing activities

 

 

(69.1

)

 

 

(233.9

)

Cash (used in) provided by financing activities

 

 

(161.6

)

 

 

7.9

 

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

$

(33.8

)

 

$

(29.6

)

Operating activities. Cash provided by operating activities was $196.9 million for 2023, compared to $196.4 million for 2022.

The increase in cash flows from operations of $0.5 million in 2023 compared to 2022 was primarily due to the changes in operating cash flows, including an increase of $57.8 million in collections from customers in 2023 compared to 2022, as the result of increased sales, and a decrease in payments to suppliers of $16.3 million as the result of higher procurement of inventory, which were partially offset by an increase in personnel related disbursements of $55.3 million due to a larger number of employees during 2023, compared to 2022, and an increase in debt service costs of $2.3 million in 2023, compared to 2022, primarily as a result of the issuance of the 2021 Senior Notes due 2029, and the higher level of notes outstanding thereunder as compared to the recently pre-paid 2018 Senior Notes due 2026. Also, net tax payments increased $19.1 million in 2023, compared to 2022. Other collections of cash and other cash activity, net, increased by $3.1 million. Other collections of cash primarily relate to sales of scrap aluminum.

Direct cash flows from operations for 2023 and 2022 are presented below:

 

 

 

Direct Operating Cash Flows

 

 

 

Year Ended

 

(in millions)

 

December 30,
2023

 

 

December 31,
2022

 

Collections from customers

 

$

1,594.7

 

 

$

1,536.9

 

Other collections of cash

 

 

18.4

 

 

 

15.1

 

Disbursements to suppliers

 

 

(914.8

)

 

 

(931.1

)

Personnel related disbursements

 

 

(430.5

)

 

 

(375.2

)

Debt service costs

 

 

(30.2

)

 

 

(27.9

)

Income tax payments, net

 

 

(40.6

)

 

 

(21.5

)

Other cash activity, net

 

 

(0.1

)

 

 

0.1

 

 

 

 

 

 

 

 

Cash from operations

 

$

196.9

 

 

$

196.4

 

Inventory as of December 30, 2023, was $111.8 million, a decrease of $0.9 million from December 31, 2022.

Our inventory consists principally of raw materials purchased for the manufacture of our products and limited finished goods inventory as the majority of our products are custom, made-to-order products. Our inventory levels are more closely aligned with our number of product offerings rather than our level of sales. We have maintained our inventory level to have (i) raw materials required to support new product launches; (ii) a sufficient level of safety stock on certain items to ensure an adequate supply of material in the event of a sudden increase in demand and given our short lead-times; and (iii) adequate lead times for raw materials purchased from overseas suppliers in bulk supply.

Management monitors and evaluates 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 the majority of our products are made-to-order, we have only a small amount of finished goods and work in progress inventory. Due to these factors, we believe our inventories are not excessive, and we expect the value of such inventories will be realized.

Investing activities. Cash used in investing activities was $69.1 million in 2023, compared to $233.9 million in 2022 a decrease in cash used of $164.8 million. We made a final working capital payment of $0.7 million relating to the Martin acquisition in 2023, compared with cash used for acquisitions in 2022 of $188.6 million, a decrease in cash used for business combinations and acquisitions of $187.8 million. Also, in 2023, we used cash of $69.5 million for capital expenditures, compared to $45.4 million in 2022, an increase of $24.1 million in cash used for capital expenditures. Finally, in 2023, we received proceeds of $1.2 million from

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the sales of property, plant and equipment, compared to $37 thousand in 2022, a decrease of $1.1 million in cash proceeds received from sales of property, plant and equipment.

Financing activities. Cash used in financing activities was $161.6 million in 2023, compared with cash provided of $7.9 million in 2022, an increase in cash used of $169.6 million.

In 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 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 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. 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%. In 2022, we made a distribution to the RNCI of $1.7 million.

During 2023, we had net repayments under the New Revolving Credit Facility of $31.4 million, which included gross borrowings of $50.0 million, partially offset by gross repayments totaling $81.4 million. We drew down $160.0 million of funds available under the New Revolving Credit Facility, using $60.0 million of the proceeds to repay term loan borrowings under the 2016 Credit Agreement. We made repayments of borrowings under the New Revolving Credit Facility totaling $83.6 million through December 31, 2022. We paid financing costs totaling $1.5 million in 2022, including financing costs relating to bank fees relating to the New Revolving Credit Facility.

As further discussed below under Share Repurchase Program, during 2023, we made repurchases of 3,300,233 shares of our common stock at a total cash used of $82.3 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 $7.2 million in 2023, versus $1.9 million in 2022, an increase in cash used of $5.4 million.

There were proceeds from stock issued under our 2019 Employee Stock Purchase Plan of $1.1 million during 2023, compared to $0.6 million during the 2022, an increase in cash provided of $0.5 million.

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 2023, we repurchased a total of 3,300,233 shares under this program at a total cost of $82.3 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

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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.

Capital Expenditures. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. In 2023, we spent $69.5 million on capital expenditures, compared to $45.4 million in 2022, an increase of $24.1 million, primarily representing equipment purchases and facility improvements expected to support growth.

Capital Resources and Debt Covenants

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 December 30, 2023, the face value of debt outstanding under the 2021 Senior Notes due 2029 was $575.0 million, and accrued interest was $6.3 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 2024 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 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 an amendment of the 2016 Credit Agreement (the “Fifth Amendment”) due 2027. The Fifth Amendment provides for, among other things, a five-year revolving credit facility in an aggregate principal amount of

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$250.0 million (the “New Revolving Credit Facility”). The New Revolving Credit Facility refinances and replaces the previously existing $80.0 million revolving credit facility under the 2016 Credit Agreement. 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 initial $160.0 million of borrowings under the New Revolving Credit Facility totaling $115.0 million through December 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 will pay 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 December 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 December 30, 2023, borrowings outstanding under the $250.0 million New Revolving Credit Facility totaled $45.0 million, and accrued interest was $43 thousand. There were $8.5 million in letters of credit outstanding. Availability under the New Revolving Credit Facility at December 30, 2023 totaled $196.5 million. The weighted average all-in interest rate for borrowings under the existing revolving credit facility of the 2016 Credit Agreement due 2027 was 7.11% as of December 30, 2023, and for borrowings under the term loan facility of the then existing 2016 Credit Agreement due 2024 was 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 $188.5 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 $90.1 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 year ended December 30, 2023, are as follows:

 

(in thousands)

 

Total

 

At beginning of year

 

$

9,218

 

Less: Amortization expense

 

 

(1,320

)

 

 

 

 

At end of year

 

$

7,898

 

 

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Estimated amortization expense relating to third-party fees and costs, lender fees and discount for the years indicated, as of December 30, 2023, is as follows:

 

(in thousands)

 

Total

 

2024

 

$

1,366

 

2025

 

 

1,442

 

2026

 

 

1,466

 

2027

 

 

1,440

 

2028

 

 

1,222

 

Thereafter

 

 

962

 

 

 

 

 

Total

 

$

7,898

 

 

The contractual future maturities of long-term debt outstanding, as of December 30, 2023, are as follows (at face value):

 

(in thousands)

 

Total

 

2024

 

$

 

2025

 

 

 

2026

 

 

 

2027

 

 

45,000

 

2028

 

 

 

Thereafter

 

 

575,000

 

 

 

 

 

Total

 

$

620,000

 

 

Long-Term Debt

Long-term debt consists of the following:

 

 

 

December 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

2021 Senior Notes Due 2029 - Senior notes issued on September 24, 2021,
    due October 1, 2029. Interest payable semi- annually, in arrears, beginning
    on April 1, 2022, accruing at a rate of 4.375% per annum beginning
    September 24, 2021.

 

$

575,000

 

 

$

575,000

 

 

 

 

 

 

 

 

2016 Credit Agreement Due 2027 - Revolving credit facility
    with no contractually scheduled amortization payments.
    Outstanding balance, if any, due on October 12, 2027.
    Interest payable at SOFR or the Base prime rate plus an
    applicable margin, due at the end of each SOFR term or
    Base loan term. At December 30, 2023, the average rate
    was 7.11%, including a SOFR rate of 5.36% and an applicable
    margin of 1.75%. At December 31, 2022, the average rate
    was 6.07%, including a SOFR rate of 4.32% and a margin
    of 1.75%.

 

 

45,000

 

 

 

76,352

 

 

 

 

 

 

 

 

Long-term debt

 

 

620,000

 

 

 

651,352

 

Fees, costs, and discount (1)

 

 

(7,898

)

 

 

(9,218

)

 

 

 

 

 

 

 

Long-term debt, net, less current portion

 

$

612,102

 

 

$

642,134

 

 

 

(1) Fees, costs, and discount represents third-party fees, lender fees, other debt-related costs, and original issue premium and discount, recorded as a net reduction of the carrying value of the debt and are amortized over the lives of the debt instruments to which they relate under the effective interest method.

 

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SUBSEQUENT EVENT

MITER Merger Agreement. On January 17, 2024, the Company and MITER Brands™ (“MITER”), a nationwide manufacturer of precision-built windows and doors, announced they entered into a definitive merger agreement for MITER to acquire all of the Company's outstanding shares at a price of $42.00 per share in cash, or an enterprise value of approximately $3.1 billion. The purchase price represents a premium of 60% the Company's unaffected closing share price on October 9, 2023, the last trading day prior to the public disclosure of a proposal for the acquisition of the Company. The merger agreement has been unanimously approved by the boards of directors of both companies. The transaction is expected to be financed in part by an equity investment from Koch Equity Development LLC, the principal investment and acquisition arm of Koch Industries, Inc., and a current investor in MITER. The Company also announced that it had terminated its merger agreement with Masonite International Corp. (“Masonite”) dated December 17, 2023.

MITER and the Company entered into their agreement after the Company's Board unanimously determined that MITER’s proposal constituted a “Superior Proposal” as defined in its merger agreement with Masonite, dated December 17, 2023. We notified Masonite of our determination and Masonite waived its right to improve the terms of its offer. In accordance with our merger agreement with Masonite, concurrent with the signing of the definitive merger agreement with MITER, we terminated our merger agreement with Masonite and MITER, on behalf of the Company, paid the termination fee of $84.0 million due to Masonite. MITER’s transaction with the Company is expected to close by mid-year 2024, subject to approval by the shareholders of the Company, regulatory approval, including satisfaction of the antitrust provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and customary closing conditions. The 30-day waiting period under the HSR Act, in connection with the Merger expired at 11:59 p.m. on February 22, 2024. The expiration of the HSR Act waiting period satisfies one of the conditions to the closing of the Merger. MITER has obtained commitment letters for the financing necessary to complete the transaction, which is not subject to a financing condition. Upon completion of the transaction, the Company will become a privately held subsidiary of MITER and its common stock will no longer be traded on the New York Stock Exchange.

The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern, and no adjustments have been made to reflect the effects, if any, from entering into the aforementioned merger agreement with MITER.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements, we follow U.S. generally accepted accounting principles. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations.

On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material. Our significant accounting policies are discussed in Item 8, Note 2. The following is a summary of our more significant accounting estimates that require the use of judgment in preparing the financial statements.

Indefinite-Lived Intangible Assets

We disclosed the Company’s accounting policy for Goodwill and Trade Names under Item 8, Note 2 – Summary of Significant Accounting Policies. We perform our annual