As filed with the Securities and Exchange
Commission on August 5, 2010
Registration
No. 333-167193
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
PLY GEM HOLDINGS,
INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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3089
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20-0645710
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(IRS Employer Identification
No.)
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5020 Weston Parkway,
Suite 400
Cary, North Carolina 27513
(919) 677-3900
(Address, including
zip code, and telephone number, including area code, of
Registrants principal executive offices)
Shawn K. Poe
Chief Financial Officer
Ply Gem Holdings, Inc.
5020 Weston Parkway, Suite 400
Cary, North Carolina 27513
(919) 677-3900
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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John C. Kennedy, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
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Stephen L. Burns, Esq.
William J. Whelan III, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
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Approximate date of commencement of proposed sale to
public: As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering: o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering: o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering: o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
CALCULATION OF
REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate Offering
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Amount of
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Securities to be Registered
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Price(1)
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Registration Fee(2)
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Common Stock, par value $0.01 per share
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$300,000,000
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$21,390
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(1)
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Estimated solely for the purpose of
calculating the registration fee in accordance with
Rule 457(o) of the Securities Act of 1933.
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(2)
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Previously paid.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We and the selling stockholders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
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Subject to
completion, dated August 5, 2010
Prospectus
shares
Ply Gem Holdings,
Inc.
Common Stock
This is an initial public offering of Ply Gem Holdings, Inc.
common stock.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price of the common
stock is expected to be between $
and $ per share. We intend to
apply for listing of our common stock on the New York Stock
Exchange under the symbol PGEM.
We are
selling shares
of common stock. The selling stockholders named in this
prospectus have granted the underwriters an option to purchase a
maximum
of
additional shares of common stock to cover over-allotments. We
will not receive any proceeds from the sale of the shares by the
selling stockholders.
Investing in our common stock involves risks. See
Risk factors on page 13.
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Underwriting
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Discounts and
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Proceeds to
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Price to Public
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Commissions
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Ply Gem Holdings, Inc.
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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Delivery of the shares of common stock will be made against
payment in New York, New York on or
about ,
2010.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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J.P.
Morgan |
Goldman, Sachs & Co. |
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Credit
Suisse |
UBS Investment Bank |
Deutsche Bank
Securities
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Zelman
Partners LLC |
BB&T Capital Markets |
Stephens Inc. |
Knight/Houlihan Lokey |
,
2010.
You should rely only on the information contained in this
prospectus and any free writing prospectus we provide to you.
Neither we nor the underwriters have authorized any other person
to provide you with different information. If anyone provides
you with different or inconsistent information, you should not
rely on it. Neither we nor the underwriters are making an offer
to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus or such other date stated in
this prospectus.
Table of
contents
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1
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13
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27
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29
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29
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30
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31
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33
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41
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45
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76
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93
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101
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126
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130
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141
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146
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149
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153
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161
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161
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161
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F-1
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EX-23.1 |
EX-23.2 |
i
Market and
industry data
Market data and other statistical information used throughout
this prospectus are based on independent industry publications,
government publications, reports by market research firms or
other published independent sources. Some data are also based on
good faith estimates by our management, which are derived from
their review of internal surveys, as well as the independent
sources listed above. Gary E. Robinette, our President and
Chief Executive Officer, is a member of the Policy Advisory
Board of Harvard Universitys Joint Center for Housing
Studies, and we have relied, in part, on its study for the
market and statistical information included in this prospectus.
ii
Prospectus
summary
This summary highlights material information about us and
this offering, but does not contain all of the information that
you should consider before investing in our common stock. You
should read this entire prospectus carefully, including the
Risk factors and our consolidated financial
statements and the accompanying notes included elsewhere in this
prospectus before investing. This prospectus includes
forward-looking statements that involve risks and uncertainties.
See Cautionary note regarding forward-looking
statements.
Unless otherwise specified or the context requires otherwise,
(i) the term Ply Gem Holdings refers to Ply Gem
Holdings, Inc.; (ii) the term Ply Gem
Industries refers to Ply Gem Industries, Inc., the
principal operating subsidiary of Ply Gem Holdings;
(iii) the terms we, us, or
our, Ply Gem and the Company
refer collectively to Ply Gem Holdings and its subsidiaries; and
(iv) the term Reorganization Transactions
refers to the transactions described in Certain
relationships and related party transactionsReorganization
transactions. The use of these terms is not intended to
imply that Ply Gem Holdings and Ply Gem Industries are not
separate and distinct legal entities.
Except as the context otherwise requires, references to
information being pro forma or on a pro forma
basis means such information is presented after giving
effect to the Reorganization Transactions, the entry into the
tax receivable agreement described in Certain
relationships and related party transactionsTax receivable
agreement, this offering and the estimated use of proceeds
from this offering. See Unaudited pro forma financial
information.
Our
company
We are a leading manufacturer of residential exterior building
products in North America, operating in two reportable segments:
(i) Siding, Fencing, and Stone and (ii) Windows and
Doors, which comprised approximately 60% and 40% of our sales,
respectively, for the fiscal year ended December 31, 2009.
These two segments produce a comprehensive product line of vinyl
siding, designer accents and skirting, vinyl fencing, vinyl and
composite railing, stone veneer and vinyl windows and doors used
in both new construction and home repair and remodeling in the
United States and Western Canada. Vinyl building products have
the leading share of sales volume in siding and windows in the
United States. We also manufacture vinyl and aluminum soffit and
siding accessories, aluminum trim coil, wood windows, aluminum
windows, vinyl and aluminum-clad windows and steel and
fiberglass doors, enabling us to bundle complementary and
color-matched products and accessories with our core products.
We believe that our comprehensive product portfolio and
geographically diverse, low cost manufacturing platform allow us
to better serve our customers and provide us with a competitive
advantage over other exterior building products suppliers. For
the year ended December 31, 2009, we had net sales of
$951.4 million, adjusted EBITDA of $116.2 million and
net loss of $76.8 million. For the three months ended
April 3, 2010, we had net sales of $204.2 million,
adjusted EBITDA of $12.4 million and net income of
$54.1 million as compared to net sales of
$182.8 million, adjusted EBITDA of $(12.5) million and
net loss of $55.5 million for the three months ended
April 4, 2009.
1
Our competitive
strengths
We believe the following competitive strengths differentiate us
from our competitors and are critical to our continued success:
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Leading Manufacturer of Exterior Building
Products. Based on our internal estimates and
industry experience, we believe we have established leading
positions in many of our core product categories including:
No. 1 in vinyl siding in the U.S.; No. 1 in aluminum
accessories in the U.S.; No. 2 in vinyl and aluminum
windows in the U.S.; and No. 2 in windows and doors in
Western Canada. We achieved this success by developing a broad
offering of high quality products and providing superior service
to our customers. We are one of the few companies that operate a
geographically diverse manufacturing platform capable of
servicing our customers across the entire United States and
Western Canada. The scale of our operations also positions us
well as customers look to consolidate their supplier base. We
believe our broad offering of leading products, geographically
diverse manufacturing platform and long-term customer
relationships make us the manufacturer of choice for our
customers exterior building products needs.
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Comprehensive Product Portfolio with Strong Brand
Recognition. We offer a comprehensive portfolio of
over twenty exterior building product categories covering a full
range of price points. Our broad product line gives us a
competitive advantage over other exterior building product
suppliers who provide a narrower range of products by enabling
us to provide our customers with a differentiated value
proposition to meet their own customers needs. Our leading
brands, such as Ply
Gem®,
Mastic®
Home Exteriors,
Variform®,
Napco®,
Georgia-Pacific (which we license) and Great
Lakes®
Window, are well recognized in the industry. Many of our
customers actively support our brands and typically become
closely tied to our brands through joint marketing and training,
fostering long-term relationships under the common goal of
delivering a quality product.
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We believe a distinguishing factor in our customers
selection of Ply Gem as a supplier is the innovation and quality
for which our brands are known. As a result, our customers
positive experience with one product or brand affords us the
opportunity to cross-sell additional products and effectively
introduce new products. Since 2007, we have successfully
implemented a more unified brand strategy to expand our
cross-selling opportunities between our siding and window
product offerings. For instance, we recently consolidated
certain window product offerings under the Ply Gem brand to
offer a national window platform to our customers, which we
believe represents a comprehensive line of new construction and
home repair and remodeling windows in the industry. With our
extensive product line breadth, industry-leading brands and
national platform, we believe we can provide our customers with
a more cost-effective, single source from which to purchase
their exterior building products.
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Multi-Channel Distribution Network Servicing a Broad
Customer Base. We have a multi-channel distribution
network that serves both the new construction and home repair
and remodel end markets through our broad customer base of
specialty and wholesale distributors, retail home centers,
lumberyards, remodeling dealers and builders. Our multi-channel
distribution strategy has increased our sales and penetration
within these end markets, while limiting our exposure to any one
customer or channel such that our top ten customers only
accounted for approximately 36.3% of our net sales in 2009. We
believe our strategy enables us to minimize channel conflict,
reduce our reliance on any one channel and reach the greatest
number of end customers while providing us with the ability to
increase our sales and to sustain our financial performance
through economic fluctuations.
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Balanced Exposure to New Construction and Home Repair and
Remodeling. Our products are used in new
construction and home repair and remodeling, with our
diversified product mix reducing our overall exposure to any
single sector. We operate in two reportable segments:
(i) Siding, Fencing, and Stone, which has been weighted
towards home repair and remodeling, and (ii) Windows and
Doors, which has historically focused on new construction. We
have recently begun to expand our presence in the home repair
and remodel window sector through the launch of a new series of
repair and remodel window products, focusing on the unique
requirements of this sector while leveraging our existing
customer relationships. This is one of several new initiatives
that have been well received by our customers and that
complement our established product offerings by utilizing our
national sales force to sell multiple products in our portfolio.
We believe the diversity of our end markets and products
provides us with a unique opportunity to capitalize on the
overall housing market recovery.
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Highly Efficient, Low Cost Operating
Platform. Since mid-2006, we have closed or
consolidated eight plants, generating savings of over
$30 million annually, and reduced our workforce by
approximately 50%. During this time, we also invested
approximately $54 million in capital expenditures,
including new product introductions and upgrades to equipment,
facilities and technology, to continue improving our vertically
integrated manufacturing platform. For example, our multi-plant
window manufacturing platform allows us to service our customers
with less than one week lead times across a broad geographic
coverage area, providing us a competitive advantage with the
ability to operate in
just-in-time
fashion. This capability provides a unique service proposition
to our customers while allowing us to maintain minimal inventory
levels in our window product offerings. In addition, as a result
of our Polyvinyl Chloride Resin (PVC) purchasing scale (we are
one of the largest purchasers in North America based on industry
estimates), we are able to secure favorable prices, terms and
input availability through various cycles.
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Through our strong cost controls, vertically-integrated
manufacturing platform, continued investment in technology and
significant purchasing scale, we have improved efficiency and
safety in our manufacturing facilities while reducing fixed
costs to approximately 21% of our total cost structure, which
provides significant operating leverage as the housing market
recovers. Furthermore, our manufacturing facilities are among
the safest in all of North America with three of them having
received the highest federal
and/or state
Occupational Safety and Health Administration (OSHA)
safety award and rating. We believe that we have one of the most
efficient and safest operating platforms in the exterior
building products industry, helping to drive our profitability.
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Proven Track Record of Acquisition Integration and Cost
Savings Realization. Our five acquisitions since early
2004 have enhanced our geographic diversity, expanded our
product offerings and enabled us to enter new product
categories. Most recently, our acquisition of United Stone
Veneer (now branded Ply Gem Stone) in 2008 enabled us to enter
the stone veneer product category, which is one of the fastest
growing categories of exterior cladding products. We have
maintained a disciplined focus on integrating new businesses,
rather than operating them separately, and have created
meaningful synergies as a result. Through facility and headcount
rationalizations, strategic sourcing and other manufacturing
improvements, we have permanently eliminated over
$50 million in aggregate costs. We view our ability to
identify, execute and integrate acquisitions as one of our core
strengths and expect that this initial public offering will
significantly improve our financial position and flexibility,
enabling us to lead the continued consolidation of the exterior
building products industry.
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Strong Management Team with Significant
Ownership. We are led by a committed senior
management team that has an average of over 20 years of
relevant industry experience. Our current senior management,
with financial and advisory support from affiliates of
CI Capital Partners LLC, has successfully transformed Ply
Gem from operating as a holding company with a broad set of
brand offerings to an integrated business model under the Ply
Gem brand, positioning our Company to grow profitably and
rapidly as the market recovers. As of April 3, 2010, after
giving effect to the Reorganization Transactions (assuming a
public offering price of $ per
share (the midpoint of the estimated public offering price range
set forth on the cover page of this prospectus)), members of our
management team held common stock and stock awards representing
approximately % of the shares of
our Company, which will decline
to % upon completion of this
initial public offering.
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Our business
strategy
We are pursuing the following business and growth strategies:
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Capture Growth Related to Housing Market
Recovery. As a leading manufacturer of exterior
building products, we intend to capitalize on the recovery in
new construction and home repair and remodeling. The 2009 level
of 441,000 single family housing starts was approximately 60%
below the 50 year average, representing a significant
opportunity for growth as activity returns to historical levels.
Furthermore, we believe that the underinvestment in homes during
the recent recession and the overall age of the
U.S. housing stock will drive significant future spending
for home repair and remodeling.
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We expect current and new homeowners purchases to focus on
including or replacing items that provide the highest return on
investment, have positive energy efficiency attributes and
provide potential cost savings. Our broad product offering
addresses expected demand growth from all of these key trends,
through our balanced exposure to the new construction and home
repair and remodel end markets, diverse price points, the high
recovery value for home improvements derived from our core
product categories and the ability to provide products that
qualify for many of the energy efficiency rebate and tax
programs currently in effect or under consideration.
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Continued Increase of Market Penetration. We
intend to increase the market penetration of our siding, fencing
and stone products and our window and door products by
leveraging the breadth of our product offering and broad
geographical footprint to serve customers across North America.
Additionally, our continued investments in product innovation
and quality, coupled with strong customer service, further
enhance our ability to capture increased sales in each of our
core product categories. For example, based on our internal
estimates and industry experience, we believe that we have
increased our penetration of the U.S. vinyl siding end
market and that in 2009 we accounted for approximately 33% of
total unit sales as compared to approximately 29% in 2008. In
addition, we believe that we have increased our share of total
unit sales of U.S. vinyl and aluminum windows for new
construction from approximately 17% in 2008 to 22% in 2009. In
2010, we will be introducing a new line of vinyl windows under
our Ply Gem brand as well as under our Mastic Home
Exteriors brand, historically associated with vinyl siding
products, that will be marketed and sold by our vinyl siding
sales force, a first for Ply Gem. We believe that this
demonstrates the substantial opportunity across our product
categories to continue to cross-sell and bundle products,
thereby increasing revenues from our existing channel partners
and industry relationships. We expect to build upon the
approximately $285 million in product share gains we
achieved in
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2008 and 2009, and as the market recovers from its current low
levels we expect to further enhance our leading positions.
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Expand Brand Coverage and Product
Innovation. We will continue to increase the value
of the Ply Gem brands by introducing new product categories for
our customers and by developing innovative new products within
our existing product categories. For example, we have developed
a complete series of window products under the Ply Gem brand to
target the higher margin home repair and remodeling window end
market. Furthermore, our recent addition of stone veneer to our
product offering in the Siding, Fencing, and Stone segment
provides existing siding customers with access to the fastest
growing category of exterior cladding products.
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Our new products frequently receive industry recognition, as
evidenced by our Ply Gem Mira aluminum-clad wood window, which
was an International Builders Show Product Pick in 2008.
In addition, our Cedar Discovery designer accent product and our
Ovation vinyl siding product were both named one of the top 100
products by leading industry publications. The result of our
commitment to product development and innovation has been
demonstrated in the $85 million of incremental annualized
sales that we recognized from new products introduced in 2008
and 2009.
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Drive Operational Leverage and Further
Improvements. While we reduced our production
capacity during the past several years, we have retained the
flexibility to bring back idled lines, facilities and/or
production shifts in order to increase our production as market
conditions improve. This incremental capacity can be selectively
restarted, providing us with the ability to match increasing
customer demand levels as the housing market returns to
historical levels of approximately one million or more single
family housing starts without the need for significant capital
investment. In our Windows and Doors segment, where we have
historically focused on new construction, we believe that our
new window products for home repair and remodeling will be able
to drive increased volumes through these manufacturing
facilities and enhance operating margins.
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Over the past several years, we have significantly improved our
manufacturing cost structure; however, there are opportunities
for further improvements. We believe that the continued
expansion of lean manufacturing and vertical integration in our
manufacturing facilities, along with the further consolidation
of purchases of key raw materials, supplies and services will
continue to provide us with cost advantages compared to our
competitors. In addition, the integration of our sales and
marketing efforts across our product categories provides an
ongoing opportunity to significantly improve our customer
penetration and leverage the strength of our brands.
Furthermore, we have centralized many back office functions into
our corporate office in Cary, North Carolina and believe that
additional opportunities remain. We believe all of these factors
should drive continued growth in profitability while improving
our cash flow and capital efficiency.
Building products
end markets
Demand for exterior building products, including siding,
fencing, stone, windows and doors, is primarily driven by the
construction of new homes and the repair and remodeling of
existing homes, which are affected by changes in national and
local economic and demographic conditions, employment levels,
availability of financing, interest rates, consumer confidence
and other economic factors.
5
New
construction
New construction in the United States experienced strong growth
from the early 1990s to 2006, with housing starts increasing at
a compounded annual growth rate of 3.8%. However, from 2006 to
2009, single family housing starts declined 70% according to the
National Association of Home Builders (NAHB). While
the industry has experienced a period of severe correction and
downturn, management believes that the long-term economic
outlook for new construction in the United States is favorable
and supported by an attractive interest rate environment and
strong demographics, as new household formations and increasing
immigration drives demand for starter homes. According to the
Joint Center for Housing Studies of Harvard University, net new
households between 2010 and 2020 are expected to be between
12.5 million units and 14.8 million units, with the
low end of the range equal to net new housing units achieved
between 1995 and 2005. Strong demographics and interest rates on
home loans at historically low levels are stimulants for demand
in the United States for new construction. According to the NAHB
April 23, 2010 forecast, annual single family housing
starts are expected to increase by 25.3% and 52.3% in 2010 and
2011, respectively. In addition, new construction in Canada is
expected to benefit from similar demand stimulants as new
construction in the United States, such as strong demographic
trends and historically low interest rate levels. According to
the Canadian Mortgage and Housing Corporation
(CMHC), housing starts in Alberta, Canada are
estimated to increase by approximately 18.5% and 19.4% in 2010
and 2011, respectively, demonstrating the recovery in new
construction in Western Canada.
Home repair
and remodeling
Since the early 1990s and through 2006, demand for home repair
and remodeling products in the United States increased at a
compounded annual growth rate of 4.3%, according to the
U.S. Census Bureau, as a result of strong economic growth,
low interest rates and favorable demographics. However,
beginning in 2007 the ability for homeowners to finance repair
and remodeling expenditures, such as replacement windows or
vinyl siding, has been negatively impacted by a general
tightening of lending requirements by financial institutions and
the significant decrease in home values, which limited the
amount of home equity against which homeowners could borrow.
Management believes that expenditures for home repair and
remodeling products are also affected by consumer confidence
that declined during 2009 due to general economic conditions and
increased unemployment levels. Although certain aspects of the
federal stimulus plan enacted in early 2009, such as energy
saving tax credits and Homestar, may encourage some consumers to
make home improvements, including the replacement of older
windows with newer more energy-efficient windows, management
believes that these favorable measures could be offset during
2010 by the effects of high unemployment, limited availability
of consumer financing and lower consumer confidence levels.
However, management believes the long-term economic outlook of
the demand for home repair and remodeling products in the United
States is favorable and supported by the move towards more
energy-efficient products, recent underinvestment in home
maintenance and repair and aging housing stock.
6
Risks associated
with our business
Our business is subject to numerous risks, which are highlighted
in the section entitled Risk factors.
These risks represent challenges to the successful
implementation of our strategy and the growth of our business.
Some of these risks are:
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Downturns in the home repair and remodeling and new
construction sectors or the economy and the availability of
consumer credit could adversely impact our end users and lower
the demand for, and pricing of, our products, which in turn
could cause our net sales and net income to decrease.
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We face competition from other exterior building products
manufacturers and alternative building materials. If we are
unable to compete successfully, we could lose customers and our
sales could decline.
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Changes in the costs and availability of raw materials,
especially PVC resin and aluminum, can decrease our profit
margin by increasing our costs.
|
|
|
|
Because we depend on a core group of significant
customers, our sales, cash flows from operations and results of
operations may decline if our key customers reduce the amount of
products that they purchase from us.
|
|
|
|
Our business is seasonal and can be affected by inclement
weather conditions that could affect the timing of the demand
for our products and cause reduced profit margins when such
conditions exist.
|
|
|
|
As of April 3, 2010, on an adjusted basis after
giving effect to the Reorganization Transactions and this
offering, we would have had approximately
$ million of indebtedness
outstanding. The significant amount of our indebtedness may
limit the cash flow available to invest in the ongoing needs of
our business.
|
|
|
|
We may be unable to generate sufficient cash to service
all of our indebtedness and may be forced to take other actions
to satisfy our obligations under such indebtedness, which may
not be successful. We may also be unable to generate sufficient
cash to make required capital expenditures.
|
For a discussion of these and other risks you should consider
before making an investment in our common stock, see the section
entitled Risk factors beginning on
page 13.
Our principal
stockholders
After giving effect to the Reorganization Transactions (assuming
a public offering price of $ per
share (the midpoint of the estimated public offering price range
set forth on the cover page of this prospectus)), affiliates of,
and companies managed by, CI Capital Partners LLC (CI
Capital Partners), including Caxton-Iseman (Ply Gem), L.P.
and Caxton-Iseman (Ply Gem) II, L.P. (collectively, the CI
Partnerships), will beneficially own
approximately % of our common
stock. Upon completion of this offering, after giving effect to
the Reorganization Transactions (assuming a public offering
price of $ per share (the midpoint
of the estimated public offering price range set forth on the
cover page of this prospectus)), the CI Partnerships are
expected to beneficially own
approximately % of our outstanding
common stock, or % if the
underwriters exercise their over-allotment option in full.
7
CI Capital Partners is a leading private equity investment firm
specializing in leveraged buyouts of middle-market companies
located primarily in North America. Since its inception, CI
Capital Partners investment activities have been managed
by Frederick Iseman and Steven Lefkowitz who have invested
together for 17 years. CI Capital Partners senior
investment professionals have 59 years of collective
experience at CI Capital Partners.
Reorganization
transactions
In connection with this offering, we will merge with our parent
corporation and engage in a series of transactions that will
convert the outstanding subordinated debt and preferred stock of
our parent corporation into common equity and result in a single
class of our common stock outstanding.
Currently, Ply Gem Prime Holdings, Inc. (Ply Gem
Prime) owns 100% of our capital stock. Immediately prior
to the closing of this offering, Ply Gem Prime will merge with
and into Ply Gem Holdings, with Ply Gem Holdings being the
surviving entity. In the reorganization merger, we will issue a
total
of shares
of our common stock, representing %
of our outstanding common stock after giving effect to this
offering. In the reorganization merger, all of the preferred
stock of Ply Gem Prime will be converted into a number of shares
of our common stock based on the initial public offering price
of our common stock and the liquidation value of and the maximum
dividend amount in respect of the preferred stock. The holders
of common stock of Ply Gem Prime will receive an aggregate
number of shares of our common stock equal to the difference
between
and the number of shares of our common stock issued to the
holders of preferred stock of Ply Gem Prime. Based on an assumed
public offering price of $ per
share (the midpoint of the estimated public offering price range
set forth on the cover page of this prospectus), in the
reorganization merger, holders of preferred stock of Ply Gem
Prime will receive an aggregate
of shares
of our common stock and holders of common stock of Ply Gem Prime
will receive an aggregate
of shares
of our common stock.
Finally, in connection with the reorganization merger, options
to purchase shares of common stock of Ply Gem Prime will be
converted into options to purchase shares of our common stock
with adjustments to the number of shares and per share exercise
prices. See Certain relationships and related party
transactions Reorganization transactions.
Corporate
information
We were incorporated under the laws of the State of Delaware on
January 23, 2004. Our principal executive offices are
located at 5020 Weston Parkway, Suite 400, Cary, North
Carolina 27513. Our telephone number is
(919) 677-3900.
Our website is www.plygem.com. Information contained on our
website does not constitute a part of this prospectus.
8
The
offering
|
|
|
Common stock outstanding before this offering |
|
shares. |
|
Common stock offered by us |
|
shares. |
|
Common stock offered by the selling stockholders |
|
shares
if the underwriters exercise their over-allotment option in full. |
|
Common stock to be outstanding immediately after this offering |
|
shares. |
|
Use of proceeds |
|
We estimate that the net proceeds to us from this offering will
be $ million, after deducting
the underwriting discount and estimated offering expenses
payable by us. We intend to use the net proceeds to us
(i) to redeem or repurchase a portion of our outstanding
indebtedness and (ii) to pay transaction fees and other
expenses. |
|
|
|
We will not receive any proceeds from the sale of our common
stock by the selling stockholders if the underwriters exercise
their option to purchase additional shares from the selling
stockholders. |
|
|
|
See Use of proceeds. |
|
NYSE symbol |
|
PGEM. |
|
Risk factors |
|
You should read the Risk factors section of
this prospectus for a discussion of factors that you should
consider carefully before deciding to invest in our common stock. |
The number of shares of our common stock outstanding after this
offering
excludes shares
that are subject to options granted pursuant to the Ply Gem
Prime Holdings, Inc. 2004 Stock Option Plan (the 2004
Option Plan) as
of ,
2010 at a weighted average exercise price of
$ per share
and shares
reserved for issuance under our 2010 Equity Award Plan (and
together with the 2004 Option Plan, the Equity
Plans). See Executive compensation.
Unless we indicate otherwise, all information in this prospectus:
|
|
|
assumes that the underwriters do not exercise their option to
purchase from the selling stockholders up
to shares
of our common stock to cover over-allotments;
|
|
|
assumes a public offering price of
$ per share (the midpoint of the
estimated public offering price range set forth on the cover
page of this prospectus); and
|
|
|
gives effect to the Reorganization Transactions.
|
9
Summary
historical and pro forma consolidated financial data of Ply Gem
Holdings, Inc.
The summary historical consolidated financial data presented
below for each of the years in the three year period ended
December 31, 2009 have been derived from, and should be
read together with, our audited consolidated financial
statements and the accompanying notes included elsewhere in this
prospectus. The summary historical consolidated statement of
operations data for the three month periods ended April 3,
2010 and April 4, 2009 and the balance sheet data as of
April 3, 2010 have been derived from the Ply Gem Holdings
unaudited condensed consolidated financial statements and the
accompanying notes included elsewhere in this prospectus and
have been prepared on the same basis as our audited financial
statements. In the opinion of management, the Ply Gem Holdings
unaudited condensed consolidated financial statements include
all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation of the
financial position and results of operations in these periods.
The results of any interim period are not necessarily indicative
of the results that can be expected for the full year or any
future period.
The information set forth below should be read in conjunction
with Capitalization, Unaudited pro
forma financial information, Selected
historical consolidated financial data,
Managements discussion and analysis of financial
condition and results of operations and our
consolidated financial statements and the accompanying notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands (except per share data))
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Statement of operations data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
204,205
|
|
|
$
|
182,751
|
|
|
$
|
951,374
|
|
|
$
|
1,175,019
|
|
|
$
|
1,363,546
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
167,308
|
|
|
|
169,691
|
|
|
|
749,841
|
|
|
|
980,098
|
|
|
|
1,083,153
|
|
Selling, general and administrative expenses
|
|
|
33,806
|
|
|
|
40,962
|
|
|
|
141,772
|
|
|
|
155,388
|
|
|
|
155,963
|
|
Amortization of intangible assets
|
|
|
6,794
|
|
|
|
4,906
|
|
|
|
19,651
|
|
|
|
19,650
|
|
|
|
17,631
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
207,908
|
|
|
|
215,559
|
|
|
|
911,264
|
|
|
|
1,605,136
|
|
|
|
1,260,897
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(3,703
|
)
|
|
|
(32,808
|
)
|
|
|
40,110
|
|
|
|
(430,117
|
)
|
|
|
102,649
|
|
Foreign currency gain (loss)
|
|
|
104
|
|
|
|
(88
|
)
|
|
|
475
|
|
|
|
(911
|
)
|
|
|
3,961
|
|
Interest expense(2)
|
|
|
(34,007
|
)
|
|
|
(33,756
|
)
|
|
|
(135,514
|
)
|
|
|
(138,015
|
)
|
|
|
(99,698
|
)
|
Interest income
|
|
|
53
|
|
|
|
65
|
|
|
|
211
|
|
|
|
617
|
|
|
|
1,704
|
|
Gain on extinguishment of debt(2)
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
60,634
|
|
|
|
(66,587
|
)
|
|
|
(94,718
|
)
|
|
|
(568,426
|
)
|
|
|
8,616
|
|
Provision (benefit) for income taxes
|
|
|
6,532
|
|
|
|
(11,049
|
)
|
|
|
(17,966
|
)
|
|
|
(69,951
|
)
|
|
|
3,634
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) attributable to common
stockholders per common share
|
|
$
|
541.02
|
|
|
$
|
(555.38
|
)
|
|
$
|
(767.52
|
)
|
|
$
|
(4,984.75
|
)
|
|
$
|
49.82
|
|
Pro forma earnings per share:(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands (except per share data))
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(5)
|
|
$
|
12,357
|
|
|
$
|
(12,537
|
)
|
|
$
|
116,215
|
|
|
$
|
96,095
|
|
|
$
|
176,016
|
|
Capital expenditures
|
|
|
3,029
|
|
|
|
2,446
|
|
|
|
7,807
|
|
|
|
16,569
|
|
|
|
20,017
|
|
Depreciation and amortization
|
|
|
15,454
|
|
|
|
13,896
|
|
|
|
56,271
|
|
|
|
61,765
|
|
|
|
54,067
|
|
Annual single family housing starts(6)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
441
|
|
|
|
616
|
|
|
|
1,036
|
|
Selected Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(21,416
|
)
|
|
$
|
(48,716
|
)
|
|
$
|
(16,882
|
)
|
|
$
|
(58,865
|
)
|
|
$
|
73,844
|
|
Investing activities
|
|
|
(3,028
|
)
|
|
|
(2,425
|
)
|
|
|
(7,835
|
)
|
|
|
(11,487
|
)
|
|
|
(56,407
|
)
|
Financing activities
|
|
|
38,950
|
|
|
|
9,974
|
|
|
|
(17,528
|
)
|
|
|
78,233
|
|
|
|
(15,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 3, 2010
|
|
Balance sheet data:
|
|
Actual
|
|
|
Pro Forma(4)(7)
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,659
|
|
|
$
|
|
|
Total assets
|
|
|
1,011,301
|
|
|
|
|
|
Total debt
|
|
|
926,778
|
|
|
|
|
|
Stockholders deficit
|
|
|
(143,831
|
)
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We adopted the recognition and
disclosure requirements in 2007 and the measurement provisions
in 2008 of Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87, 88, 106, and
132(R) (now included in Accounting Standards Codification (ASC)
715, CompensationRetirement Benefits). On January 1,
2007, we adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (now included in ASC 740, Income
Taxes). In addition, we elected to change our method of
accounting for a portion of our inventory in 2008 from the
last-in, first out (LIFO) method to the
first-in,
first-out (FIFO) method. |
|
(2)
|
|
During the three months ended
April 3, 2010, we separately classified a non-cash gain on
extinguishment in connection with the redemption of our 9%
Senior Subordinated Notes due 2012 (the 9% Senior
Subordinated Notes). During the year ended December 31, 2008, we
classified extinguishment losses arising from $14.0 million of
non-cash deferred financing costs associated with previous term
debt, $6.8 million for a prepayment premium and
$6.8 million of bank amendment fees as interest
expense. |
|
|
|
(3)
|
|
Reflects the Reorganization
Transactions and the change in the Companys capital
structure prior to the completion of this offering. |
The following details the computation of the pro forma
earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
For the Year
|
|
|
ended
|
|
|
ended
|
(amounts in thousands (except per share data))
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(76,752)
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average common share calculation:
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings common stock
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings preferred stock
|
|
|
|
|
|
|
|
Unaudited basic pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
Treasury stock effect of outstanding stock options
|
|
|
|
|
|
|
|
Unaudited diluted pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per common share:
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per common share
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
The summary pro forma financial
data are based upon available information and certain
assumptions as discussed in the notes to the unaudited financial
information presented under Unaudited pro forma financial
information. The summary pro forma financial data are for
informational purposes only and do not purport to represent what
our results of operations |
11
|
|
|
|
|
or financial position actually
would have been if each such transaction had occurred on the
dates specified above, nor does this data purport to represent
the results of operations for any future period. |
|
|
|
(5)
|
|
Adjusted EBITDA means net income
(loss) plus interest expense (net of interest income), provision
(benefit) for income taxes, depreciation and amortization,
non-cash gain on extinguishment of debt, non-cash foreign
currency gain/(loss), amortization of non-cash write-off of the
portion of excess purchase price from acquisitions allocated to
inventories, restructuring and integrations costs, customer
inventory buybacks, impairment charges and management fees paid
under our advisory agreement with an affiliate of the CI
Partnerships. Other companies may define adjusted EBITDA
differently and, as a result, our measure of adjusted EBITDA may
not be directly comparable to adjusted EBITDA of other
companies. Management believes that the presentation of adjusted
EBITDA included in this prospectus provides useful information
to investors regarding our results of operations because it
assists both investors and management in analyzing and
benchmarking the performance and value of our business. We have
included adjusted EBITDA because it is a key financial measure
used by management to (i) assess our ability to service our
debt and/or incur debt and meet our capital expenditure
requirements; (ii) internally measure our operating
performance; and (iii) determine our incentive compensation
programs. In addition, our $175.0 million senior secured
asset-based revolving credit facility (the ABL
Facility) has certain covenants that apply ratios
utilizing this measure of adjusted EBITDA. |
|
|
|
|
|
Despite the importance of this
measure in analyzing our business, measuring and determining
incentive compensation and evaluating our operating performance,
as well as the use of adjusted EBITDA measures by securities
analysts, lenders and others in their evaluation of companies,
adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under U.S. generally
accepted accounting principles (U.S. GAAP); nor is
adjusted EBITDA intended to be a measure of liquidity or free
cash flow for our discretionary use. Some of the limitations of
adjusted EBITDA are: |
|
|
|
Adjusted EBITDA does
not reflect our cash expenditures or future requirements for
capital expenditures;
|
|
|
|
Adjusted EBITDA does
not reflect changes in, or cash requirements for, our working
capital needs;
|
|
|
|
|
|
Adjusted EBITDA does
not reflect the interest expense or the cash requirements to
service interest or principal payments under our 11.75% senior
secured notes due 2013 (the Senior Secured Notes),
our 13.125% senior subordinated notes due 2014 (the
13.125% Senior Subordinated Notes) or the ABL
Facility;
|
|
|
|
|
|
Adjusted EBITDA does
not reflect income tax payments we are required to make; and
|
|
|
|
Although
depreciation and amortization are non-cash charges, the assets
being depreciated and amortized often will have to be replaced
in the future, and adjusted EBITDA does not reflect any cash
requirements for such replacements.
|
|
|
|
Adjusted EBITDA included in this
prospectus should be considered in addition to, and not as a
substitute for, net earnings in accordance with U.S. GAAP as a
measure of performance in accordance with U.S. GAAP. You are
cautioned not to place undue reliance on adjusted
EBITDA. |
The following table presents our calculation of adjusted
EBITDA reconciled to net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net(2)
|
|
|
33,954
|
|
|
|
33,691
|
|
|
|
135,303
|
|
|
|
137,398
|
|
|
|
97,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
6,532
|
|
|
|
(11,049
|
)
|
|
|
(17,966
|
)
|
|
|
(69,951
|
)
|
|
|
3,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,454
|
|
|
|
13,896
|
|
|
|
56,271
|
|
|
|
61,765
|
|
|
|
54,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash gain on extinguishment of debt(2)
|
|
|
(98,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on currency transaction
|
|
|
(104
|
)
|
|
|
88
|
|
|
|
(475
|
)
|
|
|
911
|
|
|
|
(3,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash charge of purchase price allocated to inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring/integration expense
|
|
|
106
|
|
|
|
3,994
|
|
|
|
8,992
|
|
|
|
10,859
|
|
|
|
10,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer inventory buyback
|
|
|
252
|
|
|
|
1,685
|
|
|
|
8,345
|
|
|
|
1,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees(8)
|
|
|
248
|
|
|
|
696
|
|
|
|
2,497
|
|
|
|
1,679
|
|
|
|
3,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
12,357
|
|
|
$
|
(12,537
|
)
|
|
$
|
116,215
|
|
|
$
|
96,095
|
|
|
$
|
176,016
|
|
|
|
|
|
|
(6)
|
|
Single family housing starts
data furnished by NAHB forecast (as of April 23,
2010). |
|
|
|
(7)
|
|
Gives effect to the
Reorganization Transactions, the creation of liabilities in
connection with entering into the tax receivable agreement
described in Certain relationships and related party
transactionsTax receivable agreement, this offering
and the application of the net proceeds from this offering as if
such transactions took place on April 3, 2010. |
|
|
|
(8)
|
|
After the completion of this
offering, the advisory agreement with an affiliate of the CI
Partnerships will be terminated and management fees will no
longer be paid. |
12
Risk
factors
Investing in our common stock involves substantial risks. In
addition to the other information in this prospectus, you should
carefully read and consider the risk factors set forth below
before deciding to invest in our common stock. Any of the
following risks could adversely affect our business, results of
operations, financial condition and liquidity. The market price
of our common stock could decline if one or more of these risks
and uncertainties develop into actual events, causing you to
lose all or part of your investment in our common stock. Certain
statements in Risk factors are forward-looking
statements. See Cautionary note regarding forward-looking
statements.
Risks associated
with our business
Downturns in
the home repair and remodeling and new construction sectors or
the economy and the availability of consumer credit could
adversely impact our end users and lower the demand for, and
pricing of, our products, which in turn could cause our net
sales and net income to decrease.
Our performance is dependent to a significant extent upon the
levels of home repair and remodeling and new construction
spending, which declined significantly in 2009 as compared to
2008 and are affected by such factors as interest rates,
inflation, consumer confidence, unemployment and the
availability of consumer credit.
Our performance is also dependent upon consumers having the
ability to finance home repair and remodeling projects
and/or the
purchase of new homes. The ability of consumers to finance these
purchases is affected by such factors as new and existing home
prices, homeowners equity values, interest rates and home
foreclosures, which in turn could result in a tightening of
lending standards by financial institutions and reduce the
ability of some consumers to finance home purchases or repair
and remodeling expenditures. In fact, it is estimated that as of
May 2010, 23% of all U.S. home mortgages were
underwater, whereby the homes worth is less than the
amount owed by the homeowner on the mortgage. Recent trends,
including declining home values, increased home foreclosures and
tightening of credit standards by lending institutions, have
negatively impacted the home repair and remodeling and the new
construction sectors. If these credit market trends continue,
our net sales and net income may be adversely affected.
We face
competition from other exterior building products manufacturers
and alternative building materials. If we are unable to compete
successfully, we could lose customers and our sales could
decline.
We compete with other national and regional manufacturers of
exterior building products. Some of these companies are larger
and have greater financial resources than we do. Accordingly,
these competitors may be better equipped to withstand changes in
conditions in the industries in which we operate and may have
significantly greater operating and financial flexibility than
we do. These competitors could take a greater share of sales and
cause us to lose business from our customers. Additionally, our
products face competition from alternative materials: wood,
metal, fiber cement and masonry in siding, and wood in windows.
An increase in competition from other exterior building products
manufacturers and alternative building materials could cause us
to lose our customers and lead to decreases in net sales.
13
Changes in the
costs and availability of raw materials, especially PVC resin
and aluminum, can decrease our profit margin by increasing our
costs.
Our principal raw materials, PVC resin and aluminum, have been
subject to rapid price changes in the past. While we have
historically been able to substantially pass on significant PVC
resin and aluminum cost increases through price increases to our
customers, our results of operations for individual quarters can
be and have been hurt by a delay between the time of PVC resin
and aluminum cost increases and price increases in our products.
While we expect that any significant future PVC resin and
aluminum cost increases will be offset in part or whole over
time by price increases to our customers, we may not be able to
pass on any future price increases.
Certain of our
customers have been expanding and may continue to expand through
consolidation and internal growth, which may increase their
buying power, which could materially and adversely affect our
revenues, results of operations and financial
position.
Certain of our important customers are large companies with
significant buying power. In addition, potential further
consolidation in the distribution channels could enhance the
ability of certain of our customers to seek more favorable
terms, including pricing, for the products that they purchase
from us. Accordingly, our ability to maintain or raise prices in
the future may be limited, including during periods of raw
material and other cost increases. If we are forced to reduce
prices or to maintain prices during periods of increased costs,
or if we lose customers because of pricing or other methods of
competition, our revenues, operating results and financial
position may be materially and adversely affected.
Because we
depend on a core group of significant customers, our sales, cash
flows from operations and results of operations may decline if
our key customers reduce the amount of products that they
purchase from us.
Our top ten customers accounted for approximately 36.3% of our
net sales in the year ended December 31, 2009. Our largest
customer, BlueLinx, distributes our vinyl siding and accessories
through multiple channels within its building products
distribution business, and accounted for approximately 8.6% of
our net sales in the first quarter of 2010 and approximately
9.2% of our net sales in each of 2009 and 2008, respectively. We
expect a small number of customers to continue to account for a
substantial portion of our net sales for the foreseeable future.
The loss of, or a significant adverse change in our
relationships with, BlueLinx or any other major customer could
cause a material decrease in our net sales.
The loss of, or a reduction in orders from, any significant
customers, losses arising from customers disputes
regarding shipments, fees, merchandise condition or related
matters, or our inability to collect accounts receivable from
any major retail customer could cause a decrease in our net
income and our cash flow. In addition, revenue from customers
that have accounted for significant revenue in past periods,
individually or as a group, may not continue, or if continued,
may not reach or exceed historical levels in any period.
14
Our business
is seasonal and can be affected by inclement weather conditions
that could affect the timing of the demand for our products and
cause reduced profit margins when such conditions
exist.
Markets for our products are seasonal and can be affected by
inclement weather conditions. Historically, our business has
experienced increased sales in the second and third quarters of
the year due to increased construction during those periods.
Because much of our overhead and operating expenses are spread
ratably throughout the year, our operating profits tend to be
lower in the first and fourth quarters. Inclement weather
conditions can affect the timing of when our products are
applied or installed, causing reduced profit margins when such
conditions exist.
Increases in
the cost of labor, union organizing activity and work stoppages
at our facilities or the facilities of our suppliers could delay
or impede our production, reduce sales of our products and
increase our costs.
Our financial performance is affected by the availability of
qualified personnel and the cost of labor. As of April 3,
2010, approximately 14.7% of our employees were represented by
labor unions. We are subject to the risk that strikes or other
types of conflicts with personnel may arise or that we may
become a subject of union organizing activity. Furthermore, some
of our direct and indirect suppliers have unionized work forces.
Strikes, work stoppages or slowdowns experienced by these
suppliers could result in slowdowns or closures of facilities
where components of our products are manufactured. Any
interruption in the production or delivery of our products could
reduce sales of our products and increase our costs.
We may be
subject to claims arising from the operations of our various
businesses arising from periods prior to the dates we acquired
them. Our ability to seek indemnification from the former owners
of our subsidiaries may be limited, in which case, we would be
liable for these claims.
We have acquired all of our subsidiaries, including Ply Gem
Industries, MWM Holding, Inc.
(MWM Holding), AWC Holding Company
(AWC, and together with its subsidiaries,
Alenco), Alcoa Home Exteriors, Inc.
(AHE), Ply Gem Pacific Windows Corporation
(Pacific Windows) and United Stone Veneer, LLC (now
known as Ply Gem Stone), in the last several years.
We may be subject to claims or liabilities arising from the
ownership or operation of our subsidiaries for the periods prior
to our acquisition of them, including environmental liabilities.
These claims or liabilities could be significant. Our ability to
seek indemnification from the former owners of our subsidiaries
for these claims or liabilities is limited by various factors,
including the specific limitations contained in the respective
acquisition agreement and the financial ability of the former
owners to satisfy such claims or liabilities. If we are unable
to enforce our indemnification rights against the former owners
or if the former owners are unable to satisfy their obligations
for any reason, including because of their current financial
position, we could be held liable for the costs or obligations
associated with such claims or liabilities, which could
adversely affect our operating performance.
We could face
potential product liability claims relating to products we
manufacture.
Our historical product liability claims have not been material
and while management is not aware of any material product
liability issues, we do face an inherent business risk of
exposure to product liability claims in the event that the use
of any of our products results in personal
15
injury or property damage. In the event that any of our products
proves to be defective, among other things, we may be
responsible for damages related to any defective products and we
may be required to recall or redesign such products. Because of
the long useful life of our products, it is possible that latent
defects might not appear for several years. Any insurance we
maintain may not continue to be available on terms acceptable to
us or such coverage may not be adequate for liabilities actually
incurred. Further, any claim or product recall could result in
adverse publicity against us, which could cause our sales to
decline, or increase our costs.
We are
dependent on certain key personnel, the loss of whom could
materially affect our financial performance and
prospects.
Our continued success depends to a large extent upon the
continued services of our senior management and certain key
employees. To encourage the retention of certain key executives,
we have entered into various equity-based compensation
agreements with our senior executives, including
Messrs. Robinette, Poe, Wayne, Morstad, and Pigues,
designed to encourage their retention. Each member of our senior
management team has substantial experience and expertise in our
industry and has made significant contributions to our growth
and success. We do face the risk, however, that members of our
senior management may not continue in their current positions
and their loss of services could cause us to lose customers and
reduce our net sales, lead to employee morale problems
and/or the
loss of key employees, or cause disruptions to our production.
Also, we may be unable to find qualified individuals to replace
any of the senior executive officers who leave our company.
Interruptions
in deliveries of raw materials or finished goods could adversely
affect our production and increase our costs, thereby decreasing
our profitability.
Our dependency upon regular deliveries from suppliers means that
interruptions or stoppages in such deliveries could adversely
affect our operations until arrangements with alternate
suppliers could be made. If any of our suppliers were unable to
deliver materials to us for an extended period of time, as the
result of financial difficulties, catastrophic events affecting
their facilities or other factors beyond our control, or if we
were unable to negotiate acceptable terms for the supply of
materials with these or alternative suppliers, our business
could suffer. We may not be able to find acceptable
alternatives, and any such alternatives could result in
increased costs for us. Even if acceptable alternatives were
found, the process of locating and securing such alternatives
might be disruptive to our business. Extended unavailability of
a necessary raw material or finished good could cause us to
cease manufacturing one or more of our products for a period of
time.
Environmental
requirements may impose significant costs and liabilities on
us.
Our facilities are subject to numerous United States and
Canadian federal, state, provincial and local laws and
regulations relating to pollution and the protection of the
environment, including those governing emissions to air,
discharges to water, use, storage and transport of hazardous
materials, storage, treatment and disposal of waste, remediation
of contaminated sites and protection of worker health and
safety. From time to time, our facilities are subject to
investigation by governmental regulators. In addition, we have
been identified as one of many potentially responsible parties
for contamination present at certain offsite locations to which
we or our predecessors are alleged to have sent hazardous
materials for recycling or disposal. We may be held liable, or
incur fines or penalties in connection with such requirements or
liabilities
16
for, among other things, releases of hazardous substances
occurring on or emanating from current or formerly owned or
operated properties or any associated offsite disposal location,
or for newly-discovered contamination at any of our properties
from activities conducted by previous occupants. The amount of
such liability, fine or penalty may be material. Certain
environmental laws impose strict, and under certain
circumstances joint and several, liability for the cost of
addressing releases of hazardous substances upon certain classes
of persons, including site owners or operators and persons that
disposed or arranged for the disposal of hazardous substances at
contaminated sites.
Changes in environmental laws and regulations or in their
enforcement, the discovery of previously unknown contamination
or other liabilities relating to our properties and operations
or the inability to enforce the indemnification obligations of
the previous owners of our subsidiaries could result in
significant environmental liabilities that could adversely
impact our operating performance. In addition, we might incur
significant capital and other costs to comply with increasingly
stringent United States or Canadian environmental laws or
enforcement policies that would decrease our cash flow.
Manufacturing
or assembly realignments may result in a decrease in our
short-term earnings, until the expected cost reductions are
achieved, due to the costs of implementation.
We continually review our manufacturing and assembly operations
and sourcing capabilities. Effects of periodic manufacturing
realignments and cost savings programs could result in a
decrease in our short-term earnings until the expected cost
reductions are achieved. Such programs may include the
consolidation and integration of facilities, functions, systems
and procedures. Such actions may not be accomplished as quickly
as anticipated and the expected cost reductions may not be
achieved or sustained.
We rely on a
variety of intellectual property rights. Any threat to, or
impairment of, these rights could cause us to incur costs to
defend these rights.
As a company that manufactures and markets branded products, we
rely heavily on trademark and service mark protection to protect
our brands. We also have issued patents and rely on copyright
protection for certain of our technologies. These protections
may not adequately safeguard our intellectual property and we
may incur significant costs to defend our intellectual property
rights, which may harm our operating results. There is a risk
that third parties, including our current competitors, will
infringe on our intellectual property rights, in which case we
would have to defend these rights. There is also a risk that
third parties, including our current competitors, will claim
that our products infringe on their intellectual property
rights. These third parties may bring infringement claims
against us or our customers, which may harm our operating
results.
Increases in
fuel costs could cause our cost of products sold to increase and
net income to decrease.
Increases in fuel costs can negatively impact our cost to
deliver our products to our customers and thus increase our cost
of products sold. If we are unable to increase the selling price
of our products to our customers to cover any increases in fuel
costs, net income may be adversely affected.
17
Declines in
our business conditions may result in an impairment of our
tangible and intangible assets which could result in a material
non-cash charge.
A decrease in our market capitalization, including a short-term
decline in stock price, or a negative long-term performance
outlook, could result in an impairment of our tangible and
intangible assets which results when the carrying value of the
our assets exceed their fair value. In 2007 our other intangible
assets suffered an impairment and in 2008 our goodwill suffered
an impairment. Additional impairment charges could occur in
future periods.
The
significant amount of our indebtedness may limit the cash flow
available to invest in the ongoing needs of our
business.
As of April 3, 2010, on an adjusted basis after giving
effect to the Reorganization Transactions and this offering, we
would have had approximately
$ million of indebtedness
outstanding, including $65.0 million of outstanding
borrowings under the ABL Facility.
Our indebtedness could have important consequences. For example,
it could:
|
|
|
require us to dedicate a substantial portion of our cash flow
from operations to interest and principal payments on our
indebtedness, reducing the availability of our cash flow for
other purposes, such as capital expenditures, acquisitions and
working capital;
|
|
|
limit our flexibility in planning for, or reacting to, changes
in our business, the industry in which we operate and the
general economy;
|
|
|
place us at a disadvantage compared to our competitors that have
less debt;
|
|
|
expose us to fluctuations in the interest rate environment
because the interest rates of our ABL Facility are at variable
rates; and
|
|
|
limit our ability to borrow additional funds.
|
Any of the foregoing could have a material adverse effect on our
business, financial condition, results of operations, prospects
and ability to satisfy our obligations under our indebtedness.
The terms of
our debt covenants could limit how we conduct our business and
our ability to raise additional funds.
The agreements that govern the terms of our debt, including the
indentures that govern the Senior Secured Notes and the
13.125% Senior Subordinated Notes and the credit agreement
that governs the ABL Facility, contain covenants that restrict
our ability and the ability of our subsidiaries to:
|
|
|
incur and guarantee indebtedness or issue equity interests of
restricted subsidiaries;
|
|
|
repay subordinated indebtedness prior to its stated maturity;
|
|
|
pay dividends or make other distributions on or redeem or
repurchase our stock;
|
|
|
issue capital stock;
|
|
|
make certain investments or acquisitions;
|
|
|
create liens;
|
18
|
|
|
sell certain assets or merge with or into other companies;
|
|
|
enter into certain transactions with stockholders and affiliates;
|
|
|
make capital expenditures; and
|
|
|
pay dividends, distributions or other payments from our
subsidiaries.
|
These restrictions may affect our ability to grow our business
and take advantage of market and business opportunities or to
raise additional debt or equity capital.
In addition, under the ABL Facility, if our excess availability
is less than the greater of (a) 15% of the lesser of
(i) the commitments and (ii) the borrowing base and
(b) $20.0 million, we will be required to satisfy and
maintain a fixed charge coverage ratio not less than 1.1 to 1.0.
Our ability to meet the required fixed charge coverage ratio can
be affected by events beyond our control, and we cannot assure
you that we will meet this ratio. A breach of any of these
covenants under the ABL Facility or the indentures governing our
Senior Secured Notes or our 13.125% Senior Subordinated
Notes could result in a default under the ABL Facility or the
indentures. An event of default under any of our debt agreements
would permit some of our lenders to declare all amounts borrowed
from them to be due and payable and, in some cases, proceed
against the collateral securing such indebtedness.
Moreover, the ABL Facility provides the lenders considerable
discretion to impose reserves or availability blocks, which
could materially impair the amount of borrowings that would
otherwise be available to us. There can be no assurance that the
lenders under the ABL Facility will not impose such actions
during the term of the ABL Facility and further, were they to do
so, the resulting impact of this action could materially and
adversely impair our liquidity.
We may be
unable to generate sufficient cash to service all of our
indebtedness and may be forced to take other actions to satisfy
our obligations under such indebtedness, which may not be
successful. We may also be unable to generate sufficient cash to
make required capital expenditures.
Our ability to make scheduled payments on or to refinance our
debt obligations and to make capital expenditures depends on our
financial condition and operating performance, which is subject
to prevailing economic and competitive conditions and to
financial, business and other factors. We will not be able to
control many of these factors, such as economic conditions in
the industry in which we operate and competitive pressures. We
cannot assure you that we will maintain a level of cash flows
from operating activities sufficient to permit us to pay or
refinance our indebtedness, including the Senior Secured Notes,
the 13.125% Senior Subordinated Notes or our indebtedness
under our ABL Facility, or make required capital expenditures.
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we and our subsidiaries could face
substantial liquidity problems and may be forced to reduce or
delay capital expenditures, sell assets, seek additional capital
or restructure or refinance our indebtedness.
In addition, if we do not have, or are unable to obtain,
adequate funds to make all necessary capital expenditures when
required, or if the amount of future capital expenditures are
materially in excess of our anticipated or current expenditures,
our product offerings may become dated, our productivity may
decrease and the quality of our products may decline, which, in
turn, could reduce our sales and profitability.
19
Our income tax
net operating loss carryovers may be limited and our results of
operations may be adversely impacted.
We have substantial deferred tax assets related to net operating
losses (NOLs) for United States federal and state
income tax purposes, which are available to offset future
taxable income. As a result, we project that the U.S. cash
tax rate will be reduced from the federal statutory rate and
state rate as a result of approximately $154.1 million of
gross NOLs for federal purposes and $204.4 million of gross
state NOLs. Our ability to utilize the NOLs may be limited as a
result of certain events, such as insufficient future taxable
income prior to expiration of the NOLs or annual limits imposed
under Section 382 of the Internal Revenue Code of 1986, as
amended (the Code), or by state law, as a result of
a change in control. A change in control is generally defined as
a cumulative change of more than 50 percentage points in
the ownership positions of certain stockholders during a rolling
three year period. Changes in the ownership positions of certain
stockholders could occur as the result of stock transactions by
such stockholders
and/or by
the issuance of stock by us. Such limitations may cause us to
pay income taxes earlier and in greater amounts than would be
the case if the NOLs were not subject to such limitations.
Should we determine that it is likely that our recorded NOL
benefits are not realizable, we would be required to reduce the
NOL tax benefits reflected on our consolidated financial
statements to the net realizable amount by establishing a
valuation reserve and recording a corresponding charge to
earnings. Conversely, if we are required to reverse any portion
of the accounting valuation against our U.S. deferred tax
assets related to our NOLs, such reversal could have a positive
effect on our financial condition and results of operations in
the period in which it is recorded.
In addition, upon the closing of this offering, we intend to
enter into a tax receivable agreement with an entity controlled
by our current stockholders (the Tax Receivable
Entity). This tax receivable agreement will generally
provide for the payment by us to the Tax Receivable Entity of
85% of the amount of cash savings, if any, in U.S. federal,
state and local income tax or franchise tax that we actually
realize in periods after this offering as a result of
(i) NOL carryovers from periods (or portions thereof)
ending before January 1, 2010, (ii) deductible
expenses attributable to the transactions related to this
offering and (iii) deductions related to imputed interest
deemed to be paid by us as a result of this tax receivable
agreement. See Certain relationships and related party
transactionsTax receivable agreement.
We will be
required to pay an affiliate of our current stockholders for
certain tax benefits we may claim, and the amounts we may pay
could be significant.
The amount and timing of any payments under the tax receivable
agreement will vary depending upon a number of factors,
including the amount and timing of the taxable income we
generate in the future and the tax rate then applicable, our use
of NOL carryovers and the portion of our payments under the tax
receivable agreement constituting imputed interest.
The payments we will be required to make under the tax
receivable agreement could be substantial. We expect that, as a
result of the amount of the NOL carryovers from prior periods
(or portions thereof) and the deductible expenses attributable
to the transactions related to this offering, assuming no
material changes in the relevant tax law and that we earn
sufficient taxable income to realize in full the potential tax
benefit described above, future payments under the tax
receivable agreement, in respect of the federal and state NOL
carryovers, will be approximately
$ million and will be paid
within the next five years. These amounts reflect
20
only the cash savings attributable to current tax attributes
resulting from the NOL carryovers. It is possible that future
transactions or events could increase or decrease the actual tax
benefits realized and the corresponding tax receivable agreement
payments from these tax attributes.
In addition, although we are not aware of any issue that would
cause the U.S. Internal Revenue Service (IRS)
to challenge the benefits arising under the tax receivable
agreement, the Tax Receivable Entity will not reimburse us for
any payments previously made if such benefits are subsequently
disallowed, except that excess payments made to the Tax
Receivable Entity will be netted against payments otherwise to
be made, if any, after our determination of such excess. As a
result, in such circumstances, we could make payments under the
tax receivable agreement that are greater than our actual cash
tax savings and may not be able to recoup those payments, which
could adversely affect our liquidity.
Finally, because we are a holding company with no operations of
our own, our ability to make payments under the tax receivable
agreement is dependent on the ability of our subsidiaries to
make distributions to us. The ABL Facility and the indentures
governing our Senior Secured Notes and our 13.125% Senior
Subordinated Notes restrict the ability of our subsidiaries to
make distributions to us, which could affect our ability to make
payments under the tax receivable agreement. To the extent that
we are unable to make payments under the tax receivable
agreement for any reason, such payments will be deferred and
will accrue interest until paid, which could adversely affect
our results of operations and could also affect our liquidity in
periods in which such payments are made.
In addition, the tax receivable agreement provides that, upon
certain mergers, asset sales, or other forms of business
combinations or certain other changes of control, our or our
successors obligations with respect to tax benefits would
be based on certain assumptions, including that we or our
successor would have sufficient taxable income to fully utilize
the NOL carryovers covered by the tax receivable agreement. As a
result, upon a change of control, we could be required to make
payments under the tax receivable agreement that are greater
than or less than the specified percentage of our actual cash
tax savings.
Risks related to
this offering and our common stock
We are
controlled by the CI Partnerships whose interest in our business
may be different than yours, and certain statutory provisions
afforded to stockholders are not applicable to us.
After giving effect to the Reorganization Transactions and this
offering, the CI Partnerships will own
approximately % of our outstanding
common stock (or % if the
underwriters exercise their over-allotment in full) based on an
assumed public offering price of $
per share (the midpoint of the estimated public offering price
range set forth on the cover page of this prospectus). Prior to
the consummation of this offering, we will enter into an amended
and restated stockholders agreement with the CI Partnerships and
certain of our current and former members of management and
their related parties. Under the stockholders agreement, the CI
Partnerships will be initially entitled to nominate a majority
of the members of our board of directors and all of the parties
to the stockholders agreement have agreed to vote their shares
of our common stock as directed by the CI Partnerships. See
ManagementBoard structure and
Certain relationships and related party
transactionsStockholders agreement for
additional details on the composition of our board of directors
and the rights of the CI Partnerships under the stockholders
agreement.
21
Accordingly, the CI Partnerships will be able to exercise
significant influence over our business policies and affairs. In
addition, the CI Partnerships can control any action requiring
the general approval of our stockholders, including the election
of directors, the adoption of amendments to our certificate of
incorporation and bylaws and the approval of mergers or sales of
substantially all of our assets. The concentration of ownership
and voting power of the CI Partnerships may also delay, defer or
even prevent an acquisition by a third party or other change of
control of our company and may make some transactions more
difficult or impossible without the support of the CI
Partnerships, even if such events are in the best interests of
minority stockholders. The concentration of voting power among
the CI Partnerships may have an adverse effect on the price of
our common stock.
In addition, we have opted out of section 203 of the
General Corporation Law of the State of Delaware, which we refer
to as the Delaware General Corporation Law, which,
subject to certain exceptions, prohibits a publicly held
Delaware corporation from engaging in a business combination
transaction with an interested stockholder for a period of three
years after the interested stockholder became such unless the
transaction fits within an applicable exemption, such as board
approval of the business combination or the transaction which
resulted in such stockholder becoming an interested stockholder.
Therefore, after the
lock-up
period expires, the CI Partnerships are able to transfer control
of our company to a third party by transferring their common
stock, which would not require the approval of our board of
directors or our other stockholders.
For additional information regarding the share ownership of, and
our relationship with, the CI Partnerships, you should read the
information under the headings Principal and selling
stockholders and Certain relationships and
related party transactions.
As a
controlled company within the meaning of the
NYSEs corporate governance rules, we will qualify for, and
intend to rely on, exemptions from certain NYSE corporate
governance requirements. As a result, our stockholders may not
have the same degree of protection as that afforded to
stockholders of companies that are subject to all of the
NYSEs corporate governance requirements.
Following this offering, we will be a controlled
company within the meaning of the NYSEs corporate
governance rules as a result of the ownership position and
voting rights of the CI Partnerships upon completion of this
offering. A controlled company is a company of which
more than 50% of the voting power is held by an individual,
group or another company. As a controlled company we may elect
not to comply with certain NYSE corporate governance rules that
would otherwise require our board of directors to have a
majority of independent directors and our Compensation and
Nominating and Governance Committees to be comprised entirely of
independent directors. Accordingly, our stockholders will not
have the same protection afforded to stockholders of companies
that are subject to all of the NYSE corporate governance
requirements and the ability of our independent directors to
influence our business policies and affairs may be reduced.
See ManagementControlled company.
Our directors
who have relationships with the CI Partnerships may have
conflicts of interest with respect to matters involving our
Company.
Following this offering, three of our eight directors will be
affiliated with the CI Partnerships. These persons will have
fiduciary duties to both us and the CI Partnerships. As a
result, they may have real or apparent conflicts of interest on
matters affecting both us and the CI Partnerships,
22
which in some circumstances may have interests adverse to ours.
In addition, as a result of the CI Partnerships ownership
interest, conflicts of interest could arise with respect to
transactions involving business dealings between us and the CI
Partnerships including potential acquisitions of businesses or
properties, the issuance of additional securities, the payment
of dividends by us and other matters.
In addition, our amended and restated certificate of
incorporation will provide that the doctrine of corporate
opportunity will not apply with respect to the Company, to
any of the CI Partnerships or certain related parties or any
directors of the Company who are employees of the CI
Partnerships or their affiliates in a manner that would prohibit
them from investing in competing businesses or doing business
with our customers. To the extent they invest in such other
businesses, the CI Partnerships may have differing interests
than our other stockholders.
There has been
no prior public market for our common stock and the trading
price of our common stock may be adversely affected if an active
trading market in our common stock does not develop. Our stock
price may be volatile, and you may be unable to resell your
shares at or above the offering price or at all.
Prior to this offering, there has been no public market for our
common stock, and an active trading market may not develop or be
sustained upon the completion of this offering. We cannot
predict the extent to which investor interest will lead to the
development of an active trading market in shares of our common
stock or whether such a market will be sustained. The initial
public offering price of the common stock offered in this
prospectus was determined through our negotiations with the
underwriters and may not be indicative of the market price of
the common stock after this offering. The market price of our
common stock after this offering will be subject to significant
fluctuations in response to, among other factors, variations in
our operating results and market conditions specific to our
industry.
Future sales
of shares of our common stock in the public market could cause
our stock price to fall significantly even if our business is
profitable.
Upon the completion of this offering, after giving effect to the
Reorganization Transactions (assuming a public offering price of
$ per share (the midpoint of the
estimated public offering price range set forth on the cover
page of this prospectus)), we will have outstanding shares of
common stock. Of these shares, the shares of common stock
offered in this prospectus will be freely tradable without
restriction in the public market, unless purchased by our
affiliates. We expect that the
remaining shares
of common stock will become available for resale in the public
market as shown in the chart below. Our officers, directors and
the holders of substantially all of our outstanding shares of
common stock have signed
lock-up
agreements pursuant to which they have agreed not to sell,
transfer or otherwise dispose of any of their shares for a
period of 180 days following the date of this prospectus,
subject to extension in the case of an earnings release or
material news or a material event relating to us. The
underwriters may, in their sole discretion and without notice,
release all or any portion of the common stock subject to
lock-up
agreements. The underwriters are entitled to waive the
underwriter
lock-up
provisions at their discretion prior to the expiration dates of
such lock-up
agreements.
23
Immediately following the consummation of this offering, our
shares of common stock will become available for resale in the
public market as follows:
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Number of shares
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Percentage
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Date of availability for resale
into the public market
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%
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Upon the effectiveness of this prospectus
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%
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180 days after the date of this prospectus, of which
approximately are
subject to holding period, volume and other restrictions under
Rule 144
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As restrictions on resale end, the market price of our common
stock could drop significantly if the holders of these
restricted shares sell them or are perceived by the market as
intending to sell them. These factors could also make it more
difficult for us to raise additional funds through future
offerings of our common stock or other securities. Following
this offering, we intend to file a registration statement under
the Securities Act of 1933 (the Securities Act)
registering shares of our common stock reserved for issuance
under our Equity Plans, and we will enter into a registration
rights agreement under which we will grant demand and piggyback
registration rights to the CI Partnerships and certain members
of management.
See Shares available for future sale for
a more detailed description of the shares that will be available
for future sale upon completion of this offering.
Because the
initial public offering price per common share is substantially
higher than our book value per common share, purchasers in this
offering will immediately experience a substantial dilution in
net tangible book value.
Purchasers of our common stock will experience immediate and
substantial dilution in net tangible book value per share from
the initial public offering price per share. After giving effect
to the Reorganization Transactions, the sale of
the shares
of common stock we have offered under this prospectus and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us, and the application of the net
proceeds therefrom, our pro forma as adjusted net tangible book
value as
of ,
2010, would have been
$ million, or
$ per share of common stock. This
represents an immediate dilution in pro forma as adjusted net
tangible book value of $ per share
to new investors purchasing shares of our common stock in this
offering. See Dilution for a calculation of
the dilution that purchasers will incur.
We do not
intend to pay dividends in the foreseeable future, and, because
we are a holding company, we may be unable to pay
dividends.
For the foreseeable future, we intend to retain any earnings to
finance our business, and we do not anticipate paying any cash
dividends on our common stock. Any future determination to pay
dividends will be at the discretion of our board of directors
and will be dependent on then-existing conditions, including our
financial condition and results of operations, capital
requirements, contractual restrictions, business prospects and
other factors that our board of directors considers relevant.
Furthermore, because we are a holding company with no operations
of our own, any dividend payments would depend on the cash flow
of our subsidiaries. The ABL Facility and the indentures
governing our Senior Secured Notes and our 13.125% Senior
Subordinated Notes limit the amount of distributions our
subsidiaries can make to us and the purposes for which
distributions can be made. In addition, Delaware law may
24
impose requirements that may restrict our ability to pay
dividends to holders of our common stock. Accordingly, we may
not be able to pay dividends even if our board of directors
would otherwise deem it appropriate. See
Managements discussion and analysis of financial
condition and results of operationsLiquidity and capital
resources and Description of capital
stockCapital stockCommon stock. For the
foregoing reasons, you will not be able to rely on dividends to
receive a return on your investment.
Provisions in
our charter and bylaws may delay or prevent our acquisition by a
third party.
Our amended and restated certificate of incorporation and
by-laws, which we intend to adopt prior to the completion of
this offering, will contain several provisions that may make it
more difficult or expensive for a third party to acquire control
of us without the approval of our board of directors. These
provisions also may delay, prevent or deter a merger,
acquisition, tender offer, proxy contest or other transaction
that might otherwise result in our stockholders receiving a
premium over the market price for their common stock. The
provisions include, among others:
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provisions relating to creating a board of directors that is
divided into three classes with staggered terms;
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provisions relating to the number and election of directors, the
appointment of directors upon an increase in the number of
directors or vacancy and provisions permitting the removal of
directors only for cause and with a
662/3%
stockholder vote;
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provisions requiring a
662/3%
stockholder vote for the amendment of certain provisions of our
certificate of incorporation and for the adoption, amendment or
repeal of our by-laws;
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provisions barring stockholders from calling a special meeting
of stockholders or requiring one to be called;
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elimination of the right of our stockholders to act by written
consent;
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provisions that set forth advance notice procedures for
stockholders nominations of directors and proposals for
consideration at meetings of stockholders; and
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the ability of our board of directors to designate one or more
series of preferred stock and issue shares of preferred stock
without stockholder approval.
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For more information, see Description of capital
stock. The provisions of our amended and restated
certificate of incorporation and by-laws and the ability of our
board of directors to create and issue a new series of preferred
stock or a stockholder rights plan could discourage potential
takeover attempts and reduce the price that investors might be
willing to pay for shares of our common stock in the future
which could reduce the market price of our stock.
Failure to
maintain effective internal controls over financial reporting
could have an adverse effect on our business, operating results
and stock price.
Maintaining effective internal control over financial reporting
is necessary for us to produce reliable financial reports and is
important in helping to prevent financial fraud. If we are
unable to maintain adequate internal controls, our business and
operating results could be harmed. The requirements of
Section 404 of Sarbanes-Oxley and the related rules of the
Securities and Exchange Commission (SEC), require,
among other things, our management to assess annually
25
the effectiveness of our internal control over financial
reporting. In addition, our independent registered public
accounting firm will be required to issue a report on our
internal control over financial reporting beginning with our
Annual Report on
Form 10-K
for the year ending December 31, 2011. As of and for the
period ended April 4, 2009, management concluded that our
disclosure controls and procedures were not effective and that
we had a material weakness in internal control over financial
reporting related to the accounting for income taxes. We believe
that we remediated this deficiency as of December 31, 2009.
In the future, we may identify deficiencies that we may be
unable to remedy before the requisite deadline for those
reports. Also, our auditors have not yet conducted an audit of
our internal control over financial reporting. Any failure to
remediate material weaknesses noted by us or our independent
registered public accounting firm or to implement required new
or improved controls or difficulties encountered in their
implementation could cause us to fail to meet our reporting
obligation or result in material misstatements in our financial
statements. If our management or our independent registered
public accounting firm were to conclude in their reports that
our internal control over financial reporting was not effective,
investors could lose confidence in our reported financial
information, and the trading price of our common stock could
decrease significantly. Failure to comply with Section 404
of Sarbanes-Oxley could potentially subject us to sanctions or
investigations by the SEC, the Financial Industry Regulatory
Authority or other regulatory authorities.
26
Cautionary
note regarding forward-looking statements
This prospectus contains forward-looking statements.
These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as may,
will, should, expect,
plan, anticipate, believe,
estimate, predict, potential
or continue, the negative of such terms or other
comparable terminology. These statements are only predictions.
Actual events or results may differ materially.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking
statements. All written and oral forward-looking statements made
in connection with this prospectus that are attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the Risk factors and other
cautionary statements included in this prospectus. We are under
no duty to update any of the forward-looking statements after
the date of this prospectus to conform such statements to actual
results or to changes in our expectations, except as required by
federal securities laws.
There can be no assurance that other factors will not affect the
accuracy of these forward-looking statements or that our actual
results will not differ materially from the results anticipated
in such forward-looking statements. While it is impossible to
identify all such factors, factors which could cause actual
results to differ materially from those estimated by us include,
but are not limited to, the following:
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downturns in the home repair and remodeling and new construction
sectors or the economy and the availability of consumer credit;
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competition from other exterior building products manufacturers
and alternative building materials;
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changes in the costs and availability of raw materials;
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consolidation and further growth of our customers;
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loss of, or a reduction in orders from, any of our significant
customers;
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inclement weather conditions;
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increases in the cost of labor, union organizing activity and
work stoppages at our facilities or the facilities of our
suppliers;
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claims arising from the operations of our various businesses
prior to our acquisitions;
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products liability claims relating to the products we
manufacture;
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loss of certain key personnel;
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interruptions in deliveries of raw materials or finished goods;
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environmental costs and liabilities;
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manufacturing or assembly realignments;
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threats to, or impairments of, our intellectual property rights;
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27
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increases in fuel costs;
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material non-cash impairment charges;
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our significant amount of indebtedness;
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covenants in the ABL Facility and the indentures governing the
Senior Secured Notes and the 13.125% Senior Subordinated
Notes;
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limitations on our NOLs and payments under the tax receivable
agreement to our current stockholders;
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failure to generate sufficient cash to service all of our
indebtedness and make capital expenditures;
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control by the CI Partnerships;
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compliance with certain corporate governance requirements;
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certain of our directors relationships with the CI Partnerships;
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lack of a prior public market for our common stock and
volatility of our stock price;
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future sales of our common stock in the public market;
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substantial dilution in net tangible book value;
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our dividend policy;
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provisions in our charter and by-laws; and
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failure to maintain internal controls over financial reporting.
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These and other factors are more fully discussed in the
Risk factors and Managements
discussion and analysis of financial condition and results of
operations sections and elsewhere in this prospectus.
These risks could cause actual results to differ materially from
those implied by forward-looking statements in this prospectus.
28
Use of
proceeds
We estimate that the net proceeds to us from this offering will
be $ million, after deducting
the underwriting discount and estimated offering expenses
payable by us. This estimate is based on an assumed offering
price of $ per share (the midpoint
of the estimated public offering price range set forth on the
cover of this prospectus).
The following table sets forth the estimated sources and uses of
funds in connection with this offering and the other
transactions described below as if they had occurred on
April 3, 2010. Actual amounts may vary. See also
Unaudited pro forma financial information.
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Sources of funds (in
millions)
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Uses of funds (in
millions)
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Common stock offered hereby, net of underwriting discount
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$
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Redeem or repurchase existing debt(1)
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$
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Transaction fees and expenses(2)
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Total sources
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$
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Total uses
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$
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(1)
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We intend to use a portion of the
proceeds from this offering to redeem or repurchase a portion of
our Senior Secured Notes and our 13.125% Senior
Subordinated Notes. The Senior Secured Notes bear interest at a
rate of 11.75% per annum and mature on June 15, 2013. The
13.125% Senior Subordinated Notes bear interest at a rate
of 13.125% per annum and mature on July 15, 2014. The
13.125% Senior Subordinated Notes were issued on
January 11, 2010 and the proceeds from the issuance of such
notes were used to redeem a portion of our 9% Senior
Subordinated Notes and to pay related costs and expenses. For a
description of the terms of the Senior Secured Notes and the
13.125% Senior Subordinated Notes, see
Managements discussion and analysis of financial
condition and results of operationsLiquidity and capital
resources11.75% Senior Secured Notes due
2013 and 13.125% Senior
Subordinated Notes due 2014.
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(2)
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This amount includes
(i) $ million of
estimated expenses associated with this offering and (ii) a
termination fee equal to
$ million payable to an
affiliate of the CI Partnerships in connection with the
termination of an advisory agreement.
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A $1.00 increase (decrease) in the assumed public offering price
of $ per share (the midpoint of
the estimated public offering price range set forth on the cover
of this prospectus) would increase (decrease) the amount of
proceeds from this offering available to us by
$ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting the
underwriting discount and estimated offering expenses payable by
us.
Prior to their final application, we may hold any net proceeds
in cash or invest them in liquid short- and medium-term
securities.
We will not receive any proceeds from the sale of our common
stock by the selling stockholders if the underwriters exercise
their option to purchase shares from the selling stockholders.
Dividend
policy
We have not paid any dividends since our inception in 2004. For
the foreseeable future, we intend to retain any earnings to
finance our business. Any future determination to pay dividends
will be at the discretion of our board of directors and will be
dependent upon then-existing conditions, including our financial
condition and results of operations, capital requirements,
contractual restrictions (including restrictions contained in
the ABL Facility and the indentures governing our Senior Secured
Notes and our 13.125% Senior Subordinated Notes), business
prospects and other factors that our board of directors
considers relevant.
29
Capitalization
The following table sets forth our cash and cash equivalents and
capitalization as of April 3, 2010:
|
|
|
on an actual basis, and
|
|
|
on a pro forma basis, giving effect to the following
transactions as if they occurred on April 3, 2010:
|
(i) the Reorganization Transactions;
(ii) the creation of liabilities in connection with
entering into the tax receivable agreement;
(iii) the sale
of shares
of our common stock in this offering at an assumed public
offering price of $ per share (the
midpoint of the estimated public offering price range set forth
on the cover page of this prospectus) after deducting the
underwriting discount and estimated offering expenses payable by
us; and
(iv) the application of the net proceeds of this offering
as described in Use of proceeds.
You should read the following table in conjunction with
Unaudited pro forma financial information,
Selected historical consolidated financial
data, Managements discussion and
analysis of financial condition and results of
operations and our consolidated financial statements
and the accompanying notes included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 3, 2010
|
|
(amounts in thousands)
|
|
Actual
|
|
|
Pro forma
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,659
|
|
|
$
|
|
|
|
|
|
|
|
|
Short-term and long-term debt:
|
|
|
|
|
|
|
|
|
ABL Facility(1)
|
|
$
|
65,000
|
|
|
$
|
|
|
11.75% Senior Secured Notes due 2013(2)
|
|
|
725,000
|
|
|
|
|
|
Unamortized discount on $700.0 million 11.75% Senior
Secured Notes due 2013(2)
|
|
|
(4,606
|
)
|
|
|
|
|
Unamortized discount on $25.0 million 11.75% Senior
Secured Notes due 2013 issued October 23, 2009(2)
|
|
|
(4,526
|
)
|
|
|
|
|
13.125% Senior Subordinated Notes due 2014(3)
|
|
|
150,000
|
|
|
|
|
|
Unamortized discount on $150.0 million 13.125% Senior
Subordinated Notes due 2014(3)
|
|
|
(4,090
|
)
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
926,778
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
|
|
|
$
|
|
|
Additional paid-in capital
|
|
|
324,174
|
|
|
|
|
|
Accumulated deficit
|
|
|
(469,643
|
)
|
|
|
|
|
Accumulated other comprehensive income, net of tax
|
|
|
1,638
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(143,831
|
)
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
782,947
|
|
|
$
|
|
|
|
|
|
|
|
(1)
|
|
Borrowings under the ABL
Facility are limited to the lesser of the borrowing base, as
defined therein, or $175.0 million, after giving effect to
an amendment to the ABL Facility on July 16, 2009.
Borrowings may be used for general corporate purposes. As of
April 3, 2010, we had approximately $103.3 million of
contractual availability and approximately $63.5 million of
borrowing base availability under the ABL Facility, reflecting
$65.0 million of borrowings outstanding and approximately
$6.7 million of letters of credit. |
|
(2)
|
|
The Senior Secured Notes have a
face value of $725.0 million, but were offered at an
original discount of $11.5 million. |
|
(3)
|
|
The 13.125% Senior
Subordinated Notes have a face value of $150.0 million, but
were offered at an original discount of
$4.3 million. |
30
Dilution
If you invest in our common stock, you will be diluted to the
extent the initial public offering price per share of our common
stock exceeds the pro forma net tangible book value per share of
our common stock immediately after this offering. Dilution
results from the fact that the per share offering price of the
common stock is substantially in excess of the book value per
share attributable to the shares of common stock held by
existing equity holders.
Our pro forma net tangible book value as
of ,
2010 was approximately
$ million, or
$ per share of common stock. Pro
forma net tangible book value per share represents the amount of
our pro forma tangible net worth, or total tangible assets less
total liabilities, divided
by shares
of our common stock outstanding as of that date, after giving
effect to the Reorganization Transactions and the creation of
liabilities in connection with entering into the tax receivable
agreement.
After giving effect to (i) the issuance and sale
of shares
of our common stock sold by us in this offering and our receipt
of approximately $ million in
net proceeds from such sale, based on an assumed public offering
price of $ per share (the midpoint
of the estimated public offering price range set forth on the
cover page of this prospectus) after deducting the underwriting
discount and estimated offering expenses payable by us and
(ii) the application of such net proceeds as discussed
under Use of proceeds, our pro forma as
adjusted net tangible book value per share as
of ,
2010 would have been approximately
$ million, or
$ per share. This amount
represents an immediate increase in pro forma net tangible book
value of $ to existing
stockholders and an immediate dilution in pro forma net tangible
book value of $ per share to new
investors purchasing shares of our common stock in this
offering. Dilution per share is determined by subtracting the
pro forma net tangible book value per share as adjusted for this
offering from the amount of cash paid by a new investor for a
share of our common stock. Pro forma net tangible book value is
not affected by the sale of shares of our common stock offered
by the selling stockholders if the underwriters exercise their
over-allotment option. The following table illustrates the per
share dilution:
|
|
|
|
|
Assumed initial public offering price per share
|
|
$
|
|
|
Pro forma net tangible book value per share as
of ,
2010 before giving effect to the tax receivable agreement
|
|
$
|
|
|
Effect of the tax receivable agreement
|
|
$
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share before the change
attributable to new investors
|
|
$
|
|
|
Increase in net tangible book value per share attributable to
new investors
|
|
$
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
this offering
|
|
$
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
$
|
|
|
|
|
A $1.00 increase (decrease) in the assumed public offering price
of $ per share (the midpoint of
the estimated public offering price range set forth in the cover
page of this prospectus) would increase (decrease) our pro forma
as adjusted net tangible book value by
$ ,
the pro forma as adjusted net tangible book value per share
after this offering by $ and the
dilution per share to new investors by
$ , assuming the number of shares
31
offered by us, as set forth on the cover page of this
prospectus, remains the same, and after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
The following table presents on the same pro forma basis as
of ,
2010 the differences between the total consideration paid to us
and the average price per share paid by existing stockholders
and by new investors purchasing ordinary shares in this
offering, before deducting the underwriting discount and
estimated offering expenses payable by us (amounts in thousands,
except percentages and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares purchased
|
|
|
Total consideration
|
|
|
price
|
|
Number
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per share
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
|
%
|
|
|
$
|
|
|
|
|
%
|
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0%
|
|
|
$
|
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
The foregoing tables do not include outstanding options to
purchase an aggregate
of shares
of common stock under our Equity Plans. See
Shares available for future
saleOptions/equity awards. As
of ,
2010, after giving effect to the Reorganization Transactions,
there
were options
outstanding at a weighted average exercise price of
$ per share pursuant to the 2004
Option Plan. To the extent that any of these options are
exercised, there would be further dilution to new investors. If
all of these options had been exercised as
of ,
2010, pro forma net tangible book value per share would have
been $ and total dilution per
share to new investors, on a pro forma basis, would have been
$
or %.
32
Unaudited pro
forma consolidated financial information
The historical financial information of Ply Gem Holdings for the
year ended December 31, 2009 was derived from our audited
consolidated financial statements and accompanying notes
included elsewhere in this prospectus. The historical financial
information of Ply Gem Holdings as of and for the three month
period ended April 3, 2010 was derived from our unaudited
condensed consolidated financial statements and accompanying
notes included elsewhere in this prospectus. The historical
financial information of Ply Gem Prime as of December 31,
2009, and for the year then ended, and as of April 3, 2010,
and for the three months then ended, are unaudited. There are no
historical operating results for Ply Gem Prime since it is a
holding company with no independent operating assets or
liabilities. For financial reporting purposes, the consolidated
operating assets and liabilities of Ply Gem Prime were the same
as Ply Gem Holdings as of December 31, 2009 and for all
previous years since inception.
The Reorganization Transactions include the merger of Ply Gem
Holdings with its parent company, Ply Gem Prime, which will
ultimately result in the conversion of Ply Gem Primes
common stock, preferred stock and long-term debt due to related
parties into shares of Ply Gem Holdings common stock. See
Certain relationships and related party
transactionsReorganization transactions for
further details of the Reorganization Transactions. The pro
forma consolidated financial information reflects the
consolidation of Ply Gem Prime and Ply Gem Holdings and also
gives effect to the Reorganization Transactions and certain
transactions that will occur in connection with this offering.
The unaudited pro forma consolidated balance sheet data as of
April 3, 2010 gives effect to the following transactions as
if they occurred on April 3, 2010: (i) the
Reorganization Transactions, (ii) the creation of
liabilities in connection with entering into the tax receivable
agreement; (iii) the sale
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share (the midpoint of the estimated public offering price range
set forth on the cover page of this prospectus) after deducting
the underwriting discount and estimated offering expenses
payable by us; (iv) the application of the net proceeds of
this offering as described in Use of
proceeds; (v) the write-off of
approximately $ million of
debt issuance costs and the related tax benefit of approximately
$ million attributable to the
13.125% Senior Subordinated Notes and the Senior Secured Notes
redeemed
and/or
repurchased with the proceeds from this offering; (vi) a
$ charge related to call premiums,
if applicable, associated with the redemption
and/or
repurchase of the 13.125% Senior Subordinated Notes and the
Senior Secured Notes; and (vii) the recognition of deferred
compensation charges of approximately
$ million, net of tax impact
of $ million, in connection
with the completion of this offering.
The unaudited pro forma consolidated statement of operations
data for the three months ended April 3, 2010 and the year
ended December 31, 2009 gives effect to the following
transactions as if they occurred on January 1, 2009:
(i) the Reorganization Transactions; (ii) the sale of
shares of our common stock in this offering at an assumed
initial public offering price of $
per share (the midpoint of the estimated public offering price
range set forth on the cover page of this prospectus) after
deducting the underwriting discount and estimated offering
expenses payable by us; and (iii) the application of the
net proceeds of this offering to redeem and/or repurchase the
Senior Secured Notes.
In connection with this offering and the related transactions,
we will record the following one-time charges in our
consolidated statement of operations at the time of the
respective
33
transactions: (i) the write-off of approximately
$ million of unamortized debt
issuance costs, $ million of
debt discounts and $ million
of call premiums, if applicable, net of tax impact of
$ million, attributable to
the redemption
and/or
repurchase of the 13.125% Senior Subordinated Notes and the
Senior Secured Notes with a portion of the proceeds from this
offering; and (ii) the recognition of deferred compensation
charges of approximately
$ million, net of tax impact
of $ million, in connection
with the completion of this offering. Because these charges are
non-recurring in nature, we have not given effect to these
transactions in the pro forma consolidated statements of
operations. However, these items are reflected as pro forma
adjustments to accumulated deficit in the consolidated balance
sheet as of April 3, 2010.
The presentation of the unaudited pro forma consolidated
financial information is prepared in conformity with
Article 11 of Regulation
S-X. The
unaudited pro forma consolidated financial information has been
prepared by our management and is based on our historical
financial statements and the assumptions and adjustments
described in the notes to the unaudited pro forma consolidated
financial information below.
We based the pro forma adjustments on available information and
on assumptions that we believe are reasonable under the
circumstances. See Notes to unaudited pro forma
consolidated financial information for a discussion of
assumptions made. The unaudited pro forma consolidated financial
information is presented for informational purposes and is based
on managements estimates. The unaudited pro forma
consolidated statements of operations do not purport to
represent what our results of operations actually would have
been if the transactions set forth above had occurred on the
dates indicated or what our results of operations will be for
future periods.
34
Ply Gem Holdings,
Inc.
Unaudited pro
forma consolidated balance sheet
as of
April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
pro forma
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
|
|
|
Reorganization
|
|
adjustments
|
|
Offering
|
|
|
|
|
|
|
Ply Gem
|
|
Prime
|
|
|
|
|
|
pro forma
|
|
after
|
|
pro forma
|
|
|
Consolidated
|
|
(amounts in thousands (except per share data))
|
|
Holdings
|
|
Holdings
|
|
Eliminations
|
|
Consolidated
|
|
adjustments
|
|
reorganization
|
|
adjustments
|
|
|
pro forma
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,659
|
|
$
|
|
|
$
|
|
|
$
|
31,659
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
|
Accounts receivable
|
|
|
114,960
|
|
|
|
|
|
|
|
|
114,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
41,731
|
|
|
|
|
|
|
|
|
41,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Work in process
|
|
|
25,597
|
|
|
|
|
|
|
|
|
25,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
42,117
|
|
|
|
|
|
|
|
|
42,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
|
109,445
|
|
|
|
|
|
|
|
|
109,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
21,913
|
|
|
|
|
|
|
|
|
21,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
277,977
|
|
|
|
|
|
|
|
|
277,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
3,739
|
|
|
|
|
|
|
|
|
3,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and improvements
|
|
|
35,763
|
|
|
|
|
|
|
|
|
35,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
264,537
|
|
|
|
|
|
|
|
|
264,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
304,039
|
|
|
|
|
|
|
|
|
304,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(167,789
|
)
|
|
|
|
|
|
|
|
(167,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
136,250
|
|
|
|
|
|
|
|
|
136,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
167,270
|
|
|
|
|
|
|
|
|
167,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
393,281
|
|
|
|
|
|
|
|
|
393,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
3,605
|
|
|
|
|
|
|
|
|
3,605
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
Investment in Ply Gem Holdings
|
|
|
|
|
|
(143,831
|
)
|
|
143,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
32,918
|
|
|
|
|
|
|
|
|
32,918
|
|
|
|
|
|
|
|
|
|
(b)
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
597,074
|
|
|
(143,831
|
)
|
|
143,831
|
|
|
597,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,011,301
|
|
$
|
(143,831
|
)
|
$
|
143,831
|
|
$
|
1,011,301
|
|
$
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
68,099
|
|
$
|
|
|
$
|
|
|
$
|
68,099
|
|
$
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Accrued expenses and taxes
|
|
|
92,231
|
|
|
1,532
|
|
|
|
|
|
93,763
|
|
|
|
|
|
|
|
|
|
(a),(c)
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
160,330
|
|
|
1,532
|
|
|
|
|
|
161,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
2,940
|
|
|
|
|
|
|
|
|
2,940
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
Other long-term liabilities
|
|
|
65,084
|
|
|
|
|
|
|
|
|
65,084
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
Long-term debt due to related parties
|
|
|
|
|
|
123,287
|
|
|
|
|
|
123,287
|
|
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
926,778
|
|
|
|
|
|
|
|
|
926,778
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
133,343
|
|
|
|
|
|
133,343
|
|
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
44
|
|
|
|
|
|
44
|
|
|
|
(e)
|
|
|
|
|
|
(g)
|
|
|
|
|
Additional
paid-in-capital
|
|
|
324,174
|
|
|
114,281
|
|
|
(324,174
|
)
|
|
114,281
|
|
|
|
(e)
|
|
|
|
|
|
(c),(g)
|
|
|
|
|
Accumulated deficit
|
|
|
(469,643
|
)
|
|
(517,956
|
)
|
|
469,643
|
|
|
(517,956
|
)
|
|
|
(e)
|
|
|
|
|
|
(f)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
1,638
|
|
|
1,638
|
|
|
(1,638
|
)
|
|
1,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(143,831
|
)
|
|
(268,650
|
)
|
|
143,831
|
|
|
(268,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,011,301
|
|
$
|
(143,831
|
)
|
$
|
143,831
|
|
$
|
1,011,301
|
|
$
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
See accompanying notes to the
unaudited pro forma financial information.
35
Ply Gem Holdings,
Inc.
Unaudited pro
forma consolidated statement of operations
for the three
months ended April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
|
|
|
|
|
|
Reorganization
|
|
|
Offering
|
|
|
|
|
|
|
Ply Gem
|
|
|
Prime
|
|
|
|
|
|
|
|
|
pro forma
|
|
|
pro forma
|
|
|
Consolidated
|
|
(amounts in thousands (except per share data))
|
|
Holdings
|
|
|
Holdings
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
adjustments
|
|
|
adjustments
|
|
|
pro forma
|
|
|
|
|
Net sales
|
|
$
|
204,205
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
204,205
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
167,308
|
|
|
|
|
|
|
|
|
|
|
|
167,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
33,806
|
|
|
|
1,600
|
(1)
|
|
|
|
|
|
|
35,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
6,794
|
|
|
|
|
|
|
|
|
|
|
|
6,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
207,908
|
|
|
|
1,600
|
|
|
|
|
|
|
|
209,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,703
|
)
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
(5,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(34,007
|
)
|
|
|
(3,007
|
)(1)
|
|
|
9,848
|
(2)
|
|
|
(27,166
|
)
|
|
|
|
|
|
|
|
(3)
|
|
|
|
|
Interest income
|
|
|
53
|
|
|
|
9,848
|
(1)
|
|
|
(9,848
|
)(2)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in subsidiarys income
|
|
|
60,634
|
|
|
|
5,241
|
|
|
|
|
|
|
|
65,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in subsidiarys income
|
|
|
|
|
|
|
54,102
|
|
|
|
(54,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
60,634
|
|
|
|
59,343
|
|
|
|
(54,102
|
)
|
|
|
65,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
6,532
|
|
|
|
1,532
|
(1)
|
|
|
|
|
|
|
8,064
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
54,102
|
|
|
$
|
57,811
|
|
|
$
|
(54,102
|
)
|
|
$
|
57,811
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
(6)
|
|
|
See accompanying notes to the
unaudited pro forma financial information.
36
Ply Gem Holdings,
Inc.
Unaudited pro
forma consolidated statement of operations
for the year
ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Reorganization
|
|
|
Offering
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem Prime
|
|
|
|
|
|
|
|
|
pro forma
|
|
|
pro forma
|
|
|
Consolidated
|
|
(amounts in thousands (except per share data))
|
|
Holdings
|
|
|
Holdings
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
adjustments
|
|
|
adjustments
|
|
|
pro forma
|
|
|
|
|
Net sales
|
|
$
|
951,374
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
951,374
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
749,841
|
|
|
|
|
|
|
|
|
|
|
|
749,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
141,772
|
|
|
|
|
|
|
|
|
|
|
|
141,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
19,651
|
|
|
|
|
|
|
|
|
|
|
|
19,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
911,264
|
|
|
|
|
|
|
|
|
|
|
|
911,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
40,110
|
|
|
|
|
|
|
|
|
|
|
|
40,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(135,514
|
)
|
|
|
(11,183
|
)
|
|
|
|
|
|
|
(146,697
|
)
|
|
|
|
|
|
|
|
(A)
|
|
|
|
|
Interest income
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in loss of subsidiary
|
|
|
(94,718
|
)
|
|
|
(11,183
|
)
|
|
|
|
|
|
|
(105,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss of subsidiary
|
|
|
|
|
|
|
(76,752
|
)
|
|
|
76,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes
|
|
|
(94,718
|
)
|
|
|
(87,935
|
)
|
|
|
76,752
|
|
|
|
(105,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
|
(17,966
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,966
|
)
|
|
|
|
|
|
|
|
(B)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(76,752
|
)
|
|
$
|
(87,935
|
)
|
|
$
|
76,752
|
|
|
$
|
(87,935
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the
unaudited pro forma financial information.
37
Notes to
unaudited pro forma consolidated
financial information
Pro forma
adjustments
Balance sheet
as of April 3, 2010
(a) Reflects the income tax benefit resulting from the
write-off of debt issuance costs, debt discounts and call
premiums, if applicable, paid in connection with debt repayment
with the proceeds from this offering.
(b) Reflects the write-off of approximately
$ million of debt issuance
costs attributable to the outstanding 13.125% Senior
Subordinated Notes and Senior Secured Notes redeemed
and/or
repurchased with the proceeds from this offering.
(c) Reflects adjustments to record a liability primarily
related to our tax receivable agreement with the Tax Receivable
Entity. Under this tax receivable agreement, we are required to
pay the Tax Receivable Entity 85% of the amount of cash savings,
if any, in U.S. federal, state and local income tax or
franchise tax that we actually realize in periods after this
offering as a result of (i) net operating loss carryovers
from periods (or portions thereof) ending before January 1,
2010, (ii) deductible expenses attributable to the
transactions related to this offering and (iii) deductions
related to imputed interest deemed to be paid by us as a result
of this tax receivable agreement.
(d) Reflects the application of a portion of the proceeds
from this offering, after deducting the underwriting discounts
and commissions and estimated offering expenses, to redeem
and/or
repurchase a portion of the 13.125% Senior Subordinated
Notes and the Senior Secured Notes.
(e) Reflects the Reorganization Transactions, including the
conversion of preferred stock and long-term debt due to related
parties of Ply Gem Prime into shares of common stock of Ply Gem
Holdings and the exchange of common stock of Ply Gem Prime for
common stock of Ply Gem Holdings. The Reorganization
Transactions will create one class of stock outstanding, which
will be the common stock of Ply Gem Holdings.
(f) Reflects the recognition of a charge, net of the
related income tax benefit, attributable to the following:
|
|
|
The write-off of approximately
$ million of unamortized debt
issuance costs, $ million of
debt discounts and $ million
of call premiums, if applicable, net of tax impact of
$ million, attributable to
the redemption
and/or
repurchase of the 13.125% Senior Subordinated Notes and the
Senior Secured Notes with a portion of the proceeds from this
offering; and
|
|
|
The recognition of deferred compensation charges of
approximately $ million, net
of tax impact of $ million,
in connection with the completion of this offering.
|
(g) Reflects the offering
of shares
of common stock in exchange for proceeds of
$ million, a portion of which
will be utilized to repurchase
and/or
redeem the 13.125% Senior Subordinated Notes and the Senior
Secured Notes.
38
For the three
months ended April 3, 2010
(1) These adjustments reflect non-recurring adjustments for
Ply Gem Prime resulting from the debt extinguishment occurring
during the three months ended April 3, 2010. The advisory
fee paid to an affiliate of the CI Partnerships of
$1.6 million, interest expense of $3.0 million related
to the long-term debt due to related parties of Ply Gem Prime,
the interest income of $9.8 million paid to a related
party, and the state income tax expense of $1.5 million
related to the capital gain can all be attributed to the debt
extinguishment in the quarter ended April 3, 2010. These
items will not recur after the Reorganization Transactions and
occurred only during the three month period ended April 3,
2010.
(2) During February 2010, the CI Partnerships contributed
approximately $218.8 million aggregate principal amount of
9% Senior Subordinated Notes to Ply Gem Holdings in
exchange for equity of Ply Gem Prime valued at approximately
$114.9 million. Prior to this $218.8 million
contribution to Ply Gem Holdings, the CI Partnerships initially
transferred the notes to Ply Gem Prime, which then transferred
the notes to Ply Gem Holdings and Ply Gem Holdings transferred
such notes to Ply Gem Industries as a capital contribution and
the 9% Senior Subordinated Notes were then cancelled. As a
result of these debt transactions, Ply Gem Holdings paid
interest to Ply Gem Prime of approximately $9.8 million.
Ply Gem Prime recorded this amount as interest income and Ply
Gem Holdings recorded this amount as interest expense. This
adjustment reflects the elimination of this interest income and
expense upon consolidation of these entities.
In addition, the interest expense related to long-term debt due
to related parties of Ply Gem Prime reflected on Ply Gem
Primes financial statements will not be recurring in the
future as the debt to which this interest relates will be
converted into outstanding common stock of Ply Gem Holdings in
the Reorganization Transactions eliminating any future interest
expense for Ply Gem Prime.
(3) Reflects the reduction of interest expense and
amortization of debt issuance costs as a result of the
redemption
and/or
repurchase of a portion of the 13.125% Senior Subordinated
Notes and the Senior Secured Notes with a portion of the
proceeds from this offering.
(4) Reflects the incremental provision for state and
federal income taxes as a result of the pro forma adjustments.
(5) The pro forma basic weighted average common shares
outstanding reflect the issuance of shares of common stock
issued in connection with the following transactions as if such
shares had been issued on January 1, 2010:
(i) The Reorganization Transactions;
(ii) The sale
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share (the midpoint of the estimated public offering price range
set forth on the cover page of this prospectus) after deducting
the underwriting discount and estimated offering expenses
payable by us; and
(iii) The application of the net proceeds of this offering
as described in Use of proceeds.
39
|
|
|
|
|
|
|
|
|
Three months
|
|
|
|
ended April 3,
2010
|
|
|
|
|
Reorganization Transactions
|
|
|
|
|
Shares of common stock issued in this offering
|
|
|
|
|
Pro forma basic weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
(6) |
|
The pro forma diluted weighted average common shares outstanding
reflect the treasury stock effect of the outstanding stock
options. In connection with the Reorganization Transactions,
options to purchase shares of common stock of Ply Gem Prime will
be converted into options to purchase shares of common stock of
Ply Gem Holdings with adjustments to the number of shares and
per share exercise prices. |
|
|
|
|
|
|
Three months
|
|
|
ended April 3,
2010
|
|
|
Pro forma basic weighted average shares outstanding
|
|
|
Treasury stock effect of outstanding options
|
|
|
Pro forma diluted weighted average shares outstanding
|
|
|
|
|
For the year
ended December 31, 2009
(A) Reflects the reduction of interest expense and
amortization of debt issuance costs as a result of the assumed
redemption
and/or
repurchase of a portion of the Senior Secured Notes with a
portion of the proceeds from this offering.
In addition, the interest expense related to long-term debt due
to related parties of Ply Gem Prime reflected on Ply Gem
Primes financial statements will not be recurring in the
future as the debt to which this interest relates will be
converted into outstanding common stock of Ply Gem Holdings in
the Reorganization Transactions eliminating any future interest
expense for Ply Gem Prime.
(B) Reflects the incremental provision for state and
federal income taxes as a result of the pro forma adjustments.
(C) The pro forma basic and diluted weighted average common
shares outstanding reflect the issuance of shares of common
stock issued in connection with the following transactions as if
the shares had been issued on January 1, 2009:
(i) The Reorganization Transactions;
(ii) The sale
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share (the midpoint of the estimated public offering price range
set forth on the cover page of this prospectus) after deducting
the underwriting discount and estimated offering expenses
payable by us; and
(iii) The application of the net proceeds of this offering
as described in Use of proceeds.
|
|
|
|
|
|
Year ended
|
|
|
December 31, 2009
|
|
|
Reorganization Transactions
|
|
|
Shares of common stock issued in this offering
|
|
|
Pro forma basic and diluted weighted average shares outstanding
|
|
|
|
|
40
Selected
historical consolidated financial data
You should read the information set forth below in
conjunction with Capitalization, Unaudited pro
forma financial information, Managements
discussion and analysis of financial condition and results of
operations and our consolidated financial statements and
related notes included elsewhere in this prospectus.
The selected data presented below under the captions
Selected Statements of Operations Data,
Selected Statements of Cash Flows Data and
Selected Balance Sheet Data as of December 31,
2008 and 2007, and for each of the years in the three year
period ending December 31, 2008, are derived from the
consolidated financial statements of Ply Gem Holdings and
subsidiaries, which financial statements have been audited by
KPMG LLP, an independent registered public accounting firm. The
consolidated financial statements as of December 31, 2008,
and for each of the years in the two year period ended
December 31, 2008, and the report thereon, are included
elsewhere in the prospectus. The selected data should be read in
conjunction with the consolidated financial statements for the
two year period ended December 31, 2008, the related notes
and the independent registered public accounting firms
report, which refers to a change in the Companys method of
accounting for a portion of its inventory in 2008 from the
last-in,
first-out (LIFO) method to the
first-in,
first-out (FIFO) method, the Companys adoption of the
recognition and disclosure requirements in 2007 and the
measurement provisions in 2008 of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R) (now included in
the FASB Accounting Standards Codification (ASC) 715,
Compensation Retirement Benefits), and the Companys
adoption of FASB Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB
Statement No. 109 (now included in FASB ASC Topic 740,
Income Taxes).
The selected data presented below under the captions
Selected Statements of Operations Data,
Selected Statements of Cash Flows Data and
Selected Balance Sheet Data as of and for the year
ended December 31, 2009 are derived from the consolidated
financial statements of Ply Gem Holdings and subsidiaries, which
have been audited by Ernst & Young LLP, an independent
registered public accounting firm. The data should be read in
conjunction with the consolidated financial statements, related
notes and other financial information included elsewhere in this
prospectus.
The following selected historical consolidated financial data as
of and for the three month periods ended April 3, 2010 and
April 4, 2009 have been derived from, and should be read
together with, the unaudited condensed consolidated financial
statements of Ply Gem Holdings and subsidiaries included
elsewhere in this prospectus. The unaudited condensed
consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered
necessary for a fair presentation of the financial position and
results of operations in these periods.
41
The selected historical consolidated financial data set forth
below is not necessarily indicative of the results of future
operations. The results of any interim period are not
necessarily indicative of the results that may be expected for
the full year or any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands (except per share data))
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Selected Statements of Operations Data:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
204,205
|
|
|
$
|
182,751
|
|
|
$
|
951,374
|
|
|
$
|
1,175,019
|
|
|
$
|
1,363,546
|
|
|
$
|
1,054,468
|
|
|
$
|
838,868
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
167,308
|
|
|
|
169,691
|
|
|
|
749,841
|
|
|
|
980,098
|
|
|
|
1,083,153
|
|
|
|
829,518
|
|
|
|
645,976
|
|
Selling, general and administrative expenses
|
|
|
33,806
|
|
|
|
40,962
|
|
|
|
141,772
|
|
|
|
155,388
|
|
|
|
155,963
|
|
|
|
125,619
|
|
|
|
92,738
|
|
Amortization of intangible assets
|
|
|
6,794
|
|
|
|
4,906
|
|
|
|
19,651
|
|
|
|
19,650
|
|
|
|
17,631
|
|
|
|
11,942
|
|
|
|
9,761
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
782
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
207,908
|
|
|
|
215,559
|
|
|
|
911,264
|
|
|
|
1,605,136
|
|
|
|
1,260,897
|
|
|
|
967,861
|
|
|
|
748,475
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(3,703
|
)
|
|
|
(32,808
|
)
|
|
|
40,110
|
|
|
|
(430,117
|
)
|
|
|
102,649
|
|
|
|
86,607
|
|
|
|
90,393
|
|
Foreign currency gain (loss)
|
|
|
104
|
|
|
|
(88
|
)
|
|
|
475
|
|
|
|
(911
|
)
|
|
|
3,961
|
|
|
|
77
|
|
|
|
1,010
|
|
Interest expense(2)
|
|
|
(34,007
|
)
|
|
|
(33,756
|
)
|
|
|
(135,514
|
)
|
|
|
(138,015
|
)
|
|
|
(99,698
|
)
|
|
|
(76,680
|
)
|
|
|
(57,657
|
)
|
Interest income
|
|
|
53
|
|
|
|
65
|
|
|
|
211
|
|
|
|
617
|
|
|
|
1,704
|
|
|
|
1,205
|
|
|
|
730
|
|
Gain on extinguishment of debt(2)
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes and
cumulative effect of accounting change
|
|
|
60,634
|
|
|
|
(66,587
|
)
|
|
|
(94,718
|
)
|
|
|
(568,426
|
)
|
|
|
8,616
|
|
|
|
11,209
|
|
|
|
34,476
|
|
Provision (benefit) for income taxes
|
|
|
6,532
|
|
|
|
(11,049
|
)
|
|
|
(17,966
|
)
|
|
|
(69,951
|
)
|
|
|
3,634
|
|
|
|
4,147
|
|
|
|
13,259
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
54,102
|
|
|
|
(55,538
|
)
|
|
|
(76,752
|
)
|
|
|
(498,475
|
)
|
|
|
4,982
|
|
|
|
7,062
|
|
|
|
21,217
|
|
Cumulative effect of accounting change, net of income tax
benefit of $57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
|
$
|
6,976
|
|
|
$
|
21,217
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) attributable to common
stockholders per common share
|
|
$
|
541.02
|
|
|
$
|
(555.38
|
)
|
|
$
|
(767.52
|
)
|
|
$
|
(4,984.75
|
)
|
|
$
|
49.82
|
|
|
$
|
69.76
|
|
|
$
|
212.17
|
|
Pro forma earnings per share:(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(5)
|
|
$
|
12,357
|
|
|
$
|
(12,537
|
)
|
|
$
|
116,215
|
|
|
$
|
96,095
|
|
|
$
|
176,016
|
|
|
$
|
130,052
|
|
|
$
|
118,849
|
|
Capital expenditures
|
|
|
3,029
|
|
|
|
2,446
|
|
|
|
7,807
|
|
|
|
16,569
|
|
|
|
20,017
|
|
|
|
20,318
|
|
|
|
14,742
|
|
Depreciation and amortization
|
|
|
15,454
|
|
|
|
13,896
|
|
|
|
56,271
|
|
|
|
61,765
|
|
|
|
54,067
|
|
|
|
33,816
|
|
|
|
26,125
|
|
Annual single family housing starts(6)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
441
|
|
|
|
616
|
|
|
|
1,036
|
|
|
|
1,474
|
|
|
|
1,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(21,416
|
)
|
|
$
|
(48,716
|
)
|
|
$
|
(16,882
|
)
|
|
$
|
(58,865
|
)
|
|
$
|
73,844
|
|
|
$
|
53,425
|
|
|
$
|
63,910
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands (except per share data))
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Investing activities
|
|
|
(3,028
|
)
|
|
|
(2,425
|
)
|
|
|
(7,835
|
)
|
|
|
(11,487
|
)
|
|
|
(56,407
|
)
|
|
|
(432,168
|
)
|
|
|
(14,362
|
)
|
Financing activities
|
|
|
38,950
|
|
|
|
9,974
|
|
|
|
(17,528
|
)
|
|
|
78,233
|
|
|
|
(15,068
|
)
|
|
|
405,396
|
|
|
|
(34,334
|
)
|
Selected Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,659
|
|
|
$
|
17,215
|
|
|
$
|
17,063
|
|
|
$
|
58,289
|
|
|
$
|
52,053
|
|
|
$
|
48,821
|
|
|
$
|
22,173
|
|
Total assets
|
|
|
1,011,301
|
|
|
|
1,037,855
|
|
|
|
982,033
|
|
|
|
1,104,053
|
|
|
|
1,616,153
|
|
|
|
1,649,968
|
|
|
|
1,052,798
|
|
Total debt
|
|
|
926,778
|
|
|
|
1,124,433
|
|
|
|
1,100,397
|
|
|
|
1,114,186
|
|
|
|
1,031,223
|
|
|
|
1,042,894
|
|
|
|
635,776
|
|
Stockholders equity (deficit)
|
|
|
(143,831
|
)
|
|
|
(298,563
|
)
|
|
|
(313,482
|
)
|
|
|
(242,628
|
)
|
|
|
241,787
|
|
|
|
230,591
|
|
|
|
217,134
|
|
|
|
|
|
|
(1)
|
|
We adopted the recognition and
disclosure requirements in 2007 and the measurement provisions
in 2008 of Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87, 88, 106, and
132(R) (now included in Accounting Standards Codification (ASC)
715, CompensationRetirement Benefits). On January 1,
2007, we adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (now included in ASC 740, Income
Taxes). We adopted FASB Statement of Financial Accounting
Standards No. 123(R) (revised 2004), Share-Based Payment
(now included in ASC 718, CompensationStock
Compensation and ASC 505, Equity) on January 1, 2006.
In addition, we elected to change our method of accounting for a
portion of our inventory in 2008 from the last-in, first-out
(LIFO) method to the first-in, first-out (FIFO)
method. |
|
(2)
|
|
During the three months ended
April 3, 2010, we separately classified a non-cash gain on
extinguishment in connection with the redemption of the 9%
Senior Subordinated Notes. During the year ended December 31,
2008, we classified extinguishment losses arising from $14.0
million of non-cash deferred financing costs associated with
previous term debt, $6.8 million for a prepayment premium and
$6.8 million of bank amendment fees as interest
expense. |
|
|
|
(3)
|
|
Reflects the Reorganization
Transactions and the change in the Companys capital
structure prior to the completion of this offering. |
The following details the computation of the pro forma
earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
For the year
|
|
|
|
ended
|
|
|
ended
|
|
(amounts in thousands (except per share data))
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(76,752
|
)
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average common share calculation:
|
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings common stock
|
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings preferred stock
|
|
|
|
|
|
|
|
|
Unaudited basic pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Treasury stock effect of outstanding stock options
|
|
|
|
|
|
|
|
|
Unaudited diluted pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
The pro forma financial data are
based upon available information and certain assumptions as
discussed in the notes to the unaudited financial information
presented under Unaudited pro forma financial
information. The pro forma financial data are for
informational purposes only and do not purport to represent what
our results of operations or financial position actually would
have been if each such transaction had occurred on the dates
specified above, nor does this data purport to represent the
results of operations for any future period. |
|
|
|
(5)
|
|
Adjusted EBITDA means net income
(loss) plus interest expense (net of interest income), provision
(benefit) for income taxes, depreciation and amortization,
non-cash gain on extinguishment of debt, non-cash foreign
currency gain/(loss), amortization |
43
|
|
|
|
|
of non-cash write-off of the
portion of excess purchase price from acquisitions allocated to
inventories, restructuring and 2006 phantom stock conversion
costs, customer inventory buybacks, impairment charges,
cumulative effect of accounting change and management fees paid
under our advisory agreement with an affiliate of the CI
Partnerships. Other companies may define adjusted EBITDA
differently and, as a result, our measure of adjusted EBITDA may
not be directly comparable to adjusted EBITDA of other
companies. Management believes that the presentation of adjusted
EBITDA included in this prospectus provides useful information
to investors regarding our results of operations because it
assists both investors and management in analyzing and
benchmarking the performance and value of our business. We have
included adjusted EBITDA because it is a key financial measure
used by management to (i) assess our ability to service our
debt and/or incur debt and meet our capital expenditure
requirements; (ii) internally measure our operating
performance; and (iii) determine our incentive compensation
programs. In addition, our ABL Facility has certain covenants
that apply ratios utilizing this measure of adjusted
EBITDA. |
|
|
|
Despite the importance of this
measure in analyzing our business, measuring and determining
incentive compensation and evaluating our operating performance,
as well as the use of adjusted EBITDA measures by securities
analysts, lenders and others in their evaluation of companies,
adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under U.S. GAAP; nor is
adjusted EBITDA intended to be a measure of liquidity or free
cash flow for our discretionary use. Some of the limitations of
adjusted EBITDA are: |
|
|
|
Adjusted EBITDA does
not reflect our cash expenditures or future requirements for
capital expenditures;
|
|
|
|
Adjusted EBITDA does
not reflect changes in, or cash requirements for, our working
capital needs;
|
|
|
|
Adjusted EBITDA does
not reflect the interest expense or the cash requirements to
service interest or principal payments under our Senior Secured
Notes, 13.125% Senior Subordinated Notes and ABL
Facility;
|
|
|
|
Adjusted EBITDA does
not reflect income tax payments we are required to make; and
|
|
|
|
Although
depreciation and amortization are non-cash charges, the assets
being depreciated and amortized often will have to be replaced
in the future, and adjusted EBITDA does not reflect any cash
requirements for such replacements.
|
|
|
|
Adjusted EBITDA included in this
prospectus should be considered in addition to, and not as a
substitute for, net earnings in accordance with U.S. GAAP
as a measure of performance in accordance with U.S. GAAP.
You are cautioned not to place undue reliance on adjusted
EBITDA. |
The following table presents our calculation of adjusted
EBITDA reconciled to net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
|
$
|
6,976
|
|
|
$
|
21,217
|
|
Interest expense, net(2)
|
|
|
33,954
|
|
|
|
33,691
|
|
|
|
135,303
|
|
|
|
137,398
|
|
|
|
97,994
|
|
|
|
75,475
|
|
|
|
56,927
|
|
Provision (benefit) for income taxes
|
|
|
6,532
|
|
|
|
(11,049
|
)
|
|
|
(17,966
|
)
|
|
|
(69,951
|
)
|
|
|
3,634
|
|
|
|
4,147
|
|
|
|
13,259
|
|
Depreciation and amortization
|
|
|
15,454
|
|
|
|
13,896
|
|
|
|
56,271
|
|
|
|
61,765
|
|
|
|
54,067
|
|
|
|
33,816
|
|
|
|
26,125
|
|
Non-cash gain on extinguishment of debt(2)
|
|
|
(98,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/loss on currency transaction
|
|
|
(104
|
)
|
|
|
88
|
|
|
|
(475
|
)
|
|
|
911
|
|
|
|
(3,961
|
)
|
|
|
(77
|
)
|
|
|
(1,010
|
)
|
Non-cash charge of purchase price allocated to inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
1,289
|
|
|
|
3,266
|
|
|
|
|
|
Restructuring/2006 phantom stock conversion expense
|
|
|
106
|
|
|
|
3,994
|
|
|
|
8,992
|
|
|
|
10,859
|
|
|
|
10,356
|
|
|
|
3,840
|
|
|
|
|
|
Customer inventory buyback
|
|
|
252
|
|
|
|
1,685
|
|
|
|
8,345
|
|
|
|
1,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
Management fees(7)
|
|
|
248
|
|
|
|
696
|
|
|
|
2,497
|
|
|
|
1,679
|
|
|
|
3,505
|
|
|
|
2,523
|
|
|
|
2,331
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
12,357
|
|
|
$
|
(12,537
|
)
|
|
$
|
116,215
|
|
|
$
|
96,095
|
|
|
$
|
176,016
|
|
|
$
|
130,052
|
|
|
$
|
118,849
|
|
|
|
|
|
|
(6)
|
|
Single family housing starts
data furnished by NAHB forecast (as of April 23,
2010). |
|
|
|
(7)
|
|
After the completion of this
offering, the advisory agreement with an affiliate of the CI
Partnerships will be terminated and management fees will no
longer be paid. |
44
Managements
discussion and analysis of financial
condition and results of operations
You should read the following discussion and analysis of our
consolidated financial condition and results of operations in
conjunction with our historical financial statements and the
related notes included elsewhere in this prospectus. The
following discussion contains forward-looking statements that
involve certain risks and uncertainties. Actual results and the
timing of events may differ materially from those expressed or
implied in such forward-looking statements due to a number of
factors, including those set forth under Risk
factors and elsewhere in this prospectus. This historical
discussion and analysis of our consolidated financial condition
and results of operations does not give effect to the
Reorganization Transactions, the entry into the tax receivable
agreement, this offering and the application of the net proceeds
of this offering.
General
We are a leading manufacturer of residential exterior building
products in North America, operating in two reportable segments:
(i) Siding, Fencing, and Stone and (ii) Windows and
Doors, which comprised approximately 60% and 40% of our sales,
respectively, for the fiscal year ended December 31, 2009.
These two segments produce a comprehensive product line of vinyl
siding, designer accents and skirting, vinyl fencing, vinyl and
composite railing, stone veneer and vinyl windows and doors used
in both new construction and home repair and remodeling in the
United States and Western Canada. Vinyl building products have
the leading share of sales volume in siding and windows in the
United States. We also manufacture vinyl and aluminum soffit and
siding accessories, aluminum trim coil, wood windows, aluminum
windows, vinyl and aluminum-clad windows and steel and
fiberglass doors, enabling us to bundle complementary and
color-matched products and accessories with our core products.
We believe that our comprehensive product portfolio and
geographically diverse, low cost manufacturing platform allow us
to better serve our customers and provide us with a competitive
advantage over other exterior building products suppliers.
Ply Gem Holdings was incorporated on January 23, 2004 by
affiliates of CI Capital Partners for the purpose of acquiring
Ply Gem Industries from Nortek, Inc. (Nortek). The
Ply Gem acquisition was completed on February 12, 2004.
Prior to the Ply Gem acquisition, our business was known as the
Windows, Doors and Siding division of Nortek, where the business
operated as a holding company with a broad set of brands. Since
the Ply Gem acquisition, we have acquired five additional
businesses to complement and expand our product portfolio and
geographical diversity. After being recruited by our directors
affiliated with CI Capital Partners, Gary E. Robinette, our
President and Chief Executive Officer, joined Ply Gem in October
2006, and has employed the strategy of transitioning Ply Gem to
an integrated and consolidated business model under the Ply Gem
brand.
The following is a summary of Ply Gems acquisition history:
|
|
|
On August 27, 2004, Ply Gem acquired MWM Holding, a
manufacturer of vinyl, wood, wood-clad, composite, impact and
aluminum windows and patio doors under the name MW
Windows & Doors.
|
|
|
On February 24, 2006, Alenco, a manufacturer of aluminum
and vinyl windows and door products, was acquired by Ply Gem.
This acquisition supported our national window strategy and
today operates under common leadership with our other
U.S. window businesses.
|
45
|
|
|
On October 31, 2006, Ply Gem completed the acquisition of
Alcoa Home Exteriors, Inc. (AHE), a leading
manufacturer of vinyl siding, aluminum siding, injection molded
shutters and vinyl, aluminum and injection molded accessories.
As a result of the AHE acquisition, AHE became part of our
Siding, Fencing, and Stone Segment and operates under common
leadership with our existing siding business.
|
|
|
On September 30, 2007, Ply Gem completed the acquisition of
CertainTeed Corporations vinyl window and patio door
business, which we have named Ply Gem Pacific Windows, a leading
manufacturer of premium vinyl windows and patio doors.
|
|
|
On October 31, 2008, Ply Gem acquired substantially all of
the assets of Ply Gem Stone (formerly United Stone Veneer), a
manufacturer of stone veneer products. As a result of the Ply
Gem Stone acquisition, the Company modified the name of its
Siding, Fencing, and Railing segment to
Siding, Fencing, and Stone during 2008.
|
Prior to January 11, 2010, Ply Gem Holdings was a
wholly-owned subsidiary of Ply Gem Investment Holdings, Inc.
(Ply Gem Investment Holdings), which was a
wholly-owned subsidiary of Ply Gem Prime. On January 11,
2010, Ply Gem Investment Holdings was merged with and into Ply
Gem Prime, with Ply Gem Prime being the surviving corporation.
As a result, Ply Gem Holdings is a wholly-owned subsidiary of
Ply Gem Prime. Immediately prior to the closing of this
offering, Ply Gem Prime will merge with and into Ply Gem
Holdings, with Ply Gem Holdings being the surviving entity.
We are a holding company with no operations or assets of our own
other than the capital stock of our subsidiaries. The terms of
the ABL Facility and the indentures governing the Senior Secured
Notes and the 13.125% Senior Subordinated Notes place
restrictions on Ply Gem Industries and its subsidiaries
ability to make certain payments and otherwise transfer assets
to us. Further, the terms of the ABL Facility place restrictions
on our ability to make certain dividend payments.
Financial
statement presentation
Net sales. Net sales represent the fixed selling
price of our products plus certain shipping charges less
applicable provisions for discounts and allowances. Allowances
include cash discounts, volume rebates and returns among others.
Cost of products sold. Cost of products sold
includes direct material and manufacturing costs, manufacturing
depreciation, third-party and in-house delivery costs and
product warranty expense.
Selling, general and administrative
expense. Selling, general and administrative expense
(SG&A expense) includes all non-product related
operating expenses, including selling, marketing, research and
development costs, information technology, restructuring, and
other general and administrative expenses.
Operating earnings (loss). Operating earnings (loss)
represents net sales less cost of products sold, SG&A
expense and amortization of intangible assets.
Comparability. All periods after the Pacific Windows
acquisition in September 2007 include the results of operations
of Pacific Windows. All periods after the Ply Gem Stone
acquisition in October 2008 include the results of operations of
Ply Gem Stone.
46
Impact of
commodity pricing
PVC resin and aluminum are major components in the production of
our products and changes in PVC resin and aluminum prices have a
direct impact on our cost of products sold. Historically, we
have been able to pass on the price increases to our customers.
The results of operations for individual quarters can be
negatively impacted by a delay between the time of raw material
cost increases and price increases that we implement in our
products, or conversely can be positively impacted by a delay
between the time of a raw material price decrease and
competitive pricing moves that we implement accordingly.
Impact of
weather
Since our building products are intended for exterior use, our
sales and operating earnings tend to be lower during periods of
inclement weather. Weather conditions in the first and fourth
quarters of each calendar year historically result in those
quarters producing significantly less sales revenue than in any
other period of the year. As a result, we have historically had
lower profits or losses in the first quarter, and reduced
profits in the fourth quarter of each calendar year due to the
weather. Our results of operations for individual quarters in
the future may be impacted by adverse weather conditions.
Critical
accounting policies
The following discussion and analysis of our financial condition
and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance
with U.S. GAAP. Certain of our accounting policies require
the application of judgments in selecting the appropriate
assumptions for calculating financial estimates. By their
nature, these judgments are subject to an inherent degree of
uncertainty. We periodically evaluate the judgments and
estimates used for our critical accounting policies to ensure
that such judgments and estimates are reasonable for our interim
and year-end reporting requirements. These judgments and
estimates are based upon our historical experience, current
trends and information available from other sources, as
appropriate. If different conditions result compared to our
assumptions and judgments, the results could be materially
different from our estimates. Management also believes that the
five areas where different assumptions could result in
materially different reported results are 1) goodwill and
intangible asset impairment tests, 2) accounts receivable
related to estimation of allowances for doubtful accounts,
3) inventories in estimating reserves for obsolete and
excess inventory, 4) warranty reserves and 5) income
taxes. Although we believe the likelihood of a material
difference in these areas is low based upon our historical
experience, a 10% change in our allowance for doubtful accounts,
inventory reserve estimates, and warranty reserve at
December 31, 2009 would result in an approximate
$0.5 million, $0.7 million, and $4.3 million
impact on expenses, respectively. Additionally, we have included
in the discussion that follows our estimation methodology for
both accounts receivable and inventories. While all significant
policies are important to our consolidated financial statements,
some of these policies may be viewed as being critical. Our
critical accounting policies include:
Revenue Recognition. We recognize sales based upon
shipment of products to our customers net of applicable
provisions for discounts and allowances. Generally, the customer
takes title upon shipment and assumes the risks and rewards of
ownership of the product. For certain products, our customers
take title upon delivery, at which time revenue is then
recognized. Revenue includes the selling price of the product
and all shipping costs paid by the customer.
47
Revenue is reduced at the time of sale for estimated sales
returns and all applicable allowances and discounts based on
historical experience. We also provide for estimates of
warranty, bad debts, shipping costs and certain sales-related
customer programs at the time of sale. Shipping and warranty
costs are included in cost of products sold. Bad debt expense
and sales-related marketing programs are included in SG&A
expense. We believe that our procedures for estimating such
amounts are reasonable and historically have not resulted in
material adjustments in subsequent periods when the estimates
are reconciled to the actual amounts.
Accounts Receivable. We maintain an allowance for
doubtful accounts for estimated losses from the inability of our
customers to make required payments, which is provided for in
bad debt expense. We determine the adequacy of this allowance by
regularly reviewing our accounts receivable aging and evaluating
individual customers receivables, considering
customers financial condition, credit history and other
current economic conditions. If a customers financial
condition were to deteriorate which might impact its ability to
make payment, then additional allowances may be required.
Inventories. Inventories in the accompanying
consolidated balance sheets are valued at the lower of cost or
market. During the year ended December 31, 2008, we elected
to conform our method of valuing our inventory to the FIFO
method from the LIFO method since over 92% of our inventory used
FIFO. We believe that the FIFO method is preferable because it
provides a better measure of the current value of its inventory
and provides a better matching of manufacturing costs with
revenues. The change resulted in the application of a single
costing method to all of our inventories. We record provisions,
as appropriate, to write-down obsolete and excess inventory to
estimated net realizable value. The process for evaluating
obsolete and excess inventory often requires subjective
judgments and estimates concerning future sales levels,
quantities and prices at which such inventory will be sold in
the normal course of business. Accelerating the disposal process
or incorrect estimates of future sales potential may cause the
actual results to differ from the estimates at the time such
inventory is disposed or sold.
Asset Impairment. We evaluate the realizability of
certain long-lived assets, which primarily consist of property
and equipment and intangible assets subject to amortization,
based on expectations of undiscounted future cash flows for each
asset group. If circumstances indicate a potential impairment,
and if the sum of the expected undiscounted future cash flow is
less than the carrying amount of all long-lived assets, we would
recognize an impairment loss. A decrease in projected cash flows
due to depressed residential housing construction and remodeling
was determined to be a triggering event during 2009 and 2008.
The impairment test results did not indicate that an impairment
existed at December 31, 2009 or December 31, 2008.
Refer to Note 1 to our audited consolidated financial
statements included elsewhere in this prospectus for additional
information regarding long-lived assets including the level of
impairment testing, the material assumptions regarding these
impairment calculations, and the sensitivities surrounding those
assumptions.
Goodwill Impairment. We perform an annual test for
goodwill impairment during the fourth quarter of each year and
also at any other date when events or changes in circumstances
indicate that the carrying value of these assets may exceed
their fair value. We use the two-step method to determine
goodwill impairment. If the carrying amount of a reporting unit
exceeds its fair value (Step One Analysis), we measure the
possible goodwill impairment based upon a hypothetical
allocation of the fair value estimate of the reporting unit to
all of the underlying assets and liabilities of the reporting
unit, including previously unrecognized intangible assets
48
(Step Two Analysis). The excess of the reporting units
fair value over the amounts assigned to its assets and
liabilities is the implied fair value of goodwill. An impairment
loss is recognized to the extent that a reporting units
recorded goodwill exceeds the implied fair value of goodwill.
To evaluate goodwill impairment, we estimate the fair value of
reporting units considering such factors as discounted cash
flows and valuation multiples for comparable publicly traded
companies. A significant reduction in projected sales and
earnings which would lead to a reduction in future cash flows
could indicate potential impairment. Depressed residential
housing construction and remodeling was determined to be a
triggering event during the third quarter of 2008. The test
results indicated that an estimated impairment of approximately
$200.0 million existed at September 27, 2008. This
impairment was recognized within the Windows and Doors
segments operating earnings in the third quarter of 2008.
Our annual goodwill impairment test performed during the fourth
quarter of 2008 was affected by further housing market declines
as well as significant decreases in market multiples. The test
results indicated that an additional impairment of approximately
$127.8 million existed in our Windows and Doors segment at
December 31, 2008. In addition, an impairment of
approximately $122.2 million was recognized in our Siding,
Fencing, and Stone segment. These impairments were recognized in
the respective segments in the fourth quarter of 2008. Our
annual goodwill impairment test performed during the fourth
quarter of 2009 indicated no impairment. The Windows and Doors
and Siding, Fencing, and Stone reporting units exceeded their
carrying values at December 31, 2009 by approximately 26%
and 50%, respectively.
We performed the following sensitivity analysis on the reporting
unit Step One fair values as of December 31, 2009,
December 31, 2008, and September 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 27,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
Estimated Windows and Doors reporting unit fair value (decrease)
increase in the event of a 10% increase in the weighting of the
market multiples method
|
|
$
|
5,000
|
|
|
$
|
(5,900
|
)
|
|
$
|
(15,800
|
)
|
Estimated Siding, Fencing, and Stone reporting unit fair value
(decrease) increase in the event of a 10% increase in the
weighting of the market multiples method
|
|
|
7,000
|
|
|
|
(1,200
|
)
|
|
|
2,900
|
|
|
|
49
A summary of the key assumptions utilized in the goodwill
impairment analysis at December 31, 2009, December 31,
2008, and September 27, 2008, as it relates to the Step One
fair values and the sensitivities for these assumptions follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows and Doors
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income approach:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated housing starts in terminal year
|
|
|
1,100,000
|
|
|
|
850,000
|
|
|
|
1,100,000
|
|
Terminal growth rate
|
|
|
3.5%
|
|
|
|
3.5%
|
|
|
|
3.5%
|
|
Discount rates
|
|
|
19.0%
|
|
|
|
19.0%
|
|
|
|
14.0%
|
|
Market approach:
|
|
|
|
|
|
|
|
|
|
|
|
|
Control premiums
|
|
|
20.0%
|
|
|
|
20.0%
|
|
|
|
20.0%
|
|
Sensitivities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value decrease in the event of a 1% decrease in
the terminal year growth
|
|
$
|
11,565
|
|
|
$
|
7,937
|
|
|
$
|
26,629
|
|
Estimated fair value decrease in the event of a 1% increase in
the discount rate
|
|
|
18,563
|
|
|
|
15,876
|
|
|
|
43,331
|
|
Estimated fair value decrease in the event of a 1% decrease in
the control premium
|
|
|
2,699
|
|
|
|
1,545
|
|
|
|
2,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income approach:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated housing starts in terminal year
|
|
|
1,100,000
|
|
|
|
850,000
|
|
|
|
1,100,000
|
|
Terminal growth rate
|
|
|
3.0%
|
|
|
|
3.0%
|
|
|
|
3.0%
|
|
Discount rates
|
|
|
19.0%
|
|
|
|
18.0%
|
|
|
|
14.0%
|
|
Market approach:
|
|
|
|
|
|
|
|
|
|
|
|
|
Control premiums
|
|
|
10.0%
|
|
|
|
10.0%
|
|
|
|
10.0%
|
|
Sensitivities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value decrease in the event of a 1% decrease in
the terminal year growth
|
|
$
|
23,989
|
|
|
$
|
18,330
|
|
|
$
|
38,064
|
|
Estimated fair value decrease in the event of a 1% increase in
the discount rate
|
|
|
45,248
|
|
|
|
35,659
|
|
|
|
64,261
|
|
Estimated fair value decrease in the event of a 1% decrease in
the control premium
|
|
|
7,470
|
|
|
|
5,316
|
|
|
|
7,348
|
|
|
|
50
We provide no assurance that: 1) valuation multiples will
not decline further, 2) discount rates will not increase or
3) the earnings, book values or projected earnings and cash
flows of our reporting units will not decline. We will continue
to analyze changes to these assumptions in future periods. We
will continue to evaluate goodwill during future periods and
further declines in residential housing construction and
remodeling could result in additional goodwill impairments.
Income Taxes. We utilize the asset and liability
method in accounting for income taxes, which requires that the
deferred tax consequences of temporary differences between the
amounts recorded in our financial statements and the amounts
included in our federal and state income tax returns be
recognized in the consolidated balance sheet. The amount
recorded in our consolidated financial statements reflects
estimates of final amounts due to timing of completion and
filing of actual income tax returns. Estimates are required with
respect to, among other things, the appropriate state income tax
rates used in the various states in which we and our
subsidiaries are required to file, the potential utilization of
operating and capital loss carryforwards for both federal and
state income tax purposes and valuation allowances required, if
any, for tax assets that may not be realized in the future. We
establish reserves when, despite our belief that our tax return
positions are fully supportable, certain positions could be
challenged, and the positions may not be fully sustained. We
have entered into a tax sharing agreement with Ply Gem
Industries and Ply Gem Prime pursuant to which tax liabilities
for each respective party are computed on a stand-alone basis.
Our U.S. subsidiaries file unitary, combined federal income
tax returns and separate state income tax returns. Ply Gem
Canada, Inc. (Ply Gem Canada), formerly CWD Windows
and Doors, Inc., files separate Canadian income tax returns.
At December 31, 2008, we were in a net deferred tax
liability position and had sufficient taxable income from
reversing taxable temporary differences to realize the federal
deferred tax assets. We scheduled out the reversing temporary
differences associated with their deferred tax assets and
deferred tax liabilities to reach this conclusion. Due to recent
cumulative losses accumulated by us, our management did not rely
upon projections of future taxable income in assessing the
recoverability of deferred tax assets. At December 31,
2009, we were in a full federal valuation allowance position as
we were no longer in a net deferred liability tax position and
continued to incur losses for income tax purposes. Refer to
Note 12 to our audited consolidated financial statements
included elsewhere in this prospectus for additional information
regarding income taxes.
Purchase Accounting. Business acquisitions are
accounted for using the purchase method of accounting. The cost
of the acquired company is allocated to identifiable tangible
and intangible assets based on estimated fair value with the
excess allocated to goodwill.
51
Results of
operations
The following table summarizes net sales and net income (loss)
by segment and is derived from the accompanying consolidated
statements of operations included in this report:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
117,668
|
|
|
$
|
108,460
|
|
|
$
|
577,390
|
|
|
$
|
709,432
|
|
|
$
|
828,124
|
|
Windows and Doors
|
|
|
86,537
|
|
|
|
74,291
|
|
|
|
373,984
|
|
|
|
465,587
|
|
|
|
535,422
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
|
10,514
|
|
|
|
(7,517
|
)
|
|
|
77,756
|
|
|
|
(75,431
|
)
|
|
|
73,560
|
|
Windows and Doors
|
|
|
(10,756
|
)
|
|
|
(21,682
|
)
|
|
|
(23,504
|
)
|
|
|
(344,140
|
)
|
|
|
36,134
|
|
Unallocated
|
|
|
(3,461
|
)
|
|
|
(3,609
|
)
|
|
|
(14,142
|
)
|
|
|
(10,546
|
)
|
|
|
(7,045
|
)
|
Foreign currency gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows and Doors
|
|
|
104
|
|
|
|
(88
|
)
|
|
|
475
|
|
|
|
(911
|
)
|
|
|
3,961
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
|
(43
|
)
|
|
|
(55
|
)
|
|
|
(169
|
)
|
|
|
(125
|
)
|
|
|
(110
|
)
|
Windows and Doors
|
|
|
46
|
|
|
|
(1
|
)
|
|
|
183
|
|
|
|
518
|
|
|
|
1,673
|
|
Unallocated
|
|
|
33,951
|
|
|
|
33,747
|
|
|
|
135,289
|
|
|
|
137,005
|
|
|
|
96,431
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
(6,532
|
)
|
|
|
11,049
|
|
|
|
17,966
|
|
|
|
69,951
|
|
|
|
(3,634
|
)
|
Gain on extinguishment of debt
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
|
|
The following tables set forth our results of operations based
on the amounts and the percentage relationship of the items
listed to net sales for the periods indicated.
This review of performance is organized by business segment,
reflecting the way we manage our business. Each business group
leader is responsible for operating results down to operating
earnings (loss). We use operating earnings as a performance
measure as it captures the income and expenses within the
management control of our business leaders. Corporate management
is responsible for making all financing decisions. Therefore,
each segment discussion focuses on the factors affecting
operating earnings, while interest expense and income taxes and
certain other unallocated expenses are separately discussed at
the corporate level.
52
Siding, Fencing,
and Stone segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
April 3, 2010 (unaudited)
|
|
|
April 4, 2009 (unaudited)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
117,668
|
|
|
|
100.0%
|
|
|
$
|
108,460
|
|
|
|
100.0%
|
|
|
$
|
577,390
|
|
|
|
100.0%
|
|
|
$
|
709,432
|
|
|
|
100.0%
|
|
|
$
|
828,124
|
|
|
|
100.0%
|
|
|
|
|
|
Cost of products sold
|
|
|
90,294
|
|
|
|
76.7%
|
|
|
|
95,475
|
|
|
|
88.0%
|
|
|
|
428,037
|
|
|
|
74.1%
|
|
|
|
578,850
|
|
|
|
81.6%
|
|
|
|
659,423
|
|
|
|
79.6%
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
27,374
|
|
|
|
23.3%
|
|
|
|
12,985
|
|
|
|
12.0%
|
|
|
|
149,353
|
|
|
|
25.9%
|
|
|
|
130,582
|
|
|
|
18.4%
|
|
|
|
168,701
|
|
|
|
20.4%
|
|
|
|
|
|
SG&A expense
|
|
|
14,729
|
|
|
|
12.5%
|
|
|
|
18,372
|
|
|
|
16.9%
|
|
|
|
63,072
|
|
|
|
10.9%
|
|
|
|
75,240
|
|
|
|
10.6%
|
|
|
|
86,068
|
|
|
|
10.4%
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
2,131
|
|
|
|
1.8%
|
|
|
|
2,130
|
|
|
|
2.0%
|
|
|
|
8,525
|
|
|
|
1.5%
|
|
|
|
8,546
|
|
|
|
1.2%
|
|
|
|
9,073
|
|
|
|
1.1%
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
122,227
|
|
|
|
17.2%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
$
|
10,514
|
|
|
|
8.9%
|
|
|
$
|
(7,517
|
)
|
|
|
−6.9%
|
|
|
$
|
77,756
|
|
|
|
13.5%
|
|
|
$
|
(75,431
|
)
|
|
|
−10.6%
|
|
|
$
|
73,560
|
|
|
|
8.9%
|
|
|
|
|
|
|
|
As a result of the Ply Gem Stone acquisition, we shortened the
name of our Siding, Fencing, Railing and Decking
segment to Siding, Fencing, and Stone during 2008.
The Ply Gem Stone results were included within this segment from
October 31, 2008 forward. The other operations within this
segment remain unchanged.
Net
sales
Net sales for the three months ended April 3, 2010
increased compared to the same period in 2009 by approximately
$9.2 million, or 8.5%. The increase in net sales was driven
by improved industry wide market conditions in new construction
as single family housing starts increased favorably impacting
demand for our products. According to the U.S. Census
Bureau, fourth quarter 2009 and first quarter 2010 single family
housing starts were estimated to increase by approximately 1.5%
and 46.0% respectively from actual levels achieved in the fourth
quarter of 2008 and the first quarter of 2009. The increase in
net sales that resulted from improved market conditions in new
construction were partially offset by overall market softness in
repair and remodeling expenditures. According to the Joint
Center for Housing Studies of Harvard Universitys leading
indicator of remodeling activity (LIRA) index, repair and
remodeling activity declined in the first quarter of 2010 as
compared to the first quarter of 2009.
Net sales for the year ended December 31, 2009 decreased
from the year ended December 31, 2008 by approximately
$132.0 million, or 18.6%. The decrease in net sales was
driven by industry wide market declines resulting from lower
single family housing starts, which negatively impacted the new
construction sector and overall softness in repair and
remodeling expenditures. These market conditions negatively
impacted demand for our products. According to the NAHB, single
family housing starts for 2009 were 441,000 units, which
represents a decline of approximately 28.4% from 2008 levels of
616,000. In addition to lower unit volume shipments, selling
prices were generally lower in 2009 as compared to 2008 due to
market pressure that resulted from lower raw material and
freight costs. The decrease in net sales that resulted from
industry wide market demand declines and lower selling prices
were partially offset by product share gains from sales to new
customers
and/or
expanded sales to existing customers from additional products or
sales in new geographical regions. As a result of our market
share gains, we believe that we outperformed the vinyl siding
industry. Our 2009 unit shipments of vinyl siding decreased
by approximately 12% as compared to the U.S. vinyl siding
industry, as summarized by the Vinyl Siding Institute, which
reported a 23% unit shipment
53
decline in 2009. As a result, we estimate that our share of
U.S. vinyl siding units shipped increased from
approximately 29% in 2008 to 33% for the year ended
December 31, 2009. Additionally, our 2009 sales include
sales contributed by Ply Gem Stone which was acquired in October
2008.
Net sales for the year ended December 31, 2008 decreased
from the year ended December 31, 2007 by approximately
$118.7 million or 14.3%. The decrease in net sales was
driven by industry wide market declines resulting from lower
single family housing starts, which negatively impacted the new
construction sector and overall softness in repair and
remodeling expenditures. These market conditions negatively
impacted demand for our products. According to the NAHB, 2008
single family housing starts declined approximately 40.5% from
actual levels achieved in 2007 with single family housing starts
declining from 1,036,000 units in 2007 to 616,000 in 2008.
The decrease in net sales that resulted from industry wide
market demand declines was partially offset by price increases
that we implemented in response to increasing raw materials and
freight costs as discussed below in cost of products sold and
sales from Ply Gem Stone.
Cost of
products sold
Cost of products sold for the three months ended April 3,
2010 decreased compared to the same period in 2009 by
approximately $5.2 million, or 5.4%. The decrease in cost
of products sold was driven by lower material cost due to the
termination of an aluminum supply agreement in early 2009, which
resulted in abnormally high aluminum material cost charged to
cost of products sold in the first quarter of 2009. The decrease
in cost of products sold was partially offset by increased sales
as discussed above. In addition, we incurred $1.3 million
less expense associated with new customers that resulted from
the buy-back, or lift-out, of our competitors product on
initial stocking orders for the three months ended April 3,
2010 as compared to the same period in 2009. Gross profit
percentage for the three months ended April 3, 2010
increased from the same period in 2009 from 12.0% to 23.3%. The
improvement in gross profit percentage resulted from lower
aluminum material cost and new customer buy-back expense as
previously discussed. In addition, our gross profit percentage
improved as a result of managements initiatives to reduce
fixed expenses, including the consolidation of the majority of
the production from our vinyl siding plant in Kearney, Missouri
into our other three remaining vinyl siding plants which was
completed in the second quarter of 2009.
Cost of products sold for the year ended December 31, 2009
decreased from the year ended December 31, 2008 by
approximately $150.8 million, or 26.1%. The decrease in
cost of products sold was primarily due to lower sales as
discussed above and decreased raw material costs, primarily PVC
resin and aluminum, as well as lower freight costs driven by
lower oil costs. We estimate that the 2009 full year average
market cost of pipe grade PVC resin and aluminum declined by
approximately 8.1% and 35.2% respectively as compared to 2008.
Gross profit percentage increased from 18.4% in 2008 to 25.9% in
2009. The improvement in gross profit percentage resulted from
decreased raw material and freight cost discussed above,
partially offset by lower selling prices. In addition, our gross
profit percentage improved as a result of managements
initiatives to reduce fixed expenses which included the closure
of the vinyl siding plant in Denison, Texas, which ceased
production in February 2008, the consolidation of the majority
of the production from our vinyl siding plant in Kearney,
Missouri into its other three remaining vinyl siding plants, and
the consolidation of our metal accessory production from our
Valencia, Pennsylvania facility into our Sidney, Ohio facility
which occurred during the later part of 2008 and early 2009. The
improvement in gross profit that resulted from managements
54
initiatives was partially offset by initial costs that were
incurred with new customers that resulted from the buy-back, or
lift-out, of our competitors product on the initial
stocking orders with our new customers which totaled
$7.4 million in 2009 as compared to $1.4 million in
2008.
Cost of products sold for the year ended December 31, 2008
decreased from the year ended December 31, 2007 by
approximately $80.6 million or 12.2%. The decrease in cost
of products sold was due to lower sales as discussed above, but
was partially offset by higher raw material costs, primarily PVC
resin and aluminum, as well as higher freight costs driven by
higher oil costs. Gross profit percentage decreased from 20.4%
in 2007 to 18.4% in 2008. The decrease in gross profit
percentage was driven by lower unit sales volume and increased
raw material and freight costs. During 2008, we implemented
selling price increases in response to higher raw material costs
and freight costs, however, our gross profit percentage was
negatively impacted by the delay between the time of raw
material and freight cost increases and the price increases that
we implemented. We experienced market wide decreases in our raw
material costs and freight costs during the later months of
2008, which resulted in corresponding decreases in our selling
prices as a result of the lower raw material and freight costs.
Additionally, in light of current market conditions for building
products, we have adjusted the size of our workforce and reduced
our fixed overhead structure, including reductions in certain
fixed expenses related to the vinyl siding plants in Atlanta,
Georgia and Denison, Texas, which ceased production in April of
2007 and February of 2008, respectively.
SG&A
expense
SG&A expenses for the three months ended April 3, 2010
decreased compared to the same period in 2009 by approximately
$3.6 million, or 19.8%. The decrease in SG&A expense
was primarily caused by lower marketing expenses related to our
brand conversion from Alcoa Home Exteriors to Mastic Home
Exteriors during the first quarter of 2009. We reduced
administrative and other fixed expenses in light of current
market conditions and incurred lower restructuring and
integration expense which totaled approximately
$0.1 million for the first quarter of 2010 as compared to
approximately $1.2 million for the same period in 2009.
SG&A expense for the year ended December 31, 2009
decreased from the year ended December 31, 2008 by
approximately $12.2 million, or 16.2%. The decrease in
SG&A expense was due to lower administrative and other
fixed expenses that have been reduced in light of current market
conditions, as well as, lower restructuring and integration
expense. We incurred restructuring and integration expense of
approximately $2.9 million in 2009 as compared to
approximately $6.9 million in 2008.
SG&A expense for the year ended December 31, 2008
decreased from the year ended December 31, 2007 by
approximately $10.8 million or 12.6%. The decrease in
SG&A expenses was primarily due to lower selling and
marketing costs and other fixed expenses that have been reduced
in light of current market conditions for building products. In
addition, SG&A expense for 2007 included certain expenses
incurred to integrate the AHE acquisition into our Siding,
Fencing, and Stone segment.
Amortization
of intangible assets
Amortization expense for the three months ended April 3,
2010 was consistent with the same period in 2009.
55
Amortization expense for the year ended December 31, 2009
was consistent with the year ended December 31, 2008.
Amortization expense for the year ended December 31, 2008
decreased from the year ended December 31, 2007 by
approximately $0.5 million.
Goodwill
impairment
There were no impairment indicators which would trigger an
interim impairment test during the quarter ended April 3,
2010 or April 4, 2009.
Our annual goodwill impairment test performed during the fourth
quarter of 2009 indicated no impairment. During 2008, we
conducted our annual goodwill impairment test. As a result of
depressed residential housing construction and remodeling, we
incurred a $122.2 million impairment charge to operating
earnings during the fourth quarter of 2008 for our Siding,
Fencing, and Stone operating segment. Our annual goodwill
impairment test performed during the fourth quarter of 2007
indicated no impairment.
Windows and Doors
segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
April 3, 2010 (unaudited)
|
|
|
April 4, 2009 (unaudited)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
86,537
|
|
|
|
100.0%
|
|
|
$
|
74,291
|
|
|
|
100.0%
|
|
|
$
|
373,984
|
|
|
|
100.0%
|
|
|
$
|
465,587
|
|
|
|
100.0%
|
|
|
$
|
535,422
|
|
|
|
100.0%
|
|
Cost of products sold
|
|
|
77,014
|
|
|
|
89.0%
|
|
|
|
74,216
|
|
|
|
99.9%
|
|
|
|
321,804
|
|
|
|
86.0%
|
|
|
|
401,248
|
|
|
|
86.2%
|
|
|
|
423,730
|
|
|
|
79.1%
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,523
|
|
|
|
11.0%
|
|
|
|
75
|
|
|
|
0.1%
|
|
|
|
52,180
|
|
|
|
14.0%
|
|
|
|
64,339
|
|
|
|
13.8%
|
|
|
|
111,692
|
|
|
|
20.9%
|
|
SG&A expense
|
|
|
15,625
|
|
|
|
18.1%
|
|
|
|
18,981
|
|
|
|
25.5%
|
|
|
|
64,579
|
|
|
|
17.3%
|
|
|
|
69,602
|
|
|
|
14.9%
|
|
|
|
62,850
|
|
|
|
11.7%
|
|
Amortization of intangible assets
|
|
|
4,654
|
|
|
|
5.4%
|
|
|
|
2,776
|
|
|
|
3.7%
|
|
|
|
11,105
|
|
|
|
3.0%
|
|
|
|
11,104
|
|
|
|
2.4%
|
|
|
|
8,558
|
|
|
|
1.6%
|
|
Goodwill impairment
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
327,773
|
|
|
|
70.4%
|
|
|
|
|
|
|
|
0.0%
|
|
Intangible impairment
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
4,150
|
|
|
|
0.8%
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(10,756
|
)
|
|
|
−12.4%
|
|
|
|
(21,682
|
)
|
|
|
−29.2%
|
|
|
|
(23,504
|
)
|
|
|
−6.3%
|
|
|
|
(344,140
|
)
|
|
|
−73.9%
|
|
|
|
36,134
|
|
|
|
6.7%
|
|
Currency transaction gain (loss)
|
|
$
|
104
|
|
|
|
0.1%
|
|
|
$
|
(88
|
)
|
|
|
−0.1%
|
|
|
$
|
475
|
|
|
|
0.1%
|
|
|
$
|
(911
|
)
|
|
|
−0.2%
|
|
|
$
|
3,961
|
|
|
|
0.7%
|
|
|
|
Net
sales
Net sales for the three months ended April 3, 2010
increased compared to the same period in 2009 by approximately
$12.2 million, or 16.5%. The increase in net sales resulted
from higher demand for our window and door products due to
higher sales of our new construction window and door products
resulting from U.S. single family housing starts increases
as previously discussed. In addition, sales of our window and
door products in Western Canada were favorably impacted by
market wide increased demand that resulted from increased
housing starts in Alberta, Canada. According to the CMHC,
housing starts in Alberta, Canada were estimated to have
increased by 126.9% in the first quarter of 2010 as compared to
the same period in 2009. Our unit shipments of windows and doors
in the United States increased 8.8% in the first three months of
2010 as compared to the same period in 2009, while our unit
shipments of windows and doors in Western Canada increased by
48.9% in the first three months of 2010 as compared to the same
period in 2009.
56
Net sales for the year ended December 31, 2009 decreased
compared to the same period in 2008 by approximately
$91.6 million, or 19.7%. The decrease in net sales was due
to lower demand for our window and door products due to lower
sales of our new construction window and door products which
were negatively impacted by market wide decreased demand that
resulted from reductions in single family housing starts in the
United States as previously discussed. In addition, sales of our
window and door products in Western Canada were negatively
impacted by market wide decreased demand that resulted from
reductions in housing starts in Alberta, Canada which were
estimated to show a decline of 30.1% in 2009 as compared to 2008
according to the CMHC. The decrease in net sales that resulted
from industry wide market demand declines in both the
U.S. and western Canadian markets were partially offset by
product share gains from sales to new customers
and/or
expanded sales to existing customers from additional products or
sales in new geographical regions. Our unit shipments of windows
and doors in the United States were down 16.8% in 2009 as
compared to 2008, while according to the NAHB, single family
housing starts for 2009 were expected to show a decline of
approximately 28.4% from actual levels achieved in 2008. Our
unit shipments of windows and doors in Western Canada were down
15.8% in 2009 as compared to 2008.
Net sales for the year ended December 31, 2008 decreased
from the year ended December 31, 2007 by approximately
$69.8 million, or 13.0%. The decrease was due to lower
sales of our new construction window products which were
negatively impacted by market wide decreased demand that
resulted from reductions in single family housing starts as
discussed above, as well as lower demand for our repair and
remodeling windows which declined due to a slowdown in the
remodeling and replacement activity across the United States.
The decrease in sales was partially offset by the sales from
Pacific Windows which was acquired in September 2007 and price
increases that were implemented in response to increasing raw
material and freight costs as discussed below.
Cost of
products sold
Cost of products sold for the three months ended April 3,
2010 increased compared to the same period in 2009 by
approximately $2.8 million, or 3.8%. The increase in cost
of products sold was due to increased sales as discussed above.
Gross profit as a percentage of sales increased from 0.1% in
2009 to 11.0% in 2010. The improvement in gross profit
percentage resulted from lower fixed manufacturing costs due to
the closure of our Hammonton, New Jersey, Phoenix, Arizona and
Tupelo, Mississippi window plants during 2009 and realigned
production within our three west coast window plants, including
the realignment of window lineal production during 2009. Also,
impacting our gross profit were the initial costs that were
incurred with new customers that resulted from the buy-back, or
lift-out, of our competitors product on the initial
stocking orders with our new customers which were
$0.0 million in 2010 as compared to $0.2 million for
2009.
Cost of products sold for the year ended December 31, 2009
decreased compared to the same period in 2008 by approximately
$79.4 million, or 19.8%. The decrease in cost of products
sold was primarily due to lower sales as discussed above and
decreased raw material costs, primarily PVC resin and aluminum,
as well as lower freight costs driven by lower oil costs as
previously discussed. Gross profit percentage increased from
13.8% in 2008 to 14.0% in 2009. The increase in gross profit
percentage resulted from lower fixed manufacturing costs that
were reduced in response to lower market demand and decreased
raw material costs, primarily PVC resin, aluminum and glass, as
well as lower freight costs driven in part by lower oil costs.
The reduction in fixed manufacturing costs resulted from the
closure of our Hammonton, New
57
Jersey, Phoenix, Arizona and Tupelo, Mississippi window plants
during 2009 and realigned production within our three west coast
window plants, including the realignment of window lineal
production during 2009. Also, impacting our gross profit results
were the initial costs that were incurred with new customers
that resulted from the buy-back, or lift-out, of our
competitors product on the initial stocking orders with
our new customers which totaled $1.0 million in 2009 as
compared to $0.5 million for 2008.
Cost of products sold for the year ended December 31, 2008
decreased from the year ended December 31, 2007 by
approximately $22.5 million, or 5.3%. The decrease in cost
of products sold was due to lower sales as discussed above, but
was partially offset by cost of products sold attributable to
Pacific Windows, which was acquired in the fourth quarter of
2007 and by higher raw material costs, primarily PVC resin and
aluminum, as well as higher freight costs driven by higher oil
costs. Gross profit as a percentage of net sales decreased from
20.9% in 2007 to 13.8% in 2008. The decrease in gross profit
percentage was driven by lower unit sales volume, increased raw
material and freight costs which were not fully offset by
selling price increases, as well as Pacific Windows which
carried a lower gross profit margin than our other window and
door products.
SG&A expense
SG&A expenses for the three months ended April 3, 2010
decreased compared to the same period in 2009 by approximately
$3.4 million, or 17.7%. The decrease in SG&A expense
was due to lower administrative and other fixed expenses that
have been reduced in light of current market conditions. In
addition, we incurred $2.7 million lower restructuring and
integration expense for the first quarter of 2010 as compared to
the same period in 2009.
SG&A expense for the year ended December 31, 2009
decreased from the year ended December 31, 2008 by
approximately $5.0 million, or 7.2%. The decrease in
SG&A expense was due to lower administrative and other
fixed expenses that have been reduced in light of current market
conditions. These SG&A expense reductions were partially
offset by higher restructuring and integration expenses that
were incurred in 2009 of approximately $5.6 million as
compared to approximately $3.3 million in 2008.
SG&A expense for the year ended December 31, 2008
increased from the year ended December 31, 2007 by
approximately $6.8 million, or 10.7%. The increase in
SG&A was primarily due to the addition of Pacific Windows
and reorganization expenses incurred to integrate our
U.S. window companies into one operating group. The
reorganization expenses are primarily comprised of fees paid to
third party consultants assisting with the reorganization and
integration of our U.S. window group, as well as severance
costs related to positions that have been eliminated. We believe
that the reorganization of our U.S. window group will allow
us to better serve our customers and end users, while reducing
future operating costs.
Amortization
of intangible assets
Amortization expense for the three months ended April 3,
2010 increased compared to the same period in 2009 by
approximately $1.9 million due to the change in the
estimated lives of certain tradenames. During the quarter ended
April 3, 2010, we decreased the life of certain trademarks
to three years (applied prospectively) as a result of future
marketing plans regarding the use of the trademarks.
58
Amortization expense for the year ended December 31, 2009
was consistent with the amortization expense for the year ended
December 31, 2008. Amortization expense for the year ended
December 31, 2008 increased from the year ended
December 31, 2007 by approximately $2.5 million, due
to the reclassification of the tradenames intangible asset from
an indefinite lived asset to a definite lived asset.
Goodwill
impairment
There were no impairment indicators which would trigger an
interim impairment test during the quarter ended April 3,
2010 or April 4, 2009.
Our annual goodwill impairment test performed during the fourth
quarter of 2009 indicated no impairment. As a result of
depressed residential housing construction and remodeling, we
incurred a $127.8 million impairment charge to operating
earnings during the fourth quarter of 2008 for our Windows and
Doors operating segment. The $127.8 million impairment
charge taken in the fourth quarter of 2008 was in addition to
the estimated $200.0 million impairment charge to operating
earnings taken in our fiscal third quarter of 2008 for our
Windows and Doors operating segment. Our annual goodwill
impairment test performed during the fourth quarter of 2007
indicated no impairment.
Intangible
impairment
There were no impairment indicators which would trigger an
interim impairment test during the quarter ended April 3,
2010 or April 4, 2009.
We evaluated the intangible assets as of December 31, 2009
and December 31, 2008 and determined that there was no
impairment. We evaluated the intangible assets (tradenames) with
indefinite lives for impairment as of November 30, 2007 and
determined that there was an impairment. The impairment charge
was primarily a result of a change in the assumption of
long-term revenue growth related to the tradenames. As a result,
we wrote down those assets by approximately $4.2 million
for the year ended December 31, 2007.
Currency
transaction gain (loss)
Currency transaction gain (loss) changed from a loss of
approximately $88,000 for the three months ended April 4,
2009 to a gain of approximately $104,000 for the three months
ended April 3, 2010.
Currency transaction gain (loss) changed from a loss of
approximately $0.9 million for the year ended
December 31, 2008 to a gain of approximately
$0.5 million for the year ended December 31, 2009.
Currency transaction gain (loss) changed from a gain of
approximately $4.0 million for the year ended
December 31, 2007 to a loss of approximately
$0.9 million for the year ended December 31, 2008.
59
Unallocated
operating earnings, interest, and provision for income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
|
|
|
|
|
|
|
months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
April 3,
|
|
|
April 4,
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expense
|
|
$
|
(3,452
|
)
|
|
$
|
(3,609
|
)
|
|
$
|
(14,121
|
)
|
|
$
|
(10,546
|
)
|
|
$
|
(7,045
|
)
|
Amortization of intangible assets
|
|
|
(9
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,461
|
)
|
|
|
(3,609
|
)
|
|
|
(14,142
|
)
|
|
|
(10,546
|
)
|
|
|
(7,045
|
)
|
Interest expense
|
|
|
(33,960
|
)
|
|
|
(33,756
|
)
|
|
|
(135,328
|
)
|
|
|
(137,395
|
)
|
|
|
(97,558
|
)
|
Interest income
|
|
|
9
|
|
|
|
9
|
|
|
|
39
|
|
|
|
390
|
|
|
|
1,127
|
|
Gain on extinguishment of debt
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for income taxes
|
|
$
|
(6,532
|
)
|
|
$
|
11,049
|
|
|
$
|
17,966
|
|
|
$
|
69,951
|
|
|
$
|
(3,634
|
)
|
|
|
SG&A
expense
Unallocated SG&A expense include items which are not
directly attributed to or allocated to either of our reporting
segments. Such items include legal costs, corporate payroll, and
unallocated finance and accounting expenses. The unallocated
SG&A expense for the three months ended April 3, 2010
decreased by approximately $0.2 million compared to the
same period in 2009 primarily due to lower professional fees.
The SG&A expense increase of approximately
$3.6 million for the year ended December 31, 2009 as
compared to December 31, 2008 was driven by the expansion
of the corporate office and centralization of back office
functions from the operating units to the corporate office
including payroll, payables, credit (US Windows), cash
application and billing.
The increase of approximately $3.5 million in expenses for
the year ended December 31, 2008 as compared to the prior
year was primarily due to higher salary and travel and
entertainment expenses due to the addition of a corporate
marketing department and one-time expenses related to the 2008
corporate office movement to Cary, North Carolina.
Amortization
of intangible assets
The amortization expense for the for the three months ended
April 3, 2010 was approximately $9,000 compared to no
amortization expense for the three months ended April 4,
2009.
The amortization expense for the year ended December 31,
2009 was approximately $21,000. There was no amortization
expense for the years ended December 31, 2008 and
December 31, 2007.
Interest
expense
Interest expense for the three months ended April 3, 2010
increased by approximately $0.2 million over the same
period in 2009 due to interest of approximately
$0.5 million on the additional
60
$25.0 million of Senior Secured Notes issued in October
2009, interest of approximately $0.5 million due to the
amortization of the bond discount associated with the additional
$25.0 million of Senior Secured Notes, and an increase of
approximately $0.2 million due to a higher interest rate on
ABL borrowings, partially offset by approximately
$1.0 million of financing costs expensed as interest in
2009.
Interest expense for the year ended December 31, 2009
decreased by approximately $2.1 million over the same
period in 2008. The decrease was due to the following:
|
|
|
a decrease of approximately $27.6 million due to interest
costs incurred in the second quarter of 2008 related to the
issuance of new debt (approximately $14.0 million deferred
financing costs associated with previous debt, approximately
$6.8 million for a prepayment premium, and approximately
$6.8 million of bank amendment fees that was subsequently
retired);
|
|
|
an increase of approximately $16.6 million due to 2009
interest of approximately $37.2 million on the
$700.0 million Senior Secured Notes issued on June 9,
2008, as compared to approximately $20.6 million of 2008
interest on our previous term loan which was repaid on
June 9, 2008;
|
|
|
an increase of approximately $1.2 million due to interest
paid on increased borrowings under the ABL Facility;
|
|
|
an increase of approximately $6.7 million of interest
charges related to the various debt financing activities which
occurred during 2009 involving third party fees; and
|
|
|
an increase of approximately $1.0 million due to higher
amortization of deferred financing costs in 2009 as compared to
2008.
|
Interest expense for the year ended December 31, 2008
increased by approximately $39.8 million, or 40.8%, over
the same period in 2007. The increase was due to the following:
|
|
|
an increase of approximately $46.2 million due to
additional interest on the $700.0 million Senior Secured
Notes issued on June 9, 2008;
|
|
|
an increase of approximately $27.6 million due to interest
costs incurred in the second quarter of 2008 related to the
issuance of new debt (approximately $14.0 million deferred
financing costs associated with previous debt, approximately
$6.8 million for a prepayment premium, and approximately
$6.8 million of bank amendment fees that was subsequently
retired);
|
|
|
an increase of approximately $1.8 million on ABL/revolver
borrowings;
|
|
|
a decrease of approximately $34.6 million due to interest
paid in 2007 on our previous term loan which was paid off
effective June 9, 2008; and
|
|
|
a decrease of approximately $1.2 million resulting from the
reclassification of 2007 third-party financing costs from other
expense to interest expense.
|
Interest
income
Interest income for the three months ended April 3, 2010
was consistent with the same period in 2009.
61
Interest income for the year ended December 31, 2009
decreased from the year ended December 31, 2008 by
approximately $0.4 million as a result of lower interest
rates in 2009 as compared to 2008.
Interest income for the year ended December 31, 2008
decreased from the year ended December 31, 2007 by
approximately $0.7 million as a result of lower interest
rates in 2008 as compared to 2007.
Gain on
extinguishment of debt
As a result of the redemption of $141.2 million aggregate
principal amount of the 9% Senior Subordinated Notes on
February 16, 2010, we recognized a loss on extinguishment
of debt of approximately $2.2 million related predominantly
to the write-off of unamortized debt issuance costs. As a result
of the contribution of $218.8 million aggregate principal
amount of the 9% Senior Subordinated Notes by the CI
Partnerships in exchange for equity of Ply Gem Prime valued at
approximately $114.9 million on February 12, 2010, we
recognized a gain on extinguishment of debt of approximately
$100.4 million including the write-off of unamortized debt
issuance costs of approximately $3.5 million. The net
$98.2 million gain on debt extinguishment was recorded
within other income (expense) separately in the condensed
consolidated statement of operations for the period ended
April 3, 2010.
We recognized no gain on extinguishment of debt for the years
ended December 31, 2009, December 31, 2008 and
December 31, 2007.
Income
taxes
The income tax provision for the three months ended
April 3, 2010 increased by approximately $17.6 million
over the same period in 2009. Our pre-tax income for the quarter
ended April 3, 2010 included a $98.2 million gain on
extinguishment of debt in which the majority of this gain was
recognized during 2009 for income tax purposes. Our pre-tax loss
for the quarter ended April 3, 2010 adjusting for the
extinguishment gain was $37.6 million compared to a pre-tax
loss of $66.6 million for the quarter ended April 4,
2009. Therefore, the reason for the increase in the tax
provision relates to the favorable operating performance during
the first quarter of 2010 in which pre-tax loss improved
$29.0 million. The reason for an income tax expense despite
the pre-tax loss relates to state income taxes as well as income
taxes for Ply Gem Canada. For the quarter ended April 3,
2010, our estimated effective income tax rate for the full year
was approximately 11.4%, which varied from the statutory rate
primarily due to state tax expense, a decrease in the valuation
allowance, and for cancellation of debt income offset by a
repurchase premium and original issue discount. During the
quarter ended April 4, 2009, our effective tax rate was
16.5% which was consistent with our expectation for the full
2009 fiscal year.
During February 2010, the CI Partnerships contributed
approximately $218.8 million aggregate principal amount of
9% Senior Subordinated Notes to us in exchange for equity
of Ply Gem Prime valued at approximately $114.9 million.
Prior to this $218.8 million contribution to us, the CI
Partnerships initially transferred the notes to Ply Gem Prime,
our direct parent, which then transferred the notes to us and we
transferred such notes to Ply Gem Industries as a capital
contribution and the 9% Senior Subordinated Notes were then
cancelled. As a result of these debt transactions, we recognized
$35.3 million of additional cancellation of indebtedness
income (CODI) for income tax purposes during the
quarter ended April 3, 2010. During the quarter ended
April 4, 2009, affiliates of the CI Partnerships purchased
a majority of the
62
9% Senior Subordinated Notes. We determined that
approximately $95.7 million would be considered CODI for
the quarter ended April 4, 2009 as the acquiring party was
deemed a related party for income tax purposes.
On February 17, 2009, President Obama signed into law the
American Recovery and Reinvestment Act of 2009 (the
Act). Among its provisions, the Act permits certain
taxpayers to elect to defer the taxation of CODI arising from
certain repurchases, exchanges or modifications of their
outstanding debt that occur during 2009 and 2010. For debt
acquired in 2009, the CODI can be deferred for five years and
then included in taxable income ratably over the next five
years. The CODI deferral and inclusion periods for debt acquired
during 2010 would be four years. If this election is made by
September 2010 for debt acquired in 2009 or September 2011 for
debt acquired during 2010, we would be required to defer the
deduction of all or a substantial portion of any original
issue discount (OID) expenses as well as the
CODI. These OID deductions also would be deferred until 2014 and
we would be allowed to deduct these costs ratably over the same
four or five-year period. We do not currently plan to defer the
2009 or 2010 CODI.
In addition to the $35.3 million of 2010 CODI income
recognized for income tax purposes, we recognized a repurchase
premium deduction of approximately $10.3 million and an OID
deduction of approximately $17.8 million in conjunction
with the debt transactions occurring during the quarter ended
April 3, 2010. These deductions partially offset the CODI
that was recognized for income tax purposes in the quarter ended
April 3, 2010. The remaining $7.2 million of CODI was
offset during the quarter ended April 3, 2010 by net
operating losses.
Income tax benefit for the year ended December 31, 2009
decreased to approximately $17.9 million from a benefit of
approximately $70.0 million for 2008. The decrease was
caused by an increase in valuation allowances of approximately
$42.0 million offset by the tax benefit of approximately
$24.9 million associated with cancellation of debt income
and improved operating performance compared to 2008. As of
December 31, 2009, a full valuation allowance has been
provided against certain deferred tax assets as it is presently
deemed more likely than not that the benefit of such net tax
assets will not be utililized. Due to recent cumulative losses
accumulated by us, management did not rely upon projections of
future taxable income in assessing the recoverability of
deferred tax assets. Our effective tax rate for the year ended
December 31, 2009 was approximately 18.9%. At
December 31, 2008, we were in a net deferred tax liability
position and had sufficient taxable income from reversing
taxable temporary differences to realize the federal deferred
tax assets. We scheduled out the reversing temporary differences
associated with our deferred tax assets and deferred tax
liabilities to conclude that a full valuation allowance was not
necessary at December 31, 2008.
Income tax expense for the year ended December 31, 2008
changed from a tax provision of approximately $3.6 million
for 2007 to a tax benefit of approximately $70.0 million,
primarily as a result of a pre-tax loss incurred during 2008
caused primarily by the $450.0 million goodwill impairment
and the $27.6 million in deferred financing cost expenses.
Our effective tax rate for the year ended December 31, 2008
was 38.1% excluding the goodwill impairment charge.
Liquidity and
capital resources
During the three months ended April 3, 2010, cash and cash
equivalents increased approximately $14.6 million compared
to $31.7 million as of April 3, 2010, reflecting
increased borrowings on the ABL Facility due to our seasonal
working capital needs. During the year
63
ended December 31, 2009, cash and cash equivalents
decreased approximately $41.2 million to $17.1 million
as of December 31, 2009, reflecting the challenging
economic conditions currently affecting the housing industry.
Our business is seasonal because inclement weather during the
winter months reduces the level of building and remodeling
activity in both the home repair and remodeling and the new home
construction sectors, especially in the Northeast and Midwest
regions of the United States and Western Canada. As a result,
our liquidity typically increases during the second and third
quarters as our borrowing base increases under the ABL Facility
reaching a peak early in the fourth quarter, and decreases late
in the fourth quarter and throughout the first quarter.
Our primary cash needs are for working capital, capital
expenditures and debt service. As of April 3, 2010, our
annual interest charges for debt service, including the ABL
Facility, were estimated to be approximately
$108.5 million. We do not have any scheduled debt
maturities until 2013. On a pro forma basis, after giving effect
to this offering and the application of net proceeds from this
offering, our annual cash interest charges for debt service are
estimated to be $ million.
The specific debt instruments and their corresponding terms and
due dates are described in the following sections.
Our capital expenditures were estimated to be approximately 1.4%
to 1.6% of net sales on an annual basis. As of April 3,
2010, our purchase commitments for inventory were approximately
$65.0 million. We finance these cash requirements through
internally generated cash flow and funds borrowed under the ABL
Facility.
We intend to use the net proceeds to us from this offering
(i) to redeem or repurchase a portion of our outstanding
indebtedness and (ii) to pay transaction fees and other
expenses. See Use of proceeds. As of
April 3, 2010, on an adjusted basis after giving effect to
the Reorganization Transactions and this offering, we would have
had approximately $ million
of indebtedness outstanding, including $65.0 million of
outstanding borrowings under our ABL Facility.
Substantially all of our outstanding indebtedness will mature in
2013 and 2014. Although we expect to refinance such
indebtedness, we may not be successful in refinancing, extending
the maturity or otherwise amending the terms of such
indebtedness because of market conditions, disruptions in the
debt markets, our financial performance or other reasons.
Furthermore, the terms of any refinancing, extension or
amendment may not be as favorable as the current terms of our
indebtedness. If we are not successful in refinancing our
indebtedness or extending its maturity, we and our subsidiaries
could face substantial liquidity problems and may be forced to
reduce or delay capital expenditures, sell assets, seek
additional capital or restructure our indebtedness. See
Risk factors Risks associated with our
business We may be unable to generate sufficient
cash to service all of our indebtedness and may be forced to
take other actions to satisfy our obligations under such
indebtedness, which may not be successful. We may also be unable
to generate sufficient cash to make required capital
expenditures.
Our specific cash flow movement for the three months ended
April 3, 2010 and the year ended December 31, 2009 are
summarized below:
Cash provided
by (used in) operating activities
Net cash used in operating activities for the three months ended
April 3, 2010 was approximately $21.4 million. Net
cash used in operating activities for the three months ended
64
April 4, 2009 was approximately $48.7 million. The
decrease in cash used in operating activities for the first
quarter of 2010 as compared to the first quarter of 2009 was
primarily caused by favorable working capital changes for
accounts payable. Throughout the past twelve months, we have
closely monitored our payment terms to maintain and improve
liquidity especially during the fourth and first quarters when
weather impacts our business.
Net cash used in operating activities for the year ended
December 31, 2009 was approximately $16.9 million. Net
cash used in operating activities for the year ended
December 31, 2008 was approximately $58.9 million and
net cash provided by operating activities for the year ended
December 31, 2007 was approximately $73.8 million. The
change in cash used in operating activities for 2009 as compared
to 2008 was primarily driven by lower sales of approximately
19.0% for 2009. The sales decrease can be attributed to the
28.4% decrease in single family housing starts during 2009 as
compared to 2008. With lower sales, receivables were lower
throughout the year which contributed to less cash from
operations. The lower sales levels were offset by a positive
inventory change of approximately $26.4 million and
favorable working capital changes for accounts payable and
accrued expenses of approximately $31.6 million compared to
2008. The decrease in cash provided by operating activities for
the year ended December 31, 2008 as compared to 2007
reflected the 40.5% decrease in single family housing starts
which contributed to lower net income during the period.
Cash used in
investing activities
Net cash used in investing activities for the three months ended
April 3, 2010 was approximately $3.0 million. Net cash
used in investing activities for the three months ended
April 4, 2009 was approximately $2.4 million. The cash
used in investing activities for both periods was primarily used
for capital expenditures.
Net cash used in investing activities for the year ended
December 31, 2009 was approximately $7.8 million. Net
cash used in investing activities for the year ended
December 31, 2008 was approximately $11.5 million and
net cash used in investing activities for the year ended
December 31, 2007 was approximately $56.4 million. The
cash used in investing activities for the year ended
December 31, 2009 was primarily used for capital
expenditures. The cash used in investing activities for year
ended December 31, 2008 was predominantly from capital
expenditures of $16.6 million and the acquisition of Ply
Gem Stone for approximately $3.6 million, partially offset
by the sale of assets of approximately $8.8 million. The
decrease in capital expenditures during 2009 reflects
managements ability to effectively manage expenditures
during the current economic downturn. The cash used in investing
activities for the year ended December 31, 2007 was
primarily used to fund the acquisition of Pacific Windows and
for capital expenditures.
Cash provided
by (used in) financing activities
Net cash provided by financing activities for the three months
ended April 3, 2010 was approximately $39.0 million,
primarily from revolver borrowings of $40.0 million and
proceeds from long-term debt of approximately
$145.7 million, offset by the redemption of approximately
$141.2 million principal amount of 9% Senior
Subordinated Notes, and debt issuance costs of approximately
$4.9 million. Net cash provided by financing activities for
the three months ended April 4, 2009 was approximately
$10.0 million and consisted primarily of proceeds from ABL
borrowings.
65
Net cash used in financing activities for the year ended
December 31, 2009 was approximately $17.5 million,
primarily from net revolver payments of $35.0 million,
proceeds from debt issuance of $20.0 million and debt
issuance costs of approximately $2.5 million. Net cash
provided by financing activities for the year ended
December 31, 2008 was approximately $78.2 million and
consisted of approximately $15.6 million of net proceeds
from long-term debt, net revolver borrowings of approximately
$60.0 million and a $30.0 million cash equity
contribution that we received from CI Capital Partners,
partially offset by approximately $26.6 million of debt
issuance costs and approximately $0.8 million of
repurchased net equity. The cash used in financing activities
for the year ended December 31, 2007 was primarily used to
pay down debt.
Our specific debt instruments and terms are described below:
11.75% Senior
Secured Notes due 2013
On June 9, 2008, Ply Gem Industries issued
$700.0 million of the Senior Secured Notes at an
approximate 1.0% discount, yielding proceeds of approximately
$693.5 million. Ply Gem Industries used the proceeds to
repay all of the outstanding indebtedness under the then
existing senior secured credit facility of approximately
$676.2 million of term loan borrowings and approximately
$15.0 million of revolver borrowings. The Senior Secured
Notes will mature on June 15, 2013 and bear interest at the
rate of 11.75% per annum. Interest will be paid semi-annually on
June 15 and December 15 of each year. On October 23, 2009,
Ply Gem Industries issued an additional $25.0 million of
its Senior Secured Notes in a private placement transaction. The
net proceeds of $20.0 million were utilized for general
corporate purposes. The additional $25.0 million of Senior
Secured Notes has the same terms and covenants as the initial
$700.0 million of Senior Secured Notes.
Prior to April 1, 2011, Ply Gem Industries may redeem up to
35% of the aggregate principal amount of the Senior Secured
Notes with the net cash proceeds from certain equity offerings
at a redemption price equal to 111.75% of the aggregate
principal amount of the Senior Secured Notes, plus accrued and
unpaid interest, if any, provided that at least 65% of the
original aggregate principal amount of the Senior Secured Notes
remains outstanding after the redemption. In addition, not more
than once during any twelve-month period, Ply Gem Industries may
redeem up to $70.0 million of the Senior Secured Notes at a
redemption price equal to 103% of the aggregate amount of the
Senior Secured Notes, plus accrued and unpaid interest, if any.
At any time on or after April 1, 2011, Ply Gem Industries
may redeem the Senior Secured Notes, in whole or in part, at
declining redemption prices set forth in the indenture governing
the Senior Secured Notes, plus, in each case, accrued and unpaid
interest, if any, to the redemption date.
The Senior Secured Notes are fully and unconditionally
guaranteed on a joint and several basis by Ply Gem Holdings and
all of the domestic subsidiaries of Ply Gem Industries (the
Guarantors). The indenture governing the Senior
Secured Notes contains certain covenants that limit the ability
of Ply Gem Industries and its subsidiaries to incur additional
indebtedness, pay dividends or make other distributions or
repurchase or redeem their stock, make loans and investments,
sell assets, incur certain liens, enter into agreements
restricting their ability to pay dividends, enter into
transactions with affiliates, and consolidate, merge or sell Ply
Gem Industries assets. In particular, Ply Gem Industries
may not incur additional debt (other than permitted debt in
limited circumstances) unless, after giving effect to such
incurrence, the consolidated interest coverage ratio of Ply Gem
Industries would be at least 2.00 to 1.00. In the
66
absence of satisfying the consolidated interest coverage ratio,
Ply Gem Industries may only incur additional debt in limited
circumstances, including purchase money indebtedness in an
aggregate amount not to exceed $25.0 million at any one
time outstanding, debt of foreign subsidiaries in an aggregate
amount not to exceed $30.0 million at any one time outstanding,
debt pursuant to a general debt basket in an aggregate amount
not to exceed $25.0 million at any one time outstanding and
the refinancing of other debt under certain circumstances. As of
April 3, 2010, Ply Gem Industries only had
$5.0 million of availability under its general debt basket
following the October 2009 issuance of additional Senior Secured
Notes. In addition, Ply Gem Industries is limited in its ability
to pay dividends or make other distributions to Ply Gem
Holdings. Permitted dividends and distributions include those
used to redeem equity of its officers, directors or employees
under certain circumstances, to pay taxes, to pay
out-of-pocket
costs and expenses in an aggregate amount not to exceed $500,000
in any calendar year and to pay customary and reasonable costs
and expenses of an offering of securities that is not
consummated.
On November 3, 2008, Ply Gem Industries completed its
exchange offer with respect to the Senior Secured Notes by
exchanging $700.0 million Senior Secured Notes, which were
registered under the Securities Act, for $700.0 million of
the issued and outstanding Senior Secured Notes. Upon completion
of the exchange offer, all issued and outstanding Senior Secured
Notes were registered under the Securities Act. However, the
$25.0 million of Senior Secured Notes issued in October
2009 were not registered under the Securities Act and there is
no contractual requirement to register these notes.
The Senior Secured Notes and the related guarantees are secured
on a first-priority lien basis by substantially all of the
assets (other than the assets securing our obligations under the
ABL Facility, which consist primarily of accounts receivable and
inventory) of Ply Gem Industries and the Guarantors and on a
second-priority lien basis by the assets that secure the ABL
Facility.
In addition, our stock ownership in our subsidiaries
collateralizes the Senior Secured Notes to the extent that such
equity interests and other securities can secure the Senior
Secured Notes without
Rule 3-16
of
Regulation S-X
under the Securities Act requiring separate financial statements
of such subsidiary to be filed with the SEC. As of
December 31, 2009, no subsidiarys stock has been
excluded from the collateral arrangement due to the
Rule 3-16
requirement.
Senior Secured
Asset-Based Revolving Credit Facility due 2013
Concurrently with the Senior Secured Notes offering on
June 9, 2008, Ply Gem Industries, Ply Gem Holdings and the
subsidiaries of Ply Gem Industries entered into the ABL
Facility. The ABL Facility initially provided for revolving
credit financing of up to $150.0 million, subject to
borrowing base availability, with a maturity of five years (June
2013) including
sub-facilities
for letters of credit, swingline loans, and borrowings in
Canadian dollars and U.S. dollars by Ply Gem Canada.
In July 2009, we amended the ABL Facility to increase the
available commitments by $25.0 million from
$150.0 million to $175.0 million. As a condition to
this availability increase, the applicable margins payable on
the loans were increased and made subject to certain minimums.
The July 2009 amendment also changed both the availability
threshold for certain cash dominion events and compliance with
the fixed charge coverage ratio and other covenants.
67
In October 2009, we amended the ABL Facility to allow for the
issuance of the additional $25.0 million Senior Secured
Notes and to permit certain refinancing transactions with
respect to our 9% Senior Subordinated Notes. The October
amendment also permits Ply Gem Industries to issue equity
securities to us, its parent. The October 2009 amendment did not
affect the $175.0 million availability amount or the
applicable interest rate margins under the ABL Facility.
The ABL Facility provides that the revolving commitments may be
increased to $200.0 million, subject to certain terms and
conditions. We had borrowings of $65.0 million and
$25.0 million outstanding under the ABL Facility as of
April 3, 2010 and December 31, 2009, respectively. As
of April 3, 2010, Ply Gem Industries had approximately
$103.3 million of contractual availability and
approximately $63.5 million of borrowing base availability
under the ABL Facility, reflecting $65.0 million of
borrowings outstanding and approximately $6.7 million of
letters of credit issued.
The interest rates applicable to loans under the ABL Facility
are, at our option, equal to either a base rate plus an
applicable interest margin, or an adjusted LIBOR rate plus an
applicable interest margin, as defined in the ABL Facility
credit agreement. As of April 3, 2010, our interest rate on
the ABL Facility was approximately 6.0%. The ABL Facility
contains a requirement to maintain a fixed charge coverage ratio
of 1.1 to 1.0 if our excess availability is less than the
greater of (a) 15% of the lesser of (i) the
commitments and (ii) the borrowing base and
(b) $20.0 million. The fixed charge coverage ratio was
not applicable at any point during 2009 or the first quarter of
2010.
All obligations under the ABL Facility, and the guarantees of
those obligations, are secured, subject to certain exceptions,
by substantially all of the assets of Ply Gem Industries and the
Guarantors, including a first-priority security interest in
personal property consisting of accounts receivable, inventory,
cash, deposit accounts, and certain related assets and proceeds
of the foregoing and a second-priority security interest in, and
mortgages on, substantially all of Ply Gem Industries
material owned real property and equipment and all assets that
secure the Senior Secured Notes on a first-priority basis. In
addition to being secured by the collateral securing the
obligations of Ply Gem Industries under the domestic collateral
package, the obligations of Ply Gem Canada, which is a borrower
under the Canadian
sub-facility
under the ABL Facility, are also secured by a first-priority
security interest in substantially all of the assets of such
Canadian subsidiary, plus additional mortgages in Canada, and a
pledge by Ply Gem Industries of the remaining 35% of the equity
interests of Ply Gem Canada pledged only to secure the Canadian
sub-facility.
The ABL Facility contains certain covenants that limit our
ability and the ability of our subsidiaries to incur additional
indebtedness, pay dividends or make other distributions or
repurchase or redeem their stock, make loans and investments,
sell assets, incur certain liens, enter into transactions with
affiliates, and consolidate, merge or sell assets. In
particular, we are permitted to incur additional debt in limited
circumstances, including permitted subordinated indebtedness in
an aggregate principal amount not to exceed $50.0 million at any
time outstanding (subject to the ability to incur additional
permitted subordinated debt provided that immediately after
giving effect to such incurrence excess availability is more
than 25% of the lesser of the total borrowing base and the
aggregate commitments and Ply Gem Industries is in pro forma
compliance with the fixed charge coverage ratio), purchase money
indebtedness in an aggregate amount not to exceed
$15.0 million at any one time outstanding, debt of foreign
subsidiaries (other than Canadian subsidiaries) in an aggregate
amount not to exceed $2.5 million at any one time
outstanding, unsecured debt in an aggregate amount not to
68
exceed $50.0 million at any one time outstanding and the
refinancing of other debt under certain circumstances. In
addition, Ply Gem Industries is limited in its ability to pay
dividends or make other distributions to Ply Gem Holdings.
Permitted dividends and distributions include those used to
redeem equity of its officers, directors or employees under
certain circumstances, to pay taxes, to pay operating and other
corporate overhead costs and expenses in the ordinary course of
business in an aggregate amount not to exceed $2.0 million
in any calendar year plus reasonable and customary
indemnification claims of its directors and executive officers
and to pay fees and expenses related to any unsuccessful debt or
equity offering. Ply Gem Industries may also make additional
payments to Ply Gem Holdings which may be used by Ply Gem
Holdings to pay dividends or other distributions on its stock
under the ABL Facility so long as before and after giving effect
to such dividend or other distribution excess availability is
greater than 25% of the lesser of the total borrowing base and
the aggregate commitments and Ply Gem Industries is in pro forma
compliance with the consolidated fixed charge coverage ratio.
9.00% Senior
Subordinated Notes due 2012
Concurrently with the acquisition of Ply Gem Industries on
February 12, 2004, Ply Gem Industries issued
$225.0 million aggregate principal amount of its
9% Senior Subordinated Notes, which were guaranteed by the
Guarantors. Subsequently, in August 2004, in connection with the
MWM Holding acquisition, Ply Gem Industries issued an
additional $135.0 million of 9% Senior Subordinated
Notes, which were also guaranteed by the Guarantors, including
MWM Holding and its subsidiaries. Ply Gem Industries paid
interest semi-annually on February 15 and August 15 of each
year. As of December 31, 2009, certain affiliates of the CI
Partnerships owned approximately $281.4 million of the
outstanding 9% Senior Subordinated Notes.
On November 19, 2009, Ply Gem Industries launched an
exchange offer for certain of its 9% Senior Subordinated
Notes which expired in accordance with its terms without any
notes being accepted by it. In connection with this exchange
offer, we incurred third party and bank fees of approximately
$0.5 million during the year ended December 31, 2009
which has been recorded within interest expense in the
consolidated statement of operations.
In connection with the issuance of $150.0 million of the
13.125% Senior Subordinated Notes on January 11, 2010,
Ply Gem Industries redeemed approximately $141.2 million
aggregate principal amount of the 9% Senior Subordinated
Notes on February 16, 2010 at a redemption price of 100% of
the principal amount thereof plus accrued interest.
Approximately $218.8 million aggregate principal amount of
the 9% Senior Subordinated Notes held by certain affiliates
of the CI Partnerships were transferred to our indirect
stockholders and ultimately to Ply Gem Prime. Such notes were
then transferred to us and then to Ply Gem Industries as a
capital contribution and cancelled on February 12, 2010. In
connection with the redemption, we recognized a loss on
extinguishment of debt of approximately $2.2 million and in
connection with the capital contribution, we recognized a gain
on extinguishment of debt of approximately $100.4 million.
See Unallocated operating earnings,
interest, and provision for income taxesGain on
extinguishment of debt. In connection with the
transaction in which a majority of the 9% Senior
Subordinated Notes were acquired by certain affiliates, we
expensed approximately $6.1 million of third party fees
which has been recorded within interest expense in the
consolidated statement of operations for the year ended
December 31, 2009.
69
13.125% Senior
Subordinated Notes due 2014
On January 11, 2010, Ply Gem Industries issued
$150.0 million of 13.125% Senior Subordinated Notes at
an approximate 3.0% discount, yielding proceeds of approximately
$145.7 million. Ply Gem Industries used the proceeds of the
offering to redeem approximately $141.2 million aggregate
principal amount of its 9% Senior Subordinated Notes due
2012 and to pay certain related costs and expenses. The
13.125% Senior Subordinated Notes will mature on
July 15, 2014 and bear interest at the rate of 13.125% per
annum. Interest will be paid semi-annually on January 15 and
July 15 of each year.
Prior to January 15, 2012, Ply Gem Industries may redeem up
to 40% of the aggregate principal amount of the
13.125% Senior Subordinated Notes with the net cash
proceeds from certain equity offerings at a redemption price
equal to 113.125% of the aggregate principal amount of the
13.125% Senior Subordinated Notes, plus accrued and unpaid
interest, if any, provided that at least 60% of the original
aggregate principal amount of the 13.125% Senior
Subordinated Notes remains outstanding after the redemption. On
or after January 15, 2012, and prior to January 15,
2013, Ply Gem Industries may redeem up to 100% of the aggregate
principal amount of the 13.125% Senior Subordinated Notes
with the net cash proceeds from certain equity offerings at a
redemption price equal to 103% of the aggregate principal amount
of the 13.125% Senior Subordinated Notes, plus accrued and
unpaid interest, if any. On or after January 15, 2013, Ply
Gem Industries may redeem up to 100% of the aggregate principal
amount of the 13.125% Senior Subordinated Notes with the
net cash proceeds from certain equity offerings at a redemption
price equal to 100% of the aggregate principal amount of the
13.125% Senior Subordinated Notes, plus accrued and unpaid
interest, if any, to the redemption date.
The 13.125% Senior Subordinated Notes are unsecured and
subordinated in right of payment to all of our existing and
future debt, including the ABL Facility and the Senior Secured
Notes. The 13.125% Senior Subordinated Notes are
unconditionally guaranteed on a joint and several basis by the
Guarantors (other than certain unrestricted subsidiaries) on a
senior subordinated basis. The guarantees are general unsecured
obligations and are subordinated in right of payment to all
existing senior debt of the Guarantors, including their
guarantees of the Senior Secured Notes and the ABL Facility.
The indenture governing the 13.125% Senior Subordinated
Notes contains certain covenants that limit the ability of Ply
Gem Industries and its subsidiaries to incur additional
indebtedness, pay dividends or make other distributions or
repurchase or redeem their stock, make loans and investments,
sell assets, incur certain liens, enter into transactions with
affiliates, and consolidate, merge or sell Ply Gem
Industries assets. In particular, Ply Gem Industries may
not incur additional debt (other than permitted debt in limited
circumstances) unless, after giving effect to such incurrence,
the consolidated interest coverage ratio would be at least 2.00
to 1.00. In the absence of satisfying the consolidated interest
coverage ratio, Ply Gem Industries may only incur additional
debt in limited circumstances, including, purchase money
indebtedness in an aggregate amount not to exceed
$25.0 million at any one time outstanding, debt of foreign
subsidiaries in an aggregate amount not to exceed
$30.0 million at any one time outstanding, debt pursuant to
a general debt basket in an aggregate amount not to exceed
$25.0 million at any one time outstanding and the
refinancing of other debt under certain circumstances. In
addition, Ply Gem Industries is limited in its ability to pay
dividends or make other distributions to Ply Gem Holdings.
Permitted dividends and distributions include those used to
redeem equity of its officers, directors or employees under
certain circumstances,
70
to pay taxes, to pay
out-of-pocket
costs and expenses in an aggregate amount not to exceed $500,000
in any calendar year, to pay customary and reasonable costs and
expenses of an offering of securities that is not consummated
and other dividends or distributions of up to
$20.0 million. Ply Gem Industries may also pay dividends or
make other distributions to Ply Gem Holdings so long as it can
incur $1.00 of additional debt pursuant to the 2.00 to 1.00
consolidated interest coverage ratio test described above and so
long as the aggregate amount of such dividend or distribution
together with certain other dividends and distributions does not
exceed 50% of consolidated net income plus certain other items.
On June 30, 2010, Ply Gem Industries completed its exchange
offer with respect to the 13.125% Senior Subordinated Notes
by exchanging $150.0 million 13.125% Senior
Subordinated Notes, which were registered under the Securities
Act, for $150.0 million of the issued and outstanding
13.125% Senior Subordinated Notes. Upon completion of the
exchange offer, all issued and outstanding 13.125% Senior
Subordinated Notes were registered under the Securities Act.
Senior Term
Loan Facility
Our senior facilities with a syndicate of financial institutions
and institutional lenders provided for senior secured financing
of up to approximately $762.1 million. On May 23,
2008, we entered into an amendment of the fifth amended and
restated credit agreement which consisted of changes to certain
debt covenant ratios. The amendment also increased the interest
rate on the term loan and extended the maturity of the revolving
credit facility from February 12, 2009 to August 12,
2010. On May 23, 2008, Ply Gem received from affiliates of
CI Capital Partners a $30.0 million cash equity
contribution as a condition to the credit facility amendment. On
June 9, 2008, we used the proceeds from the Senior Secured
Notes offering to pay off the obligations under the senior term
loan facility.
As a result of the debt amendment that occurred on May 23,
2008 and the issuance of Senior Secured Notes on June 9,
2008, we evaluated our financing costs and expensed
approximately $27.6 million of fees for the year ended
December 31, 2008 which has been recorded within interest
expense on the consolidated statement of operations. The
$27.6 million was comprised of approximately
$14.0 million of non-cash deferred financing costs
associated with the previous term debt, approximately
$6.8 million for a prepayment premium, and approximately
$6.8 million of bank amendment fees that were subsequently
retired. We deferred costs of approximately $26.6 million
in conjunction with this transaction which have been recorded
within other long-term assets in the consolidated balance sheets.
Liquidity
Requirements
We intend to fund our ongoing capital and working capital
requirements, including our internal growth, through a
combination of cash flows from operations and, if necessary,
from borrowings under our ABL Facility. We believe that we will
continue to meet our liquidity requirements over the next
12 months. We believe that our operating units are positive
cash flow generating units and will continue to sustain their
operations without any significant liquidity concerns. The
performance of these operating units is significantly impacted
by the performance of the housing industry, specifically single
family housing starts and home repair and remodeling activity.
Any unforeseen or unanticipated downturn in the housing industry
could have a negative impact on our liquidity position.
71
In order to meet these liquidity requirements as well as other
anticipated liquidity needs in the normal course of business, as
of April 3, 2010 we had cash and cash equivalents of
approximately $31.7 million, $103.3 million of
contractual availability under the ABL Facility and
approximately $63.5 million of borrowing base availability,
and as of December 31, 2009 we had cash and cash
equivalents of approximately $17.1 million,
$142.9 million of contractual availability under the ABL
Facility and approximately $77.9 million of borrowing base
availability. Management currently anticipates that these
amounts, as well as expected cash flows from our operations and
proceeds from any debt or equity financing should be sufficient
to meet ongoing operational cash flow needs, capital
expenditures, debt service obligations, and other fees payable
under other contractual obligations for the foreseeable future.
Contractual
obligations
The following table summarizes our contractual cash obligations
under financing arrangements and lease commitments as of
December 31, 2009, including interest amounts. Interest on
the Senior Secured Notes and the 9% Senior Subordinated
Notes is fixed at 11.75% and 9.0%, respectively. Interest on the
ABL Facility is variable and has been presented at the current
rate. Actual rates for future periods may differ from those
presented here.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
(amounts in thousands)
|
|
amount
|
|
|
1 year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
5 years
|
|
|
|
|
Long-term debt(1)
|
|
$
|
1,110,000
|
|
|
$
|
|
|
|
$
|
385,000
|
|
|
$
|
725,000
|
|
|
$
|
|
|
Interest payments(2)
|
|
|
369,644
|
|
|
|
121,188
|
|
|
|
209,713
|
|
|
|
38,743
|
|
|
|
|
|
Non-cancelable lease commitments(3)
|
|
|
151,258
|
|
|
|
26,168
|
|
|
|
35,838
|
|
|
|
26,581
|
|
|
|
62,671
|
|
Purchase obligations(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities(5)
|
|
|
13,100
|
|
|
|
1,310
|
|
|
|
2,620
|
|
|
|
2,620
|
|
|
|
6,550
|
|
|
|
|
|
|
|
|
|
$
|
1,644,002
|
|
|
$
|
148,666
|
|
|
$
|
633,171
|
|
|
$
|
792,944
|
|
|
$
|
69,221
|
|
|
|
|
|
|
(1)
|
|
Long-term debt is shown before
discount (premium), and consists of our Senior Secured Notes,
9% Senior Subordinated Notes and ABL Facility. For more
information concerning the long-term debt, see
Liquidity and capital resources above. As a
result of the redemption of the 9% Senior Subordinated
Notes in February 2010, we will have no principal payments due
until our 2013 fiscal year.
|
|
(2)
|
|
Interest payments for variable
interest debt are based on current interest rates and debt
obligations at December 31, 2009.
|
|
(3)
|
|
Non-cancelable lease commitments
represent lease payments for facilities and equipment.
|
|
(4)
|
|
Purchase obligations are defined as
purchase agreements that are enforceable and legally binding and
that specify all significant terms, including quantity, price
and the approximate timing of the transaction. These obligations
are related primarily to inventory purchases.
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|
(5)
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|
Other long-term liabilities include
pension obligations which are estimated based on our 2010 annual
funding requirement. Because we are unable to reliably estimate
the timing of future tax payments related to uncertain tax
positions, certain tax related obligations of approximately
$9.7 million have been excluded from the table above.
|
72
The following table summarizes our contractual cash obligations
under financing arrangements and lease commitments as of
April 3, 2010 including interest amounts, on a pro forma
basis after giving effect to the Reorganization Transactions,
this offering and the application of the net proceeds of this
offering. Interest on the Senior Secured Notes and the
13.125% Senior Subordinated Notes is fixed at 11.75% and
13.125%, respectively. Interest on the ABL Facility is variable
and has been presented at the current rate. Actual rates for
future periods may differ from those presented here.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
(amounts in thousands)
|
|
Amount
|
|
|
1 year
|
|
|
1 - 3 years
|
|
|
3 - 5 years
|
|
|
5 years
|
|
|
|
|
Long-term debt(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable lease commitments(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
(1)
|
|
Long-term debt is shown before
discount (premium), and consists of our Senior Secured Notes,
13.125% Senior Subordinated Notes and ABL Facility. For
more information concerning the long-term debt, see
Liquidity and capital resources above.
We will have no principal payments due until our 2013 fiscal
year.
|
|
(2)
|
|
Interest payments for variable
interest debt are based on current interest rates and debt
obligations at April 3, 2010.
|
|
(3)
|
|
Non-cancelable lease commitments
represent lease payments for facilities and equipment.
|
|
(4)
|
|
Purchase obligations are defined as
purchase agreements that are enforceable and legally binding and
that specify all significant terms, including quantity, price
and the approximate timing of the transaction. These obligations
are related primarily to inventory purchases.
|
|
(5)
|
|
Other long-term liabilities include
pension obligations which are estimated based on our 2010 annual
funding requirement. Because we are unable to reliably estimate
the timing of future tax payments related to uncertain tax
positions, certain tax related obligations of approximately
$9.7 million have been excluded from the table above.
|
In addition to the items listed in the tables presented above,
we have a potential obligation related to certain tax issues of
approximately $9.7 million, including interest of
approximately $1.3 million. The timing of the potential tax
payments is unknown.
As discussed in Certain relationships and related party
transactions, under an advisory agreement we will pay
an annual fee to an affiliate of CI Capital Partners each year
based on 2% of EBITDA. In addition, a termination fee equal to
$ million will be payable to
an affiliate of CI Capital Partners upon the consummation of
this offering in connection with the termination of such
advisory agreement. Neither of these fees have been included in
the above tables.
We also have a potential liability in connection with the tax
receivable agreement which we will enter into upon the closing
of this offering. The tax receivable agreement will obligate us
to make payments to the Tax Receivable Entity generally equal to
85% of the applicable cash savings that we actually realize as a
result of NOL carryovers. We will retain the benefit of the
remaining 15% of these tax savings. The amounts we may be
required to pay could be significant and are not reflected in
the above tables. See Risk factorsRisks
associated with our businessWe will be required to pay an
affiliate of our current stockholders for certain tax benefits
we may claim, and the amounts we may pay could be
significant and Certain relationships and
related party transactionsTax receivable
agreement.
73
Off-balance sheet
arrangements
We have no off-balance sheet arrangements.
Inflation;
Seasonality
Our performance is dependent to a significant extent upon the
levels of home repair and remodeling and new home construction
spending, all of which are affected by such factors as interest
rates, inflation, consumer confidence and unemployment. In
addition, our lease payments related to our sale/leaseback
agreement include an annual increase based on the Consumer Price
Index, which could expose us to potential higher costs in years
with high inflation. We do not believe that inflation has had a
material impact on our business, financial condition or results
of operations during the past three fiscal years.
The demand for our products is seasonal, particularly in the
Northeast and Midwest regions of the United States and Western
Canada where inclement weather during the winter months usually
reduces the level of building and remodeling activity in both
the home repair and remodeling and the new home construction
sectors. Our sales in both segments are usually lower during the
first and fourth quarters. Since a portion of our manufacturing
overhead and operating expenses are relatively fixed throughout
the year, operating income and net earnings tend to be lower in
quarters with lower sales levels. In addition, the demand for
cash to fund our working capital is greater from late in the
fourth quarter through the first quarter.
Recent accounting
pronouncements
See Note 1 to our audited consolidated financial statements
for recent accounting pronouncements, which are included in this
prospectus.
Interest rate
risk
Our principal interest rate exposure relates to the loans
outstanding under our ABL Facility, which provided for
borrowings of up to $175.0 million as of April 3,
2010, bearing interest at a variable rate, based on an adjusted
LIBOR rate plus an applicable interest margin or the base rate
plus an applicable interest margin. Assuming the ABL Facility is
fully drawn as of April 3, 2010, each quarter point
increase or decrease in the interest rate would change our
interest expense by approximately $0.4 million per year. In
the future, we may enter into interest rate swaps, involving
exchange of floating for fixed rate interest payments, to reduce
our exposure to interest rate volatility.
Foreign currency
risk
Our results of operations are affected by fluctuations in the
value of the U.S. dollar as compared to the value of the
Canadian dollar. For the three month period ended April 3,
2010, the net impact of foreign currency changes to our results
of operations was a gain of $0.1 million. The impact of
foreign currency changes related to translation resulted in an
increase in stockholders (deficit) of approximately
$1.3 million for the three months ended April 3, 2010.
In 2009, the net impact of foreign currency changes to our
results of operations was a gain of $0.5 million. The
impact of foreign currency changes related to translation
resulted in a increase in stockholders equity of
approximately $4.7 million at December 31, 2009. The
revenue or expense reported by us as a result of currency
fluctuations will be greater in times of U.S. dollar
74
devaluation and less in times of U.S. dollar appreciation.
We generally do not enter into derivative financial instruments
to manage foreign currency exposure. At April 3, 2010, we
did not have any outstanding foreign currency hedging contracts.
Commodity pricing
risk
We are subject to significant market risk with respect to the
pricing of our principal raw materials, which include PVC resin,
aluminum and wood. If prices of these raw materials were to
increase dramatically, we may not be able to pass such increases
on to our customers and, as a result, gross margins could
decline significantly. We manage the exposure to commodity
pricing risk by continuing to diversify our product mix,
strategic buying programs and vendor partnering.
Consumer and
commercial credit
As general economic conditions in the United States have
deteriorated significantly over the past two years, the
availability of consumer and commercial credit has tightened. As
such, we have increased our focus on the credit worthiness of
our customers. These procedures are necessary to ensure that our
allowance for doubtful accounts is adequate and that we are
performing proper due diligence prior to initiating sales. We
will continue to monitor these statistics over the next year to
ensure that issues, if any, are identified in a timely manner to
reduce risk and minimize our bad debt exposure. If general
economic conditions continue to worsen, additional reserves may
be necessary.
75
Business
Company
overview
We are a leading manufacturer of residential exterior building
products in North America, operating in two reportable segments:
(i) Siding, Fencing, and Stone and (ii) Windows and
Doors, which comprised approximately 60% and 40% of our sales,
respectively, for the fiscal year ended December 31, 2009.
These two segments produce a comprehensive product line of vinyl
siding, designer accents and skirting, vinyl fencing, vinyl and
composite railing, stone veneer and vinyl windows and doors used
in both new construction and home repair and remodeling in the
United States and Western Canada. Vinyl building products have
the leading share of sales volume in siding and windows in the
United States. We also manufacture vinyl and aluminum soffit and
siding accessories, aluminum trim coil, wood windows, aluminum
windows, vinyl and aluminum-clad windows and steel and
fiberglass doors, enabling us to bundle complementary and
color-matched products and accessories with our core products.
We believe that our comprehensive product portfolio and
geographically diverse, low cost manufacturing platform allow us
to better serve our customers and provide us with a competitive
advantage over other exterior building products suppliers. For
the year ended December 31, 2009, we had net sales of
$951.4 million, adjusted EBITDA of $116.2 million and
net loss of $76.8 million. For the three months ended
April 3, 2010, we had net sales of $204.2 million,
adjusted EBITDA of $12.4 million and net income of
$54.1 million as compared to net sales of
$182.8 million, adjusted EBITDA of $(12.5) million and
net loss of $55.5 million for the three months ended
April 4, 2009.
Additional information concerning our business is set forth in
Managements discussion and analysis of financial
condition and results of operations.
History
Ply Gem Holdings was incorporated on January 23, 2004 by
affiliates of CI Capital Partners for the purpose of acquiring
Ply Gem Industries from Nortek. The Ply Gem acquisition was
completed on February 12, 2004. Prior to the Ply Gem
acquisition, our business was known as the Windows, Doors and
Siding division of Nortek, where the business operated as a
holding company with a broad set of brands. Since the Ply Gem
acquisition, we have acquired five additional businesses to
complement and expand our product portfolio and geographical
diversity. After being recruited by our directors affiliated
with CI Capital Partners, Gary E. Robinette, our President and
Chief Executive Officer, joined Ply Gem in October 2006, and has
employed the strategy of transitioning Ply Gem to an integrated
and consolidated business model under the Ply Gem brand.
The following is a summary of Ply Gems acquisition history:
|
|
|
On August 27, 2004, Ply Gem acquired MWM Holding, a
manufacturer of vinyl, wood, wood-clad, composite, impact and
aluminum windows and patio doors under the name MW
Windows & Doors.
|
|
|
On February 24, 2006, Alenco, a manufacturer of aluminum
and vinyl windows and door products, was acquired by Ply Gem.
This acquisition supported our national window strategy and
today operates under common leadership with our other
U.S. window businesses.
|
76
|
|
|
On October 31, 2006, Ply Gem completed the acquisition of
Alcoa Home Exteriors, Inc. (AHE), a leading
manufacturer of vinyl siding, aluminum siding, injection molded
shutters and vinyl, aluminum and injection molded accessories.
As a result of the AHE acquisition, AHE became part of our
Siding, Fencing, and Stone Segment and operates under common
leadership with our existing siding business.
|
|
|
On September 30, 2007, Ply Gem completed the acquisition of
CertainTeed Corporations vinyl window and patio door
business, which we named Ply Gem Pacific Windows, a leading
manufacturer of premium vinyl windows and patio doors.
|
|
|
On October 31, 2008, Ply Gem acquired substantially all of
the assets of Ply Gem Stone (formerly United Stone Veneer), a
manufacturer of stone veneer products. As a result of the Ply
Gem Stone acquisition, the Company modified the name of its
Siding, Fencing, and Railing segment to
Siding, Fencing, and Stone during 2008.
|
Our competitive
strengths
We believe the following competitive strengths differentiate us
from our competitors and are critical to our continued success:
|
|
|
Leading Manufacturer of Exterior Building
Products. Based on our internal estimates and
industry experience, we believe we have established leading
positions in many of our core product categories including:
No. 1 in vinyl siding in the U.S.; No. 1 in aluminum
accessories in the U.S.; No. 2 in vinyl and aluminum
windows in the U.S.; and No. 2 in windows and doors in
Western Canada. We achieved this success by developing a broad
offering of high quality products and providing superior service
to our customers. We are one of the few companies that operate a
geographically diverse manufacturing platform capable of
servicing our customers across the entire United States and
Western Canada. The scale of our operations also positions us
well as customers look to consolidate their supplier base. We
believe our broad offering of leading products, geographically
diverse manufacturing platform and long-term customer
relationships make us the manufacturer of choice for our
customers exterior building products needs.
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Comprehensive Product Portfolio with Strong Brand
Recognition. We offer a comprehensive portfolio of
over twenty exterior building product categories covering a full
range of price points. Our broad product line gives us a
competitive advantage over other exterior building product
suppliers who provide a narrower range of products by enabling
us to provide our customers with a differentiated value
proposition to meet their own customers needs. Our leading
brands, such as Ply
Gem®,
Mastic®
Home Exteriors,
Variform®,
Napco®,
Georgia-Pacific (which we license) and Great
Lakes®
Window, are well recognized in the industry. Many of our
customers actively support our brands and typically become
closely tied to our brands through joint marketing and training,
fostering long-term relationships under the common goal of
delivering a quality product.
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We believe a distinguishing factor in our customers
selection of Ply Gem as a supplier is the innovation and quality
for which our brands are known. As a result, our customers
positive experience with one product or brand affords us the
opportunity to cross-sell additional products and effectively
introduce new products. Since 2007, we have successfully
implemented a more unified brand strategy to expand our
cross-selling opportunities between our siding and window
product offerings. For instance, we recently consolidated
certain window product offerings under the Ply Gem brand to
offer a national window
77
platform to our customers, which we believe represents a
comprehensive line of new construction and home repair and
remodeling windows in the industry. With our extensive product
line breadth, industry-leading brands and national platform, we
believe we can provide our customers with a more cost-effective,
single source from which to purchase their exterior building
products.
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Multi-Channel Distribution Network Servicing a Broad
Customer Base. We have a multi-channel distribution
network that serves both the new construction and home repair
and remodel end markets through our broad customer base of
specialty and wholesale distributors, retail home centers,
lumberyards, remodeling dealers and builders. Our multi-channel
distribution strategy has increased our sales and penetration
within these end markets, while limiting our exposure to any one
customer or channel such that our top ten customers only
accounted for approximately 36.3% of our net sales in 2009. We
believe our strategy enables us to minimize channel conflict,
reduce our reliance on any one channel and reach the greatest
number of end customers while providing us with the ability to
increase our sales and to sustain our financial performance
through economic fluctuations.
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Balanced Customer Exposure to New Construction and Home
Repair and Remodeling. Our products are used in
new construction and home repair and remodeling, with our
diversified product mix reducing our overall exposure to any
single sector. We operate in two reportable segments:
(i) Siding, Fencing, and Stone, which has been weighted
towards home repair and remodeling, and (ii) Windows and
Doors, which has historically focused on new construction. We
have recently begun to expand our presence in the home repair
and remodel window sector through the launch of a new series of
repair and remodel window products, focusing on the unique
requirements of this sector while leveraging our existing
customer relationships. This is one of several new initiatives
that have been well received by our customers and that
complement our established product offerings by utilizing our
national sales force to sell multiple products in our portfolio.
We believe the diversity of our end markets and products
provides us with a unique opportunity to capitalize on the
overall housing market recovery.
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Highly Efficient, Low Cost Operating
Platform. Since mid-2006, we have closed or
consolidated eight plants, generating savings of over
$30 million annually, and reduced our workforce by
approximately 50%. During this time, we also invested
approximately $54 million in capital expenditures,
including new product introductions and upgrades to equipment,
facilities and technology, to continue improving our vertically
integrated manufacturing platform. For example, our multi-plant
window manufacturing platform allows us to service our customers
with less than one week lead times across a broad geographic
coverage area, providing us a competitive advantage with the
ability to operate in
just-in-time
fashion. This capability provides a unique service proposition
to our customers while allowing us to maintain minimal inventory
levels in our window product offerings. In addition, as a result
of our Polyvinyl Chloride Resin (PVC) purchasing scale (we are
one of the largest purchasers in North America based on industry
estimates), we are able to secure favorable prices, terms and
input availability through various cycles.
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Through our strong cost controls, vertically-integrated
manufacturing platform, continued investment in technology and
significant purchasing scale, we have improved efficiency and
safety in our manufacturing facilities while reducing fixed
costs to approximately 21% of our total cost structure, which
provides significant operating leverage as the housing market
recovers. Furthermore, our manufacturing facilities are among
the safest in all of North
78
America with three of them having received the highest federal
and/or state
OSHA safety award and rating. We believe that we have one of the
most efficient and safest operating platforms in the exterior
building products industry, helping to drive our profitability.
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Proven Track Record of Acquisition Integration and Cost
Savings Realization. Our five acquisitions since early
2004 have enhanced our geographic diversity, expanded our
product offerings and enabled us to enter new product
categories. Most recently, our acquisition of United Stone
Veneer (now branded Ply Gem Stone) in 2008 enabled us to enter
the stone veneer product category, which is one of the fastest
growing categories of exterior cladding products. We have
maintained a disciplined focus on integrating new businesses,
rather than operating them separately, and have created
meaningful synergies as a result. Through facility and headcount
rationalizations, strategic sourcing and other manufacturing
improvements, we have permanently eliminated over
$50 million in aggregate costs. We view our ability to
identify, execute and integrate acquisitions as one of our core
strengths and expect that this initial public offering will
significantly improve our financial position and flexibility,
enabling us to lead the continued consolidation of the exterior
building products industry.
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Strong Management Team with Significant
Ownership. We are led by a committed senior
management team that has an average of over 20 years of
relevant industry experience. Our current senior management,
with financial and advisory support from affiliates of CI
Capital Partners, has successfully transformed Ply Gem from
operating as a holding company with a broad set of brand
offerings to an integrated business model under the Ply Gem
brand, positioning our Company to grow profitably and rapidly as
the market recovers. As of April 3, 2010, after giving
effect to the Reorganization Transactions (assuming a public
offering price of $ per share (the
midpoint of the estimated public offering price range set forth
on the cover page of this prospectus)), members of our
management team held common stock and stock awards representing
approximately % of the shares of
our Company, which will decline
to % upon completion of this
initial public offering.
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Our business
strategy
We are pursuing the following business and growth strategies:
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Capture Growth Related to Housing Market
Recovery. As a leading manufacturer of exterior
building products, we intend to capitalize on the recovery in
new construction and home repair and remodeling. The 2009 level
of 441,000 single family housing starts was approximately
60% below the 50 year average, representing a significant
opportunity for growth as activity returns to historical levels.
Furthermore, we believe that the underinvestment in homes during
the recent recession and the overall age of the
U.S. housing stock will drive significant future spending
for home repair and remodeling.
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We expect current and new homeowners purchases to focus on
including or replacing items that provide the highest return on
investment, have positive energy efficiency attributes and
provide potential cost savings. Our broad product offering
addresses expected demand growth from all of these key trends,
through our balanced exposure to the new construction and home
repair and remodel end markets, diverse price points, the high
recovery value for home improvements derived from our core
product categories and the ability to provide products that
qualify for many of the energy efficiency rebate and tax
programs currently in effect or under consideration.
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Continued Increase of Market Penetration. We
intend to increase the market penetration of our siding, fencing
and stone products and our window and door products by
leveraging the breadth of our product offering and broad
geographical footprint to serve customers across North America.
Additionally, our continued investments in product innovation
and quality, coupled with strong customer service, further
enhance our ability to capture increased sales in each of our
core product categories. For example, based on our internal
estimates and industry experience, we believe that we have
increased our penetration of the U.S. vinyl siding end
market and that in 2009 we accounted for approximately 33% of
total unit sales as compared to approximately 29% in 2008. In
addition, we believe that we have increased our share of total
unit sales of U.S. vinyl and aluminum windows for new
construction from approximately 17% in 2008 to 22% in 2009. In
2010, we will be introducing a new line of vinyl windows under
our Ply Gem brand as well as under our Mastic Home Exteriors
brand, historically associated with vinyl siding products, that
will be marketed and sold by our vinyl siding sales force, a
first for Ply Gem. We believe that this demonstrates the
substantial opportunity across our product categories to
continue to cross-sell and bundle products, thereby increasing
revenues from our existing channel partners and industry
relationships. We expect to build upon the approximately
$285 million in product share gains we achieved in 2008 and
2009, and as the market recovers from its current low levels we
expect to further enhance our leading positions.
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Expand Brand Coverage and Product
Innovation. We will continue to increase the value
of the Ply Gem brands by introducing new product categories for
our customers and by developing innovative new products within
our existing product categories. For example, we have developed
a complete series of window products under the Ply Gem brand to
target the higher margin home repair and remodeling window end
market. Furthermore, our recent addition of stone veneer to our
product offering in the Siding, Fencing, and Stone segment
provides existing siding customers with access to the fastest
growing category of exterior cladding products.
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Our new products frequently receive industry recognition, as
evidenced by our Ply Gem Mira aluminum-clad wood window, which
was an International Builders Show Product Pick in 2008.
In addition, our Cedar Discovery designer accent product and our
Ovation vinyl siding product were both named one of the top 100
products by leading industry publications. The result of our
commitment to product development and innovation has been
demonstrated in the $85 million of incremental annualized
sales that we recognized from new products introduced in 2008
and 2009. We incurred research and development costs of
$4.0 million, $3.7 million and $4.3 million for
the years ended December 31, 2009, 2008 and 2007,
respectively. In addition to these research and development
expenditures, we incurred capital expenditures and purchased
United Stone Veneer, which also contributed to product
development and innovation.
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Drive Operational Leverage and Further
Improvements. While we reduced our production
capacity during the past several years, we have retained the
flexibility to bring back idled lines, facilities and/or
production shifts in order to increase our production as market
conditions improve. This incremental capacity can be selectively
restarted, providing us with the ability to match increasing
customer demand levels as the housing market returns to
historical levels of approximately one million or more single
family housing starts without the need for significant capital
investment. In our Windows and Doors segment, where we have
historically focused on new construction, we believe that our
new window products for home
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repair and remodeling will be able to drive increased volumes
through these manufacturing facilities and enhance operating
margins.
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Over the past several years, we have significantly improved our
manufacturing cost structure; however, there are opportunities
for further improvements. We believe that the continued
expansion of lean manufacturing and vertical integration in our
manufacturing facilities, along with the further consolidation
of purchases of key raw materials, supplies and services will
continue to provide us with cost advantages compared to our
competitors. In addition, the integration of our sales and
marketing efforts across our product categories provides an
ongoing opportunity to significantly improve our customer
penetration and leverage the strength of our brands.
Furthermore, we have centralized many back office functions into
our corporate office in Cary, North Carolina and believe that
additional opportunities remain. We believe all of these factors
should drive continued growth in profitability while improving
our cash flow and capital efficiency.
Building products
end markets
Demand for exterior building products, including siding,
fencing, stone, windows and doors, is primarily driven by the
construction of new homes and the repair and remodeling of
existing homes, which are affected by changes in national and
local economic and demographic conditions, employment levels,
availability of financing, interest rates, consumer confidence
and other economic factors.
New
construction
New construction in the United States experienced strong growth
from the early 1990s to 2006, with housing starts increasing at
a compounded annual growth rate of 3.8%. However, from 2006 to
2009, single family housing starts declined 70% according to the
NAHB. While the industry has experienced a period of severe
correction and downturn, management believes that the long-term
economic outlook for new construction in the United States is
favorable and supported by an attractive interest rate
environment and strong demographics, as new household formations
and increasing immigration drives demand for starter homes.
According to the Joint Center for Housing Studies of Harvard
University, net new households between 2010 and 2020 are
expected to be between 12.5 million units and
14.8 million units, with the low end of the range equal to
net new housing units achieved between 1995 and 2005. Strong
demographics and interest rates on home loans at historically
low levels are stimulants for demand in the United States
for new construction. According to the NAHB April 23, 2010
forecast, annual single family housing starts are expected to
increase by 25.3% and 52.3% in 2010 and 2011, respectively. In
addition, new construction in Canada is expected to benefit from
similar demand stimulants as new construction in the
United States, such as strong demographic trends and
historically low interest rate levels. According to the CMHC,
housing starts in Alberta, Canada are estimated to increase by
approximately 18.5% and 19.4% in 2010 and 2011, respectively,
demonstrating the recovery in new construction in Western Canada.
Home repair
and remodeling
Since the early 1990s and through 2006, demand for home repair
and remodeling products in the United States increased at a
compounded annual growth rate of 4.3%, according to the
U.S. Census Bureau, as a result of strong economic growth,
low interest rates and favorable demographics. However,
beginning in 2007 the ability for homeowners to finance repair
and
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remodeling expenditures, such as replacement windows or vinyl
siding, has been negatively impacted by a general tightening of
lending requirements by financial institutions and the
significant decrease in home values, which limited the amount of
home equity against which homeowners could borrow. Management
believes that expenditures for home repair and remodeling
products are also affected by consumer confidence that declined
during 2009 due to general economic conditions and increased
unemployment levels. Although certain aspects of the federal
stimulus plan enacted in early 2009, such as energy saving tax
credits and Homestar, may encourage some consumers to make home
improvements, including the replacement of older windows with
newer more energy-efficient windows, management believes that
these favorable measures could be offset during 2010 by the
effects of high unemployment, limited availability of consumer
financing and lower consumer confidence levels. However,
management believes the long-term economic outlook of the demand
for home repair and remodeling products in the United States is
favorable and supported by the move towards more
energy-efficient products, recent underinvestment in home
maintenance and repair and aging housing stock.
Our
business
Financial information about our segments is included in the
Notes to Consolidated Financial Statements and included
elsewhere in this prospectus.
Siding,
Fencing, and Stone segment
Products
In our Siding, Fencing, and Stone segment, our principal
products include vinyl siding and skirting, vinyl and aluminum
soffit, aluminum trim coil, J-channels, wide crown molding,
window and door trim, F-channels, H-molds, fascia, undersill
trims, outside/inside corner posts, rain removal systems,
injection molded designer accents such as shakes, shingles,
scallops, shutters, vents and mounts, vinyl fence, vinyl and
composite railing and stone veneer. We sell our siding and
accessories under our Variform, Napco, Mastic Home Exteriors and
Cellwood brand names and under the Georgia-Pacific brand name
through a private label program. We also sell our Providence
line of vinyl siding and accessories to Lowes under our
Durabuilt private label brand name. Our vinyl and
vinyl-composite fencing and railing products are sold under
82
our Kroy and Kroy Express brand names. Our stone veneer products
are sold under our Ply Gem Stone brand name. A summary of our
product lines is presented below according to price point:
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Mastic®
Home Exteriors
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Variform®
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Napco®
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Cellwood®
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Durabuilt®
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Georgia Pacific
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Kroy®
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Ply
Gem®
Stone
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Specialty/ Super Premium
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Cedar
Discovery®
Structure®
EPS Premium Insulated Siding
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Heritage
Cedartm
CSL
600®
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Cedar
Select®
American
Essencetm
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Cedar
Dimensionstm
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670
Seriestm
Hand
Split
650
Seriestm
Shingle
Siding
660
Seriestm
Round
Cut Siding
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Cedar
Spectrumtm
Seasons
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Fieldstone
Tuscan
Fieldstone
Shadow
Ledgestone
Cut Cobblestone
Cobblestone
Ridgestone
Riverstone
Brick
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Premium
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Quest®
T-Lok®
Barkwood®
Liberty
Elite®
Board + Batten
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Tmber Oak
Ascenttm
Varigrain
Preferred®
Board and Batten
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American
Splendor®
Board and
Battentm
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Dimensions®
Board & Batten
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480
Seriestm
440
Seriestm
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Cedar
Lane®
Select Board and Batten
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Elegance Vinyl Fence and Composite Rail
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Standard
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Carvedwood
44tm
Silhouette
Classic®
Ovationtm
Charleston
Beaded®
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Camden
Pointe®
Nottingham®
Ashton
Heights®
Victorian
Harbor®
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American
Herald®
American Tradition American 76
Beaded®
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Progressions®
Colonial Beaded
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450
Seriestm
Beaded
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Heritage
Hilltm
Forest
Ridge®
Shadow
Ridge®
Castle
Ridge®
Somersettm
Beaded
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Performance Vinyl Fence and Rail
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Economy
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Mill
Creek®
Brentwood®
Trade
Mark®
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Contractors
Choice®
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American
Comfort®
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Evolutions®
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410
Seriestm
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Chatham
Ridge®
Vision
Pro®
Parkside®
Oakside®
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Classic Vinyl Fence
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The breadth of our product lines and our multiple brand and
price point strategy enable us to target multiple distribution
channels (wholesale and specialty distributors, retailers and
manufactured housing) and end users (new construction and home
repair and remodeling).
Customers and
distribution
We have a multi-channel distribution network that serves both
the new construction and the home repair and remodeling sectors,
which exhibit different, often counter-balancing, demand
characteristics. In conjunction with our multiple brand and
price point strategy, we believe our multi-channel distribution
strategy enables us to increase our sales and sector penetration
while minimizing channel conflict. We believe our strategy
reduces our dependence on any one channel, which provides us
with a greater ability to sustain our financial performance
through economic fluctuations.
We sell our siding and accessories to specialty distributors
(one-step distribution) and to wholesale distributors (two-step
distribution). Our specialty distributors sell directly to
remodeling contractors and builders. Our wholesale distributors
sell to retail home centers and lumberyards who, in turn, sell
to remodeling contractors, builders and consumers. In the
specialty channel, we have developed an extensive network of
approximately 800 independent distributors, serving over 22,000
contractors and builders nationwide. We are well-positioned in
this channel as many of these distributors are both the largest
and leading consolidators in the industry. In the wholesale
channel, we are the sole supplier of vinyl siding and
accessories to BlueLinx (formerly a distribution operation of
the Georgia-Pacific Corporation), one of the largest building
products distributors in the United States. Through BlueLinx and
our BlueLinx dedicated sales force, our Georgia-Pacific private
label vinyl siding products are sold at major
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retail home centers, lumberyards and manufactured housing
manufacturers. A portion of our siding and accessories is also
sold directly to Lowes Home Improvement Centers under our
Durabuilt brand name. Our growing customer base of fencing and
railing consists of fabricators, distributors, retail home
centers and lumberyards. Our customer base of stone veneer
products consists of distributors, lumberyards, retailers and
contractors.
Our largest customer, BlueLinx, made up 15.2% of the net sales
of our Siding, Fencing, and Stone segment and 9.2% of our
consolidated net sales for both the years ended
December 31, 2008 and 2009. BlueLinx accounted for
approximately 8.6% of our consolidated net sales in the first
quarter of 2010.
Production and
facilities
Vinyl siding, skirting, soffit and accessories are manufactured
in our Martinsburg, West Virginia, Jasper, Tennessee, Stuarts
Draft, Virginia and Kearney, Missouri facilities, while all
metal products are produced in our Sidney, Ohio facility with
some metal painting operations being performed in our Valencia,
Pennsylvania facility. The majority of our injection molded
products such as shakes, shingles, scallops, shutters, vents and
mounts are manufactured in our Gaffney, South Carolina facility.
Due to excess capacity and to reduce operating costs, we closed
the Denison, Texas facility in early 2008 and consolidated the
majority of the production from our vinyl siding plant in
Kearney, Missouri into our other three remaining vinyl siding
plants in the first half of 2009. In addition, we consolidated
our metal accessory production from our Valencia, Pennsylvania
facility into our Sidney, Ohio facility which occurred during
the later part of 2008 and early 2009. The vinyl and metal
plants have sufficient capacity to support planned levels of
sales growth for the foreseeable future. Our fencing and railing
products are currently manufactured at our York, Nebraska and
Fair Bluff, North Carolina facilities. The fencing and railing
plants have sufficient capacity to support our planned sales
growth for the foreseeable future. Our stone veneer products are
manufactured at our Middleburg, Pennsylvania facility. The stone
veneer plant has sufficient capacity to support our planned
sales growth for the foreseeable future. We expect our capital
expenditures for our Siding, Fencing, and Stone segment in the
near future to be at or below our historical expenditure levels
as a result of lower near-term demand due to market conditions.
Our manufacturing facilities are among the safest in all of
North America with three of them having received the highest
federal
and/or state
OSHA safety award and rating.
Raw materials
and suppliers
PVC resin and aluminum are major components in the production of
our Siding, Fencing, and Stone products. PVC resin and aluminum
are commodity products and are available from both domestic and
international suppliers. Changes in PVC resin and aluminum
prices have a direct impact on our cost of products sold.
Historically, we have been able to pass on the price increases
to our customers. The results of operations for individual
quarters can be negatively impacted by a delay between the time
of raw material cost increases and price increases that we
implement in our products, or conversely can be positively
impacted by a delay between the time of a raw material price
decrease and competitive pricing moves that we implement
accordingly.
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Competition
We compete with other national and regional manufacturers of
vinyl siding, fencing and stone products. We believe we are one
of the largest manufacturers of vinyl siding in North America,
alongside CertainTeed and Alside. Based on our internal
estimates and industry experience, we believe that we have
increased our penetration of the U.S. vinyl siding end
market and that in 2009 we accounted for approximately 33% of
total unit sales as compared to approximately 29% in 2008. Our
aluminum accessories competitors include Alsco, Gentek and other
smaller regional competitors. Significant growth in vinyl
fencing and railing has attracted many new entrants, and the
sector today is fragmented. Our fencing and railing competitors
include U.S. Fence, Homeland, Westech, Bufftech, Royal and
Azek. Our stone veneer competitors include Owens Corning,
Eldorado Stone, Coronado Stone and smaller, regional
competitors. We generally compete on product quality, breadth of
product offering, sales and service support. In addition to
competition from other vinyl siding, fencing and stone products,
our products face competition from alternative materials, such
as wood, metal, fiber cement and masonry siding. Increases in
competition from other exterior building products manufacturers
and alternative building materials could cause us to lose
customers and lead to net sales decreases.
Intellectual
property
We possess a wide array of intellectual property rights,
including patents, trademarks, tradenames, proprietary
technology and know-how and other proprietary rights. In
connection with the marketing of our products, we generally
obtain trademark protection for our brand names in the Siding,
Fencing and Stone segment. Depending on the jurisdiction,
trademarks are valid as long as they are in use
and/or their
registrations are properly maintained and they have not become
generic. Registrations of trademarks can generally be renewed
indefinitely as long as the trademarks are in use. While we do
not believe the Siding, Fencing and Stone segment is dependent
on any one of our trademarks, we believe that our trademarks are
important to the development and conduct of our business as well
as the marketing of our products. We vigorously protect all of
our intellectual property rights.
Seasonality
Markets for our products are seasonal and can be affected by
inclement weather conditions. Historically, our business has
experienced increased sales in the second and third quarters of
the year due to increased construction during those periods.
Because a portion of our overhead and expenses are fixed
throughout the year, our operating profits tend to be lower in
the first and fourth quarters. Inclement weather conditions can
affect the timing of when our products are applied or installed,
causing delayed profit margins when such conditions exist.
We generally carry increased working capital during the first
half of a fiscal year to support those months where customer
demand exceeds production capacity. We believe that this is
typical within the industry.
Backlog
Our Siding, Fencing, and Stone segment had a backlog of
approximately $14.7 million at April 3, 2010, and a
backlog of approximately $12.9 million at April 4,
2009. We expect to fill 100% of the orders during 2010.
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Windows and
Doors segment
Products
In our Windows and Doors segment, our principal products include
vinyl, aluminum, wood and clad-wood windows and patio doors and
steel, wood, and fiberglass entry doors that serve both the new
construction and the home repair and remodeling sectors in the
United States and Western Canada. Our products in our Windows
and Doors segment are sold under the Ply Gem Windows, Great
Lakes Window and Ply Gem Canada brands. In the past, we have
also sold our windows and doors under our MW, Patriot, Twin
Seal, Alenco, Builders View, Great Lakes, Ply Gem, Uniframe,
Grandview, Seabrooke, Bayshore, Napco, CertainTeed and CWD
Windows and Doors brand names. A summary of our current product
lines is presented below according to price point:
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Ply Gem U.S. Windows
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Great
Lakes®
Window
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Ply Gem Canada
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New Construction
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Replacement
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Replacement
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New Construction
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Specialty/ Super-Premium
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Mira Premium Series
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Select Series
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Uniframe
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Regency Fusion
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Premium
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Pro Series - West
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Premium Series
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Lifestyles
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Ambassador
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Standard
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Pro Series - East
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Pro Series
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Seabrooke
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Envoy Diplomat Premier
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Economy
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Builder Series
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Contractor Series
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Bayshore
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Consul
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We continue introducing new products to the portfolio which
allow us to enter or further penetrate new distribution channels
and customers. The breadth of our product lines and our multiple
price point strategy enable us to target multiple distribution
channels (wholesale and specialty distributors, retailers and
manufactured housing) and end user markets (new construction and
home repair and remodeling).
Customers and
distribution
We have a multi-channel distribution and product strategy that
enables us to serve both the new construction and the home
repair and remodeling sectors. By offering this broad product
offering and industry leading service, we are able to meet the
local needs of our customers on a national scale. This strategy
has enabled our customer base (existing and new) to simplify
their supply chain by consolidating window suppliers. Our good,
better, best product and price point strategy allows us to
increase our sales and sector penetration while minimizing
channel conflict. This strategy reduces our dependence on any
one channel, providing us with a greater ability to sustain our
financial performance through economic fluctuations.
The new construction product lines are sold for use in new
residential and light commercial construction through a highly
diversified customer base, which includes independent building
material dealers, regional/national lumberyard chains, builder
direct/OEMs and retail home centers. Our repair and remodeling
window products are primarily sold through independent home
improvement dealers and one-step distributors. Dealers typically
market directly to homeowners or contractors in connection with
remodeling requirements while distributors concentrate on local
independent retailers.
In Canada, sales of product lines for new construction are
predominantly made through direct sales to builders and
contractors, while sales for repair and remodeling are made
primarily
86
through retail lumberyards. Ply Gem Canada products are
distributed through eight distribution centers.
Our sales of windows and doors to our top five largest window
and door customers represented 30.7% and 23.1% of the net sales
of our Windows and Doors segment and 13.0% and 9.1% of our
consolidated net sales for the quarter ended April 3, 2010
and the year ended December 31, 2009, respectively. For the
year ended December 31, 2008, our five largest customers
represented 24.8% of the net sales of our Windows and Doors
segment and 8.5% of our consolidated net sales.
Production and
facilities
Our window and door products leverage a network of vertically
integrated production and distribution facilities located in
Virginia, Ohio, North Carolina, Georgia, Texas, California,
Washington and Western Canada. Our window and door manufacturing
facilities have benefited from our continued investment and
commitment to product development and product quality combined
with increasing integration of best practices across our product
offerings. In 2009, we began producing vinyl compound for our
west coast facilities which improved our operating efficiency
and resulted in lower production cost for these items. In 2009,
we also began making upgrades to insulated glass production
lines in anticipation of more stringent energy efficiency
requirements driven by changes in building codes and consumer
demand for Energy Star rated products. These improvements will
continue throughout 2010.
Due to excess capacity and the need to reduce operating costs,
we closed the Hammonton, New Jersey, Phoenix, Arizona and
Tupelo, Mississippi facilities in the first six months of 2009.
While market conditions required us to close facilities and ramp
down capacity in our remaining facilities in 2009, all of our
facilities have the ability to increase capacity in a cost
effective manner by expanding production shifts. Ongoing capital
investments will focus upon new product introductions, equipment
maintenance and cost reductions.
Raw materials
and suppliers
PVC compound, wood, aluminum and glass are major components in
the production of our window and door products. These products
are commodity products available from both domestic and
international suppliers. Historically, changes in PVC compound,
aluminum billet and wood cutstock prices have had the most
significant impact on our material cost of products sold in our
Windows and Doors segment. We are one of the largest consumers
of PVC resin in North America and we continue to leverage our
purchasing power on this key raw material. As mentioned above,
the PVC resin compound that is used in window lineal production
is now produced internally. The leveraging of our PVC resin
buying power and the expansion of PVC resin compounding
capabilities has begun to benefit all of our domestic window
companies. Our window plants have significantly consolidated
glass purchases to take advantage of strategic sourcing savings
opportunities. In addition, we have continued to vertically
integrate aluminum extrusion for a variety of our product lines.
Competition
The window and patio door sector remains fragmented, comprised
primarily of local and regional manufacturers with limited
product offerings. The sectors competitors in the United
87
States include national brands, such as Jeld-Wen, Simonton,
Pella and Andersen, and numerous regional brands, including MI
Home Products, Atrium, Weathershield and Milgard. Competitors in
Canada include Jeld-Wen, Gienow, All Weather and Loewen. We
generally compete on service, product performance, a complete
product offering, sales and support. We believe all of our
products are competitively priced and that we are one of the
only manufacturers to serve all end markets and price points.
Intellectual
property
We possess a wide array of intellectual property rights,
including patents, trademarks, tradenames, proprietary
technology and know-how and other proprietary rights. In
connection with the marketing of our products, we generally
obtain trademark protection for our brand names in the Windows
and Doors segment. Depending on the jurisdiction, trademarks are
valid as long as they are in use
and/or their
registrations are properly maintained and they have not become
generic. Registrations of trademarks can generally be renewed
indefinitely as long as the trademarks are in use. While we do
not believe the Windows and Doors segment is dependent on any
one of our trademarks, we believe that our trademarks are
important to the Windows and Doors segment and the development
and conduct of our business as well as the marketing of our
products. We vigorously protect all of our intellectual property
rights.
Seasonality
Markets for our products are seasonal and can be affected by
inclement weather conditions. Historically, our business has
experienced increased sales in the second and third quarters of
the year due to increased construction during those periods.
Accordingly, our working capital is typically higher in the
second and third quarters as well. Because much of our overhead
and expense are fixed throughout the year, our operating profits
tend to be lower in the first and fourth quarters. Inclement
weather conditions can affect the timing of when our products
are applied or installed, causing delayed profit margins when
such conditions exist.
Because we have successfully implemented lean manufacturing
techniques and many of our windows and doors are made to order,
inventories in our Windows and Doors segment do not change
significantly with seasonal demand.
Backlog
Our Windows and Doors segment had a backlog of approximately
$23.8 million at April 3, 2010, and approximately
$19.4 million at April 4, 2009. We expect to fill 100%
of the orders during 2010.
Environmental and
other regulatory matters
We are subject to Canadian and U.S. federal, state,
provincial and local environmental laws and regulations that
relate to pollution and the protection of the environment,
including those governing emissions to air, discharges to water,
use, storage and transport of hazardous materials, storage,
treatment and disposal of waste, remediation of contaminated
sites, and protection of worker health and safety. From time to
time, our facilities are subject to investigation by
environmental regulators. We believe that our current operations
are in substantial compliance with all applicable environmental
laws and that we maintain all material permits required to
operate our business.
88
Based on available information, we do not believe that any known
compliance obligations, claims, releases or investigations will
have a material adverse effect on our results of operations,
cash flows or financial position. However, there can be no
guarantee that previously known or newly discovered matters or
any inability to enforce our available indemnification rights
against previous owners of our subsidiaries will not result in
material costs.
Under the stock purchase agreement governing the Ply Gem
acquisition, our former parent, Nortek, has agreed to indemnify
us, subject to certain limitations, for environmental
liabilities arising from our former ownership or operation of
subsidiaries or properties where such ownership or operation
ceased prior to the completion of the Ply Gem acquisition and
for certain other liabilities. Our ability to seek
indemnification from Nortek is, however, limited by the strength
of Norteks financial condition, which could change in the
future, as well as by specific financial limits for certain
aspects of the indemnity. Nortek has also covenanted that after
the Ply Gem acquisition, it will not dispose of all or
substantially all of its property and assets in a single
transaction or series of related transactions, unless the
acquirer of either its residential building products segment or
HVAC segment (whichever is sold first) assumes all of
Norteks obligations (including Norteks
indemnification obligations) under the stock purchase agreement.
We are currently involved in environmental proceedings involving
Ply Gem Canada and Alberta Environment (arising from subsurface
contamination discovered at our Calgary, Alberta property), and
we may in the future be subject to environmental proceedings
involving Thermal-Gard, Inc. (arising from groundwater
contamination in Punxsutawney, Pennsylvania) and Kroy Building
Products, Inc. (relating to contamination in a drinking water
well in York, Nebraska). Under the stock purchase agreement
governing the Ply Gem acquisition, Nortek is to indemnify us
fully for any liability in connection with the Punxsutawney
contamination. Alcan Aluminum Corporation assumed the obligation
to indemnify us with respect to certain liabilities for
environmental contamination of the York property occurring prior
to 1994. Our former subsidiary, Hoover Treated Wood Products,
Inc., is involved in an environmental proceeding with the
Georgia Department of Natural Resources in connection with a
contaminated landfill site in Thomson, Georgia. While we had
assumed an obligation to indemnify the purchaser of our former
subsidiary when we sold Hoover Treated Wood Products, Inc., our
obligation has been novated and assumed by Nortek.
Under the stock purchase agreement governing the
MWM Holding acquisition, the sellers agreed to indemnify us
for the first $250,000 in certain costs of compliance with the
New Jersey Industrial Site Recovery Act at a facility of MW
Manufacturers Inc. (MW), a subsidiary of
MWM Holding, in Hammonton, New Jersey and for 75% of any
such costs between $250,000 and $5.5 million. MWs
Rocky Mount, Virginia property is involved in a corrective
action, relating to contamination associated with an underground
storage tank formerly located at the Rocky Mount, Virginia
property. Liability for this subject contamination has been
previously assumed by U.S. Industries, Inc., pursuant to
its indemnity obligation under the stock purchase agreement
dated August 11, 1995, whereby U.S. Industries, Inc.
sold the stock of MW to Fenway Partners. As the successor in
interest of Fenway Partners, we are similarly indemnified by
U.S. Industries, Inc. U.S. Industries and MW are
working to develop a course of action to address the site
contamination that is acceptable to both companies and the
Virginia regulatory authorities.
We voluntarily comply with the Vinyl Siding Institute
(VSI) Certification Program with respect to our
vinyl siding and accessories. Under the VSI Certification
Program, third party verification
89
and certification, provided by Architectural Testing, Inc.
(ATI), is used to ensure uniform compliance with the
minimum standards set by the American Society for Testing and
Materials (ASTM). Those products compliant with ASTM
specifications for vinyl siding will perform satisfactorily in
virtually any environment. Upon certification, products are
added to the official VSI list of certified products and are
eligible to bear the official VSI certification logo.
Employees
As of April 3, 2010, we had approximately
4,200 full-time employees worldwide, of whom approximately
3,800 were in the United States and 400 were in Canada. We
consider our relations with our employees to be good. Employees
at our Canadian plant, our Valencia, Pennsylvania plant, and our
Bryan, Texas plant are currently our only employees with whom we
have a collective bargaining agreement.
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|
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Approximately 5.9% of our total employees are represented by the
United Brotherhood of Carpenters and Joiners of America,
pursuant to a collective bargaining agreement with certain of
our Canadian employees, which expires on December 31, 2011.
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Approximately 0.5% of our total employees are represented by the
United Steelworkers of America, AFL-CIO-CLC, pursuant to a
collective bargaining agreement with certain of our Valencia,
Pennsylvania employees, which expires on December 1, 2011.
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Approximately 8.3% of our total employees are represented by the
International Chemical Workers Union Council, pursuant to a
collective bargaining agreement with certain of our Alenco
Windows employees, which expires on December 4, 2010.
|
Financial
information about geographic areas
All of the Companys operations are located in the United
States and Canada. We attribute revenue based on the location of
the customer and our sales are made in local currency. Revenue
from external customers for the three months ended April 3,
2010 consists of:
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$187.8 million from United States customers
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$15.7 million from Canadian customers
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$0.7 million from all other foreign customers
|
Revenue from external customers for the year ended
December 31, 2009 consists of:
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$882.9 million from United States customers
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$65.0 million from Canadian customers
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$3.5 million from all other foreign customers
|
Revenue from external customers for the year ended
December 31, 2008 consists of:
|
|
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$1,084.1 million from United States customers
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$84.5 million from Canadian customers
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$6.4 million from all other foreign customers
|
Revenue from external customers for the year ended
December 31, 2007 consists of:
|
|
|
$1,269.8 million from United States customers
|
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$89.3 million from Canadian customers
|
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$4.4 million from all other foreign customers
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90
At April 3, 2010, December 31, 2009, 2008 and 2007,
long-lived assets totaled approximately $18.1 million,
$17.5 million, $23.2 million and $51.2 million,
respectively, in Canada, and $715.2 million,
$729.7 million, $771.7 million and
$1,240.0 million, respectively, in the United States. We
are exposed to risks inherent in any foreign operation,
including foreign exchange rate fluctuations.
Properties
Our corporate headquarters are located in Cary, North Carolina.
We own and lease several additional properties in the United
States and Canada. We operate the following facilities as
indicated, and each facility is leased unless indicated with
Owned under the Lease Expiration Date column below.
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|
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|
|
|
|
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Lease
|
|
|
|
|
|
|
|
expiration
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Location
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|
Square footage
|
|
|
Facility use
|
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date
|
|
|
Siding, Fencing, and Stone segment
|
|
|
|
|
|
|
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Jasper, TN
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270,000
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Manufacturing and Administration
|
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Owned
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Fair Bluff, NC(1)
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200,000
|
|
|
Manufacturing and Administration
|
|
09/30/2024
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Kearney, MO(1)
|
|
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175,000
|
|
|
Manufacturing and Administration
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|
09/30/2024
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Valencia, PA(1)
|
|
|
104,000
|
|
|
Manufacturing and Administration
|
|
09/30/2024
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Martinsburg, WV(1)
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163,000
|
|
|
Manufacturing and Administration
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|
09/30/2024
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Martinsburg, WV
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124,000
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Warehouse
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01/31/2011
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York, NE(1)
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76,000
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|
|
Manufacturing
|
|
09/30/2024
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Stuarts Draft, VA
|
|
|
257,000
|
|
|
Manufacturing and Administration
|
|
Owned
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Sidney, OH
|
|
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819,000
|
|
|
Manufacturing and Administration
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Owned
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Gaffney, SC
|
|
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260,000
|
|
|
Manufacturing and Administration
|
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Owned
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Harrisburg, VA
|
|
|
268,000
|
|
|
Warehouse
|
|
03/15/2015
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Gaffney, SC
|
|
|
27,000
|
|
|
Warehouse
|
|
Month-to-month
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Blacksburg, SC
|
|
|
49,000
|
|
|
Warehouse
|
|
10/31/2010
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Kansas City, MO
|
|
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36,000
|
|
|
Administration
|
|
12/31/2017
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Middleburg, PA
|
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100,000
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|
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Manufacturing and Administration
|
|
12/31/2016
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Windows and Doors segment
|
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|
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Calgary, AB, Canada(1)
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301,000
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|
|
Manufacturing and Administration
|
|
09/30/2024
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Walbridge, OH(1)
|
|
|
250,000
|
|
|
Manufacturing and Administration
|
|
09/30/2024
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Walbridge, OH
|
|
|
30,000
|
|
|
Warehouse
|
|
06/30/2012
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Rocky Mount, VA(1)
|
|
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600,000
|
|
|
Manufacturing and Administration
|
|
09/30/2024
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Rocky Mount, VA
|
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162,920
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Manufacturing
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|
05/31/2013
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Rocky Mount, VA
|
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|
180,000
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|
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Manufacturing
|
|
08/31/2016
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Rocky Mount, VA
|
|
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70,000
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|
|
Warehouse
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|
02/16/2012
|
Rocky Mount, VA
|
|
|
80,000
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|
|
Warehouse
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|
08/31/2013
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Rocky Mount, VA
|
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80,000
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|
|
Warehouse
|
|
08/31/2016
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Rocky Mount, VA
|
|
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56,160
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|
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Warehouse
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Owned
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Rocky Mount, VA
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49,615
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Warehouse
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Month-to-month
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Hammonton, NJ(2)
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360,000
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|
|
Manufacturing and Administration
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|
02/01/2011
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Tupelo, MS(2)
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200,000
|
|
|
Manufacturing and Administration
|
|
06/16/2010
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Fayetteville, NC
|
|
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56,000
|
|
|
Warehouse
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|
Owned
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Peachtree City, GA
|
|
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148,000
|
|
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Manufacturing
|
|
08/19/2014
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Peachtree City, GA
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40,000
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|
Manufacturing
|
|
Owned
|
91
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Lease
|
|
|
|
|
|
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|
expiration
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Location
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Square footage
|
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Facility use
|
|
date
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Dallas, TX
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29,232
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Warehouse
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06/30/2015
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Dallas, TX(3)
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32,000
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Manufacturing
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Month-to-month
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Bryan, TX
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274,000
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|
|
Manufacturing and Administration
|
|
08/20/2014
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Bryan, TX
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75,000
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|
Manufacturing
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|
12/31/2014
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Phoenix, AZ(2)
|
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156,000
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|
|
Manufacturing
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|
03/31/2011
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Auburn, WA
|
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262,000
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|
|
Manufacturing and Administration
|
|
12/31/2013
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Corona, CA
|
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128,000
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|
|
Manufacturing and Administration
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|
09/30/2012
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Sacramento, CA
|
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234,000
|
|
|
Manufacturing and Administration
|
|
09/12/2019
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Corporate
|
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Cary, NC
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20,000
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Administration
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10/31/2015
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(1)
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These properties are included in
long-term leases entered into as a result of a sale/leaseback
agreement entered into in August 2004 as part of the funding for
the purchase of MWM Holding.
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(2)
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Closed facility.
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(3)
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We will vacate this lease and
location during 2010.
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Legal
proceedings
From time to time, we may be involved in litigation relating to
claims arising out of our operations. As of April 3, 2010,
we were not a party to any material legal proceedings.
92
Management
Directors and
executive officers
The following table sets forth information regarding our
directors and executive officers as of the date of this
prospectus.
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Name
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Age
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Position(s)
|
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Frederick J. Iseman
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57
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Chairman of the Board and Director
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Gary E. Robinette
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61
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President, Chief Executive Officer and Director
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Shawn K. Poe
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48
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Vice President and Chief Financial Officer
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John Wayne
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48
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President, Siding Group
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Lynn Morstad
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46
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President, U.S. Windows Group
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Keith Pigues
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47
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Senior Vice President, Chief Marketing Officer
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Timothy D. Johnson
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35
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General Counsel
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David N. Schmoll
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51
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Senior Vice President, Human Resources
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Bryan K. Sveinson
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51
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President, Ply Gem Canada
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Robert A. Ferris
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68
|
|
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Director
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Steven M. Lefkowitz
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45
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|
|
Director
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John D. Roach
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|
|
66
|
|
|
Director
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Michael Haley
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|
|
59
|
|
|
Director
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Timothy T. Hall
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|
|
41
|
|
|
Director
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Jeffrey T. Barber
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|
|
57
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|
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Director
|
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Set forth below is a brief description of the business
experience of each of the members of our board of directors and
our executive officers.
Frederick J.
IsemanChairman of the Board and Director
Since the Ply Gem acquisition, Frederick Iseman has served as
our Chairman of the board of directors. Mr. Iseman is
currently Chairman and CEO of CI Capital Partners, a private
equity firm which was founded by Mr. Iseman in 1993. Prior
to establishing CI Capital Partners, Mr. Iseman founded
Hambro-Iseman Capital Partners, a merchant banking firm. From
1988 to 1990, Mr. Iseman was a member of the Hambro
International Venture Fund. Mr. Iseman is a former Chairman
of the Board of Anteon International Corporation and a former
director of Buffets Holdings, Inc. Mr. Iseman graduated from
Yale University with a BA in English Literature.
Mr. Isemans experience in the private equity field
provides us with valuable insight regarding acquisitions, debt
financings, equity financings and public market sentiment. In
addition, Mr. Isemans experience with growing
portfolio companies similar to the Company provides benchmarking
and other industry tools pertinent to us. Mr. Isemans
background and experiences qualify him to serve as Chairman of
the Board.
Gary E.
RobinettePresident, Chief Executive Officer and
Director
Gary E. Robinette was appointed our President and Chief
Executive Officer in October 2006 at which time he was also
elected to our board of directors. Prior to joining Ply Gem,
93
Mr. Robinette served as Executive Vice President and COO at
Stock Building Supply, formerly a Wolseley company, since
September 1998, and was also a member of the Wolseley North
American Management board of directors. Mr. Robinette held
the position of President of Erb Lumber Inc., a Wolseley
company, from 1993 to 1998 and served as Chief Financial Officer
and Vice President of Carolina Holdings which was the
predecessor company of Stock Building Supply. Mr. Robinette
received a BS in accounting from Tiffin University, where he is
a member of the Board of Trustees, and a MBA from Xavier
University, where he is a member of the Presidents
Advisory Board. He is also a member of the Policy Advisory Board
of Harvard Universitys Joint Center for Housing Studies.
Mr. Robinettes 30 years of experience with
building products and distribution companies provides the Board
with relevant industry knowledge and expertise pertinent to the
environment currently experienced by us. Throughout
Mr. Robinettes tenure with various building product
companies, he has experienced the housing industrys
thriving growth, as well as a number of recessionary declines in
the market. These experiences provide the Board with valuable
insight regarding strategic decisions and the future direction
and vision of the Company.
Shawn K.
PoeVice President and Chief Financial Officer
Since the Ply Gem acquisition, Mr. Poe has served as our
Vice President and Chief Financial Officer. Mr. Poe was
appointed Vice President of Finance of our siding and
accessories subsidiaries in March 2000. Prior to joining the
Company, Mr. Poe held the position of Corporate Controller
and various other accounting positions at Nordyne, Inc., which
he joined in 1990. In addition, Mr. Poe held various
accounting positions with Federal Mogul Corporation from 1984 to
1990. Mr. Poe graduated from Southeast Missouri State
University in 1984 with a BS in Accounting. Mr. Poe
graduated from Fontbonne College in 1994 with an MBA.
John
WaynePresident, Siding Group
Mr. Wayne was appointed President of our siding and
accessories subsidiaries in January 2002. Mr. Wayne joined
the Company in 1998, and prior to his appointment to President
of our Siding Group had been Vice President of Sales and
Marketing for our Variform and Napco siding and accessories
subsidiaries. Prior to joining us, Mr. Wayne worked for
Armstrong World Industries, Inc. from 1985 to 1998, holding a
variety of sales management positions, including Vice President
of Sales. Mr. Wayne served as the Chairman of the Vinyl
Siding Institute, the Chairman of the VSI Code and Regulatory
Committee, and Chairman of the VSI board of directors through
December 2007 when his term ended. Mr. Wayne graduated from
the University of Wisconsin in 1984 with a BA in Finance and
Marketing.
Lynn
MorstadPresident, U.S. Windows Group
Mr. Morstad was appointed President of our
U.S. Windows Group in October 2007 after having served as
President of our New Construction Window Group since November
2006. Prior to that, Mr. Morstad served as President, Chief
Operating Officer and Chief Financial Officer respectively of MW
Manufacturers Inc., a Ply Gem subsidiary he joined in 2000. From
March 1998 to May 2000, Mr. Morstad was employed by the
Dr. Pepper/Seven Up division of Cadbury Schweppes as Vice
President and Corporate Controller. In addition,
Mr. Morstad served in senior financial positions with
various divisions of the Newell Company for more than eight
years. Mr. Morstad is a graduate of the University of Iowa.
94
Keith
PiguesSenior Vice President, Chief Marketing
Officer
Mr. Pigues was appointed Senior Vice President and Chief
Marketing Officer in August 2007. Prior to joining Ply Gem, he
served as Vice President of Marketing at CEMEX
U.S. Operations from 2005 to 2007. Previously,
Mr. Pigues served in senior marketing and strategy
positions at RR Donnelley, ADP and Honeywell International.
Mr. Pigues received a BS in electrical engineering from
Christian Brothers University in 1984, and an MBA from the
University of North Carolina Kenan-Flagler Business School in
1993.
Timothy D.
JohnsonGeneral Counsel
Mr. Johnson joined the Company in June 2008 as General
Counsel. Prior to joining the Company, he served as Vice
President and Regional Counsel at Arysta LifeScience North
America from 2006 to 2008. Previously, Mr. Johnson was an
attorney with the law firms of Hunton & Williams from
2003 to 2006 and Wilson Sonsini Goodrich & Rosati from
2001 to 2003. Mr. Johnson received a BA in biology from
Taylor University in 1997, and a JD from Duke University School
of Law in 2001.
David N.
SchmollSenior Vice President, Human Resources
Mr. Schmoll was appointed Senior Vice President of Human
Resources in July 2007. Prior to joining Ply Gem, he served as
Vice President of Stock Building Supply (formerly a Wolseley plc
company) since 1995. Prior to that position, he served as
Director of Human Resources since 1989 at Carolina Holdings, the
predecessor company of Stock Building Supply, with
responsibility for all human resource and development functions.
Previously, Mr. Schmoll served in both human resource and
collective bargaining positions at Reynolds &
Reynolds. Mr. Schmoll graduated from the University of
North Texas in 1981 and has attended executive development
programs at both Duke University and the International Institute
of Management Development.
Bryan K.
SveinsonPresident, Ply Gem Canada
Mr. Sveinson was appointed President of Ply Gem Canada,
Inc. (formerly, CWD Windows & Doors, Inc.) in April
1999. Mr. Sveinson joined the Company in 1993, and prior to
his appointment as President of Ply Gem Canada held successive
positions as Controller, Vice President of Finance, and Vice
President of Business Development. Prior to joining us,
Mr. Sveinson held senior finance positions with a
commercial printing company and a soft drink manufacturing and
distribution company. Mr. Sveinson graduated from the
University of Calgary in 1981 with a Bachelor of Management
Degree in Finance. In addition, Mr. Sveinson is a
professional accountant, having achieved a Certified Management
Accountant designation in 1991. Mr. Sveinson is also a past
director of the Canadian Window and Door Manufacturing
Association.
Robert A.
FerrisDirector
Since the Ply Gem acquisition, Robert A. Ferris has served as a
director. Mr. Ferris retired as Managing Director of CI
Capital Partners in December 2007, and was employed by CI
Capital Partners since March 1998. From 1981 to February 1998,
Mr. Ferris was a General Partner of Sequoia Associates (a
private investment firm headquartered in Menlo Park,
California). Prior to founding Sequoia Associates,
Mr. Ferris was a Vice President of Arcata Corporation, a
NYSE-listed company. Mr. Ferris is a former director of
Anteon International Corporation, Buffets
95
Holdings, Inc., Timberjack, Inc. and Champion Road Machinery
Ltd. Effective January 1, 2008, Mr. Ferris assumed the
position of President of Celtic Capital LLC, the investment
manager of the entities that primarily hold the assets and
investments of the Ferris Family. Mr. Ferris attended
Boston College and Fordham Law School.
Mr. Ferriss prior tenure with CI Capital Partners as
well as his public company experience as a director provides the
Board with extensive knowledge of the debt and equity markets
and the effect that pending strategic decisions will have on
these public markets. Mr. Ferris provides advice regarding
the impact of certain strategic decisions on both the Company
and our industry.
Steven M.
LefkowitzDirector
Since the Ply Gem acquisition, Steven M. Lefkowitz has served as
a director. Mr. Lefkowitz is President and Chief Operating
Officer of CI Capital Partners, which he co-founded in 1993.
From 1988 to 1993, Mr. Lefkowitz was employed by
Mancuso & Company, a private investment firm, and
served in several positions including as Vice President and as a
Partner of Mancuso Equity Partners. Mr. Lefkowitz is a
former director of Anteon International Corporation and Buffets
Holdings, Inc. Mr. Lefkowitz graduated from Northwestern
University and Kellogg Graduate School of Management.
Mr. Lefkowitzs experience with private equity markets
provides the Board integral knowledge with respect to
acquisitions, debt financings and equity financings.
John D.
RoachDirector
Since the Ply Gem acquisition, Mr. Roach has served as a
director. Mr. Roach is Chairman of the Board and Chief
Executive Officer of Stonegate International, a private
investment and advisory services company, and has been employed
by Stonegate International since 2001. Mr. Roach served as
Chairman of the Board, President and Chief Executive Officer of
Builders FirstSource, Inc. from 1998 to 2001, and as Chairman of
the Board, President and Chief Executive Officer of Fibreboard
Corporation from 1991 to 1997. From 1987 to 1991, Mr. Roach
held senior positions with Johns Manville Corporation, including
President of Building Products Operations as well as Chief
Financial Officer of Manville Corp. In addition, Mr. Roach
currently serves as a director of URS Corporation, an
engineering firm, a director of PMI Group, Inc., a provider of
credit enhancement products and lender services, and a director
of VeriSign, a leading provider of internet infrastructure
services. Mr. Roach has previously served as a director of
Kaiser Aluminum Corporation and its subsidiary, Kaiser
Aluminum & Chemical Corporation, and as a director of
Material Sciences Corp., a provider of materials-based
solutions. Mr. Roach holds a BS degree in Industrial
Management from Massachusetts Institute of Technology and an MBA
degree from Stanford University Graduate School of Business.
Mr. Roachs industry experience has provided valuable
insight to the Board regarding strategic decisions.
Mr. Roach understands the Boards impact in
establishing corporate governance and evaluating strategic
alternatives. Mr. Roachs vast experience with
multiple Boards is valuable to the current Board when
establishing the future direction of the Company.
96
Michael
HaleyDirector
Mr. Haley has served as a director since January 2005.
Mr. Haley joined MW Manufacturers Inc. in June 2001 as
President and served in this capacity until being named Chairman
in January 2005. Mr. Haley retired as Chairman of MW in
June 2005. Prior to joining MW, Mr. Haley was the President
of American of Martinsville (a subsidiary of
La-Z-Boy
Inc.) from 1994 until May 2001 and was President of Loewenstein
Furniture Group from 1988 to 1994. In addition, Mr. Haley
currently serves as a director of American National Bankshares,
Inc., Stanley Furniture Co. and LifePoint Hospitals, Inc.
Mr. Haley graduated from Roanoke College in 1973 with a
Bachelors Degree in Business Administration. From April
2006 to present, Mr. Haley has served as an advisor to
Fenway Partners, a private equity firm.
Mr. Haleys industry experience and background with
the Company provides the Board with relevant industry knowledge
and expertise when evaluating certain strategic decisions.
Timothy T.
HallDirector
In December 2006, the board of directors approved the addition
of Mr. Hall as a member of the Board. Mr. Hall is a
Principal at CI Capital Partners and has been employed by CI
Capital Partners since 2001. Prior to joining CI Capital
Partners, Mr. Hall was a Vice President at FrontLine
Capital and an Assistant Vice President at GE Equity.
Mr. Hall has an MBA from Columbia Business School and a BS
degree from Lehigh University.
Mr. Halls experience with private equity markets
provides the Board integral knowledge with respect to
acquisitions, debt financings and equity financings.
Jeffrey T.
BarberDirector
In January 2010, the board of directors approved the addition of
Mr. Barber as a member of the Board. Mr. Barber is a
certified public accountant who worked for
PricewaterhouseCoopers LLP from 1977 to 2008 and served as
managing partner of PricewaterhouseCoopers Raleigh, North
Carolina office for 14 years. Mr. Barber was appointed
by the Governor of North Carolina to serve on the State Board of
CPA Examiners, where he currently serves as Vice President of
the Board. Mr. Barber is currently a Managing Director with
Fennebresque & Co., a Charlotte, North Carolina based
investment banking firm. In addition, Mr. Barber currently
serves on the Board of Trustees of Blue Cross and Blue Shield of
North Carolina, the Board of Directors of SciQuest, Inc., where
he serves as chair of the audit committee, and the Board of the
North Carolina School of Science and Mathematics Foundation, as
well as other civic organizations. Mr. Barber has a BS
degree in accounting from the University of Kentucky.
Mr. Barbers audit experience with
PricewaterhouseCoopers LLP for 30 years in which he worked
on initial public offerings, Sarbanes-Oxley 404 attestations,
business acquisitions and debt financings provides the Board
with the financial background and experience to ensure the
Companys consolidated financial statements comply with
financial reporting guidelines. These experiences qualify
Mr. Barber as a financial expert allowing him to contribute
financial reporting considerations when evaluating certain
strategic decisions.
Controlled
company
We intend to list the shares offered in this offering on the
NYSE. For purposes of the NYSE rules, we expect to be a
controlled company. Controlled companies
under those rules are
97
companies of which more than 50% of the voting power is held by
an individual, a group or another company. The CI Partnerships
will continue to control more than 50% of the voting power of
our common stock upon completion of this offering and are able
to elect our entire board of directors. Accordingly, we are
eligible to, and we intend to, take advantage of certain
exemptions from NYSE governance requirements provided in the
NYSE rules. Specifically, as a controlled company under NYSE
rules, we are not required to have (1) a majority of
independent directors, (2) a Nominating and Governance
Committee composed entirely of independent directors or
(3) a Compensation Committee composed entirely of
independent directors. The controlled company
exemption does not modify the independence requirements for the
audit committee, and we intend to comply with the requirements
of the Sarbanes-Oxley Act and the NYSE rules, which require that
our Audit Committee be composed of three independent directors.
Board
structure
Composition of
our board of directors
Our board of directors currently consists of eight directors.
Our amended and restated by-laws will provide that our board of
directors will consist of no less
than
nor more
than
persons. The exact number of members of our board of directors
will be determined from time to time by resolution of a majority
of our full board of directors. Upon consummation of this
offering, our board will be divided into three classes as
described below, with each director serving a three-year term
and one class being elected at each years annual meeting
of stockholders. Messrs. Ferris, Iseman and Lefkowitz will
serve initially as Class I directors (with a term expiring
in 2011). Messrs. Barber, Hall and Roach will serve
initially as Class II directors (with a term expiring in
2012). Messrs. Haley and Robinette will serve initially as
Class III directors (with a term expiring in 2013). Each of
our directors and officers holds office until a successor is
elected or qualified or until his earlier death, resignation, or
removal.
Under the amended and restated stockholders agreement to be
entered into prior to the consummation of this offering, the CI
Partnerships will be initially entitled to nominate a majority
of the members of our board of directors and all of the parties
to the stockholders agreement have agreed to vote their shares
of our common stock as directed by the CI Partnerships. The CI
Partnerships will initially have the right to
nominate
of our directors and the CI Partnerships initial board
nominees are expected to be
Messrs. .
See Certain relationships and related party
transactionsStockholders agreement.
Board leadership
structure
Frederick J. Iseman serves as our Chairman and Gary E. Robinette
serves as our President and CEO and also as a member of the
board of directors. The board of directors has determined that
this is an effective leadership structure at the present time
because Mr. Iseman brings experience regarding
acquisitions, debt financings, equity financings and public
market sentiment while the board of directors gets the benefit
of Mr. Robinettes intimate knowledge of the
day-to-day
operations of our business and his significant experience in the
building products industry. Finally, the CI Partnerships will
hold a majority of our common stock following this offering.
98
Committees of the
board
Upon consummation of this offering, our board of directors will
have three standing committees: an Audit Committee, a
Compensation Committee and a Nominating and Governance
Committee. We will be required to have an Audit Committee
comprised entirely of independent directors. As a controlled
company, we are not required to have independent Nominating and
Governance and Compensation Committees. Under the amended and
restated stockholders agreement, the CI Partnerships will be
initially entitled to nominate a majority of the members of our
standing committees (other than our Audit Committee).
The following is a brief description of our committees:
Audit Committee. Our Audit Committee recommends to
the board of directors the appointment of our independent
auditors, reviews and approves the scope of the annual audits of
our financial statements, reviews our internal control over
financial reporting, reviews and approves any non-audit services
performed by the independent auditors, reviews the findings and
recommendations of the internal and independent auditors and
periodically reviews major accounting policies.
The Audit Committee is currently comprised of
Messrs. Barber and Hall. Upon completion of the offering,
Messrs. Barber (chair), Roach and Haley are expected to be
the members of our Audit Committee. The board of directors has
determined that Jeffrey Barber is qualified as Audit Committee
financial expert under the rules of the SEC
implementing Section 407 of the Sarbanes-Oxley Act of 2002.
Each of the members of the Audit Committee meets the
independence and the experience requirements of the NYSE and the
federal securities laws.
Compensation Committee. Our Compensation Committee
reviews our compensation philosophy and strategy and considers
the material risks that face us in evaluating compensation,
administers incentive compensation and stock option plans,
reviews the CEOs performance and compensation, reviews
recommendations on compensation of other executive officers and
reviews other special compensation matters, such as executive
employment agreements. The Compensation Committee is currently
chaired by Mr. Hall and consists of the entire board of
directors. Upon completion of this offering,
Messrs. Ferris, Hall, Lefkowitz (chair) and Roach are
expected to be the members of our Compensation Committee. The
initial CI Partnerships designees on the Compensation Committee
will be Messrs. Ferris, Hall and Lefkowitz.
Nominating and Governance Committee. Upon completion
of this offering we will have a Nominating and Governance
Committee. Subject to the rights of the CI Partnerships under
the stockholders agreement, our Nominating and Governance
Committee will select or recommend that the board select
candidates for election to our board of directors and develop
and recommend to the board of directors corporate governance
guidelines that are applicable to us and oversee board of
directors and management evaluations. Messrs. Hall (chair),
Lefkowitz and Haley are expected to be the members of our
Nominating and Governance Committee upon completion of this
offering. The initial CI Partnerships designees on the
Nominating and Governance Committee will be Messrs. Hall
and Lefkowitz.
Director
independence
We have determined that Messrs. Barber, Ferris, Haley and
Roach are independent as such term is defined by the applicable
rules and regulations of the NYSE and the federal securities
laws.
99
Risk
oversight
The board of directors has an oversight role, as a whole and
also at the committee level, in overseeing management of our
risks. The board of directors regularly reviews information
regarding our credit, liquidity and operations, as well as the
risks associated with each. The Compensation Committee of the
board of directors is responsible for overseeing the management
of risks relating to our employee compensation plans and
arrangements and the Audit Committee of the board of directors
oversees the management of financial risks. While each committee
is responsible for evaluating certain risks and overseeing the
management of such risks, the entire board of directors is
regularly informed through committee reports about such risks.
Risk and
compensation policies
Our management, at the direction of our board of directors, has
reviewed our employee compensation policies, plans and practices
to determine if they create incentives or encourage behavior
that is reasonably likely to have a material adverse effect on
the Company. In conducting this evaluation, management has
reviewed our various compensation plans, including our incentive
and bonus plans, equity award plans, and severance compensation,
to evaluate risks and the internal controls we have implemented
to manage those risks. In completing this evaluation, the board
of directors and management believe that there are no
unmitigated risks created by our compensation policies, plans
and practices that create incentives or encourage behavior that
is reasonably likely to have a material adverse effect on us.
Code of
ethics
We have adopted a code of ethics that applies to our Chief
Executive Officer, Chief Financial Officer and all other
employees. This code of ethics is posted on our website at
www.plygem.com. Any waiver or amendment to this code of ethics
will be timely disclosed on our website. Copies of the code of
ethics are available without charge by sending a written request
to Shawn K. Poe at the following address: Ply Gem Holdings,
Inc., 5020 Weston Parkway, Suite 400, Cary, North
Carolina 27513.
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Executive
compensation
Compensation
discussion and analysis
Overview
This compensation discussion describes the material elements of
compensation of our executive officers who served as named
executive officers during our fiscal year ended
December 31, 2009. The individuals who served as the
principal executive officer and principal financial officer
during 2009, as well as the other individuals included in the
Summary Compensation Table below, are referred to as the
named executive officers. This compensation
discussion focuses primarily on compensation awarded to, earned
by, or paid to the named executive officers in 2009, as
reflected in the following tables and related footnotes and
narratives, but also describes compensation actions taken before
or after 2009 to the extent that it enhances an understanding of
the executive compensation disclosure.
The principal elements of our executive compensation program for
2009 were base salary, annual cash incentives, other personal
benefits and perquisites, post-termination severance and
equity-based interests. Our other personal benefits and
perquisites consist of life insurance benefits and car
allowances. The named executive officers are also eligible to
participate in our 401(k) plan and our company-wide employee
benefit health and welfare programs.
In connection with becoming a public company, we intend to
develop and implement a new long-term incentive plan to
encourage officers, senior executives and other employees to
continue their services with us and to retain those employees
whose skills, performance and loyalty to our objectives and
interests are necessary to our success. We anticipate that the
new long-term incentive plan will include long-term cash
incentive awards, as well as equity and equity-based incentive
awards which will be granted under a new equity plan that our
board intends to adopt. See 2010 equity award
plan below.
Unless otherwise stated, this compensation discussion does not
give effect to the Reorganization Transactions or this offering.
Compensation
program objectives and philosophy
General
philosophy
Our compensation philosophy is designed to provide a total
compensation package to our executive officers that is
competitive within the building materials industry and enables
us to attract, retain, and motivate the appropriate talent for
long-term success. In determining whether the components of our
compensation packages, including salary and target bonus
percentages, are competitive within the industry, we conduct
informal, internal reviews of other building material companies
that file public reports with the SEC to obtain a general
understanding of such companies compensation practices. We
did not benchmark, nor did we utilize the services of a
compensation consultant, for the years ended December 31,
2009, 2008 or 2007. We may utilize a compensation consultant in
future periods as necessary.
We believe that total compensation should be reflective of
individual performance, which we evaluate based on the
executives achievement of individual performance targets,
such as increasing operational efficiencies and successfully
meeting budget, product development and customer focused
initiatives, but should also vary with our performance in
achieving financial
101
and non-financial objectives, thus rewarding the attainment of
these objectives. We align compensation levels commensurate with
responsibilities and experience of the respective executive
officers. We balance these compensation levels with our risk
management policies to mitigate any conflicts of interest. We
also ensure a proper weighting of executive officers base
salaries, incentive amounts, and equity awards to minimize
risk-taking incentives that could have a detrimental effect on
us.
The components of total compensation for our executive officers
are as follows:
In general. We provide the opportunity for our named
executive officers and other executives to earn a competitive
annual base salary. We provide this opportunity to attract and
retain an appropriate caliber of talent for these positions and
to provide a base wage that is not subject to our performance
risk, as are other elements of our compensation, such as the
annual cash incentive awards and equity interests described
below. Base salaries of our named executive officers are only
one component of our executive officers compensation
package and will not substitute for our incentive awards.
Our President and Chief Executive Officer, Gary E. Robinette,
reviews the base salaries for our named executive officers,
other than the President and Chief Executive Officer, in
November and December of each year with any recommended
increases being based on our performance as well as the
individuals performance and responsibilities, which we
believe to be consistent with our overall philosophy of
rewarding both strong individual and Company performance. After
this review, any salary increases for the executive officers
other than the President and Chief Executive Officer are
recommended by our President and Chief Executive Officer to our
Compensation Committee and board of directors for approval. The
base salary for our President and Chief Executive Officer is
determined by the Compensation Committee of our board of
directors, but will not be less than $530,000 per year.
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Annual cash incentive awards
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In general. We provide the opportunity for
our named executive officers to earn an annual cash incentive
award based upon our performance as well as the executives
individual performance. We provide this opportunity to attract
and retain an appropriate caliber of talent for these positions
and to motivate executives to achieve our financial goals. We
believe that providing these annual incentives is consistent
with our objective of providing compensation that varies with
our performance in achieving financial and non-financial
objectives. Prior to this initial public offering, we expect to
adopt the 2010 Annual Bonus Plan, which is described in detail
below. We adopted this plan to position us to make
performance-based awards that may provide us with deductions for
compensation under Section 162(m) of the Code that we
otherwise may not be able to take. In addition, as discussed
above, we intend to develop and implement a long-term incentive
plan in connection with becoming a public company, which we
anticipate will include long-term cash incentive awards.
2009 target award opportunities. In light of
the depressed residential housing and remodeling markets for the
year ended December 31, 2009, we did not establish a cash
incentive plan for any employees, including the executive
officers. As a result, there were no 2009 target award
opportunities for the named executive officers.
2010 target award opportunities. Our 2010
performance measure is based upon the Company exceeding a
minimum level of adjusted EBITDA on a consolidated basis. We
define adjusted
102
EBITDA as net income (loss) plus interest expense (net of
interest income), provision (benefit) for income taxes,
depreciation and amortization, non-cash gain on extinguishment
of debt, non-cash foreign currency gain/(loss), amortization of
non-cash write-off of the portion of excess purchase price from
acquisitions allocated to inventories, restructuring and
integration costs, customer inventory buybacks, impairment
charges and management fees paid under our advisory agreement
with an affiliate of the CI Partnerships. The minimum level of
adjusted EBITDA required in 2010 before any target award
opportunity begins is approximately 114.3% of our 2009 actual
adjusted EBITDA. Depending upon each officers
responsibilities, a target award opportunity was established as
a percentage of the individual officers base salary at a
range from 30% to 100% of base salary. The target cash incentive
opportunity percentage of base salary for each individual
officer is established based upon the position within the
Company and is comparable to like positions within our Company.
Prior to the beginning of 2010, Mr. Robinette reviewed our
annual cash incentive plans, the performance measures and
resulting awards with our Compensation Committee and our board
of directors. For the year ended December 31, 2010, annual
target cash incentive opportunities for the named executive
officers are 100% of base salary for Mr. Robinette and 75%
of base salary for Messrs. Poe, Wayne, Morstad and Pigues.
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Perquisites and other personal benefits
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In general. We provide the opportunity for
our named executive officers to receive certain perquisites and
other personal benefits, including car allowances and
Company-paid life insurance premiums. We provide these benefits
to provide an additional useful benefit for our executives, and
we believe that providing these benefits is essential to our
ability to remain competitive in the general marketplace for
attracting and retaining executive talent.
2009 perquisites and other personal
benefits. For the year ended December 31,
2009, we provided personal benefits and perquisites, including
car allowances and Company-paid life insurance premiums, to all
of our named executive officers, as described below in the
Summary compensation table.
In general. Historically, we have provided
the opportunity for our named executive officers to purchase
both shares of common stock, par value $.01 per share (Ply
Gem Prime Common Stock) and senior preferred stock, par
value $.01 per share (Ply Gem Prime Senior Preferred
Stock) in Ply Gem Prime, which was our parent company
prior to the Reorganization Transactions.
We believe it is vital to our Company to provide our named
executive officers with the opportunity to hold an equity
interest in our business. We believe that equity ownership among
executives aligns managements interests with those of
stockholders and provides long-term incentives for the
executives. Our named executive officers are the employees that
have a significant impact on the long-term performance of the
Company, so this opportunity is intended to incentivize them to
improve the overall value of the business. Providing a Ply Gem
Prime Senior Preferred Stock component as well as a Ply Gem
Prime Common Stock component has allowed the executives to hold
an ownership interest that has mirrored that held by
non-employee investors in our Company and motivated and rewarded
the executives for achieving financial objectives. We also
believe that our management equity ownership structure promotes
the retention of key management and that providing an equity
component of compensation is
103
consistent with our compensation objectives of rewarding
performance-based compensation and attracting and retaining an
appropriate caliber of talent.
The opportunities that we give our executive officers to invest
in the business have been event-driven and have not been
provided on any annual or other regular basis. The number of
shares that a named executive officer has been permitted to
purchase is determined based upon the individuals level of
responsibility within the Company. All equity purchases have
been reviewed and approved by our Compensation Committee and
board of directors.
Ply Gem Prime common stock. Our named
executive officers have purchased Ply Gem Prime Common Stock
either as (1) Incentive Stock or (2) part
of a strip of equity that is purchased at the same time the
officer purchases shares of Ply Gem Prime Senior Preferred Stock.
Incentive stockProtected and unprotected. Ply
Gem Prime Common Stock purchased as Incentive Stock becomes
Protected over time, based on the officers
continued service with the Company. Twenty percent (20%) of each
officers Incentive Stock becomes Protected on the first
anniversary of the purchase date and on each of the next four
anniversaries. If the officers employment with us is
terminated at any time, no remaining Incentive Stock that is not
Protected (Unprotected) will become Protected. In
addition, if a realization event or an initial public offering
occurs at any time, any Incentive Stock that is Unprotected
becomes immediately fully Protected. Upon closing of this
offering, all Incentive Stock will become Protected.
Incentive stockTermination of employment. If a
named executive officers Incentive Stock becomes
Protected, the officer may have the opportunity to receive a
greater per share price for such stock if the stock is purchased
by Ply Gem Prime. Specifically, if the named executive
officers employment with us is terminated for reasons
other than cause, then Ply Gem Prime has the right to purchase
the officers shares of Protected Incentive Stock at a
price per share (the Protected Stock Purchase Price)
equal to the quotient obtained by dividing (x) the excess
of (i) a multiple of consolidated EBITDA over
(ii) consolidated indebtedness, less the amount of
unrestricted cash of Ply Gem Prime and its consolidated
subsidiaries as of the date of termination by (y) the
number of shares of fully diluted Ply Gem Prime Common Stock on
the date of the officers termination of employment. For
any Incentive Stock that is Unprotected as of termination, the
purchase price is the lesser of (a) the original purchase
price paid by the officer for the Incentive Stock, plus or minus
any change in adjusted retained earnings per share from the date
the shares were originally purchased through the end of the most
recent fiscal quarter preceding the date of termination of
employment and (b) the Protected Stock Purchase Price. If
the officer is terminated for Cause, all Incentive Stock held by
the officer, whether or not Protected, will be repurchased by
Ply Gem Prime for the same price applicable to Unprotected
Incentive Stock in the preceding sentence.
We believe that this schedule whereby Incentive Stock becomes
Protected over time aids in our ability to retain executive
officers by requiring the executives continued service
with the Company. In addition, because this schedule provides
that the officers Incentive Stock becomes Protected upon
certain corporate transactions, this schedule will provide the
officers the incentive to work toward achieving such a
transaction and to share in the value received by other
shareholders.
If Ply Gem Prime Common Stock is not designated as Incentive
Stock and is purchased as part of a strip with Ply Gem Prime
Senior Preferred Stock, then the Ply Gem Prime Common Stock is
fully vested at the time of purchase. This Ply Gem Prime Common
Stock may be repurchased by
104
Ply Gem Prime at any time following the officers
termination of employment for the Protected Stock Purchase Price
described above.
Upon the closing of the this offering, Ply Gem Primes
right to repurchase Incentive Stock and common stock in
connection with the termination of an officers employment
will expire.
Ply Gem Prime senior preferred stock. Ply Gem
Prime Senior Preferred Stock that is purchased by the officers
is fully vested at the time of purchase. This Ply Gem Prime
Senior Preferred Stock may be repurchased by Ply Gem Prime at
any time following the officers termination of employment
and before the closing of this offering for a price that takes
into account the liquidation value and the maximum dividend on
the shares of Ply Gem Prime Senior Preferred Stock, consistent
with the Certificate of Incorporation of Ply Gem Prime.
None of the named executive officers purchased either Ply Gem
Prime Common Stock or Ply Gem Prime Senior Preferred Stock
during 2009. In 2010, Mr. Poe purchased 2,191 shares
of Ply Gem Prime Common Stock, equivalent to $175,280, and Ply
Gem Prime Senior Preferred Stock in an amount equal to $174,720.
In addition, Mr. Morstad purchased 1,565 shares of Ply
Gem Prime Common Stock, equivalent to $125,200, and Ply Gem
Prime Senior Preferred Stock in an amount equal to $124,800.
Messrs. Poe and Morstads stock purchases reflect the
exercise of their preemptive rights in connection with the
issuance of shares to the CI Partnerships in exchange for the CI
Partnerships contribution of 9% Senior Subordinated
Notes to Ply Gem Prime.
Phantom common and preferred stock
units. Upon the completion of the Ply Gem
acquisition and the MWM Holding acquisition, certain
members of management contributed their investment in
predecessor companies in exchange for phantom common stock units
and phantom preferred stock units which were governed by a
phantom stock plan. Under the phantom stock plan, each
participants interest in the plan was recorded in a
bookkeeping account; however, no stock was initially issued
under the phantom stock plan. Each account recorded a number of
units so that, any phantom common stock units were
deemed to be invested in Ply Gem Prime Common Stock and any
phantom preferred stock units were deemed invested
in Ply Gem Prime Senior Preferred Stock. Certain of the phantom
common stock units became Protected according to the
same schedule as the Incentive Stock, based on the date the
units were first awarded to the officers. Other phantom common
stock units were not subject to any such schedule. Under the
plan, upon liquidation and payment of a participants
account, the value of the account generally was to be paid to
the participant either in cash or in shares of Ply Gem
Primes stock having a fair market value equal to the
account balance, in the discretion of Ply Gem Prime. The
opportunity for any named executive officer to participate in
the phantom stock plan, as well as their level of participation,
was reviewed and approved by our board of directors.
For the first three quarters of 2006, the phantom units were
recognized by us as liability awards that had to be marked to
market every quarter. In addition, in 2004, 2005, and 2006, new
tax rules governing nonqualified deferred compensation required
a re-examination of the structure of the phantom stock plan.
Because of the risk of volatility associated with the above
accounting treatment and the complexity associated with tax and
accounting rule changes, our board of directors determined that
the cost associated with the administrative, accounting and tax
work for the phantom stock units was excessive and outweighed
the benefits of continuing to permit the officers to hold such
units.
As such, in September 2006, we converted all phantom common and
preferred stock units held by each named executive officer into
a cash account payable on a fixed schedule in years 2007 and
beyond. The value of the portion of each cash account that
represented phantom common units
105
equaled the number of phantom common stock units credited to the
phantom plan account on September 25, 2006 multiplied by
$10.00. From September 25, 2006 through January 31,
2007, the value of the cash account was updated as if interest
was credited on such value and compounded at December 31,
2006 at a rate equal to the applicable federal rate for
short-term loans. This portion of the account was paid to each
officer in a single lump-sum cash payment on January 31,
2007. The value of the portion of the cash account that
represented the value of the phantom preferred stock units
equaled the face amount of the number of shares of Ply Gem Prime
Senior Preferred Stock represented by such units. This portion
of the account is credited with deemed earnings, as if with
interest, at an annual rate of 10% compounded semi-annually as
of each June 30 and December 31, from the date of issuance
of the phantom preferred stock unit through the date of payment.
This portion of the account is payable on each of
August 31, 2009, 2010, and 2011, such that one third of the
original face amount, plus deemed earnings, is paid on each such
date, or, if earlier, the officers death, disability or a
change of control. During the year ended December 31, 2009,
Mr. Morstad received a phantom stock payout of $262,583.
In connection with the conversion described above, the board of
directors authorized Ply Gem Prime to allow the officers to
invest in Ply Gem Prime Common Stock on September 25, 2006,
which stock was either Incentive Stock or not, in the same
proportion that the officers phantom units had been deemed
invested in such stock.
Stock options. We may grant the named
executive officers options to purchase shares of Ply Gem Prime
Common Stock pursuant to the Ply Gem Prime Holdings, Inc. 2004
Stock Option Plan. Options granted pursuant to the 2004 Option
Plan are intended to qualify as incentive stock options under
the Code. However, there were no stock options granted during
the year ended December 31, 2009 to named executive
officers. In April 2010, we granted Mr. Robinette an option
to purchase 12,000 shares of our common stock, at an
exercise price of $80, and we granted Mr. Poe an option to
purchase 10,000 shares of our common stock, at an exercise
price of $80. Our Compensation Committee determined that the
April 2010 option grants were necessary for retention purposes,
and determined that the number of shares subject to the options
granted to Mr. Robinette and Mr. Poe, respectively,
were an appropriate portion of equity interests in relation to
total compensation. In connection with the Reorganization
Transactions, options to purchase shares of common stock of Ply
Gem Prime will be converted into options to purchase shares of
our common stock with adjustments to the number of shares and
the per share exercise prices to reflect the merger.
The board of directors intends to adopt an equity plan pursuant
to which equity-based compensation awards may be granted before,
upon or after the offering. As disclosed above, in connection
with becoming a public company, we intend to develop and
implement a
long-term
incentive plan, which may include equity and
equity-based
awards granted under our new equity plan. For the reasons
described above, in respect of equity interests generally, we
expect that equity-based compensation awards will continue to
serve an important component of our compensation structure. See
2010 equity award plan below.
Employment
agreements
President and
Chief Executive Officer
CEO employment
agreement
In October 2006, Mr. Robinette joined the Company and was
appointed as our President and Chief Executive Officer. In
connection with such appointment, Mr. Robinette entered
into an
106
employment agreement with us, pursuant to which we have agreed
to pay him an annual base salary of not less than $530,000 and
an annual cash incentive target of 100% of base salary. In
addition, Mr. Robinette was provided the opportunity by our
Compensation Committee and board of directors to purchase
125,660 shares of Ply Gem Prime Common Stock, at a price of
$10.00 per share, 110,000 shares of which were shares of
Incentive Stock.
CEO retention
agreement
In November 2008, the Company finalized a retention agreement
with Mr. Robinette for his continued service through
September 1, 2011 at which point Mr. Robinette would
be entitled to receive a one-time, lump-sum cash bonus of
$2,000,000. The bonus amount represents an amount that the board
of directors determined to be a reasonable and necessary amount
to retain Mr. Robinettes services and remain
competitive in the marketplace for executive talent. We provided
this retention opportunity to Mr. Robinette because we
believe that Mr. Robinettes experience and talent are
necessary to guide us through the depressed residential and
housing markets which currently exist.
CEO retention
agreement amendment
On May 27, 2010, Mr. Robinettes retention agreement
described above was amended so that he will receive a bonus of
$3,000,000, rather than $2,000,000, payable upon the earlier of
(i) the effective date of an initial public offering of the
Company generating gross proceeds in excess of $100 million
and (ii) September 1, 2011. Therefore, upon the
consummation of this offering, Mr. Robinette will receive
from us a retention bonus of $3,000,000. This increase was made
in light of his increased duties and our increased need for the
retention of his services.
Post-termination
severance
We provide the opportunity for certain of our named executive
officers to be protected under the severance provisions
contained within their retention agreements and, for
Mr. Robinette, his employment agreement, by providing
salary continuation if employment is terminated under certain
circumstances (two years for Mr. Robinette and one year for
our other named executive officers). If the payment of severance
to Mr. Robinette causes him to become subject to the golden
parachute excise tax rules, then we will pay him a
gross-up
amount so that after all taxes are paid on the
gross-up, he
will have enough funds remaining to pay the excise tax imposed
on the severance payments. We provide this opportunity to
attract and retain an appropriate caliber of talent for the
position. These retention agreements and
Mr. Robinettes employment and retention agreements
were approved by our board of directors, and the terms of these
agreements can be found in individual agreements that have been
filed as exhibits to the registration statement of which this
prospectus forms a part. We believe the terms of our retention
agreements and of Mr. Robinettes employment agreement
and amended retention agreement are consistent with the
provisions and benefit levels of other companies based upon
reviewing disclosures made by those companies with the SEC in
order to obtain a general understanding of current compensation
practices. We believe the arrangements and benefits opportunity
contained within our retention agreements and
Mr. Robinettes employment agreement are reasonable
and allow us to remain competitive in the general marketplace
for executive talent. These arrangements are described in detail
in Termination or change in control arrangements
for 2009 below. The employment agreement between
Mr. Robinette and the Company establishes the terms of his
employment including salary and benefits, annual cash incentive
award target and severance provisions in the event of
termination of Mr. Robinettes employment.
107
Chief
Financial Officer retention payment
In November of 2008, the Company finalized a retention agreement
with Mr. Poe for his continued service through
September 1, 2011 at which point Mr. Poe would be
entitled to receive a one-time, lump-sum cash payment of
$650,000 which the board of directors determined to be a
reasonable and necessary amount to retain Mr. Poes
services and remain competitive in the marketplace for executive
talent. We provided this retention opportunity to Mr. Poe
because we believe that Mr. Poes experience and
talent are necessary to guide us through the residential and
housing markets downturn which currently exists.
The following table shows information concerning the annual
compensation during 2009 for services provided to us by our
President and Chief Executive Officer, our Vice President and
Chief Financial Officer and our three other most highly
compensated executive officers:
Summary
compensation table
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Change in
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pension value
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Non-equity
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& nonqualified
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incentive plan
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deferred
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All other
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Option awards
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compensation
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compensation
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compensation
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Name and principal position
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Year
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salary ($)
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Bonus ($)
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($) (1)
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($) (2)
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earnings ($)(3)
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($) (4)
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Total ($)
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Gary E. Robinette
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2009
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$
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580,000
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$
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$
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$
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$
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$
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13,894
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$
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593,894
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President & Chief Executive Officer
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2008
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580,000
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4,971
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34,042
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619,013
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2007
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530,000
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506,680
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25,081
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1,061,761
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Shawn K. Poe
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2009
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300,000
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304,836
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604,836
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Vice President & Chief Financial Officer
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2008
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300,000
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1,519
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49,260
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350,779
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2007
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275,000
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50,000
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(5)
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197,175
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22,133
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544,308
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John Wayne
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2009
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388,500
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20,279
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408,779
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President, Siding Group
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2008
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388,500
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16,025
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39,847
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444,372
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2007
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370,000
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301,920
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25,409
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697,329
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Lynn Morstad
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2009
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370,000
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5,582
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21,112
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396,694
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President, U.S. Windows Group
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2008
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370,000
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14,124
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22,121
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406,245
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2007
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326,250
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13,110
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339,360
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Keith Pigues
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2009
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288,500
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18,167
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306,667
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Sr. Vice President, Marketing
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2008
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288,500
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149
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110,216
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398,865
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2007
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(1)
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For the years ended
December 31, 2009, 2008, and 2007, the amounts in this
column represent the aggregate grant-date fair value of awards
computed in accordance with FASB ASC Topic 718 made during each
respective year. Refer to Note 13 to our audited
consolidated financial statements included elsewhere in this
prospectus for additional information regarding the accounting
for equity compensation.
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(2)
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The amounts in this column
represent performance-based cash bonuses earned for services
rendered during 2007. These incentive bonuses are described in
Compensation discussion and
analysisCompensation program objectives and
philosophyGeneral philosophyAnnual cash incentive
awards above.
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(3)
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None of the named executive
officers, other than Lynn Morstad, are covered by either of our
pension plans. For Mr. Morstad, the aggregate actuarial
present value of his pension benefit under the MW Manufacturing
Inc. Retirement Plan and SERP plan for 2009 increased by $3,927
and $1,655, respectively. No amount is included for
Mr. Morstad for 2008 because the aggregate actuarial
present value of his pension benefit under the MW Manufacturing
Inc. Retirement Plan and SERP plan decreased by $1,432 and $246,
respectively. The named executive officers did not receive any
above-market or preferential earnings on compensation deferred
on a basis that is not tax-qualified.
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(4)
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The amounts in this column with
respect to 2009 consist of the following items for each named
executive officer shown below:
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Gary E.
Robinette: $10,500 car allowance and $3,394 insurance
premiums.
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Shawn K.
Poe: $8,400 car allowance, $9,769 insurance premiums
and $286,667 relocation payment. We reimbursed Mr. Poe for
the expenses he incurred in connection with his move from Kansas
City, Missouri to our headquarters in Cary, North Carolina,
including costs associated with the sale of his existing home,
purchase of a new home and related sales commissions. In
addition, the Compensation Committee determined it was
appropriate to reimburse Mr. Poe for the loss he realized
on the sale of his previous home, and to provide him with an
amount equal to $121,690 for the estimated income taxes that may
be imposed on him due to these relocation payments in order to
put Mr. Poe in the same economic position he would have
been in before the required relocation.
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John
Wayne: $10,500 car allowance and $9,779 insurance
premiums.
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Lynn
Morstad: $11,335 car allowance and $9,777 insurance
premiums.
|
108
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Keith
Pigues: $8,400 car allowance and $9,767 insurance
premiums.
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The amounts in this column with
respect to 2008 consist of the following items for each named
executive officer shown below:
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Gary E.
Robinette: $10,500 car allowance, $20,550 company
401(k) contributions and profit sharing and $2,992 insurance
premiums.
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Shawn K.
Poe: $8,400 car allowance, $20,634 company 401(k)
contributions and profit sharing, $8,785 insurance premiums and
$11,441 relocation payment.
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John
Wayne: $10,500 car allowance, $20,550 company
401(k) contributions and profit sharing and $8,797 insurance
premiums.
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Lynn
Morstad: $11,334 car allowance, $1,992 company
401(k) contributions and profit sharing and $8,795 insurance
premiums.
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Keith
Pigues: $8,400 car allowance, $5,247 company
401(k) contributions and profit sharing, $8,784 insurance
premiums and $87,785 relocation payment
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The amounts in this column with
respect to 2007 consist of the following items for each officer
shown below:
|
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Gary E.
Robinette: $10,500 car allowance, $13,500 company
401(k) contributions and profit sharing and $1,081 insurance
premiums.
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Shawn K.
Poe: $7,700 car allowance, $13,500 company 401(k)
contributions and profit sharing and $933 insurance premiums.
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John
Wayne: $10,500 car allowance, $13,500 company
401(k) contributions and profit sharing $1,409 insurance
premiums.
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Lynn
Morstad: $6,105 car allowance, $6,525 company
401(k) contributions and $480 insurance premiums.
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(5)
|
|
Represents 50% of a total $100,000
special bonus that Mr. Poe was eligible to receive if he
remained employed with the Company through December 31,
2007.
|
Outstanding
equity awards at fiscal year-end for 2009
The following table reflects the outstanding equity awards at
fiscal year end for 2009, without giving effect to the
Reorganization Transactions:
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|
|
|
|
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|
|
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|
|
|
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Number of
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|
|
|
|
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|
|
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Number of
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securities
|
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Market value
|
|
|
|
securities
|
|
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underlying
|
|
|
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Number of
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of shares or
|
|
|
|
underlying
|
|
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unexercised
|
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shares or units
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units of stock
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unexercised
|
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options
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Option
|
|
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Option
|
|
|
of stock that
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that have
|
|
|
|
options
|
|
|
(#) unexercisable
|
|
|
exercise
|
|
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expiration
|
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have not
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|
|
not vested
|
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Name
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(#) exercisable(1)
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|
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(1)
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price ($)
|
|
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date
|
|
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vested (#)(2)
|
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($)(3)
|
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Gary E. Robinette
|
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984
|
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3,934
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$
|
80
|
|
|
|
October 2, 2018
|
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|
|
44,000
|
|
|
$
|
|
|
Shawn K. Poe
|
|
|
301
|
|
|
|
1,202
|
|
|
$
|
80
|
|
|
|
October 2, 2018
|
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|
|
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John Wayne
|
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643
|
|
|
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2,573
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$
|
80
|
|
|
|
October 2, 2018
|
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|
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3,000
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|
12,000
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|
|
$
|
80
|
|
|
|
December 5, 2018
|
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|
|
Lynn Morstad
|
|
|
773
|
|
|
|
3,090
|
|
|
$
|
80
|
|
|
|
October 2, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400
|
|
|
|
9,600
|
|
|
$
|
80
|
|
|
|
December 5, 2018
|
|
|
|
|
|
|
|
|
|
Keith Pigues
|
|
|
11,600
|
|
|
|
17,400
|
|
|
$
|
80
|
|
|
|
August 27, 2017
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
29
|
|
|
|
118
|
|
|
$
|
80
|
|
|
|
October 2, 2018
|
|
|
|
|
|
|
|
|
|
|
|
109
The following table reflects the outstanding equity awards at
fiscal year end for 2009 on a pro forma basis after giving
effect to the Reorganization Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Number of
|
|
|
securities
|
|
|
|
|
|
|
|
|
shares or
|
|
|
|
|
|
|
securities
|
|
|
underlying
|
|
|
|
|
|
|
|
|
units of
|
|
|
Market value
|
|
|
|
underlying
|
|
|
unexercised
|
|
|
|
|
|
|
|
|
stock that
|
|
|
of shares or
|
|
|
|
unexercised
|
|
|
options
|
|
|
Option
|
|
|
Option
|
|
|
have not
|
|
|
units of stock
|
|
|
|
options
|
|
|
(#) unexercisable
|
|
|
exercise
|
|
|
expiration
|
|
|
vested (#)
|
|
|
that have
|
|
Name
|
|
(#) exercisable(1)
|
|
|
(1)
|
|
|
price ($)
|
|
|
date
|
|
|
(2)
|
|
|
not vested ($)(3)
|
|
|
|
|
Gary E. Robinette
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Shawn K. Poe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Wayne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynn Morstad
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith Pigues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Each option becomes vested and
exercisable with respect to 20% of the shares covered by the
option on each of the first five anniversaries of the grant date.
|
|
(2)
|
|
The stock awards set forth in this
table become Protected as described in
Compensation discussion and
analysisCompensation program objectives and
philosophyGeneral philosophyEquity awardsPly
Gem prime common stock above.
|
|
(3)
|
|
Because Ply Gem Prime Common Stock
is not publicly traded, and the value per share under the
valuation formula contained within the existing stockholders
agreement was zero at December 31, 2009, a market value of
zero is shown.
|
Stock vested for
2009
The following table reflects the amount of stock vested during
2009, without giving effect to the Reorganization Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
|
Number of shares
|
|
|
Value realized
|
|
|
|
acquired on vesting
|
|
|
on vesting
|
|
Name
|
|
(#)(1)
|
|
|
($)(2)
|
|
|
|
|
Gary E. Robinette
|
|
|
22,000
|
|
|
|
$
|
|
Shawn K. Poe
|
|
|
7,683
|
|
|
|
$
|
|
John Wayne
|
|
|
9,061
|
|
|
|
$
|
|
Lynn Morstad
|
|
|
9,600
|
|
|
|
$
|
|
Keith Pigues
|
|
|
750
|
|
|
|
$
|
|
|
|
The following table reflects the amount of stock vested during
2009 on a pro forma basis after giving effect to the
Reorganization Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
|
Number of shares
|
|
|
Value realized
|
|
|
|
acquired on vesting
|
|
|
on vesting
|
|
Name
|
|
(#)(1)
|
|
|
($)(2)
|
|
|
|
|
Gary E. Robinette
|
|
|
|
|
|
|
$
|
|
Shawn K. Poe
|
|
|
|
|
|
|
$
|
|
John Wayne
|
|
|
|
|
|
|
$
|
|
Lynn Morstad
|
|
|
|
|
|
|
$
|
|
Keith Pigues
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
(1)
|
|
The stock awards in this table
represent the number of shares of Ply Gem Prime Common Stock
that were either vested on the date of grant or that became
Protected during 2009, as described in
Compensation discussion and analysis
|
110
|
|
|
|
|
Compensation program objectives
and philosophyGeneral philosophyEquity
awardsPly Gem prime common
stock above.
|
|
(2)
|
|
This amount represents the value of
the shares of Ply Gem Prime Common Stock that became Protected
during 2009. Because Ply Gem Prime Common Stock is not publicly
traded and the value per share under the valuation formula
contained within the existing stockholders agreement was zero at
December 31, 2009, a market value of zero is shown. These
shares remain subject to certain transfer restrictions provided
in the existing stockholders agreement with Ply Gem Prime and
there is no current market in which the officers may sell such
shares. During the year ended December 31, 2009, there were
no stock options exercised by any employees.
|
Pension benefits
for 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value
|
|
|
|
|
|
|
|
|
Number of years
|
|
|
of accumulated
|
|
|
Payments during
|
|
|
|
Plan name
|
|
credited service
|
|
|
benefit ($)
|
|
|
last fiscal year
|
|
Name(a)
|
|
(b)
|
|
(#)(c)
|
|
|
(d)(1)
|
|
|
($)(e)
|
|
|
|
|
Gary E. Robinette
|
|
NA
|
|
|
|
|
|
$
|
|
|
|
|
$
|
|
Shawn K. Poe
|
|
NA
|
|
|
|
|
|
$
|
|
|
|
|
$
|
|
John Wayne
|
|
NA
|
|
|
|
|
|
$
|
|
|
|
|
$
|
|
Lynn Morstad
|
|
MW Retirement Plan
|
|
|
4
|
(2)
|
|
$
|
28,377
|
|
|
|
$
|
|
|
|
MW SERP Plan
|
|
|
4
|
(2)
|
|
$
|
12,027
|
|
|
|
$
|
|
Keith Pigues
|
|
NA
|
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
|
|
(1)
|
|
The material assumptions used to
derive the present value of the accumulated pension benefit
shown in this table are set forth in Note 7 to our audited
consolidated financial statements included elsewhere in this
prospectus.
|
|
(2)
|
|
The number in this column is less
than the number of the officers actual years of service
with the Company. This is because the plans have been frozen, as
described below.
|
Pension
plans
We maintain the MW Manufacturers, Inc. Retirement Plan, a
tax-qualified defined benefit retirement plan, acquired with the
MWM Holding acquisition in August 2004 (the MW
Retirement Plan) and the MW Manufacturers, Inc.
Supplemental Executive Retirement Plan (the MW SERP
Plan), which covers our executives whose benefits are
limited by operation of the Code. We refer to both the MW
Retirement Plan and the MW SERP Plan together as the MW
Plans. Mr. Morstad is a participant in the MW Plans.
None of the other named executive officers are participants in
our pension plans.
The MW Plans benefits are calculated based upon years of
service with the Company and compensation levels during the
service period. Participation under the MW Plans was frozen with
respect to all salaried employees effective October 31,
2004. The decision to freeze the benefit provisions affects any
executive officer under the MW Plans.
The normal retirement date to receive full benefits is the first
calendar month following the participants
65th birthday. There are provisions under the MW Plans for
a reduced benefit amount upon election of early retirement prior
to age 65, with this option available to all participants
of the MW Plans, including executive officers.
The benefit payment options under the MW Plans are as follows:
|
|
|
Life annuity;
|
|
Period certain annuities;
|
|
Joint and survivor annuity (if married); and
|
|
In some cases under the MW Retirement Plan only, a full or
partial lump sum payment.
|
111
Nonqualified
deferred compensation for 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
earnings in last
|
|
|
Aggregate balance at
|
|
Name
|
|
FY ($)
|
|
|
last FYE ($)(1)
|
|
|
|
|
Gary E. Robinette
|
|
|
$
|
|
|
|
$
|
|
Shawn K. Poe
|
|
|
|
|
|
|
138,452
|
|
John Wayne
|
|
|
|
|
|
|
395,632
|
|
Lynn Morstad
|
|
|
|
|
|
|
|
|
Keith Pigues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate balance at
December 31, 2009 represents the balance of the
cash-denominated deferred compensation accounts established in
connection with the conversion of the phantom stock plan awards
on September 25, 2006, as described in
Compensation discussion and
analysisCompensation program objectives and
philosophyGeneral philosophyEquity
awardsPhantom common and preferred stock units
above.
|
Termination or
change in control arrangements for 2009
Each of the named executive officers is entitled to certain
payments and benefits in the event his employment is terminated
by us without cause or he resigns following a
material adverse change. The following chart
quantifies these payments and benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Benefits
|
|
|
Bonus
|
|
|
Total
|
|
Name
|
|
($)(1)
|
|
|
($)
|
|
|
($)(2)
|
|
|
($)
|
|
|
|
|
Employment agreement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary E. Robinette
|
|
$
|
1,060,000
|
|
|
$
|
8,776
|
|
|
|
$
|
|
|
$
|
1,068,776
|
|
Retention agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shawn K. Poe
|
|
|
300,000
|
|
|
|
10,549
|
|
|
|
|
|
|
|
310,549
|
|
John Wayne
|
|
|
388,500
|
|
|
|
10,677
|
|
|
|
|
|
|
|
399,177
|
|
Lynn Morstad
|
|
|
370,000
|
|
|
|
10,651
|
|
|
|
|
|
|
|
380,651
|
|
Keith Pigues
|
|
|
288,500
|
|
|
|
10,533
|
|
|
|
|
|
|
|
299,033
|
|
|
|
|
|
|
(1)
|
|
As described in the narrative
below, the severance arrangement is payable over a two-year
salary continuation period for Mr. Robinette and a one-year
salary continuation period for the other named executive
officers.
|
|
(2)
|
|
For the year ended
December 31, 2009, in light of the residential housing and
repair and remodeling markets downturn, we did not establish a
cash incentive plan for any employees, including the executive
officers. Therefore, the bonus paid as a result of a termination
or change in control would be zero.
|
Mr. Robinettes employment agreement and the retention
agreements for each of Messrs. Poe, Wayne, Morstad and
Pigues provide that the officer will receive payments and
benefits if he is terminated without cause or
resigns following a material adverse change.
Cause means certain failures to perform duties after
demand by the board of directors or obey the board of directors
or a senior executive of the Company, a material act of
dishonesty in connection with executive duties, or conviction of
a felony, a fraudulent or dishonest misdemeanor or a civil
judgment for fraud.
Material adverse change is defined in
Mr. Robinettes employment agreement as an assignment
of duties inconsistent with his position, reduction of salary or
target bonus or Company action that would deny him any material
employee benefit without his consent. Material adverse
change in the retention agreements for the other named
executive officers is defined the same as in
Mr. Robinettes employment agreement; however, it does
not include a reduction in target bonus, but does include the
Company requiring the executive to be based
112
more than 50 miles from his current office location, as
well as any Company breach of any provision of the retention
agreement.
To receive any payments or benefits in connection with a
termination for cause or material adverse change, the executive
must release certain claims against the Company. In addition,
the executive must comply with certain restrictive covenants,
including a covenant not to compete with our business for two
years following termination in the case of Mr. Robinette
and one year following termination in the case of all other
executives. The restrictive covenants also prohibit the
executives from soliciting our employees for two years following
termination in the case of Mr. Robinette and one year
following termination in the case of all other executives. The
covenants also prohibit disclosure of our confidential
information and the mailing of disparaging statements about the
Company and our people.
Mr. Robinettes employment agreement provides that he
will receive an amount equal to two years of his base salary at
the time of termination, plus medical insurance benefit coverage
paid over the 24 months following termination. In addition,
Mr. Robinette will be eligible to receive payment of a
Year 1 Bonus equal to the amount that would have
been actually earned and paid to Mr. Robinette under the
cash incentive award plan had he been employed for the entire
12 month period of the year, plus a Year 2
Bonus equal to a pro-rated portion of the Year 1 Bonus
based upon the number of months that Mr. Robinette was
employed with the Company during the year of termination of his
employment with the Company. If Mr. Robinette dies or
becomes disabled prior to September 1, 2011, he will be
paid a pro rata portion of the $3,000,000 retention payment
described above under Compensation discussion and
analysisEmployment agreementsPresident and Chief
Executive Officer.
For the named executive officers other than Mr. Robinette,
if the named executive officers employment is terminated
during the year, the officer is eligible to receive an amount
equal to one year of base salary at the rate at the time of
termination, paid over a one year period, plus a pro rata
portion of an amount equal to the lesser of the officers
annual cash incentive award target or the actual cash incentive
award that would have been paid under the incentive award plan
had the officer been employed at the date that such cash
incentive award is actually paid, paid in a lump sum as soon as
practicable following the date on which the amount which will be
paid is determined. The named executive officers other than
Mr. Robinette are also eligible to receive a lump sum
payment equal to a pro rata portion of any annual cash bonus the
officer would have received with respect to the year of
termination, paid when bonuses are paid to other executives, as
well as continuation of medical and dental benefits for one year
following termination of employment.
Mr. Poe may be eligible to receive severance in addition to
that shown in the table above worth up to one additional year if
at the end of the 12 month period following his termination
he has not been able to obtain employment providing him with a
salary of at least $300,000. If Mr. Poe dies or becomes
disabled prior to September 1, 2011, he will be paid a pro
rata portion of the $650,000 retention payment described above
under Compensation discussion and
analysisEmployment agreementsChief Financial Officer
retention payment.
The named executive officers may be entitled to receive a cash
payment for their individual shares of Incentive Stock, if Ply
Gem Prime elects to exercise its call right under the existing
stockholders agreement. If Ply Gem Prime had exercised its call
right on December 31, 2009, the named executive officers
would not have received any money for any of the shares of
common stock. Because shares of Ply Gem Prime Common Stock are
not publicly traded and the value per share at December 31,
2009 per the formula contained in the existing stockholders
agreement is
113
zero, no amount has been reflected in the table for incentive
equity. Upon closing of this offering, Ply Gem Primes call
right will expire.
In addition, upon a change in control, all Ply Gem Prime Common
Stock held by the named executive officers that is Unprotected
will become Protected. Vesting of Ply Gem Prime Common Stock
accelerates upon a change of control transaction or an initial
public offering but only to the extent of the proportion of our
business that is sold or offered to the public. If a change in
control had occurred on December 31, 2009, applying the
Protected price formula in the existing stockholders agreement
based on EBITDA as of that date, the value per share of Ply Gem
Prime Common Stock would be zero. If on December 31, 2009
we had undergone a change in control, the value attributed to
the acceleration of the options would have been zero, as the
exercise price of $80 for the options is more than the value per
share of common stock on December 31, 2009.
Executive officer
compensation plans and agreements
CEO employment
agreement
We have entered into an employment agreement with our President
and Chief Executive Officer, Gary E. Robinette, which is
referred to above. The agreement was effective as of
Mr. Robinettes first day of employment in October
2006. Mr. Robinettes initial term of employment was
two years; upon that expiration, his employment term
automatically renews for continuous one-year terms, unless
either we or Mr. Robinette gives the other
60 days written notice.
Under the terms of his employment agreement, Mr. Robinette
will serve as our President and Chief Executive Officer and as a
member of our board of directors, and may serve on the board of
our affiliates as our board of directors may determine from time
to time. His employment agreement provides that he will be paid
an annual salary of no less than $530,000, and that he has the
right to participate in our benefit plans at the same level as
our other senior executives. Mr. Robinette is also entitled
to receive a bonus based on the achievement of our executive
compensation goals, which are set by our Compensation Committee.
His target bonus is equal to 100% of salary, and is paid
following the end of the applicable fiscal year.
As described above, Mr. Robinettes employment
agreement gave him to the right to purchase 110,000 shares
of Incentive Stock at the price of $10 per share, as well as
shares of preferred stock and additional shares of common stock
(which we refer to as Strip Equity) on the same
terms and conditions that existing affiliates of CI Capital
Partners acquired their Strip Equity. The terms of
Mr. Robinettes rights in respect of the stock are set
forth in the existing stockholders agreement and in
Mr. Robinettes subscription agreement.
Mr. Robinettes employment may be terminated by us or
by Mr. Robinette at any time. In the event that his
employment is terminated by us without cause or by
Mr. Robinette due to a material adverse change (as defined
above under Termination or change in
control arrangements for 2009), Mr. Robinette is
entitled to a severance arrangement, which is subject to his
providing us with a release of claims, and his continued
compliance with our confidentiality, work product,
non-competition, non-solicitation and non-disparagement
provisions. The terms of Mr. Robinettes
severance-related provisions and restrictive covenants are
described above under Termination or change in
control arrangements for 2009.
114
Retention
arrangements
On November 7, 2008, we entered into a retention
arrangement with each of our named executive officers because we
believe the continuity of management is essential to the best
interest of the Company and its stockholders. The terms of our
retention agreement with Mr. Robinette are described in
detail in Compensation discussion and
analysisEmployment agreementsPresident and Chief
Executive Officer above. The terms of the retention
agreements with our other named executive officers are described
below.
Shawn K.
Poe
We entered into an amended and restated retention agreement with
Mr. Poe in light of the increased commitment of his time
and energy from the relocation of our headquarters and his
consequent relocation. The expiration of the term of his
retention agreement has been extended to February 12, 2011.
The retention agreement provides Mr. Poe with a relocation
retention incentive, which is a one-time, lump sum cash payment
of $650,000 that will vest and be paid on September 1,
2011. Mr. Poe must be employed by the Company at the time
of payment; however, if he dies or is disabled on the payment
date, he would be entitled to a prorated amount in respect of
the number of days worked since September 1, 2008.
In addition, under his retention agreement, Mr. Poe is
entitled to a severance payment in the event his employment is
terminated by us without cause or by him due to a
material adverse change (as defined above under
Termination or change in control
arrangements for 2009). Any severance payment is
subject to Mr. Poes execution of, and continued
compliance with, a release and restrictive covenant agreement
within 30 days following the date of his termination of
employment. Mr. Poes severance payment and the terms
of his restrictive covenants are described above under
Termination or change in control arrangements for
2009.
John C. Wayne,
Lynn Morstad, and D. Keith Pigues
Our other named executive officers, Messrs. Wayne, Morstad
and Pigues, have entered into retention agreements with us,
which are substantially similar to one another. These retention
agreements are scheduled to expire on December 31, 2010.
Under each of these agreements, the executive is entitled to a
severance payment in the event his employment is terminated by
us without cause or by him due to a material
adverse change. These severance arrangements are described
above under Termination or change in control
arrangements for 2009.
Option
agreement terms
Prior to the Reorganization Transactions, our named executive
officers, along with other employees, directors, and consultants
of us and our affiliates, were eligible for option awards under
the 2004 Option Plan. Under the 2004 Option Plan, we have
granted individuals options to purchase shares of our common
stock, which were intended to be incentive stock
options qualified under Section 422 of the Code.
Generally, the options vest and become exercisable with respect
to 20% of the shares covered by the stock option on each of the
first five anniversaries of the grant date, subject to the
optionees continued employment with the Company. Vesting
accelerates upon a change in control transaction or an initial
public offering,
115
but only to the extent of the proportion of our business that is
sold or offered to the public. The options are subject to a
10-year term.
In the event of the optionees termination for any reason
other than for cause or due to death or disability, the portion
of the stock option that is exercisable may be exercised until
the earlier of (x) the expiration of a three-month period
beginning on the date of termination and (y) the expiration
date of the option. If an optionees employment terminates
due to death or disability, then the portion of the stock option
that is exercisable may be exercised (either by the optionee or
his or her estate, as applicable) until the earlier of
(x) the expiration of a one-year period beginning on the
date of termination and (y) the expiration date of the
option. Upon a termination for cause, the optionees entire
stock option (whether or not vested) will be forfeited and
canceled in its entirety.
In the event of a change in control of the Company (which means
that we are merged or consolidated with another corporation or
entity and the consideration received is in a form other than
stock or equity interests in the surviving company; all or
substantially all of our stock or assets are acquired by another
person; we are reorganized or liquidated; or we enter into a
written agreement to effect any of the preceding events), then,
the Compensation Committee may, in its sole discretion and upon
at least 10 days notice to the optionees, cancel the
stock options in exchange for cash or stock, or a combination of
both.
Deferred
compensation accounts under amended phantom stock
plan
As described above, we have granted phantom common stock and
preferred stock units under our Ply Gem Prime Holdings, Inc.
Amended and Restated Phantom Stock Plan. These awards were
granted to certain members of management who had contributed
their investment in predecessor companies, in connection with
the completion of the Ply Gem Acquisition and the
MWM Holding acquisition. For accounting and other reasons
described more fully above, these phantom stock awards were
amended and restated as cash-denominated deferred compensation
accounts. For details regarding the terms of these awards,
please refer to Compensation discussion and
analysisCompensation program objectives and
philosophyGeneral philosophyEquity
awardsPhantom common and preferred stock units
above.
Common stock
and preferred stock
In the past, we provided the opportunity for our executive
officers to purchase both Ply Gem Prime Common Stock and Ply Gem
Prime Senior Preferred Stock. These awards are subject to the
terms of the stockholders agreement described in
Certain relationships and related party
transactionsStockholders agreement. These awards
are described in detail in Compensation
discussion and analysisCompensation program objectives and
philosophyGeneral philosophyEquity awards
above.
2010 equity award
plan
Prior to the consummation of this offering, we expect to adopt
the 2010 Equity Award Plan (the 2010 Plan) for
grants to be made to participants immediately prior to and
following the consummation of this offering. The purpose of our
2010 Plan is to give us a competitive edge in attracting,
retaining and motivating employees, directors and consultants
and to provide us with a stock plan providing incentives
directly related to increases in our stockholder value.
116
Terms of the
plan
Administration. Our Compensation Committee will
administer our 2010 Plan. The Compensation Committee will have
the authority to determine the terms and conditions of any
agreements evidencing any awards granted under our 2010 Plan,
and to adopt, alter and repeal rules, guidelines and practices
relating to our 2010 Plan. Our Compensation Committee will have
full discretion to administer and interpret the 2010 Plan, to
adopt such rules, regulations and procedures as it deems
necessary or advisable and to determine among other things the
time or times at which the awards may be exercised, and whether
and under what circumstances an award may be exercised.
Eligibility. Any of our employees, directors,
officers or consultants, or of our subsidiaries or their
respective affiliates, will be eligible for awards under our
2010 Plan. Our Compensation Committee has the sole and complete
authority to determine who will be granted an award under the
plan.
Number of shares authorized. The 2010 Plan provides
for an aggregate
of shares
of our common stock to be available for awards. No more
than shares
of common stock may issued in respect of incentive stock options
under our 2010 Plan. No participant may be granted awards of
options and stock appreciation rights with respect to more
than shares
of common stock in any one year. No more
than shares
of common stock may be granted under our 2010 Plan with respect
to performance compensation awards in any one year. If any award
is forfeited, or if any option terminates, expires or lapses
without being exercised, shares of our common stock subject to
such award will again be available for future grant. If there is
any change in our corporate capitalization, the Compensation
Committee in its sole discretion may make substitutions or
adjustments to the number of shares reserved for issuance under
our 2010 Plan, the number of shares covered by awards then
outstanding under our 2010 Plan, the limitations on awards under
our 2010 Plan, the exercise price of outstanding options and
such other equitable substitution or adjustments as it may
determine appropriate.
The 2010 Plan will have a term of ten years and no further
awards may be granted after that date.
Awards available for grant. The Compensation
Committee may grant awards of nonqualified stock options,
incentive (qualified) stock options, stock appreciation rights,
restricted stock awards, restricted stock units, stock bonus
awards, performance compensation awards or any combination of
the foregoing.
Options. The Compensation Committee is authorized to
grant options to purchase shares of common stock that are either
qualified, meaning they satisfy the requirements of
Section 422 of the Code for incentive stock options, or
nonqualified, meaning they are not intended to
satisfy the requirements of Section 422 of the Code. These
options will be subject to the terms and conditions established
by the Compensation Committee. Under the terms of our 2010 Plan,
unless the Compensation Committee determines otherwise, the
exercise price of the options will not be less than the fair
market value of our common stock at the time of grant. Options
granted under the 2010 Plan will be subject to such terms,
including the exercise price and the conditions and timing of
exercise, as may be determined by our Compensation Committee and
specified in the applicable award agreement. The maximum term of
an option granted under the 2010 Plan will be ten years from the
date of grant (or five years in the case of a qualified option
granted to a 10% stockholder). Payment in respect of the
exercise of an option may be made in cash or by check, by
surrender of unrestricted shares (at their fair market value on
the
117
date of exercise) which have been held by the participant for at
least six months, have been purchased on the open market, or the
Compensation Committee may, in its discretion and to the extent
permitted by law, allow such payment to be made through a
broker-assisted cashless exercise mechanism or by such other
method as our Compensation Committee may determine to be
appropriate.
Stock appreciation rights. Our Compensation
Committee is authorized to award stock appreciation rights
(referred to in this prospectus as SARs) under the
2010 Plan. SARs will be subject to the terms and conditions
established by the Compensation Committee . A SAR is a
contractual right that allows a participant to receive, either
in the form of cash, shares or any combination of cash and
shares, the appreciation, if any, in the value of a share over a
certain period of time. An option granted under the 2010 Plan
may include SARs, and our Compensation Committee may also award
SARs to a participant independent of the grant of an option.
SARs granted in connection with an option shall be subject to
terms similar to the option corresponding to such SARs. The
terms of the SARs shall be subject to terms established by the
Compensation Committee and reflected in the award agreement.
Restricted stock. Our Compensation Committee is
authorized to award restricted stock under the 2010 Plan. Awards
of restricted stock will be subject to the terms and conditions
established by the Compensation Committee. Restricted stock is
common stock that generally is non-transferable and is subject
to other restrictions determined by the Compensation Committee
for a specified period. Unless the Compensation Committee
determines otherwise, or specifies otherwise in an award
agreement, if the participant terminates employment during the
restricted period, then any unvested restricted stock is
forfeited.
Restricted stock unit awards. Our Compensation
Committee is authorized to award restricted stock units.
Restricted stock unit awards will be subject to the terms and
conditions established by the Compensation Committee. Unless the
Compensation Committee determines otherwise, or specifies
otherwise in an award agreement, if the participant terminates
employment or services during the period of time over which all
or a portion of the units are to be earned, then any unvested
units will be forfeited. At the election of the Compensation
Committee, the participant will receive a number of shares of
common stock equal to the number of units earned or an amount in
cash equal to the fair market value of that number of shares, at
the expiration of the period over which the units are to be
earned, or at a later date selected by the Compensation
Committee.
Stock bonus awards. Our Compensation Committee is
authorized to grant awards of unrestricted shares, either alone
or in tandem with other awards, under such terms and conditions
as the Compensation Committee may determine.
Performance compensation awards. The Compensation
Committee may grant any award under the 2010 Plan in the form of
a performance compensation award by conditioning the vesting of
the award on the satisfaction of certain performance goals. The
committee may establish these performance goals with reference
to one or more of the following:
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net earnings or net income (before or after taxes);
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basic or diluted earnings per share (before or after taxes);
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net revenue or net revenue growth;
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gross profit or gross profit growth;
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net operating profit (before or after taxes);
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return measures (including, but not limited to, return on
assets, capital, invested capital, equity or sales);
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cash flow (including, but not limited to, operating cash flow,
free cash flow and cash flow return on capital);
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earnings before or after taxes, interest, depreciation and
amortization;
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gross or operating margins;
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productivity ratios;
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share price (including, but not limited to, growth measures and
total stockholder return);
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expense targets;
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margins;
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operating efficiency;
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objective measures of customer satisfaction;
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working capital targets; and
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measures of economic value added.
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Transferability. Each award may be exercised during
the participants lifetime only by the participant or, if
permissible under applicable law, by the participants
guardian or legal representative, and may not be otherwise
transferred or encumbered by a participant other than by will or
by the laws of descent and distribution.
Amendment. Our 2010 Plan will have a term of
10 years. Our board of directors may amend, suspend or
terminate our 2010 Plan at any time; however, stockholder
approval may be necessary if the law so requires. No amendment,
suspension or termination will impair the rights of any
participant or recipient of any award without the consent of the
participant or recipient.
Change in control. In the event of a change in
control (as defined in the 2010 Plan), all outstanding options
and equity (other than performance compensation awards) issued
under the 2010 Plan shall fully vest and performance
compensation awards will vest, as determined by the Compensation
Committee, based on the level of attainment of the specified
performance goals. The Compensation Committee may, in its
discretion, cancel outstanding awards and pay the value of the
awards to the participants in connection with a change in
control.
U.S. federal
income tax consequences
The following is a general summary of the material
U.S. federal income tax consequences of the grant and
exercise and vesting of awards under our plans and the
disposition of shares acquired pursuant to the exercise of such
awards and is intended to reflect the current provisions of the
Code and the regulations thereunder. This summary is not
intended to be a complete statement of applicable law, nor does
it address foreign, state, local and payroll tax considerations.
Moreover, the U.S. federal income tax consequences to any
particular participant may differ from those described herein by
reason of, among other things, the particular circumstances of
such participant.
119
OptionsQualified and nonqualified. The Code
requires that, for favorable tax treatment of a qualified option
(incentive stock options), shares of our common
stock acquired through the exercise of a qualified option cannot
be disposed of on or before the later of (i) two years from
the date of grant of the option or (ii) one year from the
date of exercise. Holders of qualified options will generally
incur no federal income tax liability at the time of grant or
upon exercise of those options. However, the spread at exercise
will be an item of tax preference, which may give
rise to alternative minimum tax liability for the
taxable year in which the exercise occurs. If the holder does
not dispose of the shares on or before two years following the
date of grant and one year following the date of exercise, the
difference between the exercise price and the amount realized
upon disposition of the shares will constitute long-term capital
gain or loss, as the case may be. Assuming both holding periods
are satisfied, no deduction will be allowed to us for federal
income tax purposes in connection with the grant or exercise of
the qualified option. If, within two years following the date of
grant or within one year following the date of exercise, the
holder of shares acquired through the exercise of a qualified
option disposes of those shares, the participant will generally
realize taxable compensation at the time of such disposition
equal to the difference between the exercise price and the
lesser of the fair market value of the shares on the date of
exercise or the amount realized on the subsequent disposition of
the shares, and that amount will generally be deductible by us
for federal income tax purposes, subject to the possible
limitations on deductibility under Sections 280G and 162(m)
of the Code for compensation paid to executives designated in
those Sections. Finally, if an otherwise qualified option
becomes first exercisable in any one year for shares having an
aggregate value in excess of $100,000 (based on the grant date
value), the portion of the qualified option in respect of those
excess shares will be treated as a non-qualified stock option
for federal income tax purposes. No income will be realized by a
participant upon grant of any stock option. Upon the exercise of
a non-qualified stock option, the participant will recognize
ordinary compensation income in an amount equal to the excess,
if any, of the fair market value of the underlying exercised
shares over the option exercise price paid at the time of
exercise. We will be able to deduct this same amount for
U.S. federal income tax purposes, but such deduction may be
limited under Sections 280G and 162(m) of the Code for
compensation paid to certain executives designated in those
Sections.
Restricted stock. A participant will not be subject
to tax upon the grant of an award of restricted stock unless the
participant otherwise elects to be taxed at the time of grant
pursuant to Section 83(b) of the Code. On the date an award
of restricted stock becomes transferable or is no longer subject
to a substantial risk of forfeiture, the participant will have
taxable compensation equal to the difference between the fair
market value of the shares on that date over the amount the
participant paid for such shares, if any, unless the participant
made an election under Section 83(b) of the Code to be
taxed at the time of grant. If the participant made an election
under Section 83(b), the participant will have taxable
compensation at the time of grant equal to the difference
between the fair market value of the shares on the date of grant
over the amount the participant paid for such shares, if any.
(Special rules apply to the receipt and disposition of
restricted shares received by officers and directors who are
subject to Section 16(b) of the Securities Exchange Act of
1934 (the Exchange Act)). We will be able to deduct,
at the same time as it is recognized by the participant, the
amount of taxable compensation to the participant for
U.S. federal income tax purposes, but such deduction may be
limited under Sections 280G and 162(m) of the Code for
compensation paid to certain executives designated in those
Sections.
Restricted stock units. A participant will not be
subject to tax upon the grant of a restricted stock unit award.
Rather, upon the delivery of shares or cash pursuant to a
restricted stock unit
120
award, the participant will have taxable compensation equal to
the fair market value of the number of shares (or the amount of
cash) he actually receives with respect to the award. We will be
able to deduct the amount of taxable compensation to the
participant for U.S. federal income tax purposes, but the
deduction may be limited under Sections 280G and 162(m) of
the Code for compensation paid to certain executives designated
in those Sections.
SARs. No income will be realized by a participant
upon grant of a SAR. Upon the exercise of a SAR, the participant
will recognize ordinary compensation income in an amount equal
to the fair market value of the payment received in respect of
the SAR. We will be able to deduct this same amount for
U.S. federal income tax purposes, but such deduction may be
limited under Sections 280G and 162(m) of the Code for
compensation paid to certain executives designated in those
Sections.
Stock bonus awards. A participant will have taxable
compensation equal to the difference between the fair market
value of the shares on the date the award is made over the
amount the participant paid for such shares, if any. We will be
able to deduct, at the same time as it is recognized by the
participant, the amount of taxable compensation to the
participant for U.S. federal income tax purposes, but such
deduction may be limited under Sections 280G and 162(m) of
the Code for compensation paid to certain executives designated
in those Sections.
Section 162(m). In general, Section 162(m)
of the Code denies a publicly held corporation a deduction for
U.S. federal income tax purposes for compensation in excess
of $1,000,000 per year per person to its chief executive officer
and the four other officers whose compensation is required by
the Exchange Act to be disclosed in its proxy statement, subject
to certain exceptions. The 2010 Plan is intended to satisfy
either an exception or applicable transitional rule requirements
with respect to grants of options to covered employees. In
addition, the 2010 Plan is designed to permit certain awards of
restricted stock, restricted stock units and other awards to be
awarded as performance compensation awards intended to qualify
under either the performance-based compensation
exception to Section 162(m) of the Code or applicable
transitional rule requirements.
2010 annual bonus
plan
General
The Company expects to adopt the 2010 Annual Bonus Plan (the
Annual Bonus Plan) prior to the consummation of this
offering. The target award opportunities we have set for 2010
are described above under Compensation discussion
and analysisCompensation program objectives and
philosophyGeneral philosophyAnnual cash incentive
awards2010 target award opportunities.
Description of
the annual bonus plan
The description of the Annual Bonus Plan set forth below is a
summary, does not purport to be complete and is qualified in its
entirety by the provisions of the Annual Bonus Plan itself. The
complete text of the Annual Bonus Plan is attached as an exhibit
to the registration statement of which this prospectus forms a
part. Our board of directors has approved the Annual Bonus Plan,
effective ,
2010.
Purpose. The purpose of the Annual Bonus Plan is to
establish a program of incentive compensation for designated
officers
and/or key
executive employees of the Company and its
121
subsidiaries and divisions that is directly related to the
performance results of the Company and such employees. The
Annual Bonus Plan provides annual incentives, contingent upon
continued employment and meeting certain corporate goals, to
certain key executives who make substantial contributions to the
Company.
Administration. The Annual Bonus Plan will be
administered by a committee selected by our board of directors
to administer the Annual Bonus Plan. If at any time such an
Annual Bonus Plan Committee has not been so designated, our
Compensation Committee will constitute the Annual Bonus Plan
Committee or if there is no Compensation Committee, our board of
directors will constitute the Annual Bonus Plan Committee.
The Annual Bonus Plan Committee, in its sole discretion, will
determine eligibility for participation, establish the maximum
award which may be earned by each participant (which may be
expressed in terms of dollar amount, percentage of salary or any
other measurement), establish goals for each participant (which
may be objective or subjective, and based on individual,
Company, subsidiary
and/or
division performance), calculate and determine each
participants level of attainment of such goals, and
calculate the bonus award for each participant based upon such
level of attainment. Except as otherwise expressly provided in
the Annual Bonus Plan, the Annual Bonus Plan Committee has the
full power and authority to construe, interpret and administer
the Annual Bonus Plan, including the power to amend or terminate
the Annual Bonus Plan as further described below. The Annual
Bonus Plan Committee may at any time adopt such rules,
regulations, policies, or practices as, in its sole discretion,
it will determine to be necessary or appropriate for the
administration of, or the performance of its respective
responsibilities under, the Annual Bonus Plan. The Annual Bonus
Plan Committee may at any time amend, modify, suspend or
terminate such rules, regulations, policies, or practices.
Eligibility. Participants in the Annual Bonus Plan
will be selected by the Annual Bonus Plan Committee for each
performance period from those officers and key executives of the
Company and its subsidiaries whose efforts contribute materially
to the success of the Company. No employee will be a participant
unless he or she is selected by the Annual Bonus Plan Committee,
in its sole discretion. No employee will at any time have the
right to be selected as a participant nor, having been selected
as a participant for one performance period, to be selected as a
participant in any other performance period.
Bonus awards and performance goals. The Annual Bonus
Plan Committee, based upon information to be supplied by
management of the Company and, where determined as necessary by
our board of directors, the ratification of our board of
directors, will establish for each performance period a maximum
award (and, if the Annual Bonus Plan Committee deems
appropriate, a threshold and target award) and goals relating to
Company, subsidiary, divisional, departmental
and/or
functional performance for each participant and communicate such
award levels and goals to each participant prior to or during
the performance period for which such award may be made. For
purposes of the Annual Bonus Plan, the performance period is the
fiscal year of the Company, during which performance is measured
to determine the level of attainment of a bonus award. Bonus
awards will be earned by each participant based upon the level
of attainment of his or her goals during the applicable
performance period; provided that the Annual Bonus Plan
Committee may reduce the amount of any bonus award in its sole
and absolute discretion. As soon as practicable after the end of
the applicable performance period, the Annual Bonus Plan
Committee will determine the level of attainment of the goals
for each participant and the bonus award to be made to each
participant.
122
Performance criteria. The performance goals
applicable for bonus awards intended will be based on objective
performance criteria established by the Annual Bonus Plan
Committee and measured in terms of one or more of the following
objectives: (i) earnings before or after taxes, interest,
depreciation
and/or
amortization; (ii) net earnings (before or after taxes);
(iii) net income (before or after taxes);
(iv) operating income before or after depreciation and
amortization (and including or excluding capital expenditures);
(v) operating income (before or after taxes);
(vi) operating profit (before or after taxes);
(vii) book value; (viii) earnings per share (before or
after taxes); (ix) market share; (x) return measures
(including, but not limited to, return on capital, invested
capital, assets, equity); (xi) margins; (xii) share
price (including, but not limited to, growth measures and total
shareholder return); (xiii) sales or product volume growth;
(xiv) productivity improvement or operating efficiency;
(xv) costs or expenses; (xvi) stockholders
equity; (xvii) revenues or sales; (xviii) cash flow
(including, but not limited to, operating cash flow, free cash
flow and cash flow return on capital);
(xix) revenue-generating unit-based metrics;
(xx) expense targets; (xxi) objective measures of
customer satisfaction; (xxii) working capital targets;
(xxiii) measures of economic value added;
(xxiv) inventory control; or (xv) enterprise value.
The foregoing performance criteria may relate to us, one or more
of our affiliates or one or more of our or their divisions or
units, or departments or functions, or any combination of the
foregoing, and may be applied on an absolute basis
and/or be
relative to one or more peer group companies or indices, or any
combination thereof, all as the Annual Bonus Plan Committee will
determine. In addition, the performance criteria may be
calculated without regard to extraordinary items.
If the Annual Bonus Plan Committee determines that a change in
our business, operations, corporate structure or capital
structure, or the manner in which we conduct our business, or
other events or circumstances render the performance criteria to
be unsuitable, the Annual Bonus Plan Committee may modify such
performance criteria or the related minimum acceptable level of
achievement, in whole or in part, as the Annual Bonus Plan
Committee deems appropriate and equitable. In addition, at the
time performance goals are established, the Annual Bonus Plan
Committee is authorized to determine the manner in which the
performance criteria will be calculated or measured to take into
account certain factors over which the participant has no
control or limited control including changes in industry
margins, general economic conditions, interest rate movements
and changes in accounting principles.
Payment of bonus awards. Bonus awards earned during
any performance period will be paid as soon as practicable
following the end of such performance period and the
determination of the amount thereof will be made by the Annual
Bonus Plan Committee. Payment of bonus awards will be made in
the form of cash. Bonus award amounts earned but not yet paid
will not accrue interest.
Termination of employment. Except as otherwise
provided pursuant to an employment agreement between the
participant and the Company, a participant will be eligible to
receive payment of his or her bonus award earned during a
performance period, so long as the participant is employed on
the last day of such performance period, notwithstanding any
subsequent termination of employment prior to the actual payment
of the bonus award. In the event of a participants death
prior to the payment of a bonus award which has been earned,
such payment will be made to the participants designated
beneficiary or, if there is none living, to the estate of the
participant.
123
Transferability. A participant may not assign, sell,
encumber, transfer or otherwise dispose of any rights or
interests under the Annual Bonus Plan except by will or the laws
of descent and distribution. Any attempted disposition in
contravention of the preceding sentence will be null and void.
Reorganization or discontinuance. Our obligations
under the Annual Bonus Plan will be binding upon any successor
corporation or organization resulting from merger, consolidation
or other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of
the assets and business of the Company. We will make appropriate
provision for the preservation of participants rights
under the Annual Bonus Plan in any agreement or plan which we
may enter into or adopt to effect any such merger,
consolidation, reorganization or transfer of assets. If the
business conducted by us will be discontinued, any previously
earned and unpaid bonus awards under the Annual Bonus Plan will
become immediately payable to the participants then entitled
thereto.
Section 409A. To the extent applicable,
notwithstanding anything in the Annual Bonus Plan to the
contrary, the Annual Bonus Plan and all bonus awards (including
162(m) bonus awards) will be interpreted in accordance with
Section 409A and Department of Treasury regulations and other
interpretative guidance issued thereunder, including without
limitation any such regulations or other guidance that may be
issued after the effective date of the Annual Bonus Plan.
Notwithstanding any provision of the Annual Bonus Plan to the
contrary, in the event that the Annual Bonus Plan Committee
determines that any amounts payable under the Annual Bonus Plan
will be taxable to a participant under Section 409A and
related Department of Treasury guidance, prior to payment to
such participant of such amount, we may (i) adopt such
amendments to the Annual Bonus Plan and bonus awards (including
162(m) bonus awards) and appropriate policies and procedures,
including amendments and policies with retroactive effect, that
the Annual Bonus Plan Committee determines necessary or
appropriate to preserve the intended tax treatment of the
benefits provided by the Annual Bonus Plan and the bonus awards
and/or
(b) take such other actions as the Annual Bonus Plan
Committee determines necessary or appropriate to avoid or limit
the imposition of an additional tax under Section 409A.
Termination or amendment of annual bonus plan. The
Annual Bonus Plan Committee may generally amend, suspend or
terminate the Annual Bonus Plan at any time.
Director
compensation for 2009
Our directors are entitled to a retainer fee of $15,000 per
quarter for their services as a board member. In addition, our
directors receive a fee of $2,000 for every meeting attended in
person plus reimbursement for all travel related expenses (which
is reflected under All other compensation in the
table below). For 2009, Messrs. Iseman, Ferris, Lefkowitz
and Hall elected not to take the $15,000 retainer fee or the
$2,000 meeting attendance fee.
Our directors are also eligible for stock option awards at the
discretion of our board of directors. However, no option awards
were granted to directors in 2009.
124
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All other
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Fees earned or
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Option
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compensation
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Name
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paid in cash ($)
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awards ($)
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($)(1)
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Total ($)
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Frederick Iseman
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$
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$
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$
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14,050
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$
|
14,050
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Robert A. Ferris
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Steven M. Lefkowitz
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John D. Roach
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70,000
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13,158
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|
|
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83,158
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Michael Haley
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70,000
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4,000
|
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74,000
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Edward M. Straw
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68,000
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4,285
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72,285
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Timothy T. Hall
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(1)
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All other compensation includes
reimbursement for travel related expenses in connection with a
directors attendance in person at board meetings.
|
Compensation
committee interlocks and insider participation
None of our executive officers serves as a member of the board
of directors or Compensation Committee of any entity that has
one or more executive officers who serve on our board of
directors or our Compensation Committee.
125
Principal and
selling stockholders
The table below sets forth, as of August 1, 2010,
information with respect to the beneficial ownership of our
common stock by:
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each of our directors and each of the executive officers named
in the Summary Compensation Table under Executive
compensation;
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each of the selling stockholders;
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each person who is known to be the beneficial owner of more than
5% of any class or series of our capital stock; and
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all of our directors and executive officers as a group.
|
The amounts and percentages of common stock outstanding and
percentage of beneficial ownership before this offering are
based on the number of shares of common stock to be issued and
outstanding prior to this offering after giving effect to the
Reorganization Transactions.
The amounts and percentages of common stock beneficially owned
are reported on the basis of the regulations of the SEC
governing the determination of beneficial ownership of
securities. Under these rules, a person is deemed to be a
beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or to direct the
voting of such security, or investment power, which includes the
power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of
any securities of which that person has a right to acquire
beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of
the same securities.
126
The following table assumes the underwriters
over-allotment option is not exercised:
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Percent of class
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beneficially
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Shares of common stock
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Shares of common stock
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owned assuming
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beneficially owned before
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beneficially owned after
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exercise of
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this offering
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this offering
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over-allotment
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Name and address of beneficial
owner(1)
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Number
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Percentage
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Number
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Percentage
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option
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5% Stockholders
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Caxton-Iseman (Ply Gem), L.P.(2)(3)(4)
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18.7
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%
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Caxton-Iseman (Ply Gem) II,
L.P.(2)(3)(4)
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67.5
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%
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Directors and Named Executive Officers
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Frederick J. Iseman(2)(3)(5)
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86.2
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%
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Robert A. Ferris
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*
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Steven M. Lefkowitz(2)(3)(6)
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86.2
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%
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Gary E. Robinette(7)
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2.9
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%
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Shawn K. Poe(8)
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*
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John Wayne(9)
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1.1
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%
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Lynn Morstad(10)
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1.3
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%
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Keith Pigues(11)
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*
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John D. Roach(12)
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*
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Michael Haley(13)
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*
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Jeffrey Barber
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*
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Timothy Hall
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*
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All Directors and Executive Officers as a Group
(15 persons)(14)
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93.3
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%
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127
The following table assumes the underwriters
over-allotment option is exercised in full:
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Percent of class
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beneficially
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Shares of common stock
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Shares of common stock
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owned assuming
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beneficially owned before this
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Number of
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beneficially owned after
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exercise of
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Name and address of
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offering
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shares being
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this offering
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over-allotment
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beneficial owner(1)
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Number
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Percentage
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offered
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Number
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Percentage
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option
|
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5% Stockholders
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|
|
|
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Caxton-Iseman (Ply Gem), L.P.(2)(3)(4)
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18.7
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%
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Caxton-Iseman (Ply Gem) II, L.P.(2)(3)(4)
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67.5
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%
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Directors and Named Executive Officers
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Frederick J. Iseman(2)(3)(5)
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86.2
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%
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Robert A. Ferris
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*
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Steven M. Lefkowitz(2)(3)(6)
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86.2
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%
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Gary E. Robinette(7)
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2.9
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%
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Shawn K. Poe(8)
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*
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John Wayne(9)
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1.1
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%
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|
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Lynn Morstad(10)
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1.3
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%
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|
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|
Keith Pigues(11)
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*
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John D. Roach(12)
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*
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|
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|
Michael Haley(13)
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|
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|
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*
|
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|
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|
|
|
|
|
|
|
|
Jeffrey Barber
|
|
|
|
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|
*
|
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|
Timothy Hall
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|
*
|
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|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group
(15 persons)(14)
|
|
|
|
|
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|
93.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
*
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|
Less than 1%
|
|
(1)
|
|
Unless otherwise indicated, the
address of each person listed in this table is
c/o Ply
Gem Holdings, Inc., 5020 Weston Parkway, Suite 400,
Cary, North Carolina, 27513.
|
|
(2)
|
|
Under the terms of the amended and
restated stockholders agreement to be entered into prior to the
consummation of this offering, each of our stockholders prior to
this offering (including certain of the directors and executive
officers named in the above tables) will agree to vote their
shares of common stock as directed by the CI Partnerships. As a
result, the CI Partnerships and Messrs. Iseman and
Lefkowitz may be deemed to beneficially
own % of our common stock after the
consummation of this offering ( %
if the underwriters exercise their over-allotment option in
full). The CI Partnerships and Messrs. Iseman and Lefkowitz
disclaim beneficial ownership of any shares of common stock held
by the other parties to the stockholders agreement. See
Certain relationships and related party
transactionsStockholders agreement.
|
|
(3)
|
|
Address is
c/o CI
Capital Partners LLC, 500 Park Avenue, New York, New York 10022.
|
|
(4)
|
|
Rajaconda Holdings, Inc. is the
general partner of each of the CI Partnerships and is deemed to
beneficially own the shares held by the CI Partnerships.
|
|
(5)
|
|
By virtue of his indirect control
of the CI Partnerships, Mr. Iseman shares voting and
investment power over the shares of our common stock held by the
CI Partnerships and is deemed to beneficially own the shares of
common stock held by those entities. Mr. Iseman disclaims
beneficial ownership of the shares beneficially owned by the CI
Partnerships except to the extent of his pecuniary interest
therein.
|
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(6)
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|
By virtue of being a director of
Rajaconda Holdings, Inc., Mr. Lefkowitz shares voting and
investment power over the shares of our common stock held by the
CI Partnerships and is deemed to beneficially own the shares of
common stock held by the CI Partnerships. Mr. Lefkowitz
disclaims beneficial ownership of the shares beneficially owned
by the CI Partnerships except to the extent of his pecuniary
interest therein.
|
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(7)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
|
(8)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
|
(9)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
|
(10)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
128
|
|
|
(11)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
|
(12)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
|
(13)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
|
(14)
|
|
Includes options to
purchase shares
of common stock that are vested and exercisable or will become
vested and exercisable within 60 days.
|
Relationship with
selling stockholders
If the underwriters exercise their over-allotment option, all of
the shares sold pursuant to the over-allotment option will be
sold by the selling stockholders. The selling stockholders
include the CI Partnerships and certain of our directors and
executive officers named above. For additional information with
respect to the CI Partnerships, the selling stockholders and
their respective relationships with us please see
Certain relationships and related party
transactions.
129
Certain
relationships and related party transactions
Reorganization
transactions
Currently, Ply Gem Prime owns 100% of our capital stock. As of
April 3, 2010, Ply Gem Prime had three classes of preferred
stock, three classes of common stock and approximately
$68.4 million aggregate principal amount of its 10% Senior
Subordinated Notes due 2015 (the Prime Notes)
outstanding. The Prime Notes are held by the CI Partnerships and
all of the preferred stock and common stock of Ply Gem Prime is
held by the CI Partnerships and certain current and former
directors and members of our management team or their related
parties. Prior to the closing of this offering, the CI
Partnerships will exchange the Prime Notes held by them for a
new class of senior preferred stock of Ply Gem Prime (the
New Preferred Stock) with a liquidation preference
equal to the principal amount of and accrued interest on the
Prime Notes.
Immediately prior to the closing of this offering, Ply Gem Prime
will merge with and into Ply Gem Holdings, with Ply Gem Holdings
being the surviving entity. In the reorganization merger, we
will issue a total
of shares
of our common stock, representing %
of our outstanding common stock after giving effect to this
offering. In the reorganization merger, all of the preferred
stock (including New Preferred Stock) of Ply Gem Prime will be
converted into a number of shares of our common stock based on
the initial public offering price of our common stock and the
liquidation value of and the maximum dividend amount in respect
of the preferred stock. The holders of common stock of Ply Gem
Prime will receive an aggregate number of shares of our common
stock equal to the difference
between
and the number of shares of our common stock issued to the
holders of preferred stock of Ply Gem Prime. The initial public
offering price of our common stock will be determined by a
negotiation between us and the representatives of the
underwriters, as further described in
Underwriting.
Based on an assumed public offering price of
$ per share (the midpoint of the
estimated public offering price range set forth on the cover
page of this prospectus), in the reorganization merger, holders
of preferred stock of Ply Gem Prime (including the New Preferred
Stock) will receive an aggregate
of shares
of our common stock and holders of common stock of Ply Gem Prime
will receive an aggregate
of shares
of our common stock. In addition, in connection with the
Reorganization Transactions, options to purchase shares of
common stock of Ply Gem Prime will be converted into options to
purchase shares of our common stock with adjustments to the
number of shares and per share exercise prices to reflect the
reorganization merger.
130
The table below sets forth the consideration to be received by
our directors, executive officers and our principal stockholders
in connection with the Reorganization Transactions, based on an
assumed public offering price of
$ per share (the midpoint of the
estimated public offering price range set forth on the cover
page of this prospectus):
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|
|
|
|
Common stock to be issued in
|
Name
|
|
reorganization
transactions
|
|
|
Caxton-Iseman (Ply Gem), L.P.
|
|
|
Caxton-Iseman (Ply Gem) II, L.P.
|
|
|
Frederick J. Iseman
|
|
|
Gary E. Robinette
|
|
|
Shawn K. Poe
|
|
|
John Wayne
|
|
|
Lynn Morstad
|
|
|
Keith Pigues
|
|
|
Timothy D. Johnson
|
|
|
David N. Schmoll
|
|
|
Bryan K. Sveinson
|
|
|
Robert A. Ferris
|
|
|
Steven M. Lefkowitz
|
|
|
John D. Roach
|
|
|
Michael Haley
|
|
|
Timothy T. Hall
|
|
|
Jeffrey T. Barber
|
|
|
|
|
Stockholders
agreement
Ply Gem Prime is currently party to an amended and restated
stockholders agreement (the Existing Stockholders
Agreement) with the CI Partnerships and certain of our
current and former members of management and their related
parties, including Messrs. Morstad, Pigues, Poe, Robinette,
Schmoll, Sveinson and Wayne (collectively with the CI
Partnerships, the Pre-IPO Stockholders). The
Existing Stockholders Agreement contains provisions related to
the composition of Ply Gem Primes board of directors,
voting agreements, rights of first refusal, tag along rights,
drag along rights, put and call rights, pre-emptive rights and
customary confidentiality agreements and non-compete and
non-solicit covenants with respect to certain current and former
members of our management team.
In connection with this offering, the parties will amend and
restate the Existing Stockholders Agreement (the
Stockholders Agreement) and Ply Gem Holdings will
become a party to the agreement. As described below, the
Stockholders Agreement will contain provisions related to
stockholder voting, the composition of our board of directors
and the committees of our board, our corporate governance,
restrictions on the transfer of shares of our capital stock and
certain other provisions.
131
Voting
agreements
Under the Stockholders Agreement, each of the Pre-IPO
Stockholders has agreed to vote all shares of our voting stock
held by it as directed by the CI Partnerships (or if such
partnerships are dissolved, their general partner) in any voting
matter before our stockholders including, without limitation,
elections of directors, amendments to our certificate of
incorporation, approvals of mergers and other transactions or
stockholder proposals, whether in an annual stockholder meeting,
special stockholder meeting or an action by written consent.
Board of
directors and committees
Under the Stockholders Agreement, the CI Partnerships (or if
such partnerships are dissolved, their general partner) will be
entitled to nominate such number of directors to our board of
directors (rounded up to the nearest whole number) equal to the
percentage of our common stock beneficially owned by the Pre-IPO
Stockholders (assuming the exercise or conversion of all
outstanding options (whether vested or unvested) and convertible
or exchangeable securities held by the Pre-IPO Stockholders).
Our board of directors will initially consist of eight directors
and the CI Partnerships will initially have the right to
nominate
directors on our board. It is expected that the CI Partnerships
initial board nominees will be
Messrs.
.
The Stockholders Agreement will also provide that the CI
Partnerships (or if such partnerships are dissolved, their
general partner) will be entitled to nominate such number of
directors to our standing committees of the board of directors
(other than the Audit Committee) (rounded up to the nearest
whole number) equal to the percentage of our common stock
beneficially owned by the Pre-IPO Stockholders (assuming the
exercise or conversion of all outstanding options (whether
vested or unvested) and convertible or exchangeable securities
held by the Pre-IPO Stockholders).
Our Compensation Committee will initially consist of four
directors and the CI Partnerships will initially have the right
to designate three members of our Compensation Committee. It is
expected that the initial Compensation Committee members
designated by the CI Partnerships will be Messrs. Ferris,
Hall and Lefkowitz.
Our Nominating and Governance Committee will initially consist
of three directors and the CI Partnerships will initially have
the right to designate two members of our Nominating and
Governance Committee. It is expected that the initial Nominating
and Governance Committee members designated by the CI
Partnerships will be Messrs. Hall and Lefkowitz.
In the event that a vacancy is created on our board of directors
or any committee thereof for any reason, the CI Partnerships (or
if such partnerships are dissolved, their general partner) will
have the right to designate a director or committee member to
fill such vacancy to the extent the CI Partnerships (or if such
partnerships are dissolved, their general partner) had the right
to designate or nominate the director or committee member who
created the vacancy. The right of the CI Partnerships to
nominate any Board member or committee member will be subject to
compliance with applicable federal or state securities laws and
the rules of the NYSE (or any securities exchange on which any
of our equity securities may then be listed or admitted for
trading) and, with respect to the Compensation Committee,
subject to compliance with Section 162(m) of the Code to
the extent that our board of directors elects to satisfy
Section 162(m)s outside directors requirements.
132
General
restrictions on transfer
Subject to certain limited exceptions, no Pre-IPO Stockholder
may transfer its shares of common stock (or stock options or
other securities exercisable or convertible or exchangeable for
shares of our common stock), unless the transferee agrees to
become a party to the Stockholders Agreement.
Management
restrictions on transfer
Under the Stockholders Agreement, each member of our senior
management and any related entities, including
Messrs. Morstad, Pigues, Poe, Robinette, Schmoll, Sveinson
and Wayne (collectively, the Management
Stockholders), will agree to restrict their ability to
transfer (i) our common stock issued to him or it in the
Reorganization Transactions (the Initial Common
Stock) and (ii) options to purchase our common stock
whether issued prior to or in connection with this offering
(whether vested or unvested) (the Initial Option
Securities). Subject to certain exceptions, such as
transfers to permitted transferees, each Management Stockholder
may only transfer his or its Initial Common Stock and Initial
Option Securities as follows:
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Prior to the first anniversary of this offering, up to 15% of
the Initial Common Stock and 15% of the Initial Option
Securities (including any sales in connection with this
offering);
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On and after the first anniversary of this offering and prior to
the second anniversary of this offering, up to an additional 25%
of the Initial Common Stock and 25% of the Initial Option
Securities;
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On and after the second anniversary of this offering and prior
to the third anniversary of this offering, up to an additional
25% of the Initial Common Stock and 25% of the Initial Option
Securities; and
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On and after the third anniversary of this offering, up to 100%
of the Initial Common Stock and up to 100% of the Initial Option
Securities.
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Notwithstanding the foregoing limitations, at any time after
this offering, if the CI Partnerships (or if such partnerships
are dissolved, their general partner) sell any of our common
stock held by them in an underwritten public offering, then each
Management Stockholder may sell its Initial Common Stock and
Initial Option Securities in such public offering on a pro rata
basis with the CI Partnerships (or if such partnerships are
dissolved, their general partner). These restrictions on
transfer will terminate upon a change of control of our Company.
In addition, the restrictions on transfer will terminate with
respect to any Management Stockholder whose employment is
terminated by the Company, who resigns for good reason or who
retires. These restrictions on transfer may be amended or waived
by our board of directors in its sole discretion.
Other
provisions
The Stockholders Agreement will contain customary
confidentiality agreements from the Management Stockholders and
covenants from the Management Stockholders not to compete with
us or solicit employees from us for a period of one year
following termination of employment with us (whether such
termination was voluntary or involuntary or with or without
cause or good reason).
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The Stockholders Agreement will require us to deliver to the CI
Partnerships (or if such partnerships are dissolved, their
general partner) a copy of our unaudited monthly management
report (including our unaudited consolidated balance sheet and
income statement) as soon as it is available after the end of
each monthly accounting period, a copy of our annual strategic
plan and budget as soon as practicable following board approval
and such other information and data with respect to us as the CI
Partnerships may reasonably request, subject to customary
confidentiality provisions. In addition, we will be required to
give the CI Partnerships, their manager and their general
partner and outside accountants, auditors, legal counsel and
other authorized representatives or agents of such persons
reasonable access to our books and records and all documents and
information related to our properties, assets and business as
they may reasonably request, including access to our properties
and employees.
Under the Stockholders Agreement, we will also agree that until
the CI Partnerships and certain related parties cease to
beneficially own, in the aggregate, at least 15% of our
outstanding common stock (assuming the exercise or conversion of
all outstanding options (whether vested or unvested) and
convertible or exchangeable securities held by the CI
Partnerships and certain related parties) we will elect not to
be governed by section 203 of the Delaware General
Corporation Law. We will also agree that the doctrine of
corporate opportunity will not apply with respect to
the Company, to any of the CI Partnerships or certain related
parties or any directors of the Company who are employees of the
CI Partnerships or their affiliates. See Risk
factors Risks related to this offering and our
common stock Our directors who have relationships
with the CI Partnerships may have conflicts of interest with
respect to matters involving our Company.
Under the Stockholders Agreement, we will agree to indemnify the
CI Partnerships from any losses arising directly or indirectly
out of the CI Partnerships actual, alleged or deemed control or
ability to influence control of us or the actual or alleged act
or omission of any director nominated by the CI Partnerships,
including any act or omission in connection with this offering.
Under the Stockholders Agreement, we have agreed to reimburse
the CI Partnerships (or if such partnerships are dissolved,
their general partner) for all reasonable
out-of-pocket
fees and expenses incurred in connection with the transactions
contemplated by the Stockholders Agreement and the ongoing
monitoring of their investments in our Company.
Termination
The Stockholders Agreement will terminate upon the earliest to
occur of (i) an agreement among us, the CI Partnerships (or
if such partnerships are dissolved, their general partner) and
the other stockholders holding a majority of the voting stock
held by the Pre-IPO Stockholders (other than the CI Partnerships
and certain related parties) to terminate the Stockholders
Agreement or (ii) as to any Pre-IPO Stockholder (with
respect to any provisions other than the confidentiality,
non-compete and non-solicitation provisions applicable to the
Management Stockholders), if such Pre-IPO Stockholder no longer
owns any shares of our common stock (or stock options or other
securities exercisable or convertible or exchangeable for shares
of our common stock) other than by reason of a transfer in
violation of the Stockholders Agreement.
In addition, the voting agreement and the provisions relating to
the right to nominate or designate directors and committee
members will terminate at such time as the Pre-IPO Stockholders
cease to beneficially own at least 15% of our common stock
outstanding immediately prior to the consummation of this
offering (after giving effect to the Reorganization
Transactions) (assuming the exercise or conversion of all
outstanding options
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(whether vested or unvested) and convertible or exchangeable
securities held by the Pre-IPO Stockholders).
Registration
rights agreement
Prior to the consummation of this offering, we will enter into a
registration rights agreement with the Pre-IPO Stockholders.
Subject to several exceptions, including our right to defer a
demand registration under certain circumstances, the CI
Partnerships (or if such partnerships are dissolved, their
general partner) may require that we register for public resale
under the Securities Act all shares of common stock that they
request be registered at any time following this offering so
long as the securities being registered in each registration
statement are reasonably expected to produce aggregate proceeds
of at least $20.0 million. We will not be obligated to
effectuate more than five demand registrations under this
agreement. If we become eligible to register the sale of our
securities on
Form S-3
under the Securities Act, the CI Partnerships (or if such
partnerships are dissolved, their general partner) have the
right to require us to register the sale of the common stock
held by them on
Form S-3,
subject to offering size and other restrictions. The other
Pre-IPO Stockholders are entitled to piggyback registration
rights with respect to any registration request made by the CI
Partnerships (or if such partnerships are dissolved, their
general partner). If the registration requested by the CI
Partnerships (or if such partnerships are dissolved, their
general partner) is in the form of a firm underwritten offering,
and if the managing underwriter of the offering determines that
the number of securities to be offered would have a material
adverse effect on the distribution or sales price of the shares
of common stock in the offering, the number of shares included
in the offering will be determined as follows:
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first, shares offered by the Pre-IPO Stockholders who
request to include their shares in the registration (pro rata,
based on the number of registrable securities owned by such
Pre-IPO Stockholders);
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second, shares offered by any other stockholders (pro
rata, based on the number of registrable securities owned by
such stockholder) except to the extent any such holders have
agreed under existing agreements to grant priority with regard
to participation in such offering to any other holders of our
securities; and
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third, shares offered by us for our own account.
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In addition, the Pre-IPO Stockholders have been granted
piggyback rights on any registration for our account or the
account of another stockholder. If the managing underwriter in
an underwritten offering determines that the number of
securities offered in a piggyback registration would have a
material adverse effect on the distribution or sales price of
the shares of common stock in the offering, the number of shares
included in the offering will be determined as follows:
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first, shares offered by us for own account if we have
initiated such registration or by any stockholders exercising
demand rights with respect to such registration (pro rata, based
on the number of registrable securities owned by the requesting
stockholders);
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second, shares offered by any of our other stockholders
(including the Pre-IPO Stockholders) (pro rata, based on the
number of registrable securities owned by such
stockholder); and
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third, shares offered by us for our own account if any
stockholder initiated such registration by exercising demand
rights.
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In connection with the registrations described above, we will
indemnify any selling stockholders and we will bear all fees,
costs and expenses (except underwriting discounts and selling
commissions).
General advisory
agreement
Upon completion of the Ply Gem acquisition, Ply Gem Industries
entered into an advisory agreement with an affiliate of CI
Capital Partners LLC (the CI Party), which we refer
to as the General Advisory Agreement.
Under the General Advisory Agreement, the CI Party provides us
with acquisition and financial advisory services as the board of
directors shall reasonably request. In consideration of these
services, Ply Gem Industries agreed to pay the CI Party
(1) an annual fee equal to 2% of our EBITDA, as defined in
such agreement, (2) a transaction fee, payable upon the
completion by us of any acquisition, of 2% of the sale price,
(3) a transaction fee, payable upon the completion by us of
any divestitures, of 1% of the sale price, and (4) a
transaction fee, payable upon the completion of the sale of our
company, of 1% of the sale price. EBITDA in the General Advisory
Agreement is based on our net income (loss) plus extraordinary
losses
and/or any
net capital losses realized, provision for income taxes,
interest expense (including amortization or write-off of debt
discount and debt issuance costs and commissions and other
items), depreciation and amortization, dividends paid or accrued
on preferred stock, certain management fees paid to the CI
Party, charges related to certain phantom units and a number of
other items. The annual fee payable in any year may not exceed
the amounts permitted under certain debt instruments, and the CI
Party is obligated to return any portion of the annual fee that
has been prepaid if an event of default has occurred and is
continuing under either the ABL Facility or the indentures
governing the Senior Secured Notes and the 13.125% Senior
Subordinated Notes.
The initial term of the General Advisory Agreement is
10 years, and is automatically renewable for consecutive
one-year extensions, unless Ply Gem Industries or the CI Party
provide notice of termination. In addition, the General Advisory
Agreement may be terminated by the CI Party at any time, upon
the occurrence of specified change of control transactions or
upon an initial public offering of our shares or shares of any
of our parent companies. If the General Advisory Agreement is
terminated for any reason prior to the end of the initial term,
Ply Gem Industries will pay to the CI Party an amount equal to
the present value of the annual advisory fees that would have
been payable through the end of the initial term, based on our
cost of funds to borrow amounts under our senior credit
facilities.
In connection with the Pacific Windows acquisition in October
2007, we paid the CI Party a transaction fee equal to 2% of the
purchase price of Pacific Windows ($0.7 million). In
connection with the Ply Gem Stone acquisition in October 2008,
we paid the CI Party a transaction fee equal to 2% of the
purchase price of Ply Gem Stone ($0.1 million).
Under the General Advisory Agreement, the Company expensed a
management fee of approximately $0.2 million for the
quarter ended April 3, 2010, approximately
$2.5 million for the year ended December 31, 2009,
approximately $1.7 million for the year ended
December 31, 2008 and approximately $3.5 million for
the year ended December 31, 2007.
The General Advisory Agreement will be terminated upon the
consummation of this offering. Upon the consummation of this
offering and the termination of the General Advisory Agreement,
a termination fee equal to
$ million will be paid to the
CI Party.
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Tax sharing
agreement
Prior to January 11, 2010, Ply Gem Prime was the common
parent of an affiliated group of corporations that included Ply
Gem Investment Holdings, Ply Gem Holdings, Ply Gem Industries
and their subsidiaries. Ply Gem Prime elected to file
consolidated federal income tax returns on behalf of the group.
Accordingly, on February 24, 2006, Ply Gem Prime, Ply Gem
Investment Holdings, Ply Gem Industries and Ply Gem Holdings
entered into an Amended and Restated Tax Sharing Agreement,
under which Ply Gem Investment Holdings, Ply Gem Industries and
Ply Gem Holdings agreed to make payments to Ply Gem Prime. These
payments will not be in excess of the tax liabilities of Ply Gem
Investment Holdings, Ply Gem Industries, Ply Gem Holdings and
their respective subsidiaries, if these tax liabilities had been
computed on a stand-alone basis. On January 11, 2010, Ply
Gem Investment Holdings was merged with and into Ply Gem Prime,
with Ply Gem Prime being the surviving corporation, and in
connection with the Reorganization Transactions Ply Gem Prime
will merge with and into Ply Gem Holdings with Ply Gem Holdings
being the surviving corporation. As a result, we will enter into
a Second Amended and Restated Tax Sharing Agreement in
connection with the Reorganization Transactions so that the tax
sharing agreement is between Ply Gem Holdings and Ply Gem
Industries.
Tax receivable
agreement
In order to induce the stockholders of Ply Gem Prime to consent
to the initial public offering and the related transactions, we
intend to enter into a tax receivable agreement with the Tax
Receivable Entity (an entity controlled by our current
stockholders). We are entering into the tax receivable agreement
because certain favorable tax attributes related to the period
prior to this offering will be available to us. Specifically, we
have substantial deferred tax assets related to NOLs for
United States federal and state income tax purposes, which
are available to offset future taxable income. The CI
Partnerships and our other current stockholders believe that the
value of these tax attributes should be considered in
determining the value of our shares being sold in this offering.
Since it might be difficult to determine the present value of
these attributes with certainty, the tax receivable agreement
will generally provide for the payment by us to the Tax
Receivable Entity of 85% of the amount of cash savings, if any,
in U.S. federal, state and local income tax or franchise
tax that we actually realize in periods after this offering as a
result of (i) NOL carryovers from periods (or portions
thereof) ending before January 1, 2010,
(ii) deductible expenses attributable to the transactions
related to this offering and (iii) deductions related to
imputed interest deemed to be paid by us as a result of this tax
receivable agreement. We will retain the benefit of the
remaining 15% of these tax savings.
The amount and timing of any payments under the tax receivable
agreement will vary depending upon a number of factors,
including the amount and timing of the taxable income we
generate in the future and the tax rate then applicable, our use
of NOL carryovers and the portion of our payments under the tax
receivable agreement constituting imputed interest.
The payments we will be required to make under the tax
receivable agreement could be substantial. We expect that, as a
result of the amount of the NOL carryovers from prior periods
(or portions thereof) and the deductible expenses attributable
to the transactions related to this offering, assuming no
material changes in the relevant tax law and that we earn
sufficient taxable income to realize in full the potential tax
benefit described above, future payments under the tax
receivable agreement, in respect of the federal and state NOL
carryovers, will be approximately
$ million in the aggregate
and will be paid within the next five years. It is
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possible that future transactions or events could increase or
decrease the actual tax benefits realized from these tax
attributes and the corresponding tax receivable agreement
payments.
In addition, although we are not aware of any issue that would
cause the IRS to challenge the benefits arising under the tax
receivable agreement, the Tax Receivable Entity will not
reimburse us for any payments previously made if such benefits
are subsequently disallowed, except that excess payments made to
the Tax Receivable Entity will be netted against payments
otherwise to be made, if any, after our determination of such
excess. As a result, in such circumstances, we could make
payments under the tax receivable agreement that are greater
than our actual cash tax savings and may not be able to recoup
those payments, which could adversely affect our liquidity.
Finally, because we are a holding company with no operations of
our own, our ability to make payments under the tax receivable
agreement is dependent on the ability of our subsidiaries to
make distributions to us. The ABL Facility and the indentures
governing our Senior Secured Notes and our 13.125% Senior
Subordinated Notes restrict the ability of our subsidiaries to
make distributions to us, which could affect our ability to make
payments under the tax receivable agreement. To the extent that
we are unable to make payments under the tax receivable
agreement for any reason, such payments will be deferred and
will accrue interest until paid, which could adversely affect
our results of operations and could also affect our liquidity in
periods in which such payments are made.
In addition, the tax receivable agreement provides that, upon
certain mergers, asset sales, or other forms of business
combinations or certain other changes of control, our or our
successors obligations with respect to tax benefits would
be based on certain assumptions, including that we or our
successor would have sufficient taxable income to fully utilize
the NOL carryovers covered by the tax receivable agreement. As a
result, upon a change of control, we could be required to make
payments under the tax receivable agreement that are greater
than or less than the specified percentage of our actual cash
tax savings.
Equity
investments
On May 23, 2008, in connection with an amendment to our
prior credit facilities and as a condition to such amendment,
affiliates of CI Capital Partners made (i) an
$18 million cash investment in Ply Gem Prime and received
14,518 shares of Ply Gem Primes common stock and
210,482 shares of Ply Gem Primes Class A common
stock and (ii) a $12 million cash investment in Ply
Gem Investment Holdings, and received 12,000 shares of
senior preferred stock. Ply Gem Prime and Ply Gem Investment
Holdings then made an aggregate of $30 million in capital
contributions to Ply Gem Holdings, which in turn contributed
such amount to the capital of Ply Gem Industries.
In connection with the MWM Holding acquisition, Ply Gem
Investment Holdings received an equity investment of
approximately $0.5 million from the GeMROI Company, an
outside sales agency that represents, among other products and
companies, MW windows for which we pay GeMROI a sales commission
for their services. During 2007, we paid GeMROI approximately
$1.8 million in sales commission for their services. No
fees were paid to GeMROI in 2008 or 2009.
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Senior
subordinated notes
In 2009, affiliates of the CI Partnerships purchased
approximately $281.4 million aggregate principal amount of
the 9% Senior Subordinated Notes. Approximately
$218.8 million aggregate principal amount of such
9% Senior Subordinated Notes held by such affiliates were
transferred to our indirect stockholders and ultimately to Ply
Gem Prime. Such notes were then transferred to Ply Gem Holdings
and then to Ply Gem Industries as a capital contribution and
cancelled on February 12, 2010. In exchange for their
contribution of the 9% Senior Subordinated Notes, the CI
Partnerships received equity of Ply Gem Prime valued at
approximately $114.9 million consisting of
719,362 shares of common stock and 57,380 shares of
Series E Senior Preferred Stock. No consideration was
received by any other indirect stockholder of Ply Gem Prime in
connection with the transfer of the 9% Senior Subordinated
Notes. On February 16, 2010, Ply Gem Industries redeemed
the remaining $141.2 million aggregate principal amount of
outstanding 9% Senior Subordinated Notes (including
approximately $62.5 million aggregate principal amount of
the 9% Senior Subordinated Notes held by affiliates of the
CI Partnerships). During the year ended December 31, 2009
and the quarter ended April 3, 2010, the Company paid these
affiliates approximately $15.5 million and
$9.8 million of interest, respectively, for the
9% Senior Subordinated Notes owned by these related
parties. In connection with the 9% Senior Subordinated Notes
transaction, Ply Gem Prime paid affiliates of CI Capital
Partners approximately $1.6 million for advisory services.
Other
transactions
On March 1, 2010, Ply Gem Prime received equity
contributions of approximately $1.2 million from certain
members of management, including Messrs. Morstad, Poe and
Schmoll. In exchange for their equity contribution,
Mr. Morstad received 1,565 shares of Ply Gem Prime
common stock and 124.8 shares of Ply Gem Prime
Series E Senior Preferred Stock, Mr. Poe received
2,191 shares of Ply Gem Prime common stock and
174.720 shares of Ply Gem Prime Series E Senior
Preferred Stock and Mr. Schmoll received 626 shares of
Ply Gem Prime common stock and 49.920 shares of Ply Gem
Prime Series E Senior Preferred Stock.
On May 27, 2010, Ply Gem Prime entered into a subscription
agreement with certain members of our board of directors and
certain other affiliates of CI Capital Partners for the issuance
of an aggregate of 10,775.15 shares of Senior Preferred
Stock of Ply Gem Prime for aggregate proceeds of $1,077,515.
Pursuant to this subscription agreement, Ply Gem Prime issued
6,761.71 shares of Senior Preferred Stock to an entity
controlled by Frederick Iseman, 1,266.86 shares of Senior
Preferred Stock to an entity controlled by Steven Lefkowitz,
240.65 shares of Senior Preferred Stock to Timothy Hall,
1,789.75 shares of Senior Preferred Stock to an entity
controlled by Robert Ferris and 716.18 shares to other
affiliates of CI Capital Partners. Also on May 27, 2010,
Ply Gem Prime entered into an agreement to repurchase from Gary
E. Robinette, our President and Chief Executive Officer,
7,434 shares of Senior Preferred Stock of Ply Gem Prime for
$1,077,515. Mr. Robinettes Senior Preferred Stock was
repurchased upon the closing of the Senior Preferred Stock
issuance referred to above, and upon such repurchase his shares
of Senior Preferred Stock were cancelled.
Indemnification
arrangements
We will enter into agreements with our officers and directors to
provide contractual indemnification in addition to the
indemnification provided for in our charter documents. We
believe that these provisions and agreements are necessary to
attract qualified officers and
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directors. Our amended and restated bylaws also will permit us
to secure insurance on behalf of any officer, director or
employee for any liability arising out of his or her actions,
regardless of whether Delaware law would permit such
indemnification. We will purchase a policy of directors
and officers liability insurance that insures our officers
and directors against the cost of defense, settlement or payment
of a judgment in some circumstances and insures us against our
obligations to indemnify our officers and directors.
Related party
transactions policies and procedures
Upon the consummation of this offering, we will adopt a written
Related Person Transaction Policy (the policy),
which will set forth our policy with respect to the review,
approval and ratification of all related person transactions by
our Audit Committee. In accordance with the policy, our Audit
Committee will have overall responsibility for the
implementation and compliance with this policy.
For the purposes of the policy, a related person
transaction is a transaction, arrangement or relationship
(or any series of similar transactions, arrangements or
relationships) in which we were, are or will be a participant
and the amount involved exceeds $120,000 and in which any
related person (as defined in the policy) had, has or will have
a direct or indirect material interest. A related person
transaction does not include any employment relationship
or transaction involving an executive officer and any related
compensation resulting solely from that employment relationship
which has been reviewed and approved by our board of directors
or Compensation Committee.
Our policy will require that notice of a proposed related person
transaction be provided to our legal department prior to
entering into such transaction. If our legal department
determines that such transaction is a related person
transaction, the proposed transaction will be submitted to our
Audit Committee for consideration at its next meeting. Under the
policy, our Audit Committee may only approve those related
person transactions that are in, or not inconsistent with, our
best interests. In the event we become aware of a related person
transaction that has not been previously reviewed, approved or
ratified under our policy and that is ongoing or is completed,
the transaction will be submitted to the Audit Committee so that
it may determine whether to ratify, rescind or terminate the
related person transaction.
Our policy will also provide that the Audit Committee review
certain previously approved or ratified related person
transactions that are ongoing to determine whether the related
person transaction remains in our best interests and the best
interests of our stockholders. Additionally, we will also make
periodic inquiries of directors and executive officers with
respect to any potential related person transaction of which
they may be a party or of which they may be aware.
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Description of
capital stock
Capital
stock
In connection with this offering, we expect to amend our
certificate of incorporation so that our authorized capital
stock will consist
of shares
of common stock, par value $0.01 per share,
and shares
of preferred stock, par value $0.01 per share. After the
consummation of this offering and after giving effect to the
Reorganization Transactions, we expect to
have shares
of common stock and no shares of preferred stock outstanding.
Summarized below are material provisions of our certificate of
incorporation and bylaws as they will be in effect upon the
completion of this offering, as well as relevant sections of the
Delaware General Corporation Law (the DGCL). The
following summary is qualified in its entirety by the provisions
of our amended and restated certificate of incorporation and
bylaws, copies of which have been filed as exhibits to the
registration statement of which this prospectus is a part, and
by the applicable provisions of the DGCL.
Common
stock
The holders of our common stock are entitled to one vote per
share on all matters submitted to a vote of stockholders,
including the election of directors. Holders of the common stock
do not have any preemptive rights or cumulative voting rights,
which means that the holders of a majority of the outstanding
common stock voting for the election of directors can elect all
directors then being elected. The holders of our common stock
are entitled to receive dividends when, as, and if declared by
our board out of legally available funds. Upon our liquidation
or dissolution, the holders of common stock will be entitled to
share ratably in those of our assets that are legally available
for distribution to stockholders after payment of liabilities
and subject to the prior rights of any holders of preferred
stock then outstanding. All of the outstanding shares of common
stock are, and the shares of common stock to be sold in this
offering when issued and paid for will be, fully paid and
nonassessable. The rights, preferences and privileges of holders
of common stock are subject to the rights of the holders of
shares of any series of preferred stock that may be issued in
the future.
Preferred
stock
After the consummation of this offering, we will be authorized
to issue up
to shares
of preferred stock. Our board of directors will be authorized,
subject to limitations prescribed by Delaware law and our
certificate of incorporation, to determine the terms and
conditions of the preferred stock, including whether the shares
of preferred stock will be issued in one or more series, the
number of shares to be included in each series and the powers,
designations, preferences and rights of the shares. Our board of
directors will also be authorized to designate any
qualifications, limitations or restrictions on the shares
without any further vote or action by the stockholders. The
issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of our Company and
may adversely affect the voting and other rights of the holders
of our common stock, which could have an adverse impact on the
market price of our common stock. We have no current plan to
issue any shares of preferred stock following the consummation
of this offering.
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Corporate
opportunity
Our amended and restated certificate of incorporation will
provide that the doctrine of corporate opportunity
will not apply with respect to the Company, to any of the CI
Partnerships or certain related parties or any directors of the
Company who are employees of the CI Partnerships or their
affiliates in a manner that would prohibit them from investing
in competing businesses or doing business with our customers.
See Risk factorsRisks related to this offering
and our common stockWe are controlled by the CI
Partnerships whose interest in our business may be different
than yours, and certain statutory provisions afforded to
stockholders are not applicable to us.
Certain
certificate of incorporation, by-law and statutory
provisions
The provisions of our amended and restated certificate of
incorporation and by-laws and of the DGCL summarized below may
have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that you might consider in your
best interest, including an attempt that might result in your
receipt of a premium over the market price for your shares.
Directors
liability; Indemnification of directors and officers
Section 145 of the DGCL authorizes a court to award, or a
corporations board of directors to grant, indemnity to
directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for
liabilities, including reimbursements for expenses incurred
arising under the Securities Act.
Our amended and restated certificate of incorporation will
provide that a director will not be personally liable to us or
our stockholders for monetary damages for breach of fiduciary
duty as a director, except:
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for any breach of the duty of loyalty;
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for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law;
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for liability under Section 174 of the DGCL (relating to
unlawful dividends, stock repurchases or stock
redemptions); or
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for any transaction from which the director derived any improper
personal benefit.
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The effect of this provision is to eliminate our rights, and our
stockholders rights, to recover monetary damages against a
director for breach of a fiduciary duty of care as a director.
This provision does not limit or eliminate our rights or those
of any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a
directors duty of care. The provisions will not alter the
liability of directors under federal securities laws. In
addition, our amended and restated certificate of incorporation
will provide that we indemnify each director and the officers,
employees and agents determined by our board of directors to the
fullest extent provided by the laws of the State of Delaware.
Our amended and restated certificate of incorporation will also
require us to advance expenses, including attorneys fees,
to our directors and officers in connection with legal
proceedings, subject to very limited exceptions.
Any amendment to or repeal of these provisions will not
adversely affect any right or protection of our directors in
respect of any act or failure to act that occurred prior to any
amendment to
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or repeal of such provisions or the adoption of an inconsistent
provision. If the DGCL is amended to provide further limitation
on the personal liability of directors of corporations, then the
personal liability of our directors will be further limited to
the greatest extent permitted by the DGCL. In addition, prior to
the completion of this offering, we intend to enter into
separate indemnification agreements with each of our directors
and executive officers. We also intend to maintain director and
officer liability insurance, if available on reasonable terms.
Special meetings
of stockholders
Our amended and restated certificate of incorporation will
provide that special meetings of stockholders may be called only
by the chairman or by a majority of the members of our board.
Stockholders are not permitted to call a special meeting of
stockholders, to require that the chairman call such a special
meeting, or to require that our board request the calling of a
special meeting of stockholders. These provisions, taken
together, will prevent stockholders from forcing consideration
by the stockholders of stockholder proposals over the opposition
of the board, except at an annual meeting.
Stockholder
action; Advance notice requirements for stockholder proposals
and director nominations
Our amended and restated certificate of incorporation will
provide that stockholders may not take action by written
consent, but may only take action at duly called annual or
special meetings, unless the action to be effected by written
consent and the taking of such action by written consent have
expressly been approved in advance by the board. In addition,
our by-laws will establish advance notice procedures for:
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stockholders to nominate candidates for election as a
director; and
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stockholders to propose topics for consideration at
stockholders meetings.
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Stockholders must notify our corporate secretary in writing
prior to the meeting at which the matters are to be acted upon
or directors are to be elected. The notice must contain the
information specified in our by-laws including, but not limited
to, information with respect to the beneficial ownership of our
common stock or derivative securities that have a value
associated with our common stock held by the proposing
stockholder and its associates and any voting or similar
agreement the proposing stockholder has entered into with
respect to our common stock. To be timely, the notice must be
received at our corporate headquarters not less than
90 days nor more than 120 days prior to the first
anniversary of the date of the prior years annual meeting
of stockholders. If the annual meeting is advanced by more than
30 days, or delayed by more than 60 days, from the
anniversary of the preceding years annual meeting, or if
no annual meeting was held in the preceding year or for the
first annual meeting following this offering, notice by the
stockholder, to be timely, must be received not earlier than the
120th day prior to the annual meeting and not later than the
later of the 90th day prior to the annual meeting or the 10th
day following the day on which we notify stockholders of the
date of the annual meeting, either by mail or other public
disclosure. In the case of a special meeting of stockholders
called to elect directors, the stockholder notice must be
received not earlier than 120 days prior to the special
meeting and not later than the later of the 90th day prior
to the special meeting or 10th day following the day on which we
notify stockholders of the date of the special meeting, either
by mail or other public disclosure. Notwithstanding the above,
in the event that the number of directors to be elected to the
board at an annual meeting is increased and we do not make any
public announcement naming the nominees for the additional
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directorships at least 100 days before the first
anniversary of the preceding years annual meeting, a
stockholder notice of nomination shall also be considered
timely, but only with respect to nominees for the additional
directorships, if it is delivered not later than the close of
business on the 10th day following the day on which such
public announcement is first made. These provisions may preclude
some stockholders from bringing matters before the stockholders
at an annual or special meeting or from nominating candidates
for director at an annual or special meeting.
Election and
removal of directors
In connection with this offering, our board of directors will be
divided into three classes. The directors in each class will
serve for a three-year term, one class being elected each year
by our stockholders. Our stockholders may only remove directors
for cause and with the vote of at least
662/3%
of the total voting power of our issued and outstanding capital
stock entitled to vote in the election of directors. Our board
of directors may elect a director to fill a vacancy, including
vacancies created by the expansion of the board of directors.
This system of electing and removing directors may discourage a
third party from making a tender offer or otherwise attempting
to obtain control of us, because it generally makes it more
difficult for stockholders to replace a majority of our
directors.
Our amended and restated certificate of incorporation and
by-laws will not provide for cumulative voting in the election
of directors.
Amendment of the
certificate of incorporation and by-laws
Our amended and restated certificate of incorporation will
provide that the affirmative vote of the holders of at least
662/3%
of the voting power of our issued and outstanding capital stock
entitled to vote in the election of directors is required to
amend the following provisions of our certificate of
incorporation:
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the provisions relating to creating a board of directors that is
divided into three classes with staggered terms;
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the provisions relating to the number and election of directors,
the appointment of directors upon an increase in the number of
directors or vacancy and the provisions permitting the removal
of directors only for cause and with a
662/3%
stockholder vote;
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the provisions requiring a
662/3%
stockholder vote for the adoption, amendment or repeal of our
by-laws;
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the provisions barring stockholders from calling a special
meeting of stockholders or requiring one to be called;
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the elimination of the right of our stockholders to act by
written consent;
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the ability of our board of directors to designate one or more
series of preferred stock and issue shares of preferred stock
without stockholder approval; and
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the amendment provisions of the certificate of incorporation.
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In addition, the board of directors will be permitted to alter
our by-laws without obtaining stockholder approval.
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Anti-takeover
provisions of Delaware law
In general, section 203 of the Delaware General Corporation
Law prevents an interested stockholder, which is defined
generally as a person owning 15% or more of the
corporations outstanding voting stock, of a Delaware
corporation from engaging in a business combination (as defined
therein) for three years following the date that person became
an interested stockholder unless various conditions are
satisfied. Under our amended and restated certificate of
incorporation, we will opt out of the provisions of
section 203.
Transfer agent
and registrar
The transfer agent and registrar for our common stock will be
American Stock Transfer and Trust Company.
New York Stock
Exchange listing
We intend to apply to list our common stock on the NYSE under
the symbol PGEM.
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Shares available
for future sale
Prior to this offering, there has been no public market for our
common stock. We cannot make any prediction as to the effect, if
any, that sales of common stock or the availability of common
stock for sale will have on the market price of our common
stock. The market price of our common stock could decline
because of the sale of a large number of shares of our common
stock or the perception that such sales could occur. These
factors could also make it more difficult to raise funds through
future offerings of common stock. See Risk
factorsRisks related to this offering and our common
stockFuture sales of shares of our common stock in the
public market could cause our stock price to fall significantly
even if our business is profitable.
Sale of
restricted shares
Upon the consummation of this offering, we will
have shares
of common stock outstanding,
excluding shares
of common stock underlying outstanding options. Of these shares,
the shares
sold in this offering
(or shares
if the underwriters exercise their over-allotment option in
full) will be freely tradable without restriction or further
restriction under the Securities Act, except that any shares
purchased by our affiliates, as that term is defined in
Rule 144 under the Securities Act, may generally only be
sold in compliance with the limitations of Rule 144
described below. As defined in Rule 144, an affiliate of an
issuer is a person that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under
common control with the issuer. After this offering,
approximately
of our outstanding shares of common stock will be deemed
restricted securities, as that term is defined under
Rule 144. Restricted securities may be sold in the public
market only if they qualify for an exemption from registration
under Rule 144 or 701 under the Securities Act, which rules
are summarized below, or any other applicable exemption under
the Securities Act. Immediately following the consummation of
this offering, the holders of
approximately shares
of common stock will be entitled to dispose of their shares
pursuant to the holding period, volume and other restrictions of
Rule 144 under the Securities Act, and the holders of
approximately shares
of common stock, representing
approximately % of our outstanding
common stock, will be entitled to dispose of their shares
following the expiration of an initial
180-day
underwriter
lock-up
period pursuant to the holding period, volume and other
restrictions of Rule 144. The underwriters are entitled to
waive these
lock-up
provisions at their discretion prior to the expiration dates of
such lock-up
agreements.
Rule 144
The availability of Rule 144 will vary depending on whether
restricted securities are held by an affiliate or a
non-affiliate. In general, under Rule 144, an affiliate who
has beneficially owned restricted securities within the meaning
of Rule 144 for at least six months would be entitled to
sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding
shares of our common stock or the average weekly trading volume
of our common stock reported through the NYSE during the four
calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information
about our Company. The volume limitations, manner of sale and
notice provisions described above will not apply to sales by
non-affiliates. For purposes of Rule 144, a non-affiliate
is any person or entity who is not our affiliate at the time of
sale and has not been our affiliate during the preceding three
months. A
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non-affiliate who has beneficially owned restricted securities
for six months may rely on Rule 144 provided that certain
public information regarding us is available. A non-affiliate
who has beneficially owned the restricted securities proposed to
be sold for at least one year will not be subject to any
restrictions under Rule 144.
Rule 701
Securities issued in reliance on Rule 701 under the
Securities Act are also restricted and may be sold by
stockholders other than our affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one year holding
period requirement.
Options/equity
awards
We intend to file a registration statement under the Securities
Act to
register shares
of common stock reserved for issuance under our Equity Plans.
Immediately prior to effectiveness of the registration statement
of which this prospectus is a part, after giving effect to the
Reorganization Transactions, there
were
options outstanding under our Equity Plans to purchase a total
of shares
of our common stock, of which options to
purchase
shares were exercisable immediately. Shares issued upon the
exercise of stock options after the effective date of the
registration statement will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations
applicable to affiliates and the
lock-up
agreements described below.
Lock-up
agreements
Other than in connection with the sale of shares in this
offering, the CI Partnerships, our executive officers and our
directors have agreed that, for a period of 180 days after
the date of this prospectus, subject to certain extensions and
with specified exceptions, they will not, without the prior
written consent of the representatives, dispose of or hedge any
shares of our common stock or any securities convertible into or
exchangeable for our common stock.
Immediately following the consummation of this offering,
stockholders subject to
lock-up
agreements will
hold shares
of our common stock, representing
approximately % of our then
outstanding shares of common stock, or
approximately % if the underwriters
exercise their option to purchase additional shares in full.
We have agreed not to issue, sell or otherwise dispose of any
shares of our common stock during the
180-day
period following the date of this prospectus (subject to certain
extensions). We may, however, grant options to purchase shares
of common stock, issue shares of common stock upon the exercise
of outstanding options under our Equity Plans, issue shares of
common stock in connection with an acquisition or business
combination and in certain other circumstances.
The 180-day
restricted period described in the preceding paragraphs will be
automatically extended if (i) during the last 17 days
of the
180-day
restricted period we issue an earnings release or announce
material news or a material event relating to us occurs or
(ii) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period beginning on the last day of the
180-day
restricted period, in which case the restrictions described in
the preceding paragraph will continue to apply until the
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expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Registration
rights
In connection with this offering, we will enter into a
registration rights agreement to grant registration rights to
the CI Partnerships and the other Pre-IPO Stockholders. Subject
to the limitations described under Certain
relationships and related party transactionsRegistration
rights agreement, the CI Partnerships (or if
such partnerships are dissolved, their general partner) may
require that we register for public resale under the Securities
Act all shares of common stock that they request be registered
at any time following this offering and the other Pre-IPO
Stockholders are entitled to piggyback registration rights with
respect to any registration request made by the CI Partnerships
(or if such partnerships are dissolved, their general partner).
After giving effect to the Reorganization Transactions and this
offering and subject to the terms of their lock-up agreements
with the underwriters, the CI Partnerships and the other Pre-IPO
Stockholders may require
that
shares of our common stock be registered for resale pursuant to
the registration rights agreement. For more information, see
Certain relationships and related party
transactionsRegistration rights agreement.
148
U.S. federal
income tax consequences for
non-U.S. holders
The following is a discussion of the material U.S. federal
income tax consequences to a
Non-U.S. Holder,
as defined below, of the acquisition, ownership and disposition
of shares of our common stock purchased pursuant to this
offering. This discussion is based on the Code, Treasury
regulations promulgated under the Code (Treasury
Regulations), administrative pronouncements or practices
and judicial decisions, all as of the date hereof. Future
legislative, judicial, or administrative modifications,
revocations, or interpretations, which may or may not be
retroactive, may result in U.S. federal income tax
consequences significantly different from those discussed
herein. This discussion is not binding on the IRS. No ruling has
been or will be sought or obtained from the IRS with respect to
any of the U.S. federal tax consequences discussed herein.
There can be no assurance that the IRS will not challenge any of
the conclusions discussed herein or that a U.S. court will
not sustain such a challenge.
The following discussion does not purport to be a full
description of all U.S. federal income tax considerations
that may be relevant to any Holder, as defined below, in light
of such Holders particular circumstances and addresses
only Holders who hold common stock as capital assets within the
meaning of Section 1221 of the Code. This discussion does
not address any (i) U.S. federal alternative minimum
tax, (ii) U.S. federal estate, gift, or other
non-income tax (except as set forth below) or (iii) any
state, local, or
non-U.S. tax
consequences of the acquisition, ownership or disposition of our
common stock. In addition, this discussion does not address the
U.S. federal income and estate tax consequences to
beneficial owners of our common stock subject to special rules,
including, among others, beneficial owners that (i) are
banks, financial institutions, or insurance companies,
(ii) are regulated investment companies or real estate
investment trusts, (iii) are brokers, dealers, or traders
in securities or currencies, (iv) are tax-exempt
organizations, (v) are persons subject to the alternative
minimum tax, (vi) are U.S. expatriates,
(vii) purchase or hold our common stock as part of hedges,
straddles, constructive sales, conversion transactions or other
integrated investments, (viii) acquire our common stock as
compensation for services or through the exercise or
cancellation of employee stock options or warrants or
(ix) have a functional currency other than the
U.S. dollar.
As used herein, a Holder means a beneficial owner of
our common stock. If a partnership or other entity classified as
a partnership for U.S. federal income tax purposes (a
Partnership) or an owner or partner in a Partnership
is a beneficial owner, the U.S. federal income tax
consequences generally will depend on the activities of such
Partnership and the status of such owner or partner. A
beneficial owner that is a Partnership or an owner or partner in
a Partnership should consult its own tax advisor regarding the
U.S. federal income tax consequences of the acquisition,
ownership and disposition of our common stock.
A U.S. Holder means a Holder that is
(i) an individual citizen or resident alien of the United
States, (ii) a corporation or other entity taxable as a
corporation for U.S. federal tax purposes created or
organized in the United States, any state thereof or the
District of Columbia, (iii) an estate the income of which
is subject to U.S. federal income tax regardless of its
source or (iv) a trust that (a) is subject to the
primary jurisdiction of a court within the United States and for
which one or more U.S. persons have authority to control
all substantial decisions or (b) has a valid election in
effect under applicable Treasury Regulations to be treated as a
U.S. person. As used herein, a
Non-U.S. Holder
means a Holder that is not a U.S. Holder.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET
FORTH BELOW IS FOR GENERAL INFORMATION ONLY AND IT IS NOT
INTENDED TO BE, NOR SHOULD IT BE CONSTRUED
149
TO BE, LEGAL OR TAX ADVICE TO ANY HOLDER OR PROSPECTIVE HOLDER
OF SHARES AND NO OPINION OR REPRESENTATION WITH RESPECT TO
THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO ANY SUCH HOLDER
OR PROSPECTIVE HOLDER IS MADE. A HOLDER SHOULD CONSULT ITS OWN
TAX ADVISOR REGARDING THE APPLICATION OF U.S. FEDERAL TAX
LAWS TO ITS PARTICULAR CIRCUMSTANCES AND ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL,
NON-U.S. OR
OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Distributions on
common stock
As discussed under Dividend policy, we do not
anticipate making a distribution on common stock in the
foreseeable future. If we make a distribution on a
Non-U.S. Holders
common stock, however, then to the extent that such distribution
is paid from our current and accumulated earnings and profits as
determined under U.S. federal income tax principles (a
dividend), the dividend generally will be subject to
withholding of U.S. federal income tax at a rate of 30% of
the gross amount, or any lower rate that may be specified by an
applicable tax treaty if we have received proper certification
of the application of that tax treaty. If the amount of the
distribution exceeds our current and accumulated earnings and
profits, such excess first will be treated as a return of
capital to the extent of a
Non-U.S. Holders
tax basis in our common stock, and thereafter will be treated as
capital gain. However, except to the extent that we elect (or
the paying agent or other intermediary through which a
Non-U.S. Holder
holds its common stock elects) otherwise, we (or the
intermediary) must generally withhold on the entire
distribution, in which case a
Non-U.S. Holder
would be entitled to a refund from the IRS for the withholding
tax on the portion of the distribution that exceeded our current
and accumulated earnings and profits. A
Non-U.S. Holder
should consult its own tax advisor regarding its entitlement to
benefits under an applicable tax treaty and the manner of
claiming the benefits of such treaty. A
Non-U.S. Holder
that is eligible for a reduced rate of U.S. federal
withholding tax under a tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim
for a refund with the IRS.
Dividends that are effectively connected with a
Non-U.S. Holders
conduct of a trade or business in the United States (and, if
certain tax treaties apply, are attributable to a
U.S. permanent establishment maintained by such
Non-U.S. Holder)
are not subject to U.S. withholding tax, but instead are
taxed in the manner applicable to U.S. persons. In that
case, we will not withhold U.S. federal withholding tax,
provided that the
Non-U.S. Holder
complies with applicable certification and disclosure
requirements. In addition, dividends received by a foreign
corporation that are effectively connected with the conduct of a
trade or business in the United States may be subject to a
branch profits tax at a rate of 30%, or any lower rate as may be
specified in an applicable tax treaty.
Sale or other
taxable disposition of common stock
A
Non-U.S. Holder
generally will not be subject to U.S. federal income tax,
including by way of withholding, on gain recognized on a sale,
exchange or other taxable disposition of our common stock unless
any one of the following is true:
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the gain is effectively connected with the
Non-U.S. Holders
conduct of a trade or business in the United States or, if an
applicable tax treaty applies, is attributable to a
U.S. permanent establishment (or, in the case of an
individual, a fixed base) maintained by such
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Non-U.S. Holder
in the United States, in which case the branch profits tax
discussed above may also apply to a corporate
Non-U.S. Holder;
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the
Non-U.S. Holder
is an individual present in the United States for 183 or more
days in the taxable year of the disposition and certain other
requirements are met; or
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the Foreign Investment in Real Property Tax Act, or
FIRPTA, rules apply because (1) our common
stock constitutes a U.S. real property interest by reason
of our status as a United States real property holding
corporation (USRPHC) for U.S. federal
income tax purposes at any time during the shorter of the period
during which the
Non-U.S. Holder
holds our common stock or the five-year period ending on the
date on which the
Non-U.S. Holder
disposes of our common stock; and (2) assuming that our
common stock constitutes a U.S. real property interest and
is treated as regularly traded on an established securities
market within the meaning of applicable Treasury Regulations,
the
Non-U.S. Holder
held, directly or indirectly, at any time within the five-year
period preceding the disposition, more than 5% of our common
stock.
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Generally, a corporation is a USRPHC only if the fair market
value of its United States real property interests equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests plus its other assets used or held for
use in a trade or business. We believe that we are not now, have
not been in the last five years and will not become a USRPHC.
There can be no assurance regarding our USRPHC status for the
current year or future years, however, because USRPHC status is
based on the composition of our assets from time to time and on
certain rules whose application is uncertain. We may become a
USRPHC in the future.
An individual
Non-U.S. Holder
who is subject to U.S. tax because he or she was present in
the United States for 183 or more days during the year of
disposition will be taxed on his or her gains, including gains
from the disposition of our common stock net of applicable
U.S. losses from dispositions of other capital assets
incurred during the year, at a flat rate of 30% or a reduced
rate under an applicable tax treaty.
An individual Non-U.S. Holder described in the first bullet
point above will be subject to tax on his or her gains under
regular graduated U.S. federal income tax rates.
U.S. federal
estate tax
Shares of common stock owned or treated as owned by an
individual who is not a U.S. citizen or resident for
U.S. federal estate tax purposes will be considered United
States situs assets, will be included in that
Non-U.S. Holders
estate for U.S. federal estate tax purposes, and may be
subject to U.S. federal estate tax unless an applicable
estate tax or other tax treaty provides otherwise.
Backup
withholding and information reporting
Under Treasury Regulations, we must report annually to the IRS
and to each
Non-U.S. Holder
the amount of dividends paid to each
Non-U.S. Holder
and any tax withheld with respect to those dividends. These
information reporting requirements apply even if withholding was
not required because the dividends were effectively connected
dividends or withholding was reduced or eliminated by an
applicable tax treaty. Under an applicable tax treaty, that
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information may also be made available to the taxing authorities
in a country in which the
Non-U.S. Holder
resides or is established.
Backup withholding will generally not apply to payments of
dividends made by us or our paying agents, in their capacities
as such, to a
Non-U.S. Holder
if the Holder has provided the certification described above
that it is not a U.S. person (generally satisfied by
providing the applicable IRS
Form W-8)
or has otherwise established an exemption, provided we or the
paying agent have no actual knowledge or reason to know that the
beneficial owner is a U.S. person.
The payment of the proceeds of a disposition of our common stock
by a
Non-U.S. Holder
to or through the U.S. office of a broker generally will be
reported to the IRS and reduced by backup withholding unless the
Non-U.S. Holder
either certifies its status as a
Non-U.S. Holder
in accordance with applicable Treasury Regulations or otherwise
establishes an exemption and the broker has no actual knowledge,
or reason to know, to the contrary. The payment of the proceeds
of a disposition of our common stock by a
Non-U.S. Holder
to or through a
non-U.S. office
of a
non-U.S. broker
generally will not be reduced by backup withholding or reported
to the IRS unless the
non-U.S. broker
has certain types of relationships with the United States (a
U.S. Related Financial Intermediary). In the
case of the payment of proceeds from the disposition of our
common stock to or through a
non-U.S. office
of a broker that is either a U.S. person or a
U.S. Related Financial Intermediary, the Treasury
Regulations require information reporting (but not backup
withholding) on the payment unless the broker has documentary
evidence in its files that the owner is a
Non-U.S. Holder
and the broker has no knowledge to the contrary.
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules will be refunded or
credited against the
Non-U.S. Holders
U.S. federal income tax liability, if any, provided that
certain required information is furnished to the IRS.
Non-U.S. Holders
should consult their own tax advisors regarding the application
of the information reporting and backup withholding rules to
them and the availability and procedure for obtaining an
exemption from backup withholding under current Treasury
Regulations.
Each prospective Holder is urged to consult its tax advisor with
respect to the U.S. federal income and estate tax
consequences of the ownership and disposition of our common
stock, as well as the application and effect of the laws of any
state, local, foreign or other taxing jurisdiction.
152
Underwriting
We are offering the shares of common stock described in this
prospectus through a number of underwriters. J.P. Morgan
Securities Inc., Goldman, Sachs & Co., Credit Suisse
Securities (USA) LLC and UBS Securities LLC are acting as joint
book-running managers and representatives of the underwriters,
and Deutsche Bank Securities Inc. is acting as joint lead
manager. We and the selling stockholders have entered into an
underwriting agreement with the underwriters dated the date of
this prospectus. Subject to the terms and conditions of the
underwriting agreement, we and the selling stockholders have
agreed to sell to the underwriters, and each underwriter has
severally agreed to purchase, at the public offering price less
the underwriting discounts and commissions set forth on the
cover page of this prospectus, the number of shares of common
stock listed next to its name in the following table:
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Name
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Number of shares
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J.P. Morgan Securities Inc.
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Goldman, Sachs & Co.
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Credit Suisse Securities (USA) LLC
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UBS Securities LLC
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Deutsche Bank Securities Inc.
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Zelman Partners LLC
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BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
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Stephens Inc.
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Houlihan Lokey Capital, Inc.
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Knight Capital Markets LLC
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Total
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The underwriters are committed to purchase all the common shares
in the offering if they purchase any shares. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may also be
increased or the offering may be terminated.
The underwriters propose to offer the common shares directly to
the public at the initial public offering price set forth on the
cover page of this prospectus and to certain dealers at that
price less a concession not in excess of
$ per share. After the initial
public offering of the shares, the offering price and other
selling terms may be changed by the underwriters. Sales of
shares made outside of the United States may be made by
affiliates of the underwriters. The representatives have advised
us that the underwriters do not intend to confirm discretionary
sales in excess of 5% of the common shares offered in this
offering. The offering of the shares by the underwriters is
subject to receipt and acceptance and subject to the
underwriters right to reject any order in whole or in part.
The underwriters have an option to buy up
to additional
shares of common stock from the selling stockholders to cover
sales of shares by the underwriters which exceed the number of
shares specified in the table above. The underwriters have
30 days from the date of this prospectus to exercise this
over-allotment option. If any shares are purchased with this
over-allotment option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
If any additional shares of common stock are purchased, the
153
underwriters will offer the additional shares on the same terms
as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per
share of common stock less the amount paid by the underwriters
to us per share of common stock. The underwriting fee is
$ per share. The following table
shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us and the selling
stockholders assuming both no exercise and full exercise of the
underwriters option to purchase additional shares.
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Paid by us
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Paid by selling stockholders
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No exercise
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Full exercise
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No exercise
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Full exercise
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Per Share
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$
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$
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$
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$
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Total
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We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal
and accounting expenses, but excluding the underwriting
discounts and commissions, will be approximately
$ . We and the selling
stockholders estimate that our respective portions of the total
expenses of this offering will be
$ and
$ .
A prospectus in electronic format may be made available on the
web sites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
We have agreed that we will not (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or
otherwise dispose of, directly or indirectly, or file with the
SEC a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any offer,
sale, pledge, disposition or filing, or (ii) enter into any
swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any
shares of common stock or any such other securities (regardless
of whether any of these transactions are to be settled by the
delivery of shares of common stock or such other securities, in
cash or otherwise), in each case without the prior written
consent of the representatives for a period of 180 days
after the date of this prospectus, other than the shares of our
common stock to be sold hereunder or issued in the
Reorganization Transactions, the issuance by the Company of
options to purchase shares of common stock and other equity
incentive compensation, including restricted stock or restricted
stock units, under stock option or similar plans in effect on
the date hereof and as described herein or under stock option or
similar plans of acquired companies in effect on the date of
acquisition and any shares of our common stock issued upon the
exercise of options granted under such stock option or similar
plans in effect on the date hereof and as described herein or
under stock option or similar plans of acquired companies in
effect on the date of acquisition and the filing by us of any
registration statement on
Form S-8
with the SEC relating to the offering of securities pursuant to
the terms of a stock option plan or similar plan.
Notwithstanding the foregoing, if (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our Company
154
occurs; or (2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Our directors and executive officers and certain of our
significant stockholders have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with certain exceptions, for a period of 180 days
after the date of this prospectus, may not, without the prior
written consent of the representatives , (i) offer, pledge,
announce the intention to sell, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or
exercisable or exchangeable for our common stock (including,
without limitation, common stock or such other securities which
may be deemed to be beneficially owned by such directors,
executive officers, managers and members in accordance with the
rules and regulations of the SEC and securities which may be
issued upon exercise of a stock option or warrant) or
(ii) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of
ownership of the common stock or such other securities, whether
any such transaction described in clauses (i) or
(ii) above is to be settled by delivery of common stock or
such other securities, in cash or otherwise, or (iii) make
any demand for or exercise any right with respect to the
registration of any shares of our common stock or any security
convertible into or exercisable or exchangeable for our common
stock (except for such demands or exercises as will not require
or permit any public filing or other public disclosure to be
made in connection therewith until after the expiration of the
180-day
restricted period), in each case other than the shares of common
stock to be sold by the undersigned pursuant to the underwriting
agreement or any transfer in connection with, and as
contemplated by, the Reorganization Transactions.
Notwithstanding the foregoing, if (1) during the last
17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to our Company occurs; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
period, the restrictions described above shall continue to apply
until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event, as
applicable, unless each of the representatives waives, in
writing, such extension. The restrictions described in this
paragraph do not apply to (i) the transfer of shares of
common stock as a bona fide gift, to any beneficiary pursuant to
a will, other testamentary document or applicable laws of
descent or to a family member or trust, provided that, in each
case, (x) the transferee agrees to be bound in writing by
the terms of the
lock-up
agreement prior to such transfer, (y) no filing by any
party (donor, donee, transferor or transferee) under
Section 16(a) of the Exchange Act reporting a reduction in
beneficial ownership of shares of common stock shall be required
or shall be voluntarily made in connection with such transfer
(other than a filing on Form 5 made when required) and
(z) such disposition is not made for value,
(ii) transfers by a corporation, partnership or limited
liability company subject to the
lock-up to
any wholly-owned subsidiary of such entity or to the partners,
members, stockholders or affiliates of such entity, or to a
charitable or family trust, provided that (x) each donee,
transferee or distributee shall sign and deliver a
lock-up
agreement prior to such transfer, (y) no filing by any
party under Section 16(a) of the Exchange Act shall be
required or shall be voluntarily made reporting a reduction in
beneficial ownership
155
of shares of common stock in connection with such transfer
(other than a filing on Form 5 made when required, and in
the case of the CI Partnerships (or any direct or indirect
partner thereof) a filing on Form 4 may be made during the
180-day restricted period if such person provides at least two
business days notice prior to such proposed filing) and
(z) such disposition is not made for value, (iii) the
establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act, for the transfer of shares of common
stock, provided that such plan does not provide for the transfer
of common stock during the restricted period and (iv) the
disposition of shares to the Company in connection with the
exercise of incentive stock options.
We have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities
Act.
We will apply to have our common stock approved for listing on
the NYSE under the symbol PGEM.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of common stock in the open market
for the purpose of preventing or retarding a decline in the
market price of the common stock while this offering is in
progress. These stabilizing transactions may include making
short sales of the common stock, which involves the sale by the
underwriters of a greater number of shares of common stock than
they are required to purchase in this offering, and purchasing
shares of common stock on the open market to cover positions
created by short sales. Short sales may be covered
shorts, which are short positions in an amount not greater than
the underwriters over-allotment option referred to
above, or may be naked shorts, which are short
positions in excess of that amount. The underwriters may close
out any covered short position either by exercising their
over-allotment option, in whole or in part, or by
purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market compared to the price at which the underwriters may
purchase shares through the over-allotment option. A
naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure
on the price of the common stock in the open market that could
adversely affect investors who purchase in this offering. To the
extent that the underwriters create a naked short position, they
will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain or otherwise affect
the price of the common stock, including the imposition of
penalty bids. This means that if the representatives of the
underwriters purchase common stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them.
These activities, as well as other purchases by the underwriters
for their own accounts, may have the effect of raising or
maintaining the market price of the common stock or preventing
or retarding a decline in the market price of the common stock,
and, as a result, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If
the underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions on the NYSE, in the
over-the-counter
market or otherwise.
156
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
determined by negotiations between us and the representatives of
the underwriters. In determining the initial public offering
price, we and the representatives of the underwriters expect to
consider a number of factors including:
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the information set forth in this prospectus and otherwise
available to the representatives;
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our prospects and the history and prospects for the industry in
which we compete;
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an assessment of our management;
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our prospects for future earnings;
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the general condition of the securities markets at the time of
this offering;
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the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
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other factors deemed relevant by the underwriters and us.
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Neither we nor the underwriters can assure investors that an
active trading market will develop for our common shares, or
that the shares will trade in the public market at or above the
initial public offering price.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by
this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering
material or advertisements in connection with the offer and sale
of any such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of
this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered
by this prospectus in any jurisdiction in which such an offer or
a solicitation is unlawful.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The securities are
only available to, and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such securities will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any
of its contents.
Each underwriter has represented and agreed that:
(i) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the FSMA) received by
it in connection with the issue
157
or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to the
issuer; and
(ii) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), from and including the date
on which the European Union Prospectus Directive (the EU
Prospectus Directive) is implemented in that Relevant
Member State (the Relevant Implementation Date) an
offer of securities described in this prospectus may not be made
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive) subject to
obtaining the prior consent of the book-running managers for any
such offer; or
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in any other circumstances which do not require the publication
by the issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing
measure in each Relevant Member State.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
158
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Securities and Exchange Law) and each underwriter has agreed
that it will not offer or sell any securities, directly or
indirectly, in Japan or to, or for the benefit of, any resident
of Japan (which term as used herein means any person resident in
Japan, including any corporation or other entity organized under
the laws of Japan), or to others for re-offering or resale,
directly or indirectly, in Japan or to a resident of Japan,
except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
The prospectus does not constitute an issue prospectus pursuant
to Article 652a or Article 1156 of the Swiss Code of
Obligations (the CO) and the shares will not be
listed on the SIX Swiss Exchange. Therefore, the prospectus may
not comply with the disclosure standards of the CO
and/or the
listing rules (including any prospectus schemes) of the SIX
Swiss Exchange. Accordingly, the shares may not be offered to
the public in or from Switzerland, but only to a selected and
limited circle of investors, which do not subscribe to the
shares with a view to distribution.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities.
159
Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking and other services for us and such
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. In the ordinary course of their various
business activities, the underwriters and their respective
affiliates may make or hold a broad array of investments and
actively trade debt and equity securities (or related derivative
securities) and financial instruments (including bank loans) for
their own account and for the accounts of their customers and
such investment and securities activities may involve securities
and/or instruments of the issuer. The underwriters and their
respective affiliates may also make investment recommendations
and/or publish or express independent research views in respect
of such securities or instruments and may at any time hold, or
recommend to clients that they acquire, long and/or short
positions in such securities and instruments. UBS Securities LLC
and Credit Suisse Securities (USA) LLC acted as initial
purchasers in connection with the issuance of our
13.125% Senior Subordinated Notes, and certain affiliates
of the underwriters, including JPMorgan Chase Bank, N.A., UBS
Loan Finance LLC and Credit Suisse are agents
and/or
lenders under our ABL Facility. In addition, Goldman,
Sachs & Co. holds a portion of our Senior Secured
Notes.
160
Legal
matters
Paul, Weiss, Rifkind, Wharton & Garrison LLP, New
York, New York, will pass on the validity of the common stock
offered by this prospectus for us and the selling stockholders.
Paul, Weiss, Rifkind, Wharton & Garrison LLP has
represented CI Capital Partners and its related parties from
time to time. Certain members of Paul, Weiss, Rifkind,
Wharton & Garrison LLP have made investments in Ply
Gem Investment Holdings and the CI Partnerships. The
underwriters are being represented by Cravath,
Swaine & Moore LLP, New York, New York.
Experts
The consolidated financial statements and schedule of Ply Gem
Holdings and subsidiaries as of December 31, 2008, and for
each of the years in the two year period ended December 31,
2008 have been included herein, in reliance upon the report of
KPMG LLP, independent registered public accounting firm
appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing. That report refers to a
change in the Companys method of accounting for a portion
of its inventory in 2008 from the
last-in,
first-out (LIFO) method to the first in, first out (FIFO)
method, the adoption of the recognition and disclosure
requirements in 2007 and the measurement provisions in 2008 of
Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standard No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB Statements
No. 87, 88, 106, and 132(R) (now included in FASB
Accounting Standards Codification (ASC) 715,
CompensationRetirement Benefits), the adoption
of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (included in FASB ASC Topic 740,
Income Taxes).
The consolidated financial statements and schedule of Ply Gem
Holdings and subsidiaries at December 31, 2009, and for the
year then ended, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in
their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given on the authority of
such firm as experts in accounting and auditing.
Where you can
find more information
We are subject to the informational requirements of the Exchange
Act and file annual, quarterly and current reports and other
information with the SEC. We have also filed with the SEC a
registration statement on
Form S-1
with respect to the common stock being sold in this offering.
This prospectus constitutes a part of that registration
statement. This prospectus does not contain all the information
set forth in the registration statement and the exhibits and
schedules to the registration statement because some parts have
been omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and our common
stock being sold in this offering, you should refer to the
registration statement and the exhibits and schedules filed as
part of the registration statement. Statements contained in this
prospectus regarding the contents of any agreement, contract or
other document referred to are not necessarily complete.
Reference is made in each instance to the copy of the contract
161
or document filed as an exhibit to the registration statement.
You may inspect a copy of the registration statement without
charge at the SECs principal office in
Washington, D.C. Copies of all or any part of the
registration statement may be obtained after payment of fees
prescribed by the SEC from the SECs Public Reference Room
at the SECs principal office, at 100 F Street,
N.E., Washington, D.C. 20549.
You may obtain information regarding the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements and other information regarding
registrants that file electronically with the SEC. The
SECs website address is www.sec.gov.
162
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
of Ply Gem Holdings, Inc.
We have audited the accompanying consolidated balance sheet of
Ply Gem Holdings, Inc. and subsidiaries as of December 31,
2009, and the related consolidated statements of operations,
stockholders deficit and comprehensive loss, and cash
flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Ply Gem Holdings, Inc. and subsidiaries at
December 31, 2009, and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 19, 2010,
Except for Note 1 Earnings
(loss) per common share, for
which the date is May 27, 2010
F-2
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
Ply Gem Holdings, Inc.
We have audited the accompanying consolidated balance sheet of
Ply Gem Holdings, Inc. and subsidiaries as of December 31,
2008, and the related consolidated statements of operations,
stockholders equity (deficit) and comprehensive income
(loss), and cash flows for the years ended December 31,
2008 and 2007. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Ply Gem Holdings, Inc. and subsidiaries as of
December 31, 2008, and the results of their operations and
their cash flows for the years ended December 31, 2008 and
2007, in conformity with U.S. generally accepted accounting
principles.
As discussed in note 5 to the consolidated financial
statements, the Company has elected to change its method of
accounting for a portion of its inventory in 2008 from the
last-in,
first-out (LIFO) method to the
first-in,
first-out (FIFO) method. As discussed in note 7 to the
consolidated financial statements, the Company adopted the
recognition and disclosure requirements in 2007 and the
measurement provisions in 2008 of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R) (now included in
FASB Accounting Standards Codification (ASC) 715,
CompensationRetirement Benefits). As discussed in
note 12 to the consolidated financial statements, on
January 1, 2007, the Company adopted FASB Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109 (now included
in FASB ASC Topic 740, Income Taxes).
/s/ KPMG LLP
Raleigh, North Carolina
March 30, 2009, except for
Note 1 Earnings (loss)
per common share, which is as of
May 25, 2010
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands (except
per share data))
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net sales
|
|
$
|
951,374
|
|
|
$
|
1,175,019
|
|
|
$
|
1,363,546
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
749,841
|
|
|
|
980,098
|
|
|
|
1,083,153
|
|
Selling, general and administrative expenses
|
|
|
141,772
|
|
|
|
155,388
|
|
|
|
155,963
|
|
Amortization of intangible assets
|
|
|
19,651
|
|
|
|
19,650
|
|
|
|
17,631
|
|
Goodwill impairment
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
911,264
|
|
|
|
1,605,136
|
|
|
|
1,260,897
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
40,110
|
|
|
|
(430,117
|
)
|
|
|
102,649
|
|
Foreign currency gain (loss)
|
|
|
475
|
|
|
|
(911
|
)
|
|
|
3,961
|
|
Interest expense
|
|
|
(135,514
|
)
|
|
|
(138,015
|
)
|
|
|
(99,698
|
)
|
Interest income
|
|
|
211
|
|
|
|
617
|
|
|
|
1,704
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(94,718
|
)
|
|
|
(568,426
|
)
|
|
|
8,616
|
|
Provision (benefit) for income taxes
|
|
|
(17,966
|
)
|
|
|
(69,951
|
)
|
|
|
3,634
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
|
|
|
|
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) attributable to common
stockholders per common share:
|
|
$
|
(767.52
|
)
|
|
$
|
(4,984.75
|
)
|
|
$
|
49.82
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per common share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands (except per share data))
|
|
2009
|
|
|
2008
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,063
|
|
|
$
|
58,289
|
|
Accounts receivable, less allowances of $5,467 and $6,405,
respectively
|
|
|
94,428
|
|
|
|
90,527
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
39,787
|
|
|
|
53,060
|
|
Work in process
|
|
|
23,343
|
|
|
|
28,085
|
|
Finished goods
|
|
|
34,950
|
|
|
|
42,267
|
|
|
|
|
|
|
|
Total inventory
|
|
|
98,080
|
|
|
|
123,412
|
|
Prepaid expenses and other current assets
|
|
|
19,448
|
|
|
|
19,985
|
|
Deferred income taxes
|
|
|
5,762
|
|
|
|
16,867
|
|
|
|
|
|
|
|
Total current assets
|
|
|
234,781
|
|
|
|
309,080
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
3,732
|
|
|
|
3,709
|
|
Buildings and improvements
|
|
|
35,687
|
|
|
|
35,206
|
|
Machinery and equipment
|
|
|
261,319
|
|
|
|
253,290
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
300,738
|
|
|
|
292,205
|
|
Less accumulated depreciation
|
|
|
(159,036
|
)
|
|
|
(122,194
|
)
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
141,702
|
|
|
|
170,011
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Intangible assets, less accumulated amortization of $84,139 and
$64,488, respectively
|
|
|
174,064
|
|
|
|
193,604
|
|
Goodwill
|
|
|
392,838
|
|
|
|
390,779
|
|
Deferred income taxes
|
|
|
2,716
|
|
|
|
|
|
Other
|
|
|
35,932
|
|
|
|
40,579
|
|
|
|
|
|
|
|
Total other assets
|
|
|
605,550
|
|
|
|
624,962
|
|
|
|
|
|
|
|
|
|
$
|
982,033
|
|
|
$
|
1,104,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
52,833
|
|
|
$
|
59,603
|
|
Accrued expenses and taxes
|
|
|
72,423
|
|
|
|
76,304
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
125,256
|
|
|
|
135,907
|
|
Deferred income taxes
|
|
|
4,211
|
|
|
|
28,355
|
|
Other long term liabilities
|
|
|
65,651
|
|
|
|
68,233
|
|
Long-term debt due to related parties
|
|
|
281,376
|
|
|
|
|
|
Long-term debt
|
|
|
819,021
|
|
|
|
1,114,186
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par, 100 shares authorized, none
issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock $0.01 par, 100 shares authorized, issued
and outstanding
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
209,939
|
|
|
|
209,908
|
|
Accumulated deficit
|
|
|
(523,745
|
)
|
|
|
(446,993
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
324
|
|
|
|
(5,543
|
)
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(313,482
|
)
|
|
|
(242,628
|
)
|
|
|
|
|
|
|
|
|
$
|
982,033
|
|
|
$
|
1,104,053
|
|
|
|
See accompanying notes to
consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(76,752
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
4,982
|
|
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
56,271
|
|
|
|
61,765
|
|
|
|
54,067
|
|
Fair value premium on purchased inventory
|
|
|
|
|
|
|
19
|
|
|
|
1,289
|
|
Non-cash interest expense, net
|
|
|
8,911
|
|
|
|
7,144
|
|
|
|
6,941
|
|
(Gain) loss on foreign currency transactions
|
|
|
(475
|
)
|
|
|
911
|
|
|
|
(3,961
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
Loss on sale of assets
|
|
|
5
|
|
|
|
886
|
|
|
|
356
|
|
Write-off of debt financing costs
|
|
|
|
|
|
|
14,047
|
|
|
|
|
|
Deferred income taxes
|
|
|
(16,050
|
)
|
|
|
(71,362
|
)
|
|
|
(1,288
|
)
|
Changes in operating assets and liabilities, net of effects
from acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(2,822
|
)
|
|
|
18,179
|
|
|
|
32,654
|
|
Inventories
|
|
|
26,400
|
|
|
|
3,306
|
|
|
|
7,523
|
|
Prepaid expenses and other current assets
|
|
|
(287
|
)
|
|
|
674
|
|
|
|
7,127
|
|
Accounts payable
|
|
|
(7,820
|
)
|
|
|
(21,885
|
)
|
|
|
(17,074
|
)
|
Accrued expenses and taxes
|
|
|
1,599
|
|
|
|
(15,905
|
)
|
|
|
(23,326
|
)
|
Cash payments on restructuring liabilities
|
|
|
(6,034
|
)
|
|
|
(7,547
|
)
|
|
|
(210
|
)
|
Other
|
|
|
172
|
|
|
|
(622
|
)
|
|
|
614
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(16,882
|
)
|
|
|
(58,865
|
)
|
|
|
73,844
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(7,807
|
)
|
|
|
(16,569
|
)
|
|
|
(20,017
|
)
|
Proceeds from sale of assets
|
|
|
81
|
|
|
|
8,825
|
|
|
|
63
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(3,614
|
)
|
|
|
(36,453
|
)
|
Other
|
|
|
(109
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,835
|
)
|
|
|
(11,487
|
)
|
|
|
(56,407
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
20,000
|
|
|
|
693,504
|
|
|
|
|
|
Net revolver borrowings (payments)
|
|
|
(35,000
|
)
|
|
|
60,000
|
|
|
|
|
|
Payments on long-term debt
|
|
|
|
|
|
|
(677,910
|
)
|
|
|
(10,623
|
)
|
Debt issuance costs paid
|
|
|
(2,528
|
)
|
|
|
(26,578
|
)
|
|
|
(2,100
|
)
|
Equity contributions
|
|
|
|
|
|
|
30,310
|
|
|
|
900
|
|
Equity repurchases
|
|
|
|
|
|
|
(1,093
|
)
|
|
|
(3,245
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(17,528
|
)
|
|
|
78,233
|
|
|
|
(15,068
|
)
|
Impact of exchange rate movements on cash
|
|
|
1,019
|
|
|
|
(1,645
|
)
|
|
|
863
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(41,226
|
)
|
|
|
6,236
|
|
|
|
3,232
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
58,289
|
|
|
|
52,053
|
|
|
|
48,821
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
17,063
|
|
|
$
|
58,289
|
|
|
$
|
52,053
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
124,005
|
|
|
$
|
111,388
|
|
|
$
|
98,847
|
|
Income taxes paid (received), net
|
|
$
|
943
|
|
|
$
|
(464
|
)
|
|
$
|
6,576
|
|
|
|
See accompanying notes to
consolidated financial statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
Additional
|
|
|
earnings
|
|
|
other
|
|
|
Total
|
|
|
|
paid in
|
|
|
(accumulated
|
|
|
comprehensive
|
|
|
stockholders
|
|
(amounts in thousands)
|
|
capital
|
|
|
deficit)
|
|
|
income (loss)
|
|
|
equity (deficit)
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
181,792
|
|
|
$
|
46,503
|
|
|
$
|
2,296
|
|
|
$
|
230,591
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
4,982
|
|
|
|
|
|
|
|
4,982
|
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
5,658
|
|
|
|
5,658
|
|
Minimum pension liability for actuarial gain, net of tax ($638)
|
|
|
|
|
|
|
|
|
|
|
961
|
|
|
|
961
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,601
|
|
|
|
|
|
|
|
Adjustment to initially apply
ASC 715-20,
net of tax ($460)
|
|
|
|
|
|
|
|
|
|
|
720
|
|
|
|
720
|
|
Contributions (repurchase of equity)
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
180,667
|
|
|
$
|
51,485
|
|
|
$
|
9,635
|
|
|
$
|
241,787
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(498,475
|
)
|
|
|
|
|
|
|
(498,475
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
(9,517
|
)
|
|
|
(9,517
|
)
|
Minimum pension liability for actuarial loss, net of tax ($3,774)
|
|
|
|
|
|
|
|
|
|
|
(5,661
|
)
|
|
|
(5,661
|
)
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513,653
|
)
|
|
|
|
|
|
|
Adoption of
ASC 715-20
measurement date
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Contributions (repurchase of equity)
|
|
|
29,241
|
|
|
|
|
|
|
|
|
|
|
|
29,241
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
209,908
|
|
|
$
|
(446,993
|
)
|
|
$
|
(5,543
|
)
|
|
$
|
(242,628
|
)
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(76,752
|
)
|
|
|
|
|
|
|
(76,752
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
4,709
|
|
|
|
4,709
|
|
Minimum pension liability for actuarial gain, net of tax ($743)
|
|
|
|
|
|
|
|
|
|
|
1,158
|
|
|
|
1,158
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,885
|
)
|
|
|
|
|
|
|
Other
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
209,939
|
|
|
$
|
(523,745
|
)
|
|
$
|
324
|
|
|
$
|
(313,482
|
)
|
|
|
See accompanying notes to
consolidated financial statements.
F-7
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of
Presentation
Ply Gem Holdings, Inc. (Ply Gem Holdings) and its
wholly-owned subsidiaries (individually and collectively, the
Company or Ply Gem) are diversified
manufacturers of residential and commercial building products,
operating with two segments: (i) Siding, Fencing, and Stone
and (ii) Windows and Doors. Through these segments, Ply Gem
Industries, Inc. (Ply Gem Industries) manufactures
and sells, primarily in the United States and Canada, a wide
variety of products for the residential and commercial
construction, manufactured housing, and remodeling and
renovation markets.
Ply Gem Holdings, a wholly owned subsidiary of Ply Gem
Investment Holdings, Inc. (Ply Gem Investment
Holdings), was incorporated on January 23, 2004 for
the purpose of acquiring Ply Gem Industries from Nortek, Inc.
(Nortek). The Ply Gem acquisition was completed on
February 12, 2004, when Nortek sold Ply Gem Industries to
Ply Gem Holdings, an affiliate of CI Capital Partners LLC
pursuant to the terms of the stock purchase agreement among Ply
Gem Investment Holdings, Nortek, and WDS LLC dated as of
December 19, 2003, as amended. Prior to February 12,
2004, the date of the Ply Gem acquisition, Ply Gem Holdings had
no operations and Ply Gem Industries was wholly owned by a
subsidiary of WDS LLC, which was a wholly owned subsidiary of
Nortek. As a result of the Ply Gem acquisition, we applied
purchase accounting on the date of February 12, 2004.
On August 27, 2004, Ply Gem Industries acquired all of the
outstanding shares of capital stock of MWM Holding, Inc.,
(MWM Holding), in accordance with a stock
purchase agreement entered into among Ply Gem Industries,
MWM Holding and the selling stockholders.
On February 24, 2006, Ply Gem Industries acquired all of
the outstanding shares of capital stock, warrants to purchase
shares of common stock and options to purchase shares of common
stock of AWC Holding Company (AWC, and together with
its subsidiaries, Alenco), in accordance with a
securities purchase agreement entered into among Ply Gem, all of
the direct and indirect stockholders, warrant holders and stock
options holders of AWC and FNL Management Corp, an Ohio
corporation, as their representative. The accompanying
consolidated financial statements include the operating results
of Alenco for periods after February 26, 2006, the date of
acquisition.
On October 31, 2006, Ply Gem Industries acquired all of the
issued and outstanding shares of common stock of Alcoa Home
Exteriors, Inc. (AHE), in accordance with a stock
purchase agreement entered into among Ply Gem Industries, Alcoa
Securities Corporation, and Alcoa Inc. The accompanying
consolidated financial statements include the operating results
of AHE for periods after October 31, 2006, the date of
acquisition.
On September 30, 2007, Ply Gem Industries completed the
acquisition of CertainTeed Corporations vinyl window and
patio door business through a stock acquisition. On the
acquisition date, the Company changed the name of the acquired
business to Ply Gem Pacific Windows Corporation (Pacific
Windows). The accompanying consolidated financial
statements
F-8
include the operating results of Pacific Windows for periods
after September 30, 2007, the date of acquisition.
On October 31, 2008, Ply Gem Industries acquired
substantially all of the assets of United Stone Veneer, LLC
(USV). The accompanying consolidated financial
statements include the operating results of USV for the period
after October 31, 2008. As a result of the USV acquisition,
the Company modified the name of the Siding, Fencing, and
Railing segment to Siding, Fencing, and Stone
during 2008. Our stone veneer products are sold under our United
Stone Veneer brand name, however, in 2010 we will change the
brand of our stone veneer products to Ply Gem Stone from United
Stone Veneer.
Ply Gem is a diversified manufacturer of residential and
commercial building products, which are sold primarily in the
United States and Canada, and include a wide variety of products
for the residential and commercial construction, the
do-it-yourself and the professional remodeling and renovation
markets. The demand for our products is seasonal, particularly
in the Northeast and Midwest regions of the United States and
western Canada where inclement weather during the winter months
usually reduces the level of building and remodeling activity in
both the home repair and remodeling and new home construction
sectors. The Companys sales are usually lower during the
first and fourth quarters.
Principles of
Consolidation
The accompanying consolidated financial statements include the
accounts of Ply Gem Holdings and its subsidiaries, all of which
are wholly owned. All intercompany accounts and transactions
have been eliminated.
Unaudited Pro
Forma Financial Information
The unaudited pro forma earnings (loss) per common share is
being presented to give effect to the shares of Ply Gem Holdings
common stock that will be issued in connection with the merger
of the Company with its parent, Ply Gem Prime Holdings. In
connection with the proposed initial public offering, the
Company will merge with Ply Gem Prime Holdings, which will
result in the conversion of outstanding common stock and
preferred stock of its parent into common equity of Ply Gem
Holdings and result in a single class of outstanding common
stock (the Reorganization). In connection with this
Reorganization, the outstanding options to purchase Ply Gem
Prime Holdings common stock will convert into Ply Gem Holdings
stock options. The pro forma weighted average common shares
outstanding assume the conversion of the Ply Gem Prime Holdings
common stock and preferred stock into shares of Ply Gem Holdings
common stock upon the consummation of the Reorganization.
Accounting
Policies and Use of Estimates
The preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the
United States involves estimates and assumptions that effect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the
financial statements and the reported amounts of income and
expense during the reporting periods. Certain of the
Companys accounting policies require the application of
judgment in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. The
Company periodically evaluates the judgments and estimates used
in their critical
F-9
accounting policies to ensure that such judgments and estimates
are reasonable. Such estimates include the allowance for
doubtful accounts receivable, valuation reserve for inventories,
warranty reserves, legal contingencies, assumptions used in the
calculation of income taxes, and projected cash flows used in
the goodwill and intangible asset impairment tests. These
judgments are based on the Companys historical experience,
current trends and information available from other sources, as
appropriate and are based on managements best estimates
and judgments. The Company adjusts such estimates and
assumptions when facts and circumstances dictate. Illiquid
credit markets, volatile equity, foreign currency, and the
depressed housing and remodeling market have combined to
increase the uncertainty inherent in the Companys
judgments, actual results could be materially different from the
Companys estimates.
Recognition of
Sales and Related Costs, Incentives and Allowances
The Company recognizes sales upon the shipment of products, net
of applicable provisions for discounts and allowances.
Generally, the customer takes title upon shipment and assumes
the risks and rewards of ownership of the product. For certain
products customers take title upon delivery, at which time
revenue is then recognized. Allowances for cash discounts,
volume rebates and other customer incentive programs, as well as
gross customer returns, among others, are recorded as a
reduction of sales at the time of sale based upon the estimated
future outcome. Cash discounts, volume rebates and other
customer incentive programs are based upon certain percentages
agreed upon with the Companys various customers, which are
typically earned by the customer over an annual period. The
Company records periodic estimates for these amounts based upon
the historical results to date, estimated future results through
the end of the contract period and the contractual provisions of
the customer agreements. Customer returns are recorded on an
actual basis throughout the year and also include an estimate at
the end of each reporting period for future customer returns
related to sales recorded prior to the end of the period. The
Company generally estimates customer returns based upon the time
lag that historically occurs between the sale date and the
return date while also factoring in any new business conditions
that might impact the historical analysis such as new product
introduction. The Company also provides for estimates of
warranty and shipping costs at the time of sale. Shipping and
warranty costs are included in cost of products sold. Bad debt
provisions are included in selling, general and administrative
expenses. The amounts recorded are generally based upon
historically derived percentages while also factoring in any new
business conditions that are expected to impact the historical
analysis such as new product introduction for warranty and
bankruptcies of particular customers for bad debts.
Cash
Equivalents
Cash equivalents consist of short-term highly liquid investments
with original maturities of three months or less which are
readily convertible into cash. At December 31, 2009 and
2008, the Company had approximately $0.6 million of
certificates of deposits. At December 31, 2009, the
maturity date of these certificates is March 22, 2010.
Inventories
Inventories in the accompanying consolidated balance sheets are
valued at the lower of cost or market. During the year ended
December 31, 2008, the Company elected to conform its
method of valuing its inventory to the FIFO method from the LIFO
method for a portion of its inventory.
F-10
The change in accounting method occurred following the
consolidation of the LIFO inventory into another location that
uses the FIFO method of accounting. The Company records
provisions, as appropriate, to write-down obsolete and excess
inventory to estimated net realizable value. The process for
evaluating obsolete and excess inventory often requires the
Company to make subjective judgments and estimates concerning
future sales levels, quantities and prices at which such
inventory will be able to be sold in the normal course of
business. Accelerating the disposal process or incorrect
estimates of future sales potential may cause actual results to
differ from the estimates at the time such inventory is disposed
or sold.
The inventory reserves were approximately $6.7 million at
December 31, 2009, increasing during 2009 by
$0.6 million compared to the December 31, 2008 reserve
balance of approximately $6.1 million.
Property and
Equipment
Property and equipment are presented at cost. Depreciation of
property and equipment are provided on a straight-line basis
over estimated useful lives, which are generally as follows:
|
|
|
|
Buildings and improvements
|
|
10-37 years
|
Machinery and equipment, including leases
|
|
3-15 years
|
Leasehold improvements
|
|
Term of lease or useful life, whichever is shorter
|
|
|
Expenditures for maintenance and repairs are expensed when
incurred. Expenditures for renewals and betterments are
capitalized. When assets are sold, or otherwise disposed, the
cost and related accumulated depreciation are eliminated and the
resulting gain or loss is recognized in operations.
Intangible
Assets, Goodwill and Other Long-Lived Assets
Long-lived
assets
The Company reviews long-lived assets for impairment annually or
whenever events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully
recoverable. The Company performs undiscounted operating cash
flow analyses to determine if impairment exists. If impairment
is determined to exist, any related impairment loss is
calculated based on the assets fair value and the
discounted cash flow.
As of December 31, 2008, the Company determined that the
historic decline in the US housing market required a
re-evaluation of the Companys forecasts. The US housing
market was and continues to operate at a 50 year low. The
Companys revised forecasts reflected reduced undiscounted
cash flow projections for the affected asset groups, which were
believed to be indicative of an adverse change in the business
climate that could negatively affect the value of the long-lived
asset groups. The Company tested for impairment using the
Step One test for asset groups held and used, and
determined that further impairment testing of the fair value of
the asset groups (under Step Two) was not necessary
at December 31, 2008 because the undiscounted cash flows
exceeded the carrying values of the long-lived asset groups.
As of December 31, 2009, the Company determined that the
continued decline in the US housing market required a
re-evaluation of the Companys forecasts. The Company again
tested for impairment using the Step One test for
asset groups held and used, and determined that
F-11
further impairment testing of the fair value of the asset groups
(under Step Two) was not necessary at
December 31, 2009 because the undiscounted cash flows
exceeded the carrying values of the long-lived asset groups.
The Company tests for long-lived asset impairment at the
following asset group levels: i) Siding, Fencing, and Stone
(Siding), ii) the combined US Windows companies
in the Windows and Doors segment (US Windows), and
iii) CWD Windows and Doors, Inc. in the Windows and Doors
segment (CWD). For purposes of recognition and
measurement of an impairment loss, a long-lived asset or asset
group should represent the lowest level for which an entity can
separately identify cash flows that are largely independent of
the cash flows of other assets and liabilities. Ply Gem
concluded that the lowest level for identifiable cash flows is
Siding, US Windows and
CWD. This is one level below the segment reporting
unit of Windows and Doors and reflects the lowest
level of identifiable cash flows. Management believes that the
US Windows unit cannot be further broken down as a result of the
2008 US Windows reorganization. As a result, US Windows is now
marketed as one window company rather than separate companies.
From an economic standpoint, Ply Gem now goes to US Windows
customers as one company rather than separate companies. In
addition, certain manufacturing facilities provide inventory to
multiple window divisions for assembling the final products.
Therefore, from an economic standpoint the Company evaluates the
cash flows as a group rather than at the divisional levels. The
US Windows and CWD financial data is the lowest level of
reliable information that is prepared and reviewed by management
on a consistent basis. The Company made a similar conclusion for
Siding as its product lines are grouped at a Siding level as
there are interdependencies between products.
As of December 31, 2009, the estimated cash flow forecasts
(based on independent industry information) exceeded the
respective carrying values by $329.7 million,
$115.9 million, and $1,959.4 million for US Windows,
CWD, and Siding, respectively, thus not requiring a Step Two
impairment test on the long-lived assets. As of
December 31, 2008, the estimated cash flow forecasts (based
on independent industry information) exceeded the respective
carrying values by $350.7 million, $127.5 million, and
$1,076.5 million for US Windows, CWD and Siding,
respectively, thus not requiring a Step Two impairment test on
the long-lived assets.
Goodwill
Purchase accounting involves judgment with respect to the
valuation of the acquired assets and liabilities in order to
determine the final amount of goodwill (see Note 2). For
significant acquisitions, the Company values items such as
property and equipment and acquired intangibles based upon
appraisals.
The Company evaluates goodwill and certain indefinite-lived
intangible assets for impairment on an annual basis and whenever
events or business conditions warrant. All other intangible
assets are amortized over their estimated useful lives. The
Company assesses goodwill for impairment during the fourth
quarter of each year (November 28 for 2009) and also at any
other date when events or changes in circumstances indicate that
the carrying value of these assets may exceed their fair value.
To evaluate goodwill for impairment, the Company estimates the
fair value of reporting units considering such factors as
discounted cash flows and valuation multiples for comparable
publicly traded companies. A significant reduction in projected
sales and earnings which would lead to a reduction in future
cash flows could indicate potential impairment. Refer to
Note 3 for additional considerations regarding the
impairment recognized during the year ended December 31,
2008.
F-12
Debt Issuance
Costs
Debt issuance costs, composed of facility, agency, and certain
legal fees associated with acquiring new debt financing are
amortized over the contractual term of the related agreement
using the effective interest method. Net debt issuance costs
totaled approximately $27.3 million and $32.5 million
as of December 31, 2009 and December 31, 2008,
respectively, and have been recorded in other long term assets
in the Companys consolidated balance sheet.
Share Based
Compensation
Share-based compensation cost for the Companys stock
option plan is measured at the grant date, based on the
estimated fair value of the award, and is recognized over the
requisite service period. The fair value of each option award is
estimated on the date of the grant using a Black-Scholes option
valuation model. Expected volatility is based on a review of
several market indicators, including peer companies. The
risk-free interest rate is based on U.S. Treasury issues
with a term equal to the expected life of the option.
Insurance
Liabilities
The Company is self-insured for certain casualty losses and
medical liabilities. The Company records insurance liabilities
and related expenses for health, workers compensation,
product and general liability losses and other insurance
expenses in accordance with either the contractual terms of
their policies or, if self-insured, the total liabilities that
are estimable and probable as of the reporting date. Insurance
liabilities are recorded as current liabilities to the extent
they are expected to be paid in the succeeding year with the
remaining requirements classified as long-term liabilities. The
accounting for self-insured plans requires that significant
judgments and estimates be made both with respect to the future
liabilities to be paid for known claims and incurred but not
reported claims as of the reporting date. The Company relies on
historical trends when determining the appropriate health
insurance reserves to record in its consolidated balance sheets.
In certain cases where partial insurance coverage exists, the
Company must estimate the portion of the liability that will be
covered by existing insurance policies to arrive at the net
expected liability to the Company.
Income
Taxes
The Company utilizes the asset and liability method of
accounting for income taxes which requires that deferred tax
assets and liabilities be recorded to reflect the future tax
consequences of temporary differences between the book and tax
basis of various assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
of changes in tax rates on deferred tax assets and liabilities
is recognized as income or expense in the period in which the
rate change occurs. A valuation allowance is established to
offset any deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Estimates are required with respect to, among other things, the
appropriate state income tax rates used in the various states
that the Company and its subsidiaries are required to file, the
potential utilization of operating and capital loss
carry-forwards for both federal and state income tax purposes
and valuation allowances required, if any, for tax assets that
may not be realized in the future. The Company establishes
reserves when, despite our belief that our tax
F-13
return positions are fully supportable, certain positions could
be challenged, and the positions may not be fully sustained.
Subsequent to February 12, 2004, U.S. federal income
tax returns were prepared and filed by Ply Gem Investment
Holdings, Inc. on behalf of itself, Ply Gem Holdings, and Ply
Gem Industries and its subsidiaries. The existing tax sharing
agreement between Ply Gem Holdings and Ply Gem Investment
Holdings under which tax liabilities for each respective party
are computed on a stand-alone basis, was amended during 2006 to
include Ply Gem Prime Holdings. U.S. subsidiaries file
unitary, combined federal income tax returns and separate state
income tax returns. CWD files separate Canadian income tax
returns.
Sales
Taxes
Sales taxes collected from customers are recorded as liabilities
until remitted to taxing authorities and therefore are not
reflected in the consolidated statements of operations.
Research and
Development
The Company incurred research and development costs of $4.0
million, $3.7 million and $4.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Commitments and
Contingencies
The Company provides accruals for all direct costs associated
with the estimated resolution of contingencies at the earliest
date at which it is deemed probable that a liability has been
incurred and the amount of such liability can be reasonably
estimated. Costs accrued have been estimated based upon an
analysis of potential results, assuming a combination of
litigation and settlement strategies and outcomes.
Liquidity
The Company intends to fund its ongoing capital and working
capital requirements, including its internal growth, through a
combination of cash flows from operations and, if necessary,
from borrowings under the revolving credit portion of its ABL
Facility. As of December 31, 2009, the Company had
approximately $1,100.4 million of indebtedness and
$142.9 million of contractual availability under the ABL
facility and approximately $77.9 million of borrowing base
availability reflecting $25.0 million of ABL borrowings and
approximately $7.1 million of letters of credit issued
under the ABL facility. As of December 31, 2009, the
Company estimates that it will pay $121.2 million in
interest payments during the year ending December 31, 2010.
After the debt financings conducted in 2010, which are discussed
in Note 6 to the consolidated financial statements, the
Companys annual interest charges for debt service are
estimated to be approximately $108.5 million for the year
ending December 31, 2010.
Because of the inherent seasonality in our business and the
resulting working capital requirements, the Companys
liquidity position fluctuates within a given year. The seasonal
effect that creates the Companys greatest needs has
historically been experienced during the first six months of the
year and the Company anticipates borrowing funds under its ABL
Facility to support this requirement. However, the Company
anticipates the funds generated from operations and funds
available under the ABL Facility will be adequate to finance its
ongoing
F-14
operational cash flow needs, capital expenditures, debt service
obligations, management incentive expenses, and other fees
payable under other contractual obligations for the foreseeable
future.
Foreign
Currency
CWD, the Companys Canadian subsidiary, utilizes the
Canadian dollar as its functional currency. For reporting
purposes, the Company translates the assets and liabilities of
its foreign entity at the exchange rates in effect at year-end.
Net sales and expenses are translated using average exchange
rates in effect during the period. Gains and losses from foreign
currency translation are credited or charged to accumulated
other comprehensive income or loss in the accompanying
consolidated balance sheets.
For the years ended December 31, 2009, December 31,
2008, and December 31, 2007, the Company recorded a gain
from foreign currency transactions of approximately
$0.5 million, a loss from foreign currency transactions of
approximately $0.9 million, and a gain from foreign
currency transactions of approximately $4.0 million,
respectively. As of December 31, 2009 and December 31,
2008, accumulated other comprehensive income (loss) included a
currency translation adjustment of approximately
$4.1 million and $(0.6) million, respectively.
Concentration of
Credit Risk
The accounts receivable balance related to one customer of the
Companys Siding, Fencing, and Stone segment was
approximately $5.5 million and $5.8 million at
December 31, 2009 and December 31, 2008, respectively.
This customer accounted for approximately 9.2% of consolidated
net sales for the years ended December 31, 2009 and 2008,
and 10.2% of consolidated net sales for the year ended
December 31, 2007.
Fair Value
Measurement
The Company adopted the fair value accounting standard during
the first quarter of 2008. The accounting standard for fair
value provides guidance for measuring fair value and requires
certain disclosures. This standard does not require any new fair
value measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements.
This standard does not apply measurements related to share-based
payments, nor does it apply to measurements related to inventory.
The accounting standard for fair value discusses valuation
techniques, such as the market approach (comparable market
prices), the income approach (present value of future income or
cash flows), and the cost approach (cost to replace the service
capacity of an asset or replacement cost). The standard utilizes
a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels.
The following is a brief description of those three levels:
|
|
|
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
|
|
|
Level 2: Inputs other than quoted prices that
are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
|
F-15
|
|
|
Level 3: Inputs that reflect the reporting
entitys own assumptions.
|
The hierarchy requires the use of observable market data, when
available, and to minimize the use of unobservable inputs when
determining fair value. The Companys population of
recurring financial assets and liabilities subject to fair value
measurements and the necessary disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
in active markets
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for identical
|
|
|
observable
|
|
|
unobservable
|
|
(amounts in thousands)
|
|
Carrying
|
|
|
|
|
|
assets
|
|
|
inputs
|
|
|
inputs
|
|
Description
|
|
value
|
|
|
Total
|
|
|
(level 1)
|
|
|
(level 2)
|
|
|
(level 3)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated Notes-9%
|
|
$
|
360,000
|
|
|
$
|
302,400
|
|
|
$
|
302,400
|
|
|
$
|
|
|
|
$
|
|
|
Senior Secured Notes-11.75%
|
|
|
725,000
|
|
|
|
725,000
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
$
|
1,085,000
|
|
|
$
|
1,027,400
|
|
|
$
|
1,027,400
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
|
|
Money market funds
|
|
|
29,197
|
|
|
|
29,197
|
|
|
|
29,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
$
|
29,797
|
|
|
$
|
29,797
|
|
|
$
|
29,797
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated Notes-9%
|
|
$
|
360,000
|
|
|
$
|
86,400
|
|
|
$
|
86,400
|
|
|
$
|
|
|
|
$
|
|
|
Senior Secured Notes-11.75%
|
|
|
700,000
|
|
|
|
378,000
|
|
|
|
378,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
$
|
1,060,000
|
|
|
$
|
464,400
|
|
|
$
|
464,400
|
|
|
$
|
|
|
|
$
|
|
|
|
|
The fair value of the long-term debt instruments was determined
by utilizing available market information. The carrying value of
the Companys other financial instruments approximates
their fair value.
In accordance with the fair value accounting standard, certain
non-financial assets and non-financial liabilities measured at
fair value on a recurring basis include reporting units measured
at fair value in the first step of a goodwill impairment test.
Certain non-financial assets and non-financial liabilities
measured at fair value on a non-recurring basis include
non-financial assets and non-financial liabilities measured at
fair value in the second step of a goodwill impairment test, as
well as intangible assets and other non-financial long-lived
assets measured at fair value for impairment assessment.
Earnings (loss)
per common share
Basic and diluted earnings per share (EPS) is
computed by dividing net income (loss) available to common
stockholders by the weighted-average number of shares
outstanding. The Company
F-16
had 100 shares of common stock outstanding for the years
ended December 31, 2009, 2008 and 2007. In addition, all
stock options and preferred stock are issued at the Ply Gem
Prime level; therefore, no dilutive effect would exist at Ply
Gem Holdings as these amounts have been recorded within
additional paid in capital. Consequently, for purposes of EPS
the Company calculated the amounts as net income (loss) divided
by the 100 shares of common stock outstanding.
In connection with the proposed initial public offering, the
Company will merge with its parent company, Ply Gem Prime
Holdings, which will result in the conversion of outstanding
common stock and preferred stock of its parent into Ply Gem
Holdings common equity and result in a single class of
outstanding common stock. In connection with this
Reorganization, the outstanding options to purchase Ply Gem
Prime Holdings common stock will convert into Ply Gem Holdings
stock options.
The unaudited pro forma earnings (loss) per common share is
being presented to show the impact of the conversion of the
outstanding common stock and preferred stock of Ply Gem Prime
Holdings to Ply Gem Holdings common stock that will occur in
connection with the Reorganization. The unaudited pro forma
basic earnings (loss) per common share is computed by dividing
income (loss) attributable to common stockholders by the
unaudited pro forma weighted average number of common shares
outstanding for the period.
The unaudited pro form diluted earnings (loss) per common share
for the year ended December 31, 2007, reflects the treasury
stock effect resulting from the conversion of Ply Gem Prime
Holdings stock options into stock options of the Company in
connection with the Reorganization. The treasury stock effect of
Ply Gem Holdings stock options to be issued in connection with
the Reorganization has not been included in the computation of
the unaudited pro forma diluted loss per common share for the
years ended December 31, 2009 and 2008 as their effect
would be anti-dilutive.
The following details the computation of the pro forma earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
(amounts in thousands (except per share data))
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
Net income (loss)
|
|
$
|
(76,752)
|
|
|
$
|
(498,475)
|
|
|
$
|
4,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average common share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited basic pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock effect of outstanding stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited diluted pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
New Accounting
Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued authoritative guidance to affirm that
the acquisition method of accounting (previously referred to as
the purchase method) be used for all business combinations and
for an acquirer to be identified for each business combination.
This guidance requires an acquirer to recognize the assets
acquired, the liabilities assumed, contingent consideration and
any noncontrolling interest in the acquiree at the acquisition
date to be measured at their fair values as of that date. It
further requires that acquisition-related costs be recognized
separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent
to the acquisition date; and that changes in accounting for
deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a
component of the provision for income taxes. This guidance is
effective for the Companys fiscal year beginning
January 1, 2009, and is to be applied prospectively. The
impact to the Company will depend on future acquisition activity.
In December 2008, the FASB issued authoritative guidance to
require employers to provide additional disclosures about plan
assets of a defined benefit pension or other post-retirement
plan. The objective of this guidance is to provide users of
financial statements with an understanding of how investment
allocation decisions are made, the major categories of plan
assets held by the plans, the inputs and valuation techniques
used to measure the fair value of plan assets, significant
concentration of risk within the Companys plan assets, and
for fair value measurements determined using significant
unobservable inputs a reconciliation of changes between the
beginning and ending balances. This guidance is effective for
fiscal years ending after December 15, 2009. The Company
adopted the new disclosure requirements in the 2009 annual
reporting period.
In January 2009, the FASB issued authoritative guidance on
disclosures about derivative instruments and hedging activities.
This guidance required qualitative disclosures about the
objectives and strategies for using derivatives, quantitative
data about the fair value of and gains and losses on derivative
contracts, and details of credit-risk-related contingent
features in hedged positions. This guidance also requires
enhanced disclosure regarding derivative instruments in
financial statements and how hedges affect an entitys
financial position, financial performance and cash flows. The
adoption of this guidance did not have any impact on the
Companys consolidated financial statements.
In April 2009, the FASB issued authoritative guidance on
determining fair value when the volume and level of market
activity for an asset or liability has significantly decreased
and identifying market transactions that are not orderly. This
guidance clarifies the methodology used to determine fair value
when there is no active market or where the price inputs being
used represent distressed sales. This guidance also reaffirms
the objective of fair value measurement, as stated in
authoritative guidance for fair value measurements, which is to
reflect how much an asset would be sold for in an orderly
transaction. It also reaffirms the need to use judgment to
determine if a formerly active market has become inactive, as
well as to determine fair values when markets have become
inactive. This guidance is effective for financial statement
purposes for interim and annual financial statements issued for
fiscal periods ended after June 15, 2009. The Company
adopted the provisions of this guidance effective April 2009 and
the adoption did not have a material impact on the
Companys consolidated financial statements.
F-18
In April 2009, the FASB issued authoritative guidance for
interim disclosures about fair value of financial instruments,
which requires fair value disclosures for financial instruments
that are not reflected in the consolidated balance sheets at
fair value. Prior to the issuance of this guidance, the fair
values of those assets and liabilities were disclosed only once
each year. This guidance requires the Company to disclose this
information on a quarterly basis and provide quantitative and
qualitative information about fair value estimates for all
financial instruments not measured in the consolidated balance
sheets at fair value. This guidance was effective in the quarter
ended July 4, 2009, and the adoption of these standards did
not have a material impact on the Companys consolidated
financial statements.
In April 2009, the FASB issued authoritative guidance on the
determination of the useful life of intangible assets. This
guidance amends the factors that should be considered in
developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This
guidance also requires expanded disclosure regarding the
determination of intangible asset useful lives. The Company
adopted the provisions of this guidance effective April 2009 and
the adoption of this guidance did not have a material impact on
the Companys consolidated financial statements.
In May 2009, the FASB issued authoritative guidance regarding
subsequent events that provides guidance as to when an entity
should recognize events or transactions occurring after the
balance sheet date in its financial statements and the necessary
disclosures related to these events. The Company adopted the
provisions of this guidance effective May 2009, and the adoption
of this guidance did not have a material impact on the
Companys consolidated financial statements.
In June 2009, the FASB amended authoritative accounting guidance
related to transfers of financial assets which updates existing
guidance. The amended authoritative accounting guidance limits
the circumstances in which financial assets can be derecognized
and requires enhanced disclosures regarding transfers of
financial assets and a transferors continuing involvement
with transferred financial assets. The amended authoritative
accounting guidance also eliminates the concept of a qualifying
special-purpose entity (QSPE), which will require companies to
evaluate former QSPEs for consolidation. This guidance will not
have a material impact on the Companys consolidated
financial statements.
In June 2009, the FASB amended authoritative accounting guidance
related to the consolidation of variable interest entities
(VIEs). The amended authoritative accounting
guidance updates existing guidance used to determine whether or
not a company is required to consolidate a VIE and requires
enhanced disclosures. The amended authoritative accounting
guidance also eliminates quantitative-based assessments and will
require companies to perform ongoing qualitative assessments to
determine whether or not the VIE should be consolidated. The
impact to the Company will depend on future transactions and
investments.
In June 2009, the FASB issued authoritative guidance regarding
accounting standards codification and the hierarchy of the
Generally Accepted Accounting Principles (GAAP).
This guidance has become the source of authoritative
U.S. GAAP recognized by the FASB and applied by
nongovernmental entities. This guidance was effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. The Company adopted the
provisions of this guidance effective October 2009, and the
adoption of this guidance did not have a material impact on the
Companys consolidated financial statements.
F-19
Pacific
Windows Acquisition
On September 30, 2007, Ply Gem completed its acquisition of
CertainTeed Corporations vinyl window and patio door
business through a stock acquisition. On the acquisition date,
the Company changed the name of the acquired business to Ply Gem
Pacific Windows Corporation. The Company accounted for the
transaction as a purchase, which results in a new valuation for
the assets and liabilities of Pacific Windows based upon fair
values as of the purchase date. The acquired vinyl window
business is a leading manufacturer of premium vinyl windows and
doors and produces windows for the residential new construction
and remodeling markets. The acquisition provided the Company
with a presence on the west coast.
The purchase price was allocated to the assets and liabilities
based on their fair values. The following is the allocation of
the purchase price.
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
Other current assets, net of cash
|
|
$
|
10,766
|
|
Inventories
|
|
|
9,379
|
|
Property, plant and equipment
|
|
|
19,133
|
|
Trademarks
|
|
|
1,200
|
|
Customer relationships
|
|
|
1,800
|
|
Goodwill
|
|
|
18,052
|
|
Other assets
|
|
|
1,398
|
|
Current liabilities
|
|
|
(11,916
|
)
|
Other liabilities
|
|
|
(13,230
|
)
|
|
|
|
|
|
Purchase price, net of cash acquired
|
|
$
|
36,582
|
|
|
|
The Company paid approximately $35.1 million on
September 28, 2007 for the acquisition of Pacific Windows.
Transaction costs of approximately $1.5 million were
incurred in 2007. During 2008, the Company paid approximately
$0.1 million in transaction costs for this acquisition.
During 2009, the Company recorded a purchase price adjustment of
approximately $0.6 million. None of the goodwill is
expected to be deductible for tax purposes.
United Stone
Veneer Acquisition
On October 31, 2008, Ply Gem Industries acquired
substantially all of the assets of USV. The Company accounted
for the transaction as a purchase. USV manufactures stone veneer
enabling the Company to expand its building products offering
across different areas and capitalize on this product growth
opportunity. The consolidated financial statements include the
operating results of USV for periods after October 31,
2008. As a result of the USV acquisition, the Company changed
its Siding, Fencing, and Railing segment to
Siding, Fencing, and Stone as of and for the year
ended December 31, 2008.
F-20
The preliminary purchase price was allocated to the assets and
liabilities based on their fair values. The following is the
allocation of the purchase price.
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
Other current assets, net of cash
|
|
$
|
566
|
|
Inventories
|
|
|
307
|
|
Property, plant and equipment
|
|
|
1,863
|
|
Goodwill
|
|
|
1,584
|
|
Current liabilities
|
|
|
(706
|
)
|
|
|
|
|
|
Purchase price, net of cash acquired
|
|
$
|
3,614
|
|
|
|
The goodwill is expected to be deductible for tax purposes.
The Company records the excess of purchase price over the fair
value of the net assets of acquired companies as goodwill or
other identifiable intangible assets. The Company performs an
annual test for goodwill impairment during the fourth quarter of
each year and also at any other date when events or changes in
circumstances indicate that the carrying value of these assets
may exceed their fair value. The Company has defined its
reporting units and performs the impairment testing of goodwill
at the operating segment level. The Company has aggregated US
Windows and CWD into a single reporting unit since they have
similar economic characteristics. Thus, the Company has two
reporting units- (Siding, Fencing, and Stone) and (Windows and
Doors.) Separate valuations are performed for each of these
reporting units in order to test for impairment. During the year
ended December 31, 2008, the Company acquired USV on
October 31, 2008, which was included within the Siding,
Fencing, and Stone reporting unit.
The Company uses the two-step method to determine goodwill
impairment. If the carrying amount of a reporting unit exceeds
its fair value (Step One), the Company measures the possible
goodwill impairment based upon a hypothetical allocation of the
fair value estimate of the reporting unit to all of the
underlying assets and liabilities of the reporting unit,
including previously unrecognized intangible assets (Step Two).
The excess of the reporting units fair value over the
amounts assigned to its assets and liabilities is the implied
fair value of goodwill. An impairment loss is recognized to the
extent that a reporting units recorded goodwill exceeds
the implied fair value of goodwill.
To determine the fair value of its reporting units, the Company
equally considers both the income and market valuation
methodologies. The income valuation methodology uses the fair
value of the cash flows that the reporting unit can be expected
to generate in the future. This method requires management to
project revenues, operating expenses, working capital
investment, capital spending and cash flows for the reporting
unit over a multi-year period as well as determine the weighted
average cost of capital to be used as the discount rate. The
Company also utilizes the market valuation method to estimate
the fair value of the reporting units by utilizing comparable
public company multiples. These comparable public company
multiples are then applied to the reporting units
financial performance. During the year ended December 31,
2009, the Company utilized forward looking market multiples for
its reporting units. The forward multiples were used since each
reporting unit incurred various restructuring
F-21
activities during 2009. The market approach is more volatile as
an indicator of fair value as compared to the income approach as
internal forecasts and projections have historically been more
stable. Since each approach has its merits, the Company equally
weights the approaches to balance the internal and external
factors affecting the Companys fair value. This weighting
is consistent with prior years.
The Companys fair value estimates of its reporting units
and goodwill are sensitive to a number of assumptions including
discount rates, cash flow projections, operating margins, and
comparable market multiples. In order to accurately forecast
future cash flows, the Company estimated single family housing
starts and the repair and remodeling markets growth rate
through 2014. These assumptions modeled information published by
the National Association of Home Builders (NAHB).
The Company estimated single family housing starts increasing
from 2009 levels (439,000) to approximately 1,100,000 in 2014
(terminal growth year) and the repair and remodeling growth rate
at approximately 3.0% for 2014. The 1,100,000 terminal housing
starts figure represents a historical average that tracks
domestic population growth. The forecasted sales growth and
operating earnings increases coincided with the growth in these
two key assumptions. The Company utilized its weighted average
cost of capital and its long-term growth rate to derive the
appropriate capitalization rate used in the terminal value
calculation. The Company utilized these fair value estimate
assumptions during the impairment reviews conducted in the
quarter ended September 27, 2008 and the years ended
December 31, 2008 and 2009.
The Company determined that the uncertainty and decline in the
residential housing and remodeling market was a triggering event
during the third quarter of 2008 with housing starts declining
to a 50 year low in August 2008 which caused US Windows to
lower their forecasted cash flow projections. As a result of the
interim impairment test, the Company concluded that the Windows
and Doors reporting unit failed Step One of the impairment test
comparing carrying value and fair value. The Siding, Fencing,
and Stone fair value exceeded its carrying value by
approximately 20% as of September 27, 2008. The Step Two
Windows and Doors impairment test results indicated that an
estimated impairment of approximately $200.0 million
existed at September 27, 2008. This impairment was
recognized within the Windows and Doors segment in the third
quarter of 2008.
The Companys annual goodwill impairment test performed
during the fourth quarter of 2008 was affected by further
housing market declines as the NAHB further decreased their
housing start estimates for 2009 and 2010 as well as significant
decreases in market multiples. As a result of the annual
impairment test, the Company concluded that the Windows and
Doors and Siding, Fencing, and Stone reporting units failed Step
One of the impairment test comparing carrying value and fair
value. The Step Two impairment test results indicated that an
additional impairment of approximately $127.8 million
existed in the Companys Windows and Doors segment at
December 31, 2008. In addition, an impairment of
approximately $122.2 million was indicated in Step Two of
the goodwill impairment test for our Siding, Fencing, and Stone
segment. These impairments were recognized in the respective
segments in the fourth quarter of 2008. For the year ended
December 31, 2008, the Company recognized a
$450.0 million goodwill impairment charge within its
results of operations.
The Companys annual goodwill impairment test performed
during the fourth quarter of 2009 indicated no impairment. The
Windows and Doors and Siding, Fencing, and Stone reporting units
exceeded their carrying values by approximately 26% and 50%,
respectively.
F-22
The Company provides no assurance that: 1) valuation
multiples will not decline further , 2) discount rates will
not increase, or 3) the earnings, book values or projected
earnings and cash flows of the Companys reporting units
will not decline. The Company will continue to analyze changes
to these assumptions in future periods. The Company will
continue to evaluate goodwill during future periods and further
declines in the residential housing and remodeling markets could
result in additional goodwill impairments.
The reporting unit goodwill balances were as follows as of
December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Windows and Doors
|
|
$
|
72,731
|
|
|
$
|
70,683
|
|
Siding, Fencing and Stone
|
|
|
320,107
|
|
|
|
320,096
|
|
|
|
|
|
|
|
|
|
$
|
392,838
|
|
|
$
|
390,779
|
|
|
|
The increase in goodwill during the year ended December 31,
2009 was due to currency translation adjustments of
approximately $1.4 million and purchase price adjustments
of approximately $0.6 million. A rollforward of goodwill
for 2009 and 2008 is included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Windows and
|
|
|
Siding, fencing
|
|
(amounts in thousands)
|
|
doors
|
|
|
and stone
|
|
|
|
|
Balance as of January 1, 2008
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
395,072
|
|
|
$
|
440,748
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395,072
|
|
|
|
440,748
|
|
Impairment losses
|
|
|
(327,773
|
)
|
|
|
(122,227
|
)
|
Goodwill acquired during the year (USV acquisition)
|
|
|
|
|
|
|
1,584
|
|
Currency translation adjustments
|
|
|
(5,743
|
)
|
|
|
|
|
Income tax purchase accounting
|
|
|
7,178
|
|
|
|
(9
|
)
|
Pacific Windows purchase accounting
|
|
|
1,949
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
398,456
|
|
|
|
442,323
|
|
Accumulated impairment losses
|
|
|
(327,773
|
)
|
|
|
(122,227
|
)
|
|
|
|
|
|
|
|
|
|
70,683
|
|
|
|
320,096
|
|
Currency translation adjustments
|
|
|
1,441
|
|
|
|
|
|
Pacific Windows purchase accounting
|
|
|
607
|
|
|
|
11
|
|
Balance as of December 31, 2009
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
400,504
|
|
|
|
442,334
|
|
Accumulated impairment losses
|
|
|
(327,773
|
)
|
|
|
(122,227
|
)
|
|
|
|
|
|
|
|
|
$
|
72,731
|
|
|
$
|
320,107
|
|
|
|
F-23
The table that follows presents the major components of
intangible assets as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
period
|
|
|
|
|
|
Accumulated
|
|
|
carrying
|
|
(amounts in thousands)
|
|
(in years)
|
|
|
Cost
|
|
|
amortization
|
|
|
value
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
14
|
|
|
$
|
12,770
|
|
|
$
|
(5,477
|
)
|
|
$
|
7,293
|
|
Trademarks/Tradenames
|
|
|
15
|
|
|
|
85,644
|
|
|
|
(21,475
|
)
|
|
|
64,169
|
|
Customer relationships
|
|
|
13
|
|
|
|
158,158
|
|
|
|
(56,249
|
)
|
|
|
101,909
|
|
Other
|
|
|
|
|
|
|
1,631
|
|
|
|
(938
|
)
|
|
|
693
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
258,203
|
|
|
$
|
(84,139
|
)
|
|
$
|
174,064
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
14
|
|
|
$
|
12,770
|
|
|
$
|
(4,533
|
)
|
|
$
|
8,237
|
|
Trademarks/Tradenames
|
|
|
15
|
|
|
|
85,644
|
|
|
|
(15,578
|
)
|
|
|
70,066
|
|
Customer relationships
|
|
|
13
|
|
|
|
158,158
|
|
|
|
(43,850
|
)
|
|
|
114,308
|
|
Other
|
|
|
|
|
|
|
1,520
|
|
|
|
(527
|
)
|
|
|
993
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
258,092
|
|
|
$
|
(64,488
|
)
|
|
$
|
193,604
|
|
|
|
Amortization expense for both years ended December 31, 2009
and 2008 was approximately $19.7 million. Amortization
expense for the fiscal years 2010, 2011, 2012, 2013, and 2014 is
estimated to be approximately $27.1 million,
$26.7 million, $26.6 million, $16.5 million, and
$15.1 million, respectively. In January 2010, the Company
decreased the life of certain trademarks to 3 years
(applied prospectively from January 2010) as a result of
future marketing plans regarding the use of certain trademarks.
In the intervening period, the Company will continue to use
these trademarks. As a result, amortization expense will
increase in
2010-2012.
During 2008, the Company elected to adopt the FIFO method of
inventory valuation for its entire inventory as a result of the
operational decision to transfer production from the Valencia,
Pennsylvania facility to the Sidney, Ohio facility. Previously,
the Valencia, Pennsylvania facility utilized the LIFO method and
Sidney, Ohio utilized the FIFO method. Since over 92% of the
Companys inventory previously utilized FIFO methodology,
the Company elected to utilize FIFO across all of its inventory.
The Company believes the FIFO method of accounting is preferable
because it provides a better measure of the current value of its
inventory and provides a better matching of manufacturing costs
with revenues. The change resulted in the application of a
single costing method to all of the Companys inventories.
Comparative financial statements of prior years have been
adjusted to apply the new method retrospectively. The
retrospective change resulted in an increase to retained
earnings as of January 1, 2006 of approximately
$1.6 million, net of taxes of $1.2 million. The
following financial statement items for fiscal year 2007 were
affected by the change in accounting principle.
F-24
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
|
As computed
|
|
|
Effect of
|
|
|
As computed
|
|
(amounts in thousands)
|
|
under LIFO
|
|
|
change
|
|
|
under FIFO
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
$
|
1,082,153
|
|
|
$
|
1,000
|
|
|
$
|
1,083,153
|
|
Total costs and expenses
|
|
|
1,259,897
|
|
|
|
1,000
|
|
|
|
1,260,897
|
|
Operating earnings (loss)
|
|
|
103,649
|
|
|
|
(1,000
|
)
|
|
|
102,649
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
9,616
|
|
|
|
(1,000
|
)
|
|
|
8,616
|
|
Provision (benefit) for income taxes
|
|
|
4,002
|
|
|
|
(368
|
)
|
|
|
3,634
|
|
Net income (loss)
|
|
$
|
5,614
|
|
|
$
|
(632
|
)
|
|
$
|
4,982
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
|
As computed
|
|
|
Effect of
|
|
|
As computed
|
|
(amounts in thousands)
|
|
under LIFO
|
|
|
change
|
|
|
under FIFO
|
|
|
|
|
Net income (loss)
|
|
$
|
5,614
|
|
|
$
|
(632
|
)
|
|
$
|
4,982
|
|
Deferred income taxes
|
|
|
(920
|
)
|
|
|
(368
|
)
|
|
|
(1,288
|
)
|
Inventories
|
|
|
6,523
|
|
|
|
1,000
|
|
|
|
7,523
|
|
Net cash provided by operating activities
|
|
|
73,844
|
|
|
|
|
|
|
|
73,844
|
|
|
|
Had the Company continued to apply the LIFO method, the impact
on the consolidated statement of operations during 2008 would
have been an increase in operating earnings of approximately
$0.8 million for the year ended December 31, 2008.
F-25
Long-term debt in the accompanying consolidated balance sheets
at December 31, 2009 and 2008 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Senior secured asset based revolving credit facility
|
|
$
|
25,000
|
|
|
$
|
60,000
|
|
9% Senior subordinated notes due 2012, net of unamortized
premium of $105 and $146
|
|
|
360,105
|
|
|
|
360,146
|
|
11.75% Senior secured notes due 2013, net of unamortized
discount of $9,708 and $5,960
|
|
|
715,292
|
|
|
|
694,040
|
|
|
|
|
|
|
|
|
|
$
|
1,100,397
|
|
|
$
|
1,114,186
|
|
Less:
|
|
|
|
|
|
|
|
|
9% Senior subordinated notes due to related parties,
including unamortized premium of $82
|
|
|
281,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
819,021
|
|
|
$
|
1,114,186
|
|
|
|
11.75% Senior
Secured Notes Due 2013
On June 9, 2008, Ply Gem Industries issued
$700.0 million of 11.75% senior secured notes due 2013
(the Senior Secured Notes) at an approximate 1.0%
discount, yielding proceeds of approximately
$693.5 million. Ply Gem Industries used the proceeds to
repay all of the outstanding indebtedness under the then
existing senior secured credit facility of approximately
$676.2 million of term loan borrowings and approximately
$15.0 million of revolver borrowings. The Senior Secured
Notes will mature on June 15, 2013 and bear interest at the
rate of 11.75% per annum. Interest will be paid semi-annually on
June 15 and December 15 of each year. On October 23, 2009,
Ply Gem Industries issued an additional $25.0 million of
its Senior Secured Notes in a private placement transaction. The
net proceeds of $20.0 million will be utilized for general
corporate purposes. The additional $25.0 million of Senior
Secured Notes has the same terms and covenants as the initial
$700.0 million of Senior Secured Notes.
Prior to April 1, 2011, Ply Gem Industries may redeem up to
35% of the aggregate principal amount of the Senior Secured
Notes with the net cash proceeds from certain equity offerings
at a redemption price equal to 111.75% of the aggregate
principal amount of the Senior Secured Notes, plus accrued and
unpaid interest, if any, provided that at least 65% of the
original aggregate principal amount of the Senior Secured Notes
remains outstanding after the redemption. In addition, not more
than once during any twelve-month period, Ply Gem Industries may
redeem up to $70.0 million of the Senior Secured Notes at a
redemption price equal to 103% of the aggregate amount of the
Senior Secured Notes, plus accrued and unpaid interest, if any.
At any time on or after April 1, 2011, Ply Gem Industries
may redeem the Senior Secured Notes, in whole or in part, at
declining redemption prices set forth in the indenture governing
the Senior Secured Notes, plus, in each case, accrued and unpaid
interest, if any, to the redemption date.
The Senior Secured Notes are fully and unconditionally
guaranteed on a joint and several basis by Ply Gem Holdings and
all of the domestic subsidiaries of Ply Gem Industries (the
Guarantors). The indenture governing the Senior
Secured Notes contains certain covenants
F-26
that limit the ability of Ply Gem Industries and its
subsidiaries to incur additional indebtedness, pay dividends or
make other distributions or repurchase or redeem their stock,
make loans and investments, sell assets, incur certain liens,
enter into agreements restricting their ability to pay
dividends, enter into transactions with affiliates, and
consolidate, merge or sell Ply Gem Industries assets. In
particular, Ply Gem Industries may not incur additional debt
(other than permitted debt in limited circumstances) unless,
after giving effect to such incurrence, the consolidated
interest coverage ratio of Ply Gem Industries would be at least
2.00 to 1.00. In the absence of satisfying the consolidated
interest coverage ratio, Ply Gem Industries may only incur
additional debt in limited circumstances, including purchase
money indebtedness in an aggregate amount not to exceed $25.0
million at any one time outstanding, debt of foreign
subsidiaries in an aggregate amount not to exceed $30.0 million
at any one time outstanding, debt pursuant to a general debt
basket in an aggregate amount not to exceed $25.0 million at any
one time outstanding and the refinancing of other debt under
certain circumstances. As of December 31, 2009, Ply Gem
Industries only had $5.0 million of availability under its
general debt basket following the October 2009 issuance of
additional Senior Secured Notes. In addition, Ply Gem Industries
is limited in its ability to pay dividends or make other
distributions to Ply Gem Holdings. Permitted dividends and
distributions include those used to redeem equity of its
officers, directors or employees under certain circumstances, to
pay taxes, to pay out-of-pocket costs and expenses in an
aggregate amount not to exceed $500,000 in any calendar year and
to pay customary and reasonable costs and expenses of an
offering of securities that is not consummated.
On November 3, 2008, Ply Gem Industries completed its
exchange offer with respect to the Senior Secured Notes by
exchanging $700.0 million Senior Secured Notes, which were
registered under the Securities Act of 1933, as amended (the
Securities Act), for $700.0 million of the
issued and outstanding Senior Secured Notes. Upon completion of
the exchange offer, all issued and outstanding Senior Secured
Notes were registered under the Securities Act. However, the
$25.0 million of Senior Secured Notes issued in October
2009 were not registered under the Securities Act and there is
no contractual requirement to register these instruments.
The Senior Secured Notes and the related guarantees are secured
on a first-priority lien basis by substantially all of the
assets (other than the assets securing the Companys
obligations under the senior secured asset based revolving
credit facility, which consist primarily of accounts receivable
and inventory) of Ply Gem Industries and the Guarantors and on a
second-priority lien basis by the assets that secure the asset
based revolving credit facility.
In addition, the Companys stock ownership in its
subsidiaries collateralizes the Senior Secured Notes to the
extent that such equity interests and other securities can
secure the notes without
Rule 3-16
of
Regulation S-X
under the Securities Act requiring separate financial statements
of such subsidiary to be filed with the Securities and Exchange
Commission. As of December 31, 2009, no subsidiarys
stock has been excluded from the collateral arrangement due to
the
Rule 3-16
requirement.
Senior Secured
Asset Based Revolving Credit Facility Due 2013
Concurrently with the Senior Secured Notes offering on
June 9, 2008, Ply Gem Industries, the Company and the
subsidiaries of Ply Gem Industries entered into a new senior
secured asset-based revolving credit facility (the ABL
Facility). The ABL Facility initially provided for
F-27
revolving credit financing of up to $150.0 million, subject
to borrowing base availability, with a maturity of five years
(June 2013) including
sub-facilities
for letters of credit, swingline loans, and borrowings in
Canadian dollars and United States dollars by CWD.
In July 2009, the Company amended the ABL Facility to increase
the available commitments by $25.0 million from $150.0 million
to $175.0 million. As a condition to this availability increase,
the applicable margins payable on the loans were increased and
made subject to certain minimums. The July 2009 amendment also
changed both the availability threshold for certain cash
dominion events and compliance with the fixed charge coverage
ratio and other covenants.
In October 2009, the Company amended the ABL Facility to allow
for the issuance of the additional $25.0 million Senior
Secured Notes and to permit certain refinancing transactions
with respect to the 9% Senior Subordinated Notes. The
October amendment also permits Ply Gem Industries to issue
equity securities to Ply Gem Holdings, its parent. The October
2009 amendment did not affect the $175.0 million
availability amount or the applicable interest rate margins
under the ABL Facility.
The ABL Facility provides that the revolving commitments may be
increased to $200.0 million, subject to certain terms and
conditions. The Company had borrowings of $25.0 million and
$60.0 million outstanding under the ABL Facility as of
December 31, 2009 and December 31, 2008, respectively.
As of December 31, 2009, Ply Gem Industries had
approximately $142.9 million of contractual availability
and approximately $77.9 million of borrowing base
availability under the ABL Facility, reflecting
$25.0 million of borrowings outstanding and approximately
$7.1 million of letters of credit issued.
The interest rates applicable to loans under the ABL Facility
are, at the Companys option, equal to either a base rate
plus an applicable interest margin, or an adjusted LIBOR rate
plus an applicable interest margin, as defined in the ABL
Facility credit agreement. As of December 31, 2009, the
Companys interest rate on the ABL Facility was
approximately 6.0%. The ABL Facility contains a requirement to
maintain a fixed charge coverage ratio of 1.1 to 1.0 if the
Companys excess availability is less than the greater of
(a) 15% of the lesser of (i) the commitments and
(ii) the borrowing base and (b) $20.0 million.
The fixed charge coverage ratio was not applicable at any point
during 2009.
All obligations under the ABL Facility, and the guarantees of
those obligations, are secured, subject to certain exceptions,
by substantially all of the assets of Ply Gem Industries and the
Guarantors, including a first-priority security interest in
personal property consisting of accounts receivable, inventory,
cash, deposit accounts, and certain related assets and proceeds
of the foregoing and a second-priority security interest in, and
mortgages on, substantially all of Ply Gem Industries
material owned real property and equipment and all assets that
secure the Senior Secured Notes on a first-priority basis. In
addition to being secured by the collateral securing the
obligations of Ply Gem Industries under the domestic collateral
package, the obligations of CWD, which is a borrower under the
Canadian
sub-facility
under the ABL Facility, are also secured by a first-priority
security interest in substantially all of the assets of such
Canadian subsidiary, plus additional mortgages in Canada, and a
pledge by Ply Gem Industries of the remaining 35% of the equity
interests of CWD pledged only to secure the Canadian
sub-facility.
The ABL Facility contains certain covenants that limit the
Companys ability and the ability of its subsidiaries to
incur additional indebtedness, pay dividends or make other
distributions or
F-28
repurchase or redeem their stock, make loans and investments,
sell assets, incur certain liens, enter into transactions with
affiliates, and consolidate, merge or sell assets. In
particular, the Company is permitted to incur additional debt in
limited circumstances, including permitted subordinated
indebtedness in an aggregate principal amount not to exceed
$50.0 million at any time outstanding (subject to the
ability to incur additional permitted subordinated debt provided
that immediately after giving effect to such incurrence excess
availability is more than 25% of the lesser of the total
borrowing base and the aggregate commitments and Ply Gem
Industries is in pro forma compliance with the fixed charge
coverage ratio), purchase money indebtedness in an aggregate
amount not to exceed $15.0 million at any one time
outstanding, debt of foreign subsidiaries (other than Canadian
subsidiaries) in an aggregate amount not to exceed
$2.5 million at any one time outstanding, unsecured debt in
an aggregate amount not to exceed $50.0 million at any one
time outstanding and the refinancing of other debt under certain
circumstances. In addition, Ply Gem Industries is limited in its
ability to pay dividends or make other distributions to Ply Gem
Holdings. Permitted dividends and distributions include those
used to redeem equity of its officers, directors or employees
under certain circumstances, to pay taxes, to pay operating and
other corporate overhead costs and expenses in the ordinary
course of business in an aggregate amount not to exceed
$2.0 million in any calendar year plus reasonable and
customary indemnification claims of its directors and executive
officers and to pay fees and expenses related to any
unsuccessful debt or equity offering. Ply Gem Industries may
also make additional payments to Ply Gem Holdings which may be
used by Ply Gem Holdings to pay dividends or make other
distributions on its stock under the ABL Facility so long as
before and after giving effect to such dividend or other
distribution excess availability is greater than 25% of the
lesser of the total borrowing base and the aggregate commitments
and Ply Gem Industries is in pro forma compliance with the
consolidated fixed charge coverage ratio.
9.00% Senior
Subordinated Notes Due 2012
Concurrently with the acquisition of Ply Gem Industries on
February 12, 2004, Ply Gem Industries issued
$225.0 million aggregate principal amount of its senior
subordinated notes due 2012 (the 9% Senior
Subordinated Notes), which are guaranteed by Ply Gem
Holdings and the domestic subsidiaries of Ply Gem Industries.
Subsequently, in August 2004, in connection with the MW
acquisition, Ply Gem Industries issued an additional
$135.0 million of 9% Senior Subordinated Notes, which
are guaranteed by Ply Gem Holdings and the domestic subsidiaries
of Ply Gem Industries, including MWM Holding and its
subsidiaries. Ply Gem Industries pays interest semi-annually on
February 15 and August 15 of each year. As of December 31,
2009, certain affiliates of the Companys controlling
stockholder owned approximately $281.4 million of the
outstanding 9% Senior Subordinated Notes.
On November 19, 2009, Ply Gem Industries launched an
exchange offer for certain of its 9% Senior Subordinated
Notes which expired in accordance with its terms without any
notes being accepted by the Company. In connection with this
exchange offer, the Company incurred third-party and bank fees
of approximately $0.5 million during the year ended
December 31, 2009 which has been expensed within interest
expense in the consolidated statement of operations.
In connection with the issuance of $150.0 million
13.125% Senior Subordinated Notes due 2014 on
January 11, 2010 (see description in corresponding section
below), Ply Gem Industries redeemed approximately
$141.2 million aggregate principal amount of the
9% Senior Subordinated Notes on February 16, 2010 at a
redemption price of 100% of the principal
F-29
amount thereof plus accrued interest. The Company expects to
account for this 2010 transaction as a debt extinguishment. The
Company is in the process of determining the impact of this
transaction on its consolidated statement of operations and
consolidated balance sheet. In addition to the 2010 debt
extinguishment, approximately $218.8 million aggregate
principal amount of the 9% Senior Subordinated Notes held
by certain affiliates of the Companys controlling
stockholder were transferred to the Companys indirect
stockholders and ultimately to Ply Gem Prime Holdings, the
Companys indirect parent company. Such notes were then
transferred to Ply Gem Holdings and then to Ply Gem Industries
as a capital contribution and cancelled on February 12,
2010. In connection with this transaction in which a majority of
the 9% Senior Subordinated Notes were acquired by certain
affiliates, the Company expensed approximately $6.1 million
of third party fees which has been recorded within interest
expense in the consolidated statement of operations for the year
ended December 31, 2009.
13.125% Senior
Subordinated Notes Due 2014
On January 11, 2010, Ply Gem Industries issued
$150.0 million of 13.125% Senior Subordinated Notes
due 2014 (the 13.125% Senior Subordinated
Notes) at an approximate 3.0% discount, yielding proceeds
of approximately $145.7 million. Ply Gem Industries used
the proceeds of the offering to redeem approximately
$141.2 million aggregate principal amount of its
9% Senior Subordinated Notes due 2012 and to pay certain
related costs and expenses. The $150.0 million Senior
Subordinated Notes will mature on July 15, 2014 and bear
interest at the rate of 13.125% per annum. Interest will be paid
semi-annually on January 15 and July 15 of each year.
Prior to January 15, 2012, Ply Gem Industries may redeem up
to 40% of the aggregate principal amount of the
13.125% Senior Subordinated Notes with the net cash
proceeds from certain equity offerings at a redemption price
equal to 113.125% of the aggregate principal amount of the
13.125% Senior Subordinated Notes, plus accrued and unpaid
interest, if any, provided that at least 60% of the original
aggregate principal amount of the 13.125% Senior
Subordinated Notes remains outstanding after the redemption. On
or after January 15, 2012, and prior to January 15,
2013, Ply Gem Industries may redeem up to 100% of the aggregate
principal amount of the 13.125% Senior Subordinated Notes
with the net cash proceeds from certain equity offerings at a
redemption price equal to 103% of the aggregate principal amount
of the 13.125% Senior Subordinated Notes, plus accrued and
unpaid interest, if any. On or after January 15, 2013, Ply
Gem Industries may redeem up to 100% of the aggregate principal
amount of the 13.125% Senior Subordinated Notes with the
net cash proceeds from certain equity offerings at a redemption
price equal to 100% of the aggregate principal amount of the
13.125% Senior Subordinated Notes, plus accrued and unpaid
interest, if any, to the redemption date.
The 13.125% Senior Subordinated Notes are unsecured and
subordinated in right of payment to all existing and future debt
of the Company, including the ABL Facility and the Senior
Secured Notes. The 13.125% Senior Subordinated Notes are
unconditionally guaranteed on a joint and several basis by Ply
Gem Holdings and all of the domestic subsidiaries of Ply Gem
Industries (other than certain unrestricted subsidiaries) on a
senior subordinated basis. The guarantees are general unsecured
obligations and are subordinated in right of payment to all
existing senior debt of the guarantors, including their
guarantees of the Senior Secured Notes and the ABL Facility.
The indenture governing the 13.125% Senior Subordinated
Notes contains certain covenants that limit the ability of Ply
Gem Industries and its subsidiaries to incur additional
indebtedness, pay dividends or make other distributions or
repurchase or redeem their stock, make loans and
F-30
investments, sell assets, incur certain liens, enter into
transactions with affiliates, and consolidate, merge or sell Ply
Gem Industries assets. In particular, Ply Gem Industries
may not incur additional debt (other than permitted debt in
limited circumstances) unless, after giving effect to such
incurrence, the consolidated interest coverage ratio would be at
least 2.00 to 1.00. In the absence of satisfying the
consolidated interest coverage ratio, Ply Gem Industries may
only incur additional debt in limited circumstances, including,
purchase money indebtedness in an aggregate amount not to exceed
$25.0 million at any one time outstanding, debt of foreign
subsidiaries in an aggregate amount not to exceed
$30.0 million at any one time outstanding, debt pursuant to
a general debt basket in an aggregate amount not to exceed
$25.0 million at any one time outstanding and the
refinancing of other debt under certain circumstances. In
addition, Ply Gem Industries is limited in its ability to pay
dividends or make other distributions to Ply Gem Holdings.
Permitted dividends and distributions include those used to
redeem equity of its officers, directors or employees under
certain circumstances, to pay taxes, to pay out-of-pocket costs
and expenses in an aggregate amount not to exceed $500,000 in
any calendar year, to pay customary and reasonable costs and
expenses of an offering of securities that is not consummated
and other dividends or distributions of up to
$20.0 million. Ply Gem Industries may also pay dividends or
make other distributions to Ply Gem Holdings so long as it can
incur $1.00 of additional debt pursuant to the 2.00 to 1.00
consolidated interest coverage ratio test described above and so
long as the aggregate amount of such dividend or distribution
together with certain other dividends and distributions does not
exceed 50% of consolidated net income plus certain other items.
Senior Term
Loan Facility
The Companys senior facilities with a syndicate of
financial institutions and institutional lenders provided for
senior secured financing of up to approximately
$762.1 million. On May 23, 2008, the Company entered
into an amendment of the fifth amended and restated credit
agreement which consisted of changes to certain debt covenant
ratios. The amendment also increased the interest rate on the
term loan and extended the maturity of the revolving credit
facility from February 12, 2009 to August 12, 2010. On
May 23, 2008, Ply Gem received from CI Capital Partners LLC
a $30.0 million cash equity contribution as a condition to
the credit facility amendment. On June 9, 2008, the Company
used the proceeds from the Senior Secured Notes offering to pay
off the obligations under the senior term loan facility.
As a result of the debt amendment that occurred on May 23,
2008 and the issuance of Senior Secured Notes on June 9,
2008, the Company evaluated its financing costs and expensed
approximately $27.6 million of fees for the year ended
December 31, 2008 which has been recorded within interest
expense on the consolidated statement of operations. The
$27.6 million was comprised of approximately
$14.0 million of non-cash deferred financing costs
associated with the previous term debt, approximately
$6.8 million for a prepayment premium, and approximately
$6.8 million of bank amendment fees that were subsequently
retired. The Company deferred costs of approximately
$26.6 million in conjunction with this transaction which
have been recorded within other long-term assets in the
consolidated balance sheet.
F-31
The following table summarizes the Companys long-term debt
maturities due in each fiscal year after December 31, 2009:
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
2010
|
|
$
|
|
|
2011
|
|
|
|
|
2012
|
|
|
360,105
|
|
2013
|
|
|
740,292
|
|
2014
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,100,397
|
|
|
|
As a result of the January and February 2010 debt transactions,
the Company will have no principal payments due until the
Companys 2013 fiscal year, the ABL Facility will mature in
2013, and the Companys long term debt maturities have been
reduced by approximately $210.0 million reflecting the
$141.2 million redemption of the 9% Senior
Subordinated Notes, the $218.8 million capital contribution
of 9% Senior Subordinated Notes and the new
$150.0 million 13.125% Senior Subordinated Notes.
The Company has two pension plans, the Ply Gem Group Pension
Plan (the Ply Gem Plan) and the MW Manufacturers,
Inc. Retirement Plan (the MW Plan). The plans are
combined in the following discussion. Prior to 2008, the Company
used a September 30th measurement date for both plans.
The Company changed the measurement date for both plans to
December 31 effective with December 31, 2008.
F-32
The table that follows provides a reconciliation of benefit
obligations, plan assets, and funded status of the combined
plans in the accompanying consolidated balance sheets at
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
32,245
|
|
|
$
|
33,910
|
|
Service cost
|
|
|
177
|
|
|
|
193
|
|
Interest cost
|
|
|
2,000
|
|
|
|
2,003
|
|
Adjustment due to change in measurement date
|
|
|
|
|
|
|
548
|
|
Actuarial loss (gain)
|
|
|
2,377
|
|
|
|
(1,222
|
)
|
Benefits and expenses paid
|
|
|
(1,953
|
)
|
|
|
(3,187
|
)
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
34,846
|
|
|
$
|
32,245
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
19,691
|
|
|
$
|
29,488
|
|
Actual return on plan assets
|
|
|
5,253
|
|
|
|
(8,470
|
)
|
Employer and participant contributions
|
|
|
1,403
|
|
|
|
1,310
|
|
Adjustment due to change in measurement date
|
|
|
|
|
|
|
550
|
|
Benefits and expenses paid
|
|
|
(1,953
|
)
|
|
|
(3,187
|
)
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
24,394
|
|
|
$
|
19,691
|
|
|
|
|
|
|
|
Funded status and financial position:
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
24,394
|
|
|
$
|
19,691
|
|
Benefit obligation at end of year
|
|
|
34,846
|
|
|
|
32,245
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(10,452
|
)
|
|
$
|
(12,554
|
)
|
|
|
|
|
|
|
Amount recognized in the balance sheet consist of:
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(1,650
|
)
|
|
$
|
(1,810
|
)
|
Noncurrent liability
|
|
|
(8,802
|
)
|
|
|
(10,744
|
)
|
|
|
|
|
|
|
Liability recognized in the balance sheet
|
|
$
|
(10,452
|
)
|
|
$
|
(12,554
|
)
|
|
|
The accumulated benefit obligation for the combined plans was
approximately $34.8 million, and $32.2 million as of
December 31, 2009 and December 31, 2008, respectively.
F-33
Accumulated
Other Comprehensive Income
Amounts recognized in accumulated other comprehensive income at
December 31, 2009 and December 31, 2008 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Initial net asset (obligation)
|
|
$
|
|
|
|
$
|
|
|
Prior service credit (cost)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
6,328
|
|
|
|
8,244
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
6,328
|
|
|
$
|
8,244
|
|
|
|
These amounts do not include any amounts recognized in
accumulated other comprehensive income related to the
nonqualified Supplemental Executive Retirement Plan.
Actuarial
Assumptions
Plan assets consist of cash and cash equivalents, fixed income
mutual funds, equity mutual funds, as well as other investments.
The discount rate for the projected benefit obligation was
chosen based upon rates of returns available for high-quality
fixed-income securities as of the plans measurement date.
The Company reviewed several bond indices, comparative data, and
the plans anticipated cash flows to determine a single
discount rate which would approximate the rate in which the
obligation could be effectively settled. The expected long-term
rate of return on assets is based on the Companys
historical rate of return. The weighted average rate assumptions
used in determining pension costs and the projected benefit
obligation for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Discount rate for projected benefit obligation
|
|
|
5.95%
|
|
|
|
6.35%
|
|
|
|
6.00%
|
|
Discount rate for pension costs
|
|
|
6.35%
|
|
|
|
6.00%
|
|
|
|
5.75%
|
|
Expected long-term average return on plan assets
|
|
|
7.50%
|
|
|
|
7.50%
|
|
|
|
7.75%
|
|
|
|
F-34
Net Periodic
Benefit Costs
The Companys net periodic benefit expense for the combined
plans for the periods indicated consists of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Service cost
|
|
$
|
177
|
|
|
$
|
193
|
|
|
$
|
314
|
|
Interest cost
|
|
|
2,000
|
|
|
|
2,003
|
|
|
|
1,947
|
|
Expected return on plan assets
|
|
|
(1,462
|
)
|
|
|
(2,200
|
)
|
|
|
(2,025
|
)
|
Amortization of net (gain) or loss
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense (income)
|
|
$
|
1,217
|
|
|
$
|
(4
|
)
|
|
$
|
236
|
|
|
|
Pension
Assets
The weighted-average asset allocations at December 31, 2009
by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
Target
|
|
|
Actual allocation as of
|
|
|
expected long-term
|
|
|
|
allocation
|
|
|
December 31, 2009
|
|
|
rate of return(1)
|
|
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large Cap Funds
|
|
|
30.0%
|
|
|
|
28.0%
|
|
|
|
2.4%
|
|
U.S. Mid Cap Funds
|
|
|
7.0%
|
|
|
|
9.0%
|
|
|
|
0.6%
|
|
U.S. Small Cap Funds
|
|
|
6.0%
|
|
|
|
8.0%
|
|
|
|
0.6%
|
|
International Equity
|
|
|
11.0%
|
|
|
|
11.0%
|
|
|
|
1.0%
|
|
Fixed income
|
|
|
42.0%
|
|
|
|
38.0%
|
|
|
|
2.1%
|
|
Other investments
|
|
|
4.0%
|
|
|
|
6.0%
|
|
|
|
0.3%
|
|
|
|
|
|
|
|
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
7.0%
|
|
|
|
|
|
|
(1)
|
|
The weighted average expected
long-term rate of return by asset category is based on the
Companys target allocation.
|
The Company has established formal investment policies for the
assets associated with the Companys pension plans. Policy
objectives include maximizing long-term return at acceptable
risk levels, diversifying among asset classes, if appropriate,
and among investment managers, as well as establishing relevant
risk parameters within each asset class. Investment policies
reflect the unique circumstances of the respective plans and
include requirements designed to mitigate risk including quality
and diversification standards. Asset allocation targets are
based on periodic asset reviews
and/or risk
budgeting study results which help determine the appropriate
investment strategies for acceptable risk levels. The investment
policies permit variances from the targets within certain
parameters.
Factors such as asset class allocations, long-term rates of
return (actual and expected), and results of periodic asset
liability modeling studies are considered when constructing the
long-term rate of return assumption for the Companys
pension plans. While historical rates of return play an
important role in the analysis, the Company also considers data
points from other external sources if there is a reasonable
justification to do so.
F-35
The plan assets are invested to maximize returns without undue
exposure to risk. Risk is controlled by maintaining a portfolio
of assets that is diversified across a variety of asset classes,
investment styles and investment managers. The plans asset
allocation policies are consistent with the established
investment objectives and risk tolerances. The asset allocation
policies are developed by examining the historical relationships
of risk and return among asset classes, and are designed to
provide the highest probability of meeting or exceeding the
return objectives at the lowest possible risk. The weighted
average expected long-term rate of return by asset category is
based on the Companys target allocation.
The following table summarizes the Companys plan assets
measured at fair value on a recurring basis (at least annually)
as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in active
|
|
|
other
|
|
|
Significant
|
|
|
|
Fair value as of
|
|
|
markets for
|
|
|
observable
|
|
|
unobservable
|
|
|
|
December 31,
|
|
|
identical
|
|
|
inputs
|
|
|
inputs
|
|
(amounts in thousands)
|
|
2009
|
|
|
assets (level 1)
|
|
|
(level 2)
|
|
|
(level 3)
|
|
|
|
|
Equity Securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large Cap Funds
|
|
$
|
6,848
|
|
|
$
|
|
|
|
$
|
6,848
|
|
|
$
|
|
|
U.S. Mid Cap Funds
|
|
|
2,047
|
|
|
|
|
|
|
|
2,047
|
|
|
|
|
|
U.S. Small Cap Funds
|
|
|
2,003
|
|
|
|
|
|
|
|
2,003
|
|
|
|
|
|
International Funds
|
|
|
2,615
|
|
|
|
|
|
|
|
2,615
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Bond Funds(2)
|
|
|
9,354
|
|
|
|
|
|
|
|
9,354
|
|
|
|
|
|
Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Funds(3)
|
|
|
1,471
|
|
|
|
|
|
|
|
1,471
|
|
|
|
|
|
Cash & Equivalents
|
|
|
56
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,394
|
|
|
$
|
|
|
|
$
|
24,394
|
|
|
$
|
|
|
|
|
|
|
|
1)
|
|
Equity securities are comprised of
mutual funds valued at net asset value per share multiplied by
number of shares at measurement date.
|
|
2)
|
|
Domestic bonds are comprised of
mutual funds valued at net asset value per share multiplied by
number of shares at measurement date.
|
|
3)
|
|
Commodity funds are comprised of
two mutual funds which are small market energy funds which were
categorized by investment advisory firm.
|
The Ply Gem Plan was frozen as of December 31, 1998, and no
further increases in benefits may occur as a result of increases
in service or compensation.
The MW Plan was frozen for salaried participants as of
October 31, 2004, and no further increases in benefits for
salaried participants may occur as a result of increases in
service or compensation. The MW Plan was frozen for non-salaried
participants during 2005. No additional non-salaried
participants may enter the plan, but increases in benefits as a
result of increases in service or compensation will still occur.
Benefit Plan
Contributions
The Company made cash contributions to the combined plans of
approximately $1.4 million and $1.3 million for the
years ended December 31, 2009 and 2008, respectively.
During fiscal year
F-36
2010, the Company expects to make cash contributions to the
combined plans of approximately $1.3 million.
Benefit Plan
Payments
The following table shows expected benefit payments for the next
five fiscal years and the aggregate five years thereafter from
the combined plans. These benefit payments consist of qualified
defined benefit plan payments that are made from the respective
plan trusts and do not represent an immediate cash outflow to
the Company.
|
|
|
|
|
|
|
Fiscal year
|
|
|
|
(amounts in thousands)
|
|
Expected benefit payments
|
|
|
|
|
2010
|
|
$
|
1,650
|
|
2011
|
|
|
1,810
|
|
2012
|
|
|
1,900
|
|
2013
|
|
|
1,960
|
|
2014
|
|
|
2,110
|
|
2015-2019
|
|
|
11,840
|
|
|
|
Other
Retirement Plans
The Company also has an unfunded nonqualified Supplemental
Executive Retirement Plan for certain employees. The projected
benefit obligation relating to this unfunded plan totaled
approximately $312,000 and $299,000 at December 31, 2009
and 2008, respectively. The Company has recorded this obligation
in other long term liabilities in the consolidated balance
sheets as of December 31, 2009 and 2008. Pension expense
for the plan was approximately $18,000 for both years ended
December 31, 2009 and 2008.
|
|
8.
|
DEFINED
CONTRIBUTION PLANS
|
The Company has defined contribution 401(k) plans covering
substantially all employees. The Company has historically
provided a matching contribution that can vary by subsidiary.
The level varies between 25% of the first 6% of employee
contributions to 100% of the first 6% of employee contributions.
The majority of the subsidiaries have a match of 50% of the
first 6% contributions. Each matching contribution formula is
approved on an annual basis. The Company also has the option of
making discretionary contributions. Effective April 1,
2008, the Company suspended matching contributions for all
subsidiaries until financial conditions improve sufficiently to
allow reinstatement. The Companys contributions were
approximately $1.5 million for the year ended
December 31, 2008, and $4.3 million for the year ended
December 31, 2007. The Company did not make any
contributions for the year ended December 31, 2009.
|
|
9.
|
COMMITMENTS AND
CONTINGENCIES
|
Operating
leases
At December 31, 2009, the Company is obligated under lease
agreements for the rental of certain real estate and machinery
and equipment used in its operations. Future minimum rental
F-37
obligations total approximately $151.3 million at
December 31, 2009. The obligations are payable as follows:
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
2010
|
|
$
|
26,168
|
|
2011
|
|
|
19,723
|
|
2012
|
|
|
16,115
|
|
2013
|
|
|
13,744
|
|
2014
|
|
|
12,837
|
|
Thereafter
|
|
|
62,671
|
|
|
|
Total rental expense for all operating leases amounted to
approximately $26.1 million for the year ended
December 31, 2009, $30.3 million for the year ended
December 31, 2008, and $23.7 million for the year
ended December 31, 2007.
Indemnifications
In connection with the Ply Gem acquisition, in which Ply Gem
Industries was acquired from Nortek in February 2004, Nortek has
agreed to indemnify the Company for certain liabilities as set
forth in the stock purchase agreement governing the Ply Gem
acquisition. In the event Nortek is unable to satisfy amounts
due under these indemnifications, the Company would be liable.
The Company believes that Nortek has the financial capacity to
honor its indemnification obligations and therefore does not
anticipate incurring any losses related to liabilities
indemnified by Nortek under the stock purchase agreement. A
receivable related to this indemnification has been recorded in
other long-term assets in the approximate amount of
$7.4 million and $7.8 million at December 31,
2009 and December 31, 2008, respectively. As of
December 31, 2009 and December 31, 2008, the Company
has recorded liabilities in relation to these indemnifications
of approximately $2.8 million and $2.7 million,
respectively, in current liabilities and $4.6 million and
$5.1 million, respectively, in long-term liabilities,
consisting of the following:
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Product claim liabilities
|
|
$
|
3,505
|
|
|
$
|
3,718
|
|
Multiemployer pension plan withdrawal liability
|
|
|
3,292
|
|
|
|
3,492
|
|
Other
|
|
|
599
|
|
|
|
584
|
|
|
|
|
|
|
|
|
|
$
|
7,396
|
|
|
$
|
7,794
|
|
|
|
The product claim liabilities of approximately $3.5 million
and $3.7 million at December 31, 2009 and
December 31, 2008, respectively, consisting of
approximately $2.3 million and $2.3 million,
respectively, recorded in current liabilities and approximately
$1.2 million and $1.4 million, respectively, recorded
in long term liabilities, represents the estimated costs to
resolve the outstanding matters related to a former subsidiary
of the Company, which is a defendant in a number of lawsuits
alleging damage caused by alleged defects in certain pressure
treated wood products. The Company had indemnified the buyer of
the former subsidiary for all known liabilities and future
claims relating to such matters and retained the rights to all
potential reimbursements related to insurance coverage. Many of
the suits have been resolved by dismissal or settlement with
amounts being paid out of insurance proceeds or other third
party
F-38
recoveries. The Company and the former subsidiary continue to
vigorously defend the remaining suits. Certain defense and
indemnity costs are being paid out of insurance proceeds and
proceeds from a settlement with suppliers of material used in
the production of the treated wood products. The Company and the
former subsidiary have engaged in coverage litigation with
certain insurers and have settled coverage claims with several
of the insurers.
The multiemployer pension liability of approximately
$3.3 million and $3.5 million recorded in long term
liabilities at December 31, 2009 and December 31,
2008, respectively, relate to liabilities assumed by the Company
in 1998 when its former subsidiary, Studley Products, Inc.
(Studley) was sold. In connection with the sale,
Studley ceased making contributions to the Production Service
and Sales District Council Pension Fund (the Pension
Fund), and the Company assumed responsibility for all
withdrawal liabilities to be assessed by the Pension Fund.
Accordingly, the Company is making quarterly payments of
approximately $0.1 million to the Pension Fund through 2018
based upon the assessment of withdrawal liability received from
the Pension Fund. The multiemployer pension liability represents
the present value of the quarterly payment stream using a 6%
discount rate as well as an estimate of additional amounts that
may be assessed in the future by the Pension Fund under the
contractual provisions of the Pension Fund.
Included in the indemnified items are accrued liabilities as of
December 31, 2009 and 2008, of approximately
$0.4 million and $0.4 million, respectively, in
accrued expenses to cover the estimated costs of known
litigation claims, including the estimated cost of legal
services incurred, that the Company is contesting including
certain employment and former shareholder litigation related to
the Company.
Warranty
claims
The Company sells a number of products and offers a number of
warranties. The specific terms and conditions of these
warranties vary depending on the product sold. The Company
estimates the costs that may be incurred under their warranties
and records a liability for such costs at the time of sale.
Factors that affect the Companys warranty liabilities
include the number of units sold, historical and anticipated
rates of warranty claims, cost per claim and new product
introduction. The Company assesses the adequacy of the recorded
warranty claims and adjusts the amounts as necessary. As of
December 31, 2009 and 2008, warranty liabilities of
approximately $10.4 million and $12.1 million,
respectively, have been recorded in current liabilities and
approximately $33.0 million and $33.6 million,
respectively, have been recorded in long term liabilities.
Changes in the Companys short-term and long-term warranty
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance, beginning of period
|
|
$
|
45,653
|
|
|
$
|
49,899
|
|
|
$
|
36,947
|
|
Warranty expense provided during period
|
|
|
12,783
|
|
|
|
13,232
|
|
|
|
15,429
|
|
Settlements made during period
|
|
|
(15,038
|
)
|
|
|
(18,122
|
)
|
|
|
(15,489
|
)
|
Liability assumed with acquisitions
|
|
|
|
|
|
|
644
|
|
|
|
13,012
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
43,398
|
|
|
$
|
45,653
|
|
|
$
|
49,899
|
|
|
|
F-39
Other
contingencies
The Company is subject to other contingencies, including legal
proceedings and claims arising out of its businesses that cover
a wide range of matters, including, among others, environmental
matters, contract and employment claims, product liability,
warranty and modification, adjustment or replacement of
component parts of units sold, which may include product
recalls. Product liability, environmental and other legal
proceedings also include matters with respect to businesses
previously owned. The Company has used various substances in
their products and manufacturing operations, which have been or
may be deemed to be hazardous or dangerous, and the extent of
its potential liability, if any, under environmental, product
liability and workers compensation statutes, rules,
regulations and case law is unclear. Further, due to the lack of
adequate information and the potential impact of present
regulations and any future regulations, there are certain
circumstances in which no range of potential exposure may be
reasonably estimated. It is impossible to ascertain the ultimate
legal and financial liability with respect to certain contingent
liabilities, including lawsuits, and therefore in these cases,
no such estimate has been made. The Company is not aware of any
contingencies for which a material loss is reasonably possible.
|
|
10.
|
ACCRUED EXPENSES
AND TAXES, AND OTHER LONG-TERM LIABILITIES
|
Accrued expenses and taxes, net, consist of the following at
December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Insurance
|
|
$
|
5,210
|
|
|
$
|
5,169
|
|
Employee compensation and benefits
|
|
|
3,259
|
|
|
|
6,705
|
|
Sales and marketing
|
|
|
18,585
|
|
|
|
18,023
|
|
Product warranty
|
|
|
10,408
|
|
|
|
12,069
|
|
Short-term product claim liability
|
|
|
2,320
|
|
|
|
2,321
|
|
Accrued freight
|
|
|
466
|
|
|
|
748
|
|
Interest
|
|
|
16,844
|
|
|
|
17,238
|
|
Accrued severance
|
|
|
|
|
|
|
471
|
|
Accrued pension
|
|
|
1,650
|
|
|
|
1,810
|
|
Accrued deferred compensation
|
|
|
2,081
|
|
|
|
1,886
|
|
Accrued taxes
|
|
|
1,993
|
|
|
|
1,188
|
|
Other
|
|
|
9,607
|
|
|
|
8,676
|
|
|
|
|
|
|
|
|
|
$
|
72,423
|
|
|
$
|
76,304
|
|
|
|
F-40
Other long-term liabilities consist of the following at
December 31, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Insurance
|
|
$
|
2,714
|
|
|
$
|
3,697
|
|
Pension liabilities
|
|
|
8,802
|
|
|
|
10,744
|
|
Multiemployer pension withdrawal liability
|
|
|
3,292
|
|
|
|
3,492
|
|
Product warranty
|
|
|
32,990
|
|
|
|
33,584
|
|
Long-term product claim liability
|
|
|
1,185
|
|
|
|
1,397
|
|
Long-term deferred compensation
|
|
|
1,821
|
|
|
|
3,416
|
|
Liabilities for tax uncertainties
|
|
|
9,735
|
|
|
|
7,806
|
|
Other
|
|
|
5,112
|
|
|
|
4,097
|
|
|
|
|
|
|
|
|
|
$
|
65,651
|
|
|
$
|
68,233
|
|
|
|
In September 2008, the Company commenced its plan to move
certain metal production from its Valencia, Pennsylvania
facility to its Sidney, Ohio facility. The Valencia facility
remains open on a reduced production schedule, primarily
performing contract coating for third parties. Total costs to
move this production were approximately $2.0 million
consisting of termination benefits and other restructuring costs
of approximately $0.7 million and $1.3 million,
respectively.
In November 2008, the Company announced the closure of its
Hammonton, New Jersey and Phoenix, Arizona window and door
manufacturing facilities. During December 2008, production began
to shift to other locations and production ceased at Hammonton
and Phoenix during 2009. By shifting production to other
facilities within the Company, the closures reduced costs and
increased operating efficiencies. Total costs are expected to be
approximately $5.4 million, including approximately
$1.0 million for personnel-related costs and approximately
$4.4 million in other facilities-related costs, which
include approximately $4.0 million in lease costs.
On April 2, 2009, the Company announced that it would
consolidate production across several of its manufacturing
facilities improving the Companys overall operating
efficiency. The Companys plans included shifting the
majority of the production from its Kearney, Missouri facility
to its other three vinyl siding manufacturing facilities. The
Company continues to operate the Kearney, Missouri facility on a
limited basis until the housing market recovers. The Company
also closed its Tupelo, Mississippi window and door
manufacturing facility. In addition, the Company consolidated
certain of the vinyl lineal production to its Rocky Mount,
Virginia facility and realigned production of its west coast
window and door facilities at Sacramento, California and Auburn,
Washington to better serve customers and improve overall
operating efficiency. In connection with the April 2, 2009
announcement, the Company expects to incur pre-tax exit and
restructuring costs, all of which will be cash charges, of
approximately $2.0 million, including approximately
$0.9 million for personnel-related costs, approximately
$0.1 million for contract termination costs, and
approximately $1.0 million in other facilities-related
costs.
F-41
The following table summarizes the Companys restructuring
activity for the year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Accrued as of
|
|
|
Adjustments
|
|
|
payments
|
|
|
Expensed
|
|
|
Accrued as of
|
|
|
|
December 31,
|
|
|
during
|
|
|
during
|
|
|
during
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Valencia, PA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
243
|
|
|
$
|
|
|
|
$
|
(346
|
)
|
|
$
|
103
|
|
|
$
|
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(898
|
)
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
243
|
|
|
$
|
|
|
|
$
|
(1,244
|
)
|
|
$
|
1,001
|
|
|
$
|
|
|
|
|
|
|
|
|
Hammonton, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
217
|
|
|
$
|
(36
|
)
|
|
$
|
(872
|
)
|
|
$
|
691
|
|
|
$
|
|
|
Other termination benefits
|
|
|
|
|
|
|
136
|
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
Contract terminations
|
|
|
|
|
|
|
312
|
|
|
|
(902
|
)
|
|
|
2,463
|
|
|
|
1,873
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
217
|
|
|
$
|
412
|
|
|
$
|
(2,101
|
)
|
|
$
|
3,345
|
|
|
$
|
1,873
|
|
|
|
|
|
|
|
Phoenix, AZ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
(44
|
)
|
|
$
|
33
|
|
|
$
|
|
|
Other termination benefits
|
|
|
|
|
|
|
16
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
Contract terminations
|
|
|
|
|
|
|
|
|
|
|
(674
|
)
|
|
|
1,440
|
|
|
|
766
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(184
|
)
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11
|
|
|
$
|
16
|
|
|
$
|
(918
|
)
|
|
$
|
1,657
|
|
|
$
|
766
|
|
|
|
|
|
|
|
Kearney, MO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(650
|
)
|
|
$
|
650
|
|
|
$
|
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
|
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,444
|
)
|
|
$
|
1,444
|
|
|
$
|
|
|
|
|
|
|
|
|
Tupelo, MS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(145
|
)
|
|
$
|
145
|
|
|
$
|
|
|
Contract terminations
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
140
|
|
|
|
109
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(219
|
)
|
|
$
|
328
|
|
|
$
|
109
|
|
|
|
|
|
|
|
Auburn, WA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(90
|
)
|
|
$
|
90
|
|
|
$
|
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(108
|
)
|
|
$
|
108
|
|
|
$
|
|
|
|
|
For the year ended December 31, 2009, the Company incurred
costs of approximately $7.9 million. Approximately
$2.5 million was recorded in selling, general and
administrative expenses in the Siding, Fencing and Stone segment
and approximately $5.4 million was recorded primarily in
selling, general and administrative expenses in the Windows and
Doors segment.
F-42
The following is a summary of the components of earnings (loss)
before provision (benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Domestic
|
|
$
|
(101,378
|
)
|
|
$
|
(548,749
|
)
|
|
$
|
(7,897
|
)
|
Foreign
|
|
|
6,660
|
|
|
|
(19,677
|
)
|
|
|
16,513
|
|
|
|
|
|
|
|
|
|
$
|
(94,718
|
)
|
|
$
|
(568,426
|
)
|
|
$
|
8,616
|
|
|
|
The following is a summary of the provision (benefit) for income
taxes included in the accompanying consolidated statement of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(5,176
|
)
|
|
$
|
(628
|
)
|
|
$
|
142
|
|
Deferred
|
|
|
(17,825
|
)
|
|
|
(62,281
|
)
|
|
|
(2,707
|
)
|
|
|
|
|
|
|
|
|
|
(23,001
|
)
|
|
|
(62,909
|
)
|
|
|
(2,565
|
)
|
|
|
|
|
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,827
|
|
|
$
|
298
|
|
|
$
|
1,476
|
|
Deferred
|
|
|
1,149
|
|
|
|
(3,765
|
)
|
|
|
(895
|
)
|
|
|
|
|
|
|
|
|
|
2,976
|
|
|
|
(3,467
|
)
|
|
|
581
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,433
|
|
|
$
|
3,976
|
|
|
$
|
4,011
|
|
Deferred
|
|
|
626
|
|
|
|
(7,551
|
)
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
2,059
|
|
|
|
(3,575
|
)
|
|
|
5,618
|
|
|
|
|
|
|
|
Total
|
|
$
|
(17,966
|
)
|
|
$
|
(69,951
|
)
|
|
$
|
3,634
|
|
|
|
F-43
The table that follows reconciles the federal statutory income
tax rate to the effective tax rate of approximately 18.9% for
the year ended December 31, 2009, 12.3% for the year ended
December 31, 2008, and 42.2% for the year ended
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Income tax provision (benefit) at the federal statutory rate
|
|
$
|
(33,151
|
)
|
|
$
|
(198,949
|
)
|
|
$
|
3,015
|
|
Net change from statutory rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior period federal adjustment
|
|
|
|
|
|
|
|
|
|
|
(563
|
)
|
Valuation allowance
|
|
|
35,890
|
|
|
|
208
|
|
|
|
|
|
Federal impact of cancellation of debt income
|
|
|
(17,603
|
)
|
|
|
|
|
|
|
|
|
State impact of cancellation of debt income
|
|
|
(1,187
|
)
|
|
|
|
|
|
|
|
|
State income tax provision (benefit) net of federal income tax
benefit, including the 2008 effect of Michigan change and
goodwill impairment
|
|
|
(3,293
|
)
|
|
|
(21,294
|
)
|
|
|
542
|
|
Impairment of goodwillfederal
|
|
|
|
|
|
|
146,928
|
|
|
|
|
|
Taxes at non U.S. statutory rate
|
|
|
89
|
|
|
|
643
|
|
|
|
(161
|
)
|
Additional provisions for uncertain tax provisions
|
|
|
1,114
|
|
|
|
1,703
|
|
|
|
269
|
|
Canadian rate differential
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
536
|
|
|
|
810
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
$
|
(17,966
|
)
|
|
$
|
(69,951
|
)
|
|
$
|
3,634
|
|
|
|
F-44
The tax effect of temporary differences, which gave rise to
significant portions of deferred income tax assets and
liabilities as of December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
2,151
|
|
|
$
|
2,125
|
|
Accrued rebates
|
|
|
|
|
|
|
900
|
|
Insurance reserves
|
|
|
2,882
|
|
|
|
2,982
|
|
Warranty reserves
|
|
|
11,929
|
|
|
|
12,517
|
|
Pension accrual
|
|
|
4,207
|
|
|
|
6,882
|
|
Deferred financing
|
|
|
|
|
|
|
2,797
|
|
Deferred compensation
|
|
|
272
|
|
|
|
70
|
|
Inventories
|
|
|
2,833
|
|
|
|
|
|
Plant closure/relocation
|
|
|
2,748
|
|
|
|
95
|
|
Original issue discount-cancellation of indebtedness
|
|
|
47,503
|
|
|
|
|
|
Capital loss carry-forwards and net operating loss carry-forwards
|
|
|
55,581
|
|
|
|
34,968
|
|
State net operating loss carry-forwards
|
|
|
8,471
|
|
|
|
5,725
|
|
Interest
|
|
|
4,559
|
|
|
|
|
|
Other assets, net
|
|
|
391
|
|
|
|
13,282
|
|
Valuation allowance
|
|
|
(37,050
|
)
|
|
|
(1,067
|
)
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
106,477
|
|
|
|
81,276
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
(24,848
|
)
|
|
|
(29,141
|
)
|
Inventories
|
|
|
|
|
|
|
(4,402
|
)
|
Intangible assets, net
|
|
|
(53,749
|
)
|
|
|
(57,590
|
)
|
Deferred financing
|
|
|
(11,138
|
)
|
|
|
|
|
Cancellation of debt income
|
|
|
(10,089
|
)
|
|
|
|
|
Other liabilities, net
|
|
|
(2,386
|
)
|
|
|
(1,631
|
)
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(102,210
|
)
|
|
|
(92,764
|
)
|
Net deferred tax asset (liability)
|
|
$
|
4,267
|
|
|
$
|
(11,488
|
)
|
|
|
Cancellation
of indebtedness
Affiliates of the Companys controlling stockholder
purchased approximately $281.4 million of the
Companys 9% Senior Subordinated Notes during the year
ended December 31, 2009. The cumulative affiliate purchases
were made at amounts below the $281.4 million face value of
the 9% Senior Subordinated Notes. The Company determined
that approximately $121.5 million would be considered
cancellation of indebtedness income (CODI) for tax
purposes.
On February 17, 2009, President Obama signed into law the
American Recovery and Reinvestment Act of 2009 (the
Act). Among its provisions, the Act permits certain
taxpayers to elect to defer the taxation of CODI arising from
certain repurchases, exchanges or modifications
F-45
of their outstanding debt that occur during 2009 and 2010. The
CODI can be deferred for five years, if formally elected by the
Company prior to September 2010, and then included in taxable
income ratably over the next five years.
The Company determined that it was eligible to reduce CODI by
certain tax attributes including net operating loss
carryforwards for the year ended December 31, 2009. The
Company reduced certain tax attributes including NOLs and tax
basis in certain assets in lieu of recognizing approximately
$121.5 million of CODI for income tax purposes during the
year ended December 31, 2009.
Valuation
allowance
As of December 31, 2009, a federal valuation allowance has
been provided against certain deferred tax assets as it is
presently deemed more likely than not that the benefit of such
net tax assets will not be utilized. The Company considered the
impact of reversible taxable temporary differences with regard
to realization of tax assets to determine the amount of
valuation allowance for 2009. Due to recent cumulative losses
accumulated by the Company, management did not rely upon
projections of future taxable income in assessing the
recoverability of deferred tax assets. At December 31,
2008, the Company was in a net deferred tax liability position
and had sufficient taxable income from reversing taxable
temporary differences to realize the federal deferred tax
assets. The Company scheduled out the reversing temporary
differences associated with their deferred tax assets and
deferred tax liabilities to conclude that a full valuation
allowance was not necessary at December 31, 2008.
During the year ended December 31, 2009, the Companys
federal and state valuation allowance increased by approximately
$29.7 million and $6.2 million, respectively. The
Company currently has book goodwill of approximately
$13.4 million that is not amortized and results in a
deferred tax liability of approximately $2.2 million at
December 31, 2009. Therefore, the reversal of deferred tax
liabilities related to this goodwill is not considered a source
of future taxable income in assessing the realization of its
deferred tax assets. The Company continues to evaluate the
realizability of its net deferred tax assets and its estimates
are subject to change.
Other tax
considerations
During 2009, the Company filed an amended federal income tax
return for the year ended December 31, 2005 in order to
adjust its net operating loss limitations. The Company recorded
the resulting income tax benefit as an income tax receivable of
approximately $4.1 million as of December 31, 2009,
which has been recorded in prepaid expenses and other current
assets in the consolidated balance sheet as of December 31,
2009.
The Worker, Homeownership, and Business Assistance Act of 2009
provided for a five year carryback of net operating losses for
either 2008 or 2009 losses. Additionally, the ninety percent
limitation on the usage of alternative minimum tax net operating
loss deductions was suspended during this extended carryback
period. The Company is eligible to receive a refund of the
alternative minimum tax paid for tax years 2005 through 2007
totalling approximately $1.1 million, which has been
recorded in prepaid expenses and other current assets in the
consolidated balance sheet as of December 31, 2009.
As of December 31, 2009, the Company has approximately
$158.8 million of federal net operating loss carry-forwards
which can be used to offset future taxable income. These
carry-forwards will expire between the years of 2017 and 2028 if
not utilized. The Company has
F-46
approximately $8.5 million (net of federal benefit) of
deferred tax assets related to state NOL carry-forwards which
can be used to offset future state taxable income. The Company
has established a valuation allowance of approximately
$7.3 million for these state NOL carry-forwards. During
2007, Ply Gem had approximately $0.4 million of unused
capital loss carry-forwards that expired. The Company had
established a valuation allowance for these carry-forwards.
Further declines in the residential housing and remodeling
markets could cause taxable income to decrease in future tax
years and result in the need for additional valuation allowances
on the federal and state level. Future tax planning strategies
implemented by the Company could reduce or eliminate this risk.
The Company has not provided United States income taxes or
foreign withholding taxes on un-remitted foreign earnings in
Canada. Notwithstanding the provisions within the American Jobs
Creation Act of 2004, the Company continues to consider these
amounts to be permanently invested. As of December 31,
2009, accumulated foreign earnings in Canada were approximately
$13.3 million.
Tax
uncertainties
The Company records reserves for certain tax uncertainties based
on the likelihood of an unfavorable outcome. As of
December 31, 2009, the reserve is approximately
$9.7 million which includes interest of approximately
$1.3 million. Of this amount, approximately
$15.5 million, if recognized, would have an impact on the
Companys effective tax rate. As of December 31, 2008,
the reserve was approximately $7.8 million which includes
interest of approximately $1.5 million.
The Company has elected to treat interest and penalties on
uncertain tax positions as income tax expense in its
consolidated statement of operations. Interest charges have been
recorded in the contingency reserve account recorded within
other long term liabilities in the consolidated balance sheet.
The Companys federal income tax returns for the tax years
ended December 31, 2006, 2007 and 2008 are currently under
examination by the Internal Revenue Service as well as the 2005
amended net operating loss limitation.
The following is a rollforward of tax contingencies from
January 1, 2008 through December 31, 2009.
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
6,877
|
|
Additions based on tax positions related to current year
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
1,800
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlement or lapse of applicable statutes
|
|
|
(1,287
|
)
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31,
2008
|
|
|
7,390
|
|
Additions based on tax positions related to current year
|
|
|
10,324
|
|
Additions for tax positions of prior years
|
|
|
687
|
|
Reductions for tax positions of prior years
|
|
|
|
|
Settlement or lapse of applicable statutes
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31,
2009
|
|
$
|
18,401
|
|
|
|
F-47
During the next 12 months, it is reasonably possible the
Company may reverse $6.4 million of the tax contingency
reserves primarily related to additional federal and state taxes
that have expiring statutes of limitations.
|
|
13.
|
STOCK-BASED
COMPENSATION
|
Stock option
plan
On February 12, 2004, Ply Gem Investment Holdings
Board of Directors adopted the Ply Gem Investment Holdings 2004
Stock Option Plan (the Plan) allowing for grants of
options to purchase up to 148,050 shares of Ply Gem
Investment Holdings common stock under nonqualified stock
options or incentive stock options and on November 30,
2004, increased the grants allowed under the plan up to
184,065 shares. On February 24, 2006 in connection
with the Alenco acquisition, a new holding company, Ply Gem
Prime Holdings, was formed pursuant to a merger involving Ply
Gem Investment Holdings. As a result, Ply Gem Prime Holdings
became the sole shareholder of Ply Gem Investment Holdings, each
outstanding share of capital stock of Ply Gem Investment
Holdings was converted into a share of a corresponding class of
shares of the capital stock of Ply Gem Prime Holdings and Ply
Gem Prime Holdings assumed Ply Gem Investment Holdings
obligations under the Ply Gem Investment Holdings 2004 Stock
Option Plan and the Ply Gem Investment Holdings Phantom Stock
Plan. In connection therewith, each outstanding stock option and
phantom unit of Ply Gem Investment Holdings was converted on a
1:1 basis into a stock option and phantom unit of Ply Gem Prime
Holdings. Employees, directors and consultants of Ply Gem Prime
Holdings or any of its majority-owned subsidiaries are eligible
for options, as specified in the Plan. Ply Gem Prime
Holdings Board of Directors may, among other things,
select recipients of options grants, determine whether options
will be nonqualified or incentive stock options, set the number
of shares that may be purchased pursuant to option exercise, and
determine other terms and conditions of options. The exercise
price of an option must be at least the estimated fair market
value of a share of common stock as of the grant date. Options
generally vest over five years from the date of grant, unless
specified otherwise in any individual option agreement.
Generally, options will expire on the tenth anniversary of the
grant date or in connection with termination of employment. The
Board of Directors has the discretion to accelerate the vesting
and exercisability of outstanding options.
The fair value of each option is estimated on the date of grant
using the Black-Scholes option pricing method. The assumptions
used in the model are outlined in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Weighted average fair value of options granted
|
|
$
|
0.72
|
|
|
$
|
0.77
|
|
|
$
|
0.75
|
|
Weighted average assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
30%
|
|
|
|
30%
|
|
|
|
30%
|
|
Expected term (in years)
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Risk-free interest rate
|
|
|
2.30%
|
|
|
|
4.92%
|
|
|
|
4.59%
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
|
|
F-48
A summary of changes in stock options outstanding during the
year ended December 31, 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
|
|
|
exercise
|
|
|
Weighted-average remaining
|
|
|
|
Stock options
|
|
|
price
|
|
|
contractual term
(years)
|
|
|
|
|
Balance at January 1, 2009
|
|
|
314,694
|
|
|
$
|
48.79
|
|
|
|
7.83
|
|
Granted
|
|
|
26,250
|
|
|
$
|
80.00
|
|
|
|
9.96
|
|
Forfeited or expired
|
|
|
(6,900
|
)
|
|
$
|
44.20
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
334,044
|
|
|
$
|
51.33
|
|
|
|
6.98
|
|
|
|
As of December 31, 2009, 105,094 options are 100% vested.
At December 31, 2009, the Company had approximately
$0.1 million of total unrecognized compensation expense
that will be recognized over the weighted average period of
1.80 years.
Other share
based compensation
Upon completion of each of the Ply Gem acquisition, MW
acquisition and Alenco acquisition, certain members of
management made a cash contribution to Ply Gem Prime Holdings in
exchange for shares of Ply Gem Prime Holdings common
stock. (As previously described, investments in connection with
the Ply Gem acquisition and the MW acquisition were in Ply Gem
Investment Holdings common stock, which stock was later
converted into Ply Gem Prime Holdings common stock in connection
with the Alenco acquisition.) Managements shares of common
stock are governed by the Ply Gem Prime Holdings
Stockholders Agreement which gives the management
participants put rights in certain circumstances to put the
stock back to Ply Gem Prime Holdings at a price that is
determined using defined formulas contained within the
Stockholders Agreement. The Stockholders Agreement
contains two separate put right price formulas. The
determination of which put right price formula will be
applicable to each of the participants common stock shares
is based upon the participants reaching certain vesting
requirements which are described in the Stockholders
Agreement. The common shares generally vest at a rate of 20% per
year of service, but may vest earlier if certain events occur.
Based on the above, the Company has accounted for these awards
of common shares under the modified transition method.
On September 29, 2006 the Company amended the put right
section of its Stockholders Agreement to require that
Stockholders must have held vested shares for a minimum of
six-months
from the last day of the quarter during which such shares vested
in order to receive the put right price formula for vested
shares to ensure that stockholders are exposed to the risks and
rewards of true equity ownership. As a result, the Company
modified its accounting treatment, and as of September 29,
2006, treated these as equity classified awards. On
F-49
September 29, 2006, the repurchase price under the put
right formula was less than $0. As such, no compensation cost
will be recognized for these shares.
|
|
|
|
|
|
|
|
|
Common stock shares
|
|
|
|
owned by management
|
|
|
|
|
Balance at January 1, 2009
|
|
|
642,895
|
|
Shares issued
|
|
|
|
|
Shares repurchased
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
642,895
|
|
|
|
Phantom
stock
Upon the completion of the Ply Gem Acquisition and the MW
Acquisition, certain members of management contributed their
investment in predecessor companies in exchange for phantom
common stock units and phantom preferred stock units which were
governed by a phantom stock plan. Under the phantom stock plan,
each participants interest in the plan was recorded in a
bookkeeping account; however, no stock was initially issued
under the phantom stock plan. Each account recorded a number of
units so that, any phantom common stock units were
deemed to be invested in common stock and any phantom
preferred stock units were deemed invested in senior
preferred stock. Under the plan, upon liquidation and payment of
a participants account, the value of the account generally
was to be paid to the participant either in cash or in shares of
Prime Holdings stock having a fair market value equal to
the account balance, in the discretion of Prime Holdings.
For the first three quarters of 2006, the phantom units were
recognized by the Company as liability awards that had to be
marked to market every quarter. During September 2006, the
Company converted all phantom common and preferred stock units
into a cash account payable on a fixed schedule in years 2007
and beyond. The value of the portion of each cash account that
represented phantom common units equaled the number of phantom
common stock units credited to the phantom plan account on
September 25, 2006 multiplied by $10.00. From
September 25, 2006 through January 31, 2007, the value
of the cash account was updated as if interest was credited on
such value and compounded at December 31, 2006 at a rate
equal to the applicable federal rate for short-term loans. This
portion of the account was paid to each party in a single
lump-sum cash payment on January 31, 2007. The value of the
portion of the cash account that represented the value of the
phantom preferred stock units equaled the face amount of the
number of shares of senior preferred stock represented by such
units. This portion of the account is credited with deemed
earnings, as if with interest, at an annual rate of 10%
compounded semi-annually as of each June 30 and
December 31, from the date of issuance of the phantom
preferred stock unit through the date of payment. This portion
of the account is payable on each of August 31, 2009, 2010,
and 2011, such that one third of the original face amount, plus
deemed earnings, is paid on each such date, or, if earlier, the
officers death, disability or a change of control. During
the year ended December 31, 2009, the Company made cash
phantom stock payments of approximately $1.8 million. As of
December 31, 2009 and 2008, the Company accrued on its
consolidated balance sheet approximately $2.1 million and
$1.9 million, respectively, in accrued expenses and taxes
and approximately $1.8 million and $3.4 million,
respectively in other long term liabilities for the phantom
stock liability.
F-50
The Company defines operating segments as components of an
enterprise about which separate financial information is
available that is evaluated regularly by management in deciding
how to allocate resources and in assessing performance.
Operating segments meeting certain aggregation criteria may be
combined into one reportable segment for disclosure purposes.
Comparative information for prior years is presented to conform
to our current organizational structure.
The Company has two reportable segments (which are also its
operating segments): 1) Siding, Fencing, and Stone and
2) Windows and Doors. As a result of the USV acquisition,
the Company shortened the name of its Siding, Fencing,
Railing and Decking segment to Siding, Fencing, and
Stone during 2008. The USV results were included within
this segment from October 31, 2008 forward. The other
operations within this segment remain unchanged.
The income before income taxes of each segment includes the
revenue generated on transactions involving products within that
segment less identifiable expenses. Unallocated income and
expenses include items which are not directly attributed to or
allocated to either of the Companys reporting segments.
Such items include interest, legal costs, corporate payroll, and
unallocated finance and accounting expenses. Unallocated
corporate assets include cash and certain receivables. Interest
expense is presented net of interest income.
F-51
Following is a summary of the Companys segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(amounts in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
577,390
|
|
|
$
|
709,432
|
|
|
$
|
828,124
|
|
Windows and Doors
|
|
|
373,984
|
|
|
|
465,587
|
|
|
|
535,422
|
|
|
|
|
|
|
|
|
|
$
|
951,374
|
|
|
$
|
1,175,019
|
|
|
$
|
1,363,546
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
77,756
|
|
|
$
|
(75,431
|
)
|
|
$
|
73,560
|
|
Windows and Doors
|
|
|
(23,504
|
)
|
|
|
(344,140
|
)
|
|
|
36,134
|
|
Unallocated
|
|
|
(14,142
|
)
|
|
|
(10,546
|
)
|
|
|
(7,045
|
)
|
|
|
|
|
|
|
|
|
$
|
40,110
|
|
|
$
|
(430,117
|
)
|
|
$
|
102,649
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
(169
|
)
|
|
$
|
(125
|
)
|
|
$
|
(110
|
)
|
Windows and Doors
|
|
|
183
|
|
|
|
518
|
|
|
|
1,673
|
|
Unallocated
|
|
|
135,289
|
|
|
|
137,005
|
|
|
|
96,431
|
|
|
|
|
|
|
|
|
|
$
|
135,303
|
|
|
$
|
137,398
|
|
|
$
|
97,994
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
29,341
|
|
|
$
|
34,249
|
|
|
$
|
33,858
|
|
Windows and Doors
|
|
|
26,740
|
|
|
|
27,389
|
|
|
|
20,168
|
|
Unallocated
|
|
|
190
|
|
|
|
127
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
$
|
56,271
|
|
|
$
|
61,765
|
|
|
$
|
54,067
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
$
|
(17,966
|
)
|
|
$
|
(69,951
|
)
|
|
$
|
3,634
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
3,562
|
|
|
$
|
6,770
|
|
|
$
|
11,260
|
|
Windows and Doors
|
|
|
4,222
|
|
|
|
9,491
|
|
|
|
8,757
|
|
Unallocated
|
|
|
23
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,807
|
|
|
$
|
16,569
|
|
|
$
|
20,017
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
604,753
|
|
|
$
|
652,560
|
|
|
$
|
819,408
|
|
Windows and Doors
|
|
|
333,876
|
|
|
|
360,094
|
|
|
|
715,559
|
|
Unallocated
|
|
|
43,404
|
|
|
|
91,399
|
|
|
|
81,186
|
|
|
|
|
|
|
|
|
|
$
|
982,033
|
|
|
$
|
1,104,053
|
|
|
$
|
1,616,153
|
|
|
|
F-52
The operating loss for the Siding, Fencing, and Stone segment
and the Windows and Doors segment includes goodwill impairments
of approximately $122.2 million and approximately
$327.8 million, respectively, in 2008.
Our Canadian subsidiary, which had sales of approximately
$63.7 million for the year ended December 31, 2009,
represents a majority of our sales to foreign customers. Other
subsidiaries sales outside the United States are less than
1% of our total sales.
|
|
15.
|
RELATED PARTY
TRANSACTIONS
|
Under the General Advisory Agreement (the General Advisory
Agreement) the Company entered into with an affiliate of
CI Capital Partners LLC, formerly Caxton-Iseman Capital LLC (the
Caxton-Iseman Party), the Caxton-Iseman Party
provides the Company with acquisition and financial advisory
services as the Board of Directors shall reasonably request. In
consideration of these services, the Company agreed to pay the
Caxton-Iseman Party (1) an annual fee equal to 2% of our
earnings before interest, tax, depreciation and amortization,
(EBITDA), as defined in such agreement, (2) a
transaction fee, payable upon the completion by the Company of
any acquisition, of 2% of the sale price, (3) a transaction
fee, payable upon the completion by the Company of any
divestitures, of 1% of the sale price, and (4) a
transaction fee, payable upon the completion of the sale of the
Company, of 1% of the sale price. EBITDA in the General Advisory
Agreement is based on the Companys net income (loss) plus
extraordinary losses
and/or any
net capital losses realized, provision for income taxes,
interest expense (including amortization or write-off of debt
discount and debt issuance costs and commissions, and other
items), depreciation and amortization, dividends paid or accrued
on preferred stock, certain management fees paid to the
Caxton-Iseman Party, charges related to certain phantom units,
and a number of other items. The annual fee payable in any year
may not exceed the amounts permitted under the senior credit
facilities or the indenture governing the Senior Secured Notes,
and the Caxton-Iseman Party is obligated to return any portion
of the annual fee that has been prepaid if an event of default
has occurred and is continuing under either the senior credit
facilities or the indenture governing the Senior Secured Notes.
Under the Debt Financing Advisory Agreement (the Debt
Financing Advisory Agreement) the Company entered into
with the Caxton-Iseman Party, the Company paid the Caxton-Iseman
Party a debt financing arrangement and advisory fee, equal to
2.375% of the aggregate amount of the debt financing incurred in
connection with the Ply Gem Acquisition ($11.4 million), in
the first quarter of 2004. Pursuant to the General Advisory
Agreement, the Company paid the Caxton-Iseman Party a
transaction fee of approximately $0.7 million in connection
with the Pacific Windows Corporation acquisition in September
2007, and approximately $0.1 million in connection with the
USV acquisition in October 2008 (in each case, the fee, as
described above, was 2% of the purchase price paid in the
respective acquisition). Under the General Advisory
Agreement the Company paid and expensed as a component of
selling, general, and administrative expenses, a management fee
of approximately $2.5 million, $1.7 million, and
$3.5 million, for the years ended December 31, 2009,
2008 and 2007, respectively.
The initial term of the General Advisory Agreement is
10 years, and is automatically renewable for consecutive
one-year extensions, unless Ply Gem Industries or the
Caxton-Iseman Party provide notice of termination. In addition,
the General Advisory Agreement may be terminated by the
Caxton-Iseman Party at any time, upon the occurrence of
specified change of control transactions or upon an initial
public offering of the Companys shares or shares of any of
the Companys parent companies. If the General Advisory
Agreement is terminated for any reason prior to the end of the
initial term, Ply Gem Industries will pay to the Caxton-Iseman
Party an
F-53
amount equal to the present value of the annual advisory fees
that would have been payable through the end of the initial
term, based on the Companys cost of funds to borrow
amounts under the Companys senior credit facilities.
On May 23, 2008, in connection with an amendment to the
Companys prior credit facilities and as a condition to
such amendment, affiliates of CI Capital Partners LLC made
(i) an $18 million cash investment in Ply Gem Prime
Holdings and received 14,518 shares of Ply Gem Prime
Holdings common stock and 210,482 shares of Ply Gem
Prime Holdings Class A common stock and (ii) a
$12 million cash investment in Ply Gem Investment Holdings,
and received 12,000 shares of senior preferred stock. Ply
Gem Prime Holdings and Ply Gem Investment Holdings then made an
aggregate $30 million capital contribution to Ply Gem
Holdings, which in turn contributed such amount to the capital
of Ply Gem Industries.
During February 2010, certain affiliates of the Companys
controlling stockholder contributed approximately
$218.8 million aggregate principal amount of 9% Senior
Subordinated Notes to Ply Gem Industries in exchange for equity.
During the year ended December 31, 2009, the Company paid
these affiliates approximately $15.5 million of interest
for the 9% Senior Subordinated Notes owned by these related
parties.
|
|
16.
|
QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED)
|
The following is a summary of the quarterly results of
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
|
December 31,
|
|
|
October 3,
|
|
|
July 4,
|
|
|
April 4,
|
|
(amounts in thousands (except
per share data))
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Net sales
|
|
$
|
214,578
|
|
|
$
|
293,469
|
|
|
$
|
260,576
|
|
|
$
|
182,751
|
|
Gross profit
|
|
|
48,350
|
|
|
|
77,378
|
|
|
|
62,745
|
|
|
|
13,060
|
|
Net income (loss)
|
|
|
(17,620
|
)
|
|
|
4,385
|
|
|
|
(7,979
|
)
|
|
|
(55,538
|
)
|
Basic and diluted net income (loss) attributable to common
stockholders per common share
|
|
$
|
(176.20
|
)
|
|
$
|
43.85
|
|
|
$
|
(79.79
|
)
|
|
$
|
(555.38
|
)
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
Quarter ended
|
|
|
|
December 31,
|
|
|
September 27,
|
|
|
June 28,
|
|
|
March 29,
|
|
(amounts in thousands (except
per share data))
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
|
Net sales
|
|
$
|
234,541
|
|
|
$
|
342,825
|
|
|
$
|
341,280
|
|
|
$
|
256,373
|
|
Gross profit
|
|
|
30,687
|
|
|
|
65,388
|
|
|
|
68,354
|
|
|
|
30,492
|
|
Net loss
|
|
|
(266,308
|
)
|
|
|
(190,832
|
)
|
|
|
(19,493
|
)
|
|
|
(21,842
|
)
|
Basic and diluted net loss attributable to common stockholders
per common share
|
|
$
|
(2,663.08
|
)
|
|
$
|
(1,908.32
|
)
|
|
$
|
(194.93
|
)
|
|
$
|
(218.42
|
)
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
The net loss for the quarter ended September 27, 2008
includes a goodwill impairment of $200.0 million and the
net loss for the quarter ended December 31, 2008 includes a
goodwill impairment of an additional $250.0 million.
|
|
17.
|
GUARANTOR/NON-GUARANTOR
|
The Senior Secured Notes and 9% Senior Subordinated Notes
were both issued by our direct subsidiary, Ply Gem Industries,
and the Senior Secured Notes are, and prior to their redemption
in February 2010 the 9% Senior Subordinated Notes were,
fully and unconditionally guaranteed on a joint and several
basis by the Company and certain of Ply Gem Industries
wholly owned subsidiaries. Accordingly, the following guarantor
and non-guarantor information is presented as of
December 31, 2009 and December 31, 2008, and for the
years ended December 31, 2009, 2008, and 2007. The
non-guarantor information presented represents our Canadian
subsidiary, CWD.
F-55
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
887,662
|
|
|
$
|
63,712
|
|
|
$
|
|
|
|
$
|
951,374
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
|
|
|
|
706,670
|
|
|
|
43,171
|
|
|
|
|
|
|
|
749,841
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
14,121
|
|
|
|
115,974
|
|
|
|
11,677
|
|
|
|
|
|
|
|
141,772
|
|
Intercompany administrative charges
|
|
|
|
|
|
|
|
|
|
|
13,138
|
|
|
|
1,016
|
|
|
|
(14,154
|
)
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
21
|
|
|
|
19,630
|
|
|
|
|
|
|
|
|
|
|
|
19,651
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
14,142
|
|
|
|
855,412
|
|
|
|
55,864
|
|
|
|
(14,154
|
)
|
|
|
911,264
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
(14,142
|
)
|
|
|
32,250
|
|
|
|
7,848
|
|
|
|
14,154
|
|
|
|
40,110
|
|
Foreign currency gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
475
|
|
|
|
|
|
|
|
475
|
|
Intercompany interest
|
|
|
|
|
|
|
121,035
|
|
|
|
(119,369
|
)
|
|
|
(1,666
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(135,328
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
(135,514
|
)
|
Interest income
|
|
|
|
|
|
|
39
|
|
|
|
169
|
|
|
|
3
|
|
|
|
|
|
|
|
211
|
|
Intercompany administrative income
|
|
|
|
|
|
|
14,154
|
|
|
|
|
|
|
|
|
|
|
|
(14,154
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in subsidiaries income (loss)
|
|
|
|
|
|
|
(14,242
|
)
|
|
|
(87,136
|
)
|
|
|
6,660
|
|
|
|
|
|
|
|
(94,718
|
)
|
Equity in subsidiaries income (loss)
|
|
|
(76,752
|
)
|
|
|
(65,211
|
)
|
|
|
|
|
|
|
|
|
|
|
141,963
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
(76,752
|
)
|
|
|
(79,453
|
)
|
|
|
(87,136
|
)
|
|
|
6,660
|
|
|
|
141,963
|
|
|
|
(94,718
|
)
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
(2,701
|
)
|
|
|
(17,324
|
)
|
|
|
2,059
|
|
|
|
|
|
|
|
(17,966
|
)
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(76,752
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(69,812
|
)
|
|
$
|
4,601
|
|
|
$
|
141,963
|
|
|
$
|
(76,752
|
)
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,709
|
|
|
|
|
|
|
|
4,709
|
|
Minimum pension liability for actuarial gain
|
|
|
|
|
|
|
853
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
1,158
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(76,752
|
)
|
|
$
|
(75,899
|
)
|
|
$
|
(69,507
|
)
|
|
$
|
9,310
|
|
|
$
|
141,963
|
|
|
$
|
(70,885
|
)
|
|
|
F-56
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the year ended
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,092,830
|
|
|
$
|
82,189
|
|
|
$
|
|
|
|
$
|
1,175,019
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
|
|
|
|
925,876
|
|
|
|
54,222
|
|
|
|
|
|
|
|
980,098
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
10,546
|
|
|
|
131,265
|
|
|
|
13,577
|
|
|
|
|
|
|
|
155,388
|
|
Intercompany administrative charges
|
|
|
|
|
|
|
|
|
|
|
10,937
|
|
|
|
|
|
|
|
(10,937
|
)
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
19,650
|
|
|
|
|
|
|
|
|
|
|
|
19,650
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
418,549
|
|
|
|
31,451
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
10,546
|
|
|
|
1,506,277
|
|
|
|
99,250
|
|
|
|
(10,937
|
)
|
|
|
1,605,136
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
|
|
(10,546
|
)
|
|
|
(413,447
|
)
|
|
|
(17,061
|
)
|
|
|
10,937
|
|
|
|
(430,117
|
)
|
Foreign currency loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
|
|
|
|
(911
|
)
|
Intercompany interest
|
|
|
|
|
|
|
128,864
|
|
|
|
(127,672
|
)
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(137,395
|
)
|
|
|
|
|
|
|
(620
|
)
|
|
|
|
|
|
|
(138,015
|
)
|
Interest income
|
|
|
|
|
|
|
390
|
|
|
|
134
|
|
|
|
93
|
|
|
|
|
|
|
|
617
|
|
Intercompany administrative income
|
|
|
|
|
|
|
10,937
|
|
|
|
|
|
|
|
|
|
|
|
(10,937
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in subsidiaries loss
|
|
|
|
|
|
|
(7,750
|
)
|
|
|
(540,985
|
)
|
|
|
(19,691
|
)
|
|
|
|
|
|
|
(568,426
|
)
|
Equity in subsidiaries loss
|
|
|
(498,475
|
)
|
|
|
(491,679
|
)
|
|
|
|
|
|
|
|
|
|
|
990,154
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes
|
|
|
(498,475
|
)
|
|
|
(499,429
|
)
|
|
|
(540,985
|
)
|
|
|
(19,691
|
)
|
|
|
990,154
|
|
|
|
(568,426
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
(954
|
)
|
|
|
(65,423
|
)
|
|
|
(3,574
|
)
|
|
|
|
|
|
|
(69,951
|
)
|
|
|
|
|
|
|
Net loss
|
|
$
|
(498,475
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
(475,562
|
)
|
|
$
|
(16,117
|
)
|
|
$
|
990,154
|
|
|
$
|
(498,475
|
)
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,517
|
)
|
|
|
|
|
|
|
(9,517
|
)
|
Minimum pension liability for actuarial loss
|
|
|
|
|
|
|
(2,855
|
)
|
|
|
(2,806
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,661
|
)
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(498,475
|
)
|
|
$
|
(501,330
|
)
|
|
$
|
(478,368
|
)
|
|
$
|
(25,634
|
)
|
|
$
|
990,154
|
|
|
$
|
(513,653
|
)
|
|
|
F-57
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,275,571
|
|
|
$
|
87,975
|
|
|
$
|
|
|
|
$
|
1,363,546
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
|
|
|
|
1,024,632
|
|
|
|
58,521
|
|
|
|
|
|
|
|
1,083,153
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
7,045
|
|
|
|
134,344
|
|
|
|
14,574
|
|
|
|
|
|
|
|
155,963
|
|
Intercompany administrative charges
|
|
|
|
|
|
|
|
|
|
|
12,762
|
|
|
|
|
|
|
|
(12,762
|
)
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
17,631
|
|
|
|
|
|
|
|
|
|
|
|
17,631
|
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
7,045
|
|
|
|
1,193,519
|
|
|
|
73,095
|
|
|
|
(12,762
|
)
|
|
|
1,260,897
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
(7,045
|
)
|
|
|
82,052
|
|
|
|
14,880
|
|
|
|
12,762
|
|
|
|
102,649
|
|
Foreign currency gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,961
|
|
|
|
|
|
|
|
3,961
|
|
Intercompany interest
|
|
|
|
|
|
|
91,418
|
|
|
|
(91,039
|
)
|
|
|
(379
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(97,558
|
)
|
|
|
(1
|
)
|
|
|
(2,139
|
)
|
|
|
|
|
|
|
(99,698
|
)
|
Interest income
|
|
|
|
|
|
|
1,127
|
|
|
|
388
|
|
|
|
189
|
|
|
|
|
|
|
|
1,704
|
|
Intercompany administrative income
|
|
|
|
|
|
|
12,762
|
|
|
|
|
|
|
|
|
|
|
|
(12,762
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in subsidiaries income (loss)
|
|
|
|
|
|
|
704
|
|
|
|
(8,600
|
)
|
|
|
16,512
|
|
|
|
|
|
|
|
8,616
|
|
Equity in subsidiaries income (loss)
|
|
|
4,982
|
|
|
|
4,571
|
|
|
|
|
|
|
|
|
|
|
|
(9,553
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) for income taxes
|
|
|
4,982
|
|
|
|
5,275
|
|
|
|
(8,600
|
)
|
|
|
16,512
|
|
|
|
(9,553
|
)
|
|
|
8,616
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
293
|
|
|
|
(2,111
|
)
|
|
|
5,452
|
|
|
|
|
|
|
|
3,634
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,982
|
|
|
$
|
4,982
|
|
|
$
|
(6,489
|
)
|
|
$
|
11,060
|
|
|
$
|
(9,553
|
)
|
|
$
|
4,982
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,658
|
|
|
|
|
|
|
|
5,658
|
|
Minimum pension liability for actuarial gain
|
|
|
|
|
|
|
73
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
961
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
4,982
|
|
|
$
|
5,055
|
|
|
$
|
(5,601
|
)
|
|
$
|
16,718
|
|
|
$
|
(9,553
|
)
|
|
$
|
11,601
|
|
|
|
F-58
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings,
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
7,341
|
|
|
$
|
2,592
|
|
|
$
|
7,130
|
|
|
$
|
|
|
|
$
|
17,063
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
86,657
|
|
|
|
7,771
|
|
|
|
|
|
|
|
94,428
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
|
|
|
|
|
|
|
|
35,151
|
|
|
|
4,636
|
|
|
|
|
|
|
|
39,787
|
|
Work in process
|
|
|
|
|
|
|
|
|
|
|
22,632
|
|
|
|
711
|
|
|
|
|
|
|
|
23,343
|
|
Finished goods
|
|
|
|
|
|
|
|
|
|
|
32,505
|
|
|
|
2,445
|
|
|
|
|
|
|
|
34,950
|
|
|
|
|
|
|
|
Total inventory
|
|
|
|
|
|
|
|
|
|
|
90,288
|
|
|
|
7,792
|
|
|
|
|
|
|
|
98,080
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
512
|
|
|
|
15,793
|
|
|
|
3,143
|
|
|
|
|
|
|
|
19,448
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
5,748
|
|
|
|
14
|
|
|
|
|
|
|
|
5,762
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
7,853
|
|
|
|
201,078
|
|
|
|
25,850
|
|
|
|
|
|
|
|
234,781
|
|
Investments in subsidiaries
|
|
|
(313,482
|
)
|
|
|
(320,928
|
)
|
|
|
|
|
|
|
|
|
|
|
634,410
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
3,565
|
|
|
|
167
|
|
|
|
|
|
|
|
3,732
|
|
Buildings and improvements
|
|
|
|
|
|
|
|
|
|
|
34,639
|
|
|
|
1,048
|
|
|
|
|
|
|
|
35,687
|
|
Machinery and equipment
|
|
|
|
|
|
|
1,272
|
|
|
|
253,233
|
|
|
|
6,814
|
|
|
|
|
|
|
|
261,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272
|
|
|
|
291,437
|
|
|
|
8,029
|
|
|
|
|
|
|
|
300,738
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(425
|
)
|
|
|
(155,023
|
)
|
|
|
(3,588
|
)
|
|
|
|
|
|
|
(159,036
|
)
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
|
|
|
847
|
|
|
|
136,414
|
|
|
|
4,441
|
|
|
|
|
|
|
|
141,702
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
174,064
|
|
|
|
|
|
|
|
|
|
|
|
174,064
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
382,472
|
|
|
|
10,366
|
|
|
|
|
|
|
|
392,838
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,716
|
|
|
|
|
|
|
|
2,716
|
|
Intercompany note receivable
|
|
|
|
|
|
|
1,101,260
|
|
|
|
|
|
|
|
|
|
|
|
(1,101,260
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
34,704
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
35,932
|
|
|
|
|
|
|
|
Total other assets
|
|
|
|
|
|
|
1,135,964
|
|
|
|
557,764
|
|
|
|
13,082
|
|
|
|
(1,101,260
|
)
|
|
|
605,550
|
|
|
|
|
|
|
|
|
|
$
|
(313,482
|
)
|
|
$
|
823,736
|
|
|
$
|
895,256
|
|
|
$
|
43,373
|
|
|
$
|
(466,850
|
)
|
|
$
|
982,033
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
4,354
|
|
|
$
|
45,352
|
|
|
$
|
3,127
|
|
|
$
|
|
|
|
$
|
52,833
|
|
Accrued expenses and taxes
|
|
|
|
|
|
|
22,745
|
|
|
|
47,424
|
|
|
|
2,254
|
|
|
|
|
|
|
|
72,423
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
27,099
|
|
|
|
92,776
|
|
|
|
5,381
|
|
|
|
|
|
|
|
125,256
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
4,211
|
|
|
|
|
|
|
|
|
|
|
|
4,211
|
|
Intercompany note payable
|
|
|
|
|
|
|
|
|
|
|
1,088,999
|
|
|
|
12,261
|
|
|
|
(1,101,260
|
)
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
9,722
|
|
|
|
54,990
|
|
|
|
939
|
|
|
|
|
|
|
|
65,651
|
|
Long-term debt due to related parties
|
|
|
|
|
|
|
281,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281,376
|
|
Long-term debt
|
|
|
|
|
|
|
819,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819,021
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
209,939
|
|
|
|
209,939
|
|
|
|
153,646
|
|
|
|
7,246
|
|
|
|
(370,831
|
)
|
|
|
209,939
|
|
Retained earnings (accumulated deficit)
|
|
|
(523,745
|
)
|
|
|
(523,745
|
)
|
|
|
(499,366
|
)
|
|
|
13,439
|
|
|
|
1,009,672
|
|
|
|
(523,745
|
)
|
Accumulated other comprehensive income
|
|
|
324
|
|
|
|
324
|
|
|
|
|
|
|
|
4,107
|
|
|
|
(4,431
|
)
|
|
|
324
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(313,482
|
)
|
|
|
(313,482
|
)
|
|
|
(345,720
|
)
|
|
|
24,792
|
|
|
|
634,410
|
|
|
|
(313,482
|
)
|
|
|
|
|
|
|
|
|
$
|
(313,482
|
)
|
|
$
|
823,736
|
|
|
$
|
895,256
|
|
|
$
|
43,373
|
|
|
$
|
(466,850
|
)
|
|
$
|
982,033
|
|
|
|
F-59
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings,
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
46,181
|
|
|
$
|
4,490
|
|
|
$
|
7,618
|
|
|
$
|
|
|
|
$
|
58,289
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
83,537
|
|
|
|
6,990
|
|
|
|
|
|
|
|
90,527
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
|
|
|
|
|
|
|
|
49,448
|
|
|
|
3,612
|
|
|
|
|
|
|
|
53,060
|
|
Work in process
|
|
|
|
|
|
|
|
|
|
|
27,137
|
|
|
|
948
|
|
|
|
|
|
|
|
28,085
|
|
Finished goods
|
|
|
|
|
|
|
|
|
|
|
40,133
|
|
|
|
2,134
|
|
|
|
|
|
|
|
42,267
|
|
|
|
|
|
|
|
Total inventory
|
|
|
|
|
|
|
|
|
|
|
116,718
|
|
|
|
6,694
|
|
|
|
|
|
|
|
123,412
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
3,956
|
|
|
|
15,559
|
|
|
|
470
|
|
|
|
|
|
|
|
19,985
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
13,924
|
|
|
|
2,943
|
|
|
|
|
|
|
|
16,867
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
50,137
|
|
|
|
234,228
|
|
|
|
24,715
|
|
|
|
|
|
|
|
309,080
|
|
Investments in subsidiaries
|
|
|
(242,628
|
)
|
|
|
(289,731
|
)
|
|
|
|
|
|
|
|
|
|
|
532,359
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
3,565
|
|
|
|
144
|
|
|
|
|
|
|
|
3,709
|
|
Buildings and improvements
|
|
|
|
|
|
|
|
|
|
|
34,378
|
|
|
|
828
|
|
|
|
|
|
|
|
35,206
|
|
Machinery and equipment
|
|
|
|
|
|
|
1,246
|
|
|
|
246,211
|
|
|
|
5,833
|
|
|
|
|
|
|
|
253,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,246
|
|
|
|
284,154
|
|
|
|
6,805
|
|
|
|
|
|
|
|
292,205
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(257
|
)
|
|
|
(119,426
|
)
|
|
|
(2,511
|
)
|
|
|
|
|
|
|
(122,194
|
)
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
|
|
|
989
|
|
|
|
164,728
|
|
|
|
4,294
|
|
|
|
|
|
|
|
170,011
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
193,604
|
|
|
|
|
|
|
|
|
|
|
|
193,604
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
381,854
|
|
|
|
8,925
|
|
|
|
|
|
|
|
390,779
|
|
Intercompany note receivable
|
|
|
|
|
|
|
1,107,260
|
|
|
|
|
|
|
|
|
|
|
|
(1,107,260
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
40,273
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
40,579
|
|
|
|
|
|
|
|
Total other assets
|
|
|
|
|
|
|
1,147,533
|
|
|
|
575,764
|
|
|
|
8,925
|
|
|
|
(1,107,260
|
)
|
|
|
624,962
|
|
|
|
|
|
|
|
|
|
$
|
(242,628
|
)
|
|
$
|
908,928
|
|
|
$
|
974,720
|
|
|
$
|
37,934
|
|
|
$
|
(574,901
|
)
|
|
$
|
1,104,053
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
1,070
|
|
|
$
|
55,304
|
|
|
$
|
3,229
|
|
|
$
|
|
|
|
$
|
59,603
|
|
Accrued expenses and taxes
|
|
|
|
|
|
|
24,600
|
|
|
|
49,795
|
|
|
|
1,909
|
|
|
|
|
|
|
|
76,304
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
25,670
|
|
|
|
105,099
|
|
|
|
5,138
|
|
|
|
|
|
|
|
135,907
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
28,355
|
|
|
|
|
|
|
|
|
|
|
|
28,355
|
|
Intercompany note payable
|
|
|
|
|
|
|
|
|
|
|
1,088,999
|
|
|
|
18,261
|
|
|
|
(1,107,260
|
)
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
11,700
|
|
|
|
55,623
|
|
|
|
910
|
|
|
|
|
|
|
|
68,233
|
|
Long-term debt
|
|
|
|
|
|
|
1,114,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,114,186
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
209,908
|
|
|
|
209,908
|
|
|
|
126,198
|
|
|
|
5,389
|
|
|
|
(341,495
|
)
|
|
|
209,908
|
|
Retained earnings (accumulated deficit)
|
|
|
(446,993
|
)
|
|
|
(446,993
|
)
|
|
|
(429,554
|
)
|
|
|
8,838
|
|
|
|
867,709
|
|
|
|
(446,993
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(5,543
|
)
|
|
|
(5,543
|
)
|
|
|
|
|
|
|
(602
|
)
|
|
|
6,145
|
|
|
|
(5,543
|
)
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(242,628
|
)
|
|
|
(242,628
|
)
|
|
|
(303,356
|
)
|
|
|
13,625
|
|
|
|
532,359
|
|
|
|
(242,628
|
)
|
|
|
|
|
|
|
|
|
$
|
(242,628
|
)
|
|
$
|
908,928
|
|
|
$
|
974,720
|
|
|
$
|
37,934
|
|
|
$
|
(574,901
|
)
|
|
$
|
1,104,053
|
|
|
|
F-60
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings,
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(76,752
|
)
|
|
$
|
(76,752
|
)
|
|
$
|
(69,812
|
)
|
|
$
|
4,601
|
|
|
$
|
141,963
|
|
|
$
|
(76,752
|
)
|
Adjustments to reconcile net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss) to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
169
|
|
|
|
55,398
|
|
|
|
704
|
|
|
|
|
|
|
|
56,271
|
|
Non-cash interest expense, net
|
|
|
|
|
|
|
8,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,911
|
|
Gain on foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(475
|
)
|
|
|
|
|
|
|
(475
|
)
|
Loss (gain) on sale of assets
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
5
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(16,676
|
)
|
|
|
626
|
|
|
|
|
|
|
|
(16,050
|
)
|
Equity in subsidiaries net income (loss)
|
|
|
76,752
|
|
|
|
65,211
|
|
|
|
|
|
|
|
|
|
|
|
(141,963
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
(3,120
|
)
|
|
|
298
|
|
|
|
|
|
|
|
(2,822
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
26,430
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
26,400
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
3,441
|
|
|
|
(1,099
|
)
|
|
|
(2,629
|
)
|
|
|
|
|
|
|
(287
|
)
|
Accounts payable
|
|
|
|
|
|
|
3,284
|
|
|
|
(10,482
|
)
|
|
|
(622
|
)
|
|
|
|
|
|
|
(7,820
|
)
|
Accrued expenses and taxes
|
|
|
|
|
|
|
(3,437
|
)
|
|
|
4,854
|
|
|
|
182
|
|
|
|
|
|
|
|
1,599
|
|
Cash payments on restructuring liabilities
|
|
|
|
|
|
|
|
|
|
|
(6,034
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,034
|
)
|
Other
|
|
|
|
|
|
|
31
|
|
|
|
328
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
858
|
|
|
|
(20,191
|
)
|
|
|
2,451
|
|
|
|
|
|
|
|
(16,882
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(23
|
)
|
|
|
(7,572
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
(7,807
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
23
|
|
|
|
|
|
|
|
81
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(23
|
)
|
|
|
(7,623
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
(7,835
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
Net revolver payments
|
|
|
|
|
|
|
(35,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,000
|
)
|
Proceeds from intercompany investment
|
|
|
|
|
|
|
(22,147
|
)
|
|
|
25,916
|
|
|
|
(3,769
|
)
|
|
|
|
|
|
|
-
|
|
Debt issuance costs paid
|
|
|
|
|
|
|
(2,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,528
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(39,675
|
)
|
|
|
25,916
|
|
|
|
(3,769
|
)
|
|
|
|
|
|
|
(17,528
|
)
|
Impact of exchange rate movement on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,019
|
|
|
|
|
|
|
|
1,019
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(38,840
|
)
|
|
|
(1,898
|
)
|
|
|
(488
|
)
|
|
|
|
|
|
|
(41,226
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
46,181
|
|
|
|
4,490
|
|
|
|
7,618
|
|
|
|
|
|
|
|
58,289
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
|
|
|
$
|
7,341
|
|
|
$
|
2,592
|
|
|
$
|
7,130
|
|
|
$
|
|
|
|
$
|
17,063
|
|
|
|
F-61
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings,
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(498,475
|
)
|
|
$
|
(498,475
|
)
|
|
$
|
(475,562
|
)
|
|
$
|
(16,117
|
)
|
|
$
|
990,154
|
|
|
$
|
(498,475
|
)
|
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
136
|
|
|
|
60,855
|
|
|
|
774
|
|
|
|
|
|
|
|
61,765
|
|
Fair value premium on purchased inventory
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Non-cash interest expense, net
|
|
|
|
|
|
|
7,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,144
|
|
Loss on foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
911
|
|
|
|
|
|
|
|
911
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
418,549
|
|
|
|
31,451
|
|
|
|
|
|
|
|
450,000
|
|
Loss on sale of assets
|
|
|
|
|
|
|
|
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
886
|
|
Write-off of debt financing costs
|
|
|
|
|
|
|
14,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,047
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(71,293
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
(71,362
|
)
|
Equity in subsidiaries net income (loss)
|
|
|
498,475
|
|
|
|
491,679
|
|
|
|
|
|
|
|
|
|
|
|
(990,154
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
15,415
|
|
|
|
2,764
|
|
|
|
|
|
|
|
18,179
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
3,046
|
|
|
|
260
|
|
|
|
|
|
|
|
3,306
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
2,649
|
|
|
|
(1,771
|
)
|
|
|
(204
|
)
|
|
|
|
|
|
|
674
|
|
Accounts payable
|
|
|
|
|
|
|
724
|
|
|
|
(21,306
|
)
|
|
|
(1,303
|
)
|
|
|
|
|
|
|
(21,885
|
)
|
Accrued expenses and taxes
|
|
|
|
|
|
|
1,732
|
|
|
|
(6,315
|
)
|
|
|
(11,322
|
)
|
|
|
|
|
|
|
(15,905
|
)
|
Cash payments on restructuring liabilities
|
|
|
|
|
|
|
|
|
|
|
(7,547
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,547
|
)
|
Other
|
|
|
|
|
|
|
24
|
|
|
|
18
|
|
|
|
(664
|
)
|
|
|
|
|
|
|
(622
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
19,660
|
|
|
|
(85,006
|
)
|
|
|
6,481
|
|
|
|
|
|
|
|
(58,865
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(704
|
)
|
|
|
(14,765
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
(16,569
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
5,810
|
|
|
|
3,015
|
|
|
|
|
|
|
|
|
|
|
|
8,825
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(3,614
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,614
|
)
|
Other
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
4,977
|
|
|
|
(15,364
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
(11,487
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
693,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
693,504
|
|
Net revolver borrowings
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
Proceeds from intercompany investment
|
|
|
|
|
|
|
(117,698
|
)
|
|
|
99,437
|
|
|
|
18,261
|
|
|
|
|
|
|
|
-
|
|
Payments on long-term debt
|
|
|
|
|
|
|
(657,347
|
)
|
|
|
|
|
|
|
(20,563
|
)
|
|
|
|
|
|
|
(677,910
|
)
|
Debt issuance costs paid
|
|
|
|
|
|
|
(26,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,578
|
)
|
Equity contributions
|
|
|
|
|
|
|
30,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,310
|
|
Equity repurchases
|
|
|
|
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(18,902
|
)
|
|
|
99,437
|
|
|
|
(2,302
|
)
|
|
|
|
|
|
|
78,233
|
|
Impact of exchange rate movement on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,645
|
)
|
|
|
|
|
|
|
(1,645
|
)
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
5,735
|
|
|
|
(933
|
)
|
|
|
1,434
|
|
|
|
|
|
|
|
6,236
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
40,446
|
|
|
|
5,423
|
|
|
|
6,184
|
|
|
|
|
|
|
|
52,053
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
|
|
|
$
|
46,181
|
|
|
$
|
4,490
|
|
|
$
|
7,618
|
|
|
$
|
|
|
|
$
|
58,289
|
|
|
|
F-62
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings,
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,982
|
|
|
$
|
4,982
|
|
|
$
|
(6,489
|
)
|
|
$
|
11,060
|
|
|
$
|
(9,553
|
)
|
|
$
|
4,982
|
|
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
41
|
|
|
|
53,312
|
|
|
|
714
|
|
|
|
|
|
|
|
54,067
|
|
Fair value premium on purchased inventory
|
|
|
|
|
|
|
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
1,289
|
|
Non-cash interest expense, net
|
|
|
|
|
|
|
6,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,941
|
|
Gain on foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,961
|
)
|
|
|
|
|
|
|
(3,961
|
)
|
Intangible asset impairment
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
|
|
|
|
|
|
|
|
|
|
4,150
|
|
Loss on sale of assets
|
|
|
|
|
|
|
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
356
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(2,856
|
)
|
|
|
1,568
|
|
|
|
|
|
|
|
(1,288
|
)
|
Equity in subsidiaries net income
|
|
|
(4,982
|
)
|
|
|
(4,571
|
)
|
|
|
|
|
|
|
|
|
|
|
9,553
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
33,665
|
|
|
|
(1,011
|
)
|
|
|
|
|
|
|
32,654
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
7,283
|
|
|
|
240
|
|
|
|
|
|
|
|
7,523
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
4,553
|
|
|
|
2,446
|
|
|
|
128
|
|
|
|
|
|
|
|
7,127
|
|
Accounts payable
|
|
|
|
|
|
|
131
|
|
|
|
(17,055
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
(17,074
|
)
|
Accrued expenses and taxes
|
|
|
|
|
|
|
(1,844
|
)
|
|
|
(23,764
|
)
|
|
|
2,282
|
|
|
|
|
|
|
|
(23,326
|
)
|
Cash payments on restructuring liabilities
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
(210
|
)
|
Other
|
|
|
|
|
|
|
45
|
|
|
|
(199
|
)
|
|
|
768
|
|
|
|
|
|
|
|
614
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
10,278
|
|
|
|
51,928
|
|
|
|
11,638
|
|
|
|
|
|
|
|
73,844
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(18,973
|
)
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
(20,017
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(36,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,453
|
)
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(36,453
|
)
|
|
|
(18,910
|
)
|
|
|
(1,044
|
)
|
|
|
|
|
|
|
(56,407
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revolver borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from intercompany investment
|
|
|
|
|
|
|
41,178
|
|
|
|
(36,832
|
)
|
|
|
(4,346
|
)
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
|
|
|
|
(6,373
|
)
|
|
|
|
|
|
|
(4,250
|
)
|
|
|
|
|
|
|
(10,623
|
)
|
Debt issuance costs
|
|
|
|
|
|
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,100
|
)
|
Equity contributions
|
|
|
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900
|
|
Equity repurchases
|
|
|
|
|
|
|
(3,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,245
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
30,360
|
|
|
|
(36,832
|
)
|
|
|
(8,596
|
)
|
|
|
|
|
|
|
(15,068
|
)
|
Impact of exchange rate movement on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
863
|
|
|
|
|
|
|
|
863
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
4,185
|
|
|
|
(3,814
|
)
|
|
|
2,861
|
|
|
|
|
|
|
|
3,232
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
36,261
|
|
|
|
9,237
|
|
|
|
3,323
|
|
|
|
|
|
|
|
48,821
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
|
|
|
$
|
40,446
|
|
|
$
|
5,423
|
|
|
$
|
6,184
|
|
|
$
|
|
|
|
$
|
52,053
|
|
|
|
F-63
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(amounts in thousands (except
per share data))
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
|
|
Net sales
|
|
$
|
204,205
|
|
|
$
|
182,751
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
167,308
|
|
|
|
169,691
|
|
Selling, general and administrative expenses
|
|
|
33,806
|
|
|
|
40,962
|
|
Amortization of intangible assets
|
|
|
6,794
|
|
|
|
4,906
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
207,908
|
|
|
|
215,559
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,703
|
)
|
|
|
(32,808
|
)
|
Foreign currency gain (loss)
|
|
|
104
|
|
|
|
(88
|
)
|
Interest expense
|
|
|
(34,007
|
)
|
|
|
(33,756
|
)
|
Interest income
|
|
|
53
|
|
|
|
65
|
|
Gain on extinguishment of debt
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
60,634
|
|
|
|
(66,587
|
)
|
Provision (benefit) for income taxes
|
|
|
6,532
|
|
|
|
(11,049
|
)
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) attributable to common
stockholders per common share:
|
|
$
|
541.02
|
|
|
$
|
(555.38
|
)
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per common share (unaudited):
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
condensed consolidated financial statements.
F-64
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands (except
per share data))
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,659
|
|
|
$
|
17,063
|
|
Accounts receivable, less allowances of $5,470 and $5,467,
respectively
|
|
|
114,960
|
|
|
|
94,428
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
41,731
|
|
|
|
39,787
|
|
Work in process
|
|
|
25,597
|
|
|
|
23,343
|
|
Finished goods
|
|
|
42,117
|
|
|
|
34,950
|
|
|
|
|
|
|
|
Total inventory
|
|
|
109,445
|
|
|
|
98,080
|
|
Prepaid expenses and other current assets
|
|
|
21,913
|
|
|
|
19,448
|
|
Deferred income taxes
|
|
|
|
|
|
|
5,762
|
|
|
|
|
|
|
|
Total current assets
|
|
|
277,977
|
|
|
|
234,781
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
3,739
|
|
|
|
3,732
|
|
Buildings and improvements
|
|
|
35,763
|
|
|
|
35,687
|
|
Machinery and equipment
|
|
|
264,537
|
|
|
|
261,319
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
304,039
|
|
|
|
300,738
|
|
Less accumulated depreciation
|
|
|
(167,789
|
)
|
|
|
(159,036
|
)
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
136,250
|
|
|
|
141,702
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
167,270
|
|
|
|
174,064
|
|
Goodwill
|
|
|
393,281
|
|
|
|
392,838
|
|
Deferred income taxes
|
|
|
3,605
|
|
|
|
2,716
|
|
Other
|
|
|
32,918
|
|
|
|
35,932
|
|
|
|
|
|
|
|
Total other assets
|
|
|
597,074
|
|
|
|
605,550
|
|
|
|
|
|
|
|
|
|
$
|
1,011,301
|
|
|
$
|
982,033
|
|
|
|
|
|
|
|
|
Liabilities and stockholders deficit
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
68,099
|
|
|
$
|
52,833
|
|
Accrued expenses and taxes
|
|
|
92,231
|
|
|
|
72,423
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
160,330
|
|
|
|
125,256
|
|
Deferred income taxes
|
|
|
2,940
|
|
|
|
4,211
|
|
Other long term liabilities
|
|
|
65,084
|
|
|
|
65,651
|
|
Long-term debt due to related parties
|
|
|
|
|
|
|
281,376
|
|
Long-term debt
|
|
|
926,778
|
|
|
|
819,021
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par, 100 shares authorized, none
issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock $0.01 par, 100 shares authorized, issued
and outstanding
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
324,174
|
|
|
|
209,939
|
|
Accumulated deficit
|
|
|
(469,643
|
)
|
|
|
(523,745
|
)
|
Accumulated other comprehensive income
|
|
|
1,638
|
|
|
|
324
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(143,831
|
)
|
|
|
(313,482
|
)
|
|
|
|
|
|
|
|
|
$
|
1,011,301
|
|
|
$
|
982,033
|
|
|
|
See accompanying notes to
condensed consolidated financial statements.
F-65
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
Adjustments to reconcile net income (loss) to cash
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
15,454
|
|
|
|
13,896
|
|
Non-cash interest expense, net
|
|
|
2,730
|
|
|
|
2,044
|
|
(Gain) loss on foreign currency transactions
|
|
|
(104
|
)
|
|
|
88
|
|
Gain on extinguishment of debt
|
|
|
(98,187
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
3,746
|
|
|
|
(15,096
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(20,160
|
)
|
|
|
(15,926
|
)
|
Inventories
|
|
|
(11,086
|
)
|
|
|
17,044
|
|
Prepaid expenses and other current assets
|
|
|
(2,476
|
)
|
|
|
(2,817
|
)
|
Accounts payable
|
|
|
15,109
|
|
|
|
(11,514
|
)
|
Accrued expenses and taxes
|
|
|
20,429
|
|
|
|
21,405
|
|
Cash payments on restructuring liabilities
|
|
|
(1,094
|
)
|
|
|
(1,926
|
)
|
Other
|
|
|
121
|
|
|
|
(376
|
)
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(21,416
|
)
|
|
|
(48,716
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(3,029
|
)
|
|
|
(2,446
|
)
|
Proceeds from sale of assets
|
|
|
1
|
|
|
|
21
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,028
|
)
|
|
|
(2,425
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
145,709
|
|
|
|
|
|
Net revolver borrowings
|
|
|
40,000
|
|
|
|
10,000
|
|
Payments on long-term debt
|
|
|
(141,191
|
)
|
|
|
|
|
Debt issuance costs paid
|
|
|
(4,868
|
)
|
|
|
(26
|
)
|
Equity contributions
|
|
|
1,200
|
|
|
|
|
|
Equity repurchases
|
|
|
(1,900
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
38,950
|
|
|
|
9,974
|
|
Impact of exchange rate movements on cash
|
|
|
90
|
|
|
|
93
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
14,596
|
|
|
|
(41,074
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
17,063
|
|
|
|
58,289
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
31,659
|
|
|
$
|
17,215
|
|
|
|
See accompanying notes to
condensed consolidated financial statements.
F-66
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
1.
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Basis of
Presentation
The accompanying unaudited condensed consolidated financial
statements of Ply Gem Holdings, Inc. and its subsidiaries
(referred to herein as Ply Gem Holdings, Ply
Gem, the Company, we,
us, or our) have been prepared in
accordance with U.S. generally accepted accounting
principles as described in the consolidated financial statements
and related notes included in our 2009 Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
March 19, 2010. These statements do not include all of the
information and footnotes required by U.S. generally
accepted accounting principles and should be read in conjunction
with our 2009 Annual Report on
Form 10-K.
In managements opinion, all normal and recurring
adjustments considered necessary for a fair presentation have
been included. Operating results for the period from
January 1, 2010 through April 3, 2010 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2010.
Prior to January 11, 2010, Ply Gem Holdings was a wholly
owned subsidiary of Ply Gem Investment Holdings, Inc. (Ply
Gem Investment Holdings), which was wholly owned by Ply
Gem Prime Holdings, Inc. (Ply Gem Prime). Ply Gem
Investment Holdings was incorporated on January 23, 2004
for the purpose of acquiring Ply Gem Industries, Inc. (Ply
Gem Industries) from Nortek, Inc. (Nortek).
The Ply Gem acquisition was completed on February 12, 2004,
when Nortek sold Ply Gem Industries to Ply Gem Holdings, an
affiliate of CI Capital Partners LLC pursuant to the terms of
the stock purchase agreement among Ply Gem Investment Holdings,
Nortek, and WDS LLC, dated as of December 19, 2003, as
amended. Prior to February 12, 2004, the date of the Ply
Gem acquisition, Ply Gem Holdings had no operations and Ply Gem
Industries was wholly owned by a subsidiary of WDS LLC, which
was a wholly owned subsidiary of Nortek. On February 24,
2006, in connection with the acquisition of Alenco, a new
holding company, Ply Gem Prime Holdings, was formed pursuant to
a merger involving Ply Gem Investment Holdings. As a result, Ply
Gem Prime Holdings became the sole shareholder of Ply Gem
Investment Holdings. On January 11, 2010, Ply Gem
Investment Holdings was merged with and into Ply Gem Prime, with
Ply Gem Prime as the surviving corporation. As a result, Ply Gem
Holdings is a wholly owned subsidiary of Ply Gem Prime.
The condensed consolidated balance sheet at December 31,
2009 has been derived from the audited consolidated financial
statements of Ply Gem Holdings at that date, but does not
include all of the information and footnotes required by
U.S. generally accepted accounting principles for complete
financial statements.
The Companys fiscal quarters are based on periods ending
on the last Saturday of the last week in the quarter. Therefore,
the financial results of certain fiscal quarters will not be
comparable to the prior and subsequent fiscal quarters. The
accompanying financial statements include the Companys
condensed consolidated statements of operations for the three
month periods ended April 3, 2010 and April 4, 2009,
the condensed consolidated statements of cash flows for the
three month periods ended April 3, 2010 and April 4,
2009, and the condensed consolidated balance sheets for the
Company as of April 3, 2010 and December 31, 2009.
F-67
Ply Gem is a diversified manufacturer of residential and
commercial building products, which are sold primarily in the
United States and Canada, and include a wide variety of products
for the residential and commercial construction, the
do-it-yourself and the professional remodeling and renovation
markets. The demand for our products is seasonal, particularly
in the Northeast and Midwest regions of the United States and
western Canada where inclement weather during the winter months
usually reduces the level of building and remodeling activity in
both the home repair and remodeling and new home construction
sectors. The Companys sales are usually lower during the
first and fourth quarters.
To a significant extent our performance is dependent upon the
levels of home repair and remodeling and new home construction
spending, all of which are affected by such factors as interest
rates, inflation, consumer confidence, unemployment, and
availability of consumer credit.
Principles of
Consolidation
The condensed consolidated financial statements include the
accounts of Ply Gem Holdings and its subsidiaries, all of which
are wholly owned. All intercompany accounts and transactions
have been eliminated.
Unaudited Pro
Forma Financial Information
The unaudited pro forma earnings (loss) per common share is
being presented to give effect to the shares of Ply Gem Holdings
common stock that will be issued in connection with the merger
of the Company with its parent, Ply Gem Prime Holdings. In
connection with the proposed initial public offering, the
Company will merge with Ply Gem Prime Holdings, which will
result in the conversion of outstanding common stock and
preferred stock of its parent into common equity of Ply Gem
Holdings and result in a single class of outstanding common
stock (the Reorganization). In connection with this
Reorganization, the outstanding options to purchase Ply Gem
Prime Holdings common stock will convert into Ply Gem Holdings
stock options. The pro forma weighted average common shares
outstanding assume the conversion of the Ply Gem Prime Holdings
common stock and preferred stock into shares of Ply Gem Holdings
common stock upon the consummation of the Reorganization.
Reclassifications
Certain amounts in the prior fiscal year have been reclassified
to conform to the presentation adopted in the current fiscal
year with no effect on net income (loss) or accumulated deficit.
Accounting
Policies and Use of Estimates
The preparation of these condensed consolidated financial
statements in conformity with U.S. generally accepted
accounting principles involves estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of income
and expense during the reporting periods. Certain of the
Companys accounting policies require the application of
judgment in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. The
Company periodically evaluates the judgments and estimates used
in their critical accounting policies to ensure that such
judgments and estimates are reasonable. Such estimates include
the allowance
F-68
for doubtful accounts receivable, valuation reserve for
inventories, warranty reserves, legal contingencies, assumptions
used in the calculation of income taxes, and projected cash
flows used in the goodwill and intangible asset impairment
tests. These judgments are based on the Companys
historical experience, current trends and information available
from other sources, and are based on managements best
estimates and judgments. The Company adjusts such estimates and
assumptions when facts and circumstances dictate. Illiquid
credit markets, volatile equity, foreign currency, and the
depressed housing and remodeling market have combined to
increase the uncertainty inherent in such estimates and
assumptions. If different conditions result from those
assumptions used in the Companys judgments, actual results
could be materially different from the Companys estimates.
Inventories
Inventories in the accompanying condensed consolidated balance
sheets are valued at the lower of cost or market. The Company
records provisions, as appropriate, to write-down obsolete and
excess inventory to estimated net realizable value. The process
for evaluating obsolete and excess inventory often requires the
Company to make subjective judgments and estimates concerning
future sales levels, quantities and prices at which such
inventory will be sold in the normal course of business.
Accelerating the disposal process or incorrect estimates of
future sales may cause actual results to differ from estimates
at the time such inventory is disposed or sold. As of
April 3, 2010, the Company had inventory purchase
commitments of approximately $65.0 million. Inventory
reserves were approximately $7.1 million at April 3,
2010, increasing approximately $0.4 million compared to the
December 31, 2009 reserve balance of approximately
$6.7 million.
Goodwill and
other Long-lived Assets
Long-lived
assets
The Company reviews long-lived assets for impairment annually or
whenever events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully
recoverable. The Company performs undiscounted operating cash
flow analyses to determine if impairment exists. If impairment
is determined to exist, any related impairment loss is
calculated based on the assets fair value and the
discounted cash flow.
As of December 31, 2009, the Company determined that the
continued decline in the US housing market required a
re-evaluation of the Companys forecasts. The Company
tested for impairment using the Step One test for
asset groups held and used, and determined that further
impairment testing of the fair value of the asset groups (under
Step Two) was not necessary at December 31,
2009 because the undiscounted cash flows exceeded the carrying
values of the long-lived asset groups. There were no indications
of impairment during the quarter ended April 3, 2010.
The Company tests for long-lived asset impairment at the
following asset group levels: i) Siding, Fencing, and Stone
(Siding), ii) the combined US Windows companies
in the Windows and Doors segment (US Windows), and
iii) Ply Gem Canada (formerly known as CWD Windows and
Doors, Inc.) in the Windows and Doors segment. For purposes of
recognition and measurement of an impairment loss, a long-lived
asset or asset group should represent the lowest level for which
an entity can separately identify cash flows that are largely
independent of the cash flows of other assets and liabilities.
Ply Gem concluded that the lowest level for
F-69
identifiable cash flows is Siding, US Windows and Ply Gem
Canada. This is one level below the segment reporting unit of
Windows and Doors and reflects the lowest level of
identifiable cash flows. Management believes that the US Windows
unit cannot be further broken down as a result of the 2008 US
Windows reorganization. As a result, Ply Gem now markets
themselves to US Windows customers as one company rather than
separate companies. In addition, certain manufacturing
facilities provide inventory to multiple window divisions for
assembling the final products. Therefore, from an economic
standpoint, the Company evaluates the cash flows as a group
rather than at the divisional levels. The US Windows and Ply Gem
Canada financial data is the lowest level of reliable
information that is prepared and reviewed by management on a
consistent basis. The Company made a similar conclusion for
Siding as its product lines are grouped at a Siding level as
there are interdependencies between products.
Goodwill
The Company evaluates goodwill for impairment on an annual basis
and whenever events or business conditions warrant. All other
intangible assets are amortized over their estimated useful
lives. The Company assesses goodwill for impairment during the
fourth quarter of each year and also at any other date when
events or changes in circumstances indicate that the carrying
value of these assets may exceed their fair value. To evaluate
goodwill for impairment, the Company estimates the fair value of
reporting units considering such factors as discounted cash
flows and valuation multiples for comparable publicly traded
companies. A significant reduction in projected sales and
earnings which would lead to a reduction in future cash flows
could indicate potential impairment. There were no indications
of impairment during the quarter ended April 3, 2010 that
would trigger an interim impairment test.
Debt Issuance
Costs
Debt issuance costs, composed of facility, agency, and certain
legal fees associated with acquiring new debt financing, are
amortized over the contractual term of the related agreement
using the effective interest method. Debt issuance costs, net of
accumulated amortization, were approximately $24.4 million
and $27.3 million at April 3, 2010 and
December 31, 2009, respectively, and have been recorded in
other long term assets in the accompanying condensed
consolidated balance sheets.
Income
Taxes
The Company utilizes the asset and liability method of
accounting for income taxes which requires that deferred tax
assets and liabilities be recorded to reflect the future tax
consequences of temporary differences between the book and tax
basis of various assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
of changes in tax rates on deferred tax assets and liabilities
is recognized as income or expense in the period in which the
rate change occurs. A valuation allowance is established to
offset any deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Estimates are required with respect to, among other things, the
appropriate state income tax rates used in the various states
that the Company and its subsidiaries are required to file, the
potential utilization of operating and capital loss
carry-forwards for both federal and state income tax purposes
and valuation allowances required, if any, for tax assets that
may not be
F-70
realized in the future. The Company establishes reserves when,
despite our belief that our tax return positions are fully
supportable, certain positions could be challenged, and the
positions may not be fully sustained. Subsequent to
February 12, 2004, U.S. federal income tax returns are
prepared and filed by Ply Gem Investment Holdings, Inc. on
behalf of itself, Ply Gem Holdings, and Ply Gem Industries and
its subsidiaries. The tax sharing agreement between Ply Gem
Holdings and Ply Gem Investment Holdings under which tax
liabilities for each respective party are computed on a
stand-alone basis, was amended during 2006 to include Ply Gem
Prime. On January 11, 2010, Ply Gem Investment Holdings was
merged with and into Ply Gem Prime, with Ply Gem Prime as the
surviving corporation. As a result, each outstanding share of
senior preferred stock of Ply Gem Investment Holdings was
converted into a share of a corresponding class of shares of the
capital stock of Ply Gem Prime.
U.S. subsidiaries file unitary, combined federal income tax
returns and separate state income tax returns. Ply Gem Canada
files separate Canadian income tax returns.
Foreign
Currency
The Companys Canadian subsidiary, Ply Gem Canada, utilizes
the Canadian dollar as its functional currency. For reporting
purposes, the Company translates the assets and liabilities of
its foreign subsidiary at the exchange rates in effect at the
end of the reporting periods. Net sales and expenses are
translated using average exchange rates in effect during the
reporting periods. Gains and losses from foreign currency
translation are credited or charged to accumulated other
comprehensive income (loss) in the accompanying condensed
consolidated balance sheets.
For the three month periods ended April 3, 2010 and
April 4, 2009, the Company recorded a gain from foreign
currency transactions of approximately $0.1 million and a
loss from foreign currency transactions of approximately
$0.1 million, respectively. As of April 3, 2010, and
December 31, 2009, accumulated other comprehensive income
included a currency translation adjustment of approximately
$5.4 million and $4.1 million, respectively.
Concentration of
Credit Risk
The accounts receivable balance related to one customer of the
Siding, Fencing and Stone segment was approximately
$9.8 million and $5.5 million at April 3, 2010
and December 31, 2009, respectively. This customer
accounted for approximately 8.6% of net sales for the three
month period ended April 3, 2010 and 10.2% of net sales for
the three months ended April 4, 2009.
Fair Value
Measurement
The Company adopted the fair value accounting standard during
the first quarter of 2008. The accounting standard for fair
value provides guidance for measuring fair value and requires
certain disclosures. This standard does not require any new fair
value measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements.
This standard does not apply measurements related to share-based
payments, nor does it apply to measurements related to inventory.
The accounting standard for fair value discusses valuation
techniques, such as the market approach (comparable market
prices), the income approach (present value of future income or
cash flows), and the cost approach (cost to replace the service
capacity of an asset or
F-71
replacement cost). The standard utilizes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels. The following is a
brief description of those three levels:
|
|
|
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
|
|
|
Level 2: Inputs other than quoted prices that
are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or
liabilities in active markets and quoted prices for identical or
similar assets or liabilities in markets that are not active.
|
|
|
Level 3: Inputs that reflect the reporting
entitys own assumptions.
|
The hierarchy requires the use of observable market data, when
available, and to minimize the use of unobservable inputs when
determining fair value. The Companys population of
recurring financial assets and liabilities subject to fair value
measurements and the necessary disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
in active markets
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
Fair
|
|
|
for identical
|
|
|
observable
|
|
|
unobservable
|
|
|
|
Carrying
|
|
|
value
|
|
|
assets
|
|
|
inputs
|
|
|
inputs
|
|
(amounts in thousands)
|
|
value
|
|
|
total
|
|
|
(level 1)
|
|
|
(level 2)
|
|
|
(level 3)
|
|
|
|
|
As of April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated Notes-13.125%
|
|
$
|
150,000
|
|
|
$
|
156,000
|
|
|
$
|
156,000
|
|
|
$
|
|
|
|
$
|
|
|
Senior Secured Notes-11.75%
|
|
|
725,000
|
|
|
|
766,688
|
|
|
|
766,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
875,000
|
|
|
$
|
922,688
|
|
|
$
|
922,688
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
600
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated Notes-9%
|
|
$
|
360,000
|
|
|
$
|
302,400
|
|
|
$
|
302,400
|
|
|
$
|
|
|
|
$
|
|
|
Senior Secured Notes-11.75%
|
|
|
725,000
|
|
|
|
725,000
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,085,000
|
|
|
$
|
1,027,400
|
|
|
$
|
1,027,400
|
|
|
$
|
|
|
|
$
|
|
|
|
|
The fair value of the long-term debt instruments was determined
by utilizing available market information. The carrying value of
the Companys other financial instruments approximates
their fair value.
F-72
In accordance with the fair value accounting standard, certain
non-financial assets and non-financial liabilities measured at
fair value on a recurring basis include reporting units measured
at fair value in the first step of a goodwill impairment test.
Certain non-financial assets and non-financial liabilities
measured at fair value on a non-recurring basis include
non-financial assets and non-financial liabilities measured at
fair value in the second step of a goodwill impairment test, as
well as intangible assets and other non-financial long-lived
assets measured at fair value for impairment assessment.
Earnings (loss)
per common share
Basic and diluted earnings per share (EPS) is
computed by dividing net income (loss) available to common
stockholders by the weighted-average number of shares
outstanding. The Company had 100 shares of common stock
outstanding for the three months ended April 3, 2010 and
April 4, 2009. In addition, all stock options and preferred
stock are issued at the Ply Gem Prime level; therefore, no
dilutive effect would exist at Ply Gem Holdings as these amounts
have been recorded within additional paid in capital.
Consequently, for purposes of EPS the Company calculated the
amounts as net income (loss) divided by the 100 shares of
common stock outstanding.
In connection with the proposed initial public offering, the
Company will merge with its parent company, Ply Gem Prime
Holdings, which will result in the conversion of outstanding
common stock and preferred stock of its parent into Ply Gem
Holdings common equity and result in a single class of
outstanding common stock. In connection with this
Reorganization, the outstanding options to purchase Ply Gem
Prime Holdings common stock will convert into Ply Gem Holdings
stock options.
The unaudited pro forma earnings (loss) per common share is
being presented to show the impact of the conversion of the
outstanding common stock and preferred stock of Ply Gem Prime
Holdings to Ply Gem Holdings common stock that will occur in
connection with the Reorganization. The unaudited pro forma
basic earnings (loss) per common share is computed by dividing
income (loss) attributable to common stockholders by the
unaudited pro forma weighted average number of common shares
outstanding for the period.
The following details the computation of the pro forma earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended
|
|
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
(amounts in thousands (except per share data))
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
Net Income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538)
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average common share calculation:
|
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings common stock
|
|
|
|
|
|
|
|
|
Conversion of Ply Gem Prime Holdings preferred stock
|
|
|
|
|
|
|
|
|
Unaudited basic pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Treasury stock effect of outstanding stock options
|
|
|
|
|
|
|
|
|
Unaudited diluted pro forma weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings (loss) per common share):
|
|
|
|
|
|
|
|
|
Pro forma basic earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
F-73
New Accounting
Pronouncements
In June 2009, the Financial Accounting Standards Board
(FASB) revised the authoritative guidance for
accounting for transfers of financial assets, which requires
enhanced disclosures regarding transfers of financial assets,
including securitization transactions, and continuing exposure
to the related risks. The guidance eliminates the concept of a
qualifying special-purpose entity and changes the requirements
for derecognizing financial assets and is effective for the
Company beginning October 3, 2010. The Company is currently
evaluating the impact of adopting this guidance; however, it is
not expected to have a material impact on the Companys
consolidated financial position, results of operations or cash
flows.
In June 2009, the FASB revised the authoritative guidance for
consolidating variable interest entities, which changes how a
company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among
other things, an entitys purpose and design and a
companys ability to direct the activities of the entity
that most significantly impact the entitys economic
performance and is effective for the Company beginning
October 3, 2010. The Company is currently evaluating the
impact the adoption of this guidance will have on its
consolidated financial statements.
In January 2010, the FASB issued authoritative guidance which
requires additional disclosures about transfers between
Levels 1 and 2 of the fair value hierarchy and disclosures
about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements.
This guidance was effective for the Company in the current
quarter, except for the Level 3 activity disclosures, which
are effective for fiscal years beginning after December 15,
2010. The adoption of this guidance, which impacts any fair
value disclosures, is not expected to have a material impact on
the Companys consolidated financial position, results of
operations or cash flows.
The Company records the excess of purchase price over the fair
value of the net assets of acquired companies as goodwill or
other identifiable intangible assets. The Company performs an
annual test for goodwill impairment during the fourth quarter of
each year and also at any other date when events or changes in
circumstances indicate that the carrying value of these assets
may exceed their fair value. The Company has defined its
reporting units and performs the impairment testing of goodwill
at the operating segment level. The Company has aggregated US
Windows and Ply Gem Canada into a single reporting unit since
they have similar economic characteristics. Thus, the Company
has two reporting units: 1) Siding, Fencing, and Stone and
2) Windows and Doors. Separate valuations are performed for
each of these reporting units in order to test for impairment.
The Company uses the two-step method to determine goodwill
impairment. If the carrying amount of a reporting unit exceeds
its fair value (Step One), the Company measures the possible
goodwill impairment based upon a hypothetical allocation of the
fair value estimate of the reporting unit to all of the
underlying assets and liabilities of the reporting unit,
including previously unrecognized intangible assets (Step Two).
The excess of the reporting units fair value over the
amounts assigned to its assets and liabilities is the implied
fair value of goodwill. An impairment loss is recognized to the
extent that a reporting units recorded goodwill exceeds
the implied fair value of goodwill. There was no goodwill
impairment at December 31,
F-74
2009 and no impairment indicators which would trigger an interim
impairment test during the quarter ended April 3, 2010.
To determine the fair value of its reporting units, the Company
equally considers both the income and market valuation
methodologies. The income valuation methodology uses the fair
value of the cash flows that the reporting unit can be expected
to generate in the future. This method requires management to
project revenues, operating expenses, working capital
investment, capital spending and cash flows for the reporting
unit over a multi-year period as well as determine the weighted
average cost of capital to be used as the discount rate. The
Company also utilizes the market valuation method to estimate
the fair value of the reporting units by utilizing comparable
public company multiples. These comparable public company
multiples are then applied to the reporting units
financial performance. During the year ended December 31,
2009, the Company utilized forward looking market multiples for
its reporting units. The forward multiples were used since each
reporting unit incurred various restructuring activities during
2009. The market approach is more volatile as an indicator of
fair value as compared to the income approach as internal
forecasts and projections have historically been more stable.
Since each approach has its merits, the Company equally weights
the approaches to balance the internal and external factors
affecting the Companys fair value, which is consistent
with prior years.
The Companys fair value estimates of its reporting units
and goodwill are sensitive to a number of assumptions including
discount rates, cash flow projections, operating margins, and
comparable market multiples. In order to accurately forecast
future cash flows, the Company estimates single family housing
starts and the repair and remodeling markets growth rates.
However, there is no assurance that: 1) valuation multiples
will not decline further , 2) discount rates will not
increase, or 3) the earnings, book values or projected
earnings and cash flows of the Companys reporting units
will not decline. The Company will continue to analyze changes
to these assumptions in future periods. The Company will
continue to evaluate goodwill during future periods and further
declines in the residential housing and remodeling markets could
result in additional goodwill impairments.
The reporting unit goodwill balances were as follows as of
April 3, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Windows and Doors
|
|
$
|
73,174
|
|
|
$
|
72,731
|
|
Siding, Fencing and Stone
|
|
|
320,107
|
|
|
|
320,107
|
|
|
|
|
|
|
|
|
|
$
|
393,281
|
|
|
$
|
392,838
|
|
|
|
The increase in goodwill during the three months ended
April 3, 2010 was due to currency translation adjustments
of approximately $0.4 million.
F-75
The following table presents the components of intangible assets
as of April 3, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
|
|
|
|
Accumulated
|
|
|
Net carrying
|
|
(amounts in thousands)
|
|
(in years)
|
|
|
Cost
|
|
|
amortization
|
|
|
value
|
|
|
|
|
As of April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
14
|
|
|
$
|
12,770
|
|
|
$
|
(5,713
|
)
|
|
$
|
7,057
|
|
Trademarks/tradenames
|
|
|
11
|
|
|
|
85,644
|
|
|
|
(24,827
|
)
|
|
|
60,817
|
|
Customer relationships
|
|
|
13
|
|
|
|
158,158
|
|
|
|
(59,348
|
)
|
|
|
98,810
|
|
Other
|
|
|
4
|
|
|
|
1,631
|
|
|
|
(1,045
|
)
|
|
|
586
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
258,203
|
|
|
$
|
(90,933
|
)
|
|
$
|
167,270
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
14
|
|
|
$
|
12,770
|
|
|
$
|
(5,477
|
)
|
|
$
|
7,293
|
|
Trademarks/tradenames
|
|
|
15
|
|
|
|
85,644
|
|
|
|
(21,475
|
)
|
|
|
64,169
|
|
Customer relationships
|
|
|
13
|
|
|
|
158,158
|
|
|
|
(56,249
|
)
|
|
|
101,909
|
|
Other
|
|
|
4
|
|
|
|
1,631
|
|
|
|
(938
|
)
|
|
|
693
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
258,203
|
|
|
$
|
(84,139
|
)
|
|
$
|
174,064
|
|
|
|
Amortization expense for the remainder of 2010 and for fiscal
years 2011, 2012, 2013, and 2014 is estimated to be
approximately $20.3 million, $26.7 million,
$26.6 million, $16.5 million, and $15.1 million,
respectively. During the quarter ended April 3, 2010, the
Company decreased the remaining useful life of certain
trademarks in the Windows and Doors segment to 3 years
(applied prospectively) as a result of future marketing plans
regarding the use of certain trademarks. The Company determined
that the trademarks undiscounted cash flows over the
abbreviated 3 year period exceeded the carrying value of
these trademarks. As a result, there was no further impairment
test conducted for these trademarks. For the quarter ended
April 3, 2010, the Company incurred approximately
$1.9 million of increased amortization expense compared to
the quarter ended April 4, 2009.
|
|
4.
|
COMPREHENSIVE
INCOME (LOSS)
|
Comprehensive income (loss) is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
(55,538
|
)
|
Foreign currency translation adjustment
|
|
|
1,314
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
55,416
|
|
|
$
|
(55,945
|
)
|
|
|
F-76
Long-term debt in the accompanying condensed consolidated
balance sheets at April 3, 2010 and December 31, 2009
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Senior secured asset based revolving credit facility
|
|
$
|
65,000
|
|
|
$
|
25,000
|
|
9% Senior subordinated notes due 2012, net of unamortized
premium of $0 and $105
|
|
|
|
|
|
|
360,105
|
|
11.75% Senior secured notes due 2013, net of unamortized
discount of $9,132 and $9,708
|
|
|
715,868
|
|
|
|
715,292
|
|
13.125% Senior subordinated notes due 2014, net of
unamortized discount of $4,090
|
|
|
145,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
926,778
|
|
|
$
|
1,100,397
|
|
Less:
|
|
|
|
|
|
|
|
|
9% Senior subordinated notes due to related parties
including unamortized premium of $0 and $82
|
|
|
|
|
|
|
281,376
|
|
|
|
|
|
|
|
|
|
$
|
926,778
|
|
|
$
|
819,021
|
|
|
|
11.75% Senior
Secured Notes due 2013
On June 9, 2008, Ply Gem Industries issued
$700.0 million of 11.75% senior secured notes due 2013
(the Senior Secured Notes) at an approximate 1.0%
discount, yielding proceeds of approximately
$693.5 million. Ply Gem Industries used the proceeds to
repay all of the outstanding indebtedness under the then
existing senior secured credit facility of approximately
$676.2 million of term loan borrowings and approximately
$15.0 million of revolver borrowings. The Senior Secured
Notes will mature on June 15, 2013 and bear interest at the
rate of 11.75% per annum. Interest will be paid semi-annually on
June 15 and December 15 of each year. On October 23, 2009,
Ply Gem Industries issued an additional $25.0 million of
its Senior Secured Notes in a private placement transaction. The
net proceeds of $20.0 million were utilized for general
corporate purposes. The additional $25.0 million of Senior
Secured Notes has the same terms and covenants as the initial
$700.0 million of Senior Secured Notes.
Prior to April 1, 2011, Ply Gem Industries may redeem up to
35% of the aggregate principal amount of the Senior Secured
Notes with the net cash proceeds from certain equity offerings
at a redemption price equal to 111.75% of the aggregate
principal amount of the Senior Secured Notes, plus accrued and
unpaid interest, if any, provided that at least 65% of the
original aggregate principal amount of the Senior Secured Notes
remains outstanding after the redemption. In addition, not more
than once during any twelve-month period, Ply Gem Industries may
redeem up to $70.0 million of the Senior Secured Notes at a
redemption price equal to 103% of the aggregate amount of the
Senior Secured Notes, plus accrued and unpaid interest, if any.
At any time on or after April 1, 2011, Ply Gem Industries
may redeem the Senior Secured Notes, in whole or in part, at
declining redemption prices set forth in the indenture governing
the Senior Secured Notes, plus, in each case, accrued and unpaid
interest, if any, to the redemption date.
F-77
The Senior Secured Notes are fully and unconditionally
guaranteed on a joint and several basis by Ply Gem Holdings and
all of the domestic subsidiaries of Ply Gem Industries (the
Guarantors). The indenture governing the Senior
Secured Notes contains certain covenants that limit the ability
of Ply Gem Industries and its subsidiaries to incur additional
indebtedness, pay dividends or make other distributions or
repurchase or redeem their stock, make loans and investments,
sell assets, incur certain liens, enter into agreements
restricting their ability to pay dividends, enter into
transactions with affiliates, and consolidate, merge or sell Ply
Gem Industries assets. In particular, Ply Gem Industries
may not incur additional debt (other than permitted debt in
limited circumstances) unless, after giving effect to such
incurrence, the consolidated interest coverage ratio of Ply Gem
Industries would be at least 2.00 to 1.00. In the absence of
satisfying the consolidated interest coverage ratio, Ply Gem
Industries may only incur additional debt in limited
circumstances, including purchase money indebtedness in an
aggregate amount not to exceed $25.0 million at any one
time outstanding, debt of foreign subsidiaries in an aggregate
amount not to exceed $30.0 million at any one time
outstanding, debt pursuant to a general debt basket in an
aggregate amount not to exceed $25.0 million at any one
time outstanding and the refinancing of other debt under certain
circumstances. As of April 3, 2010, Ply Gem Industries only
had $5.0 million of availability under its general debt
basket following the October 2009 issuance of additional Senior
Secured Notes. In addition, Ply Gem Industries is limited in its
ability to pay dividends or make other distributions to Ply Gem
Holdings. Permitted dividends and distributions include those
used to redeem equity of its officers, directors or employees
under certain circumstances, to pay taxes, to pay out-of-pocket
costs and expenses in an aggregate amount not to exceed $500,000
in any calendar year and to pay customary and reasonable costs
and expenses of an offering of securities that is not
consummated.
On November 3, 2008, Ply Gem Industries completed its
exchange offer with respect to the Senior Secured Notes by
exchanging $700.0 million Senior Secured Notes, which were
registered under the Securities Act of 1933, as amended (the
Securities Act), for $700.0 million of the
issued and outstanding Senior Secured Notes. Upon completion of
the exchange offer, all issued and outstanding Senior Secured
Notes were registered under the Securities Act. However, the
issuance of $25.0 million of Senior Secured Notes in
October 2009 was not registered under the Securities Act and
there is no contractual requirement to register these Senior
Secured Notes.
The Senior Secured Notes and the related guarantees are secured
on a first-priority lien basis by substantially all of the
assets (other than the assets securing the Companys
obligations under the senior secured asset based revolving
credit facility, which consist primarily of accounts receivable
and inventory) of Ply Gem Industries and the Guarantors and on a
second-priority lien basis by the assets that secure the asset
based revolving credit facility.
In addition, the Companys stock ownership in its
subsidiaries collateralizes the Senior Secured Notes to the
extent that such equity interests and other securities can
secure the notes without
Rule 3-16
of
Regulation S-X
under the Securities Act requiring separate financial statements
of such subsidiary to be filed with the Securities and Exchange
Commission. As of April 3, 2010, no subsidiarys stock
has been excluded from the collateral arrangement due to the
Rule 3-16
requirement.
Senior Secured
Asset Based Revolving Credit Facility due 2013
Concurrently with the Senior Secured Notes offering on
June 9, 2008, Ply Gem Industries, the Company and the
subsidiaries of Ply Gem Industries entered into a new senior
secured asset-
F-78
based revolving credit facility (the ABL Facility).
The ABL Facility initially provided for revolving credit
financing of up to $150.0 million, subject to borrowing
base availability, with a maturity of five years (June
2013) including
sub-facilities
for letters of credit, swingline loans, and borrowings in
Canadian dollars and United States dollars by Ply Gem Canada.
The ABL Facility provides that the revolving commitments may be
increased to $200.0 million, subject to certain terms and
conditions. The Company had borrowings of $65.0 million and
$25.0 million outstanding under the ABL Facility as of
April 3, 2010 and December 31, 2009, respectively. As
of April 3, 2010, Ply Gem Industries had approximately
$103.3 million of contractual availability and
approximately $63.5 million of borrowing base availability
under the ABL Facility, reflecting $65.0 million of
borrowings outstanding and approximately $6.7 million of
letters of credit issued.
In July 2009, the Company amended the ABL Facility to increase
the available commitments by $25.0 million from $150.0 million
to $175.0 million. As a condition to this availability increase,
the applicable margins payable on the loans were increased and
made subject to certain minimums. The July 2009 amendment also
changed both the availability threshold for certain cash
dominion events and compliance with the fixed charge coverage
ratio and other covenants.
In October 2009, the Company amended the ABL Facility to allow
for the issuance of $25.0 million of additional Senior
Secured Notes and to permit certain refinancing transactions
with respect to the 9% senior subordinated notes due 2012
(the 9% Senior Subordinated Notes). The October
amendment also permits Ply Gem Industries to issue equity
securities to Ply Gem Holdings, its parent. The October 2009
amendment did not affect the $175.0 million availability
amount or the applicable interest rate margins under the ABL
Facility.
The interest rates applicable to loans under the ABL Facility
are, at the Companys option, equal to either a base rate
plus an applicable interest margin, or an adjusted LIBOR rate
plus an applicable interest margin, as defined in the ABL
Facility credit agreement. As of April 3, 2010, the
Companys interest rate on the ABL Facility was
approximately 6.0%. The ABL Facility contains a requirement to
maintain a fixed charge coverage ratio of 1.1 to 1.0 if the
Companys excess availability is less than the greater of
(a) 15% of the lesser of (i) the commitments and
(ii) the borrowing base and (b) $20.0 million.
The fixed charge coverage ratio was not applicable at any point
during the first quarter of 2010.
All obligations under the ABL Facility, and the guarantees of
those obligations, are secured, subject to certain exceptions,
by substantially all of the assets of Ply Gem Industries and the
Guarantors, including a first-priority security interest in
personal property consisting of accounts receivable, inventory,
cash, deposit accounts, and certain related assets and proceeds
of the foregoing and a second-priority security interest in, and
mortgages on, substantially all of Ply Gem Industries
material owned real property and equipment and all assets that
secure the Senior Secured Notes on a first-priority basis. In
addition to being secured by the collateral securing the
obligations of Ply Gem Industries under the domestic collateral
package, the obligations of Ply Gem Canada, which is a borrower
under the Canadian
sub-facility
under the ABL Facility, are also secured by a first-priority
security interest in substantially all of the assets of such
Canadian subsidiary, plus additional mortgages in Canada, and a
pledge by Ply Gem Industries of the remaining 35% of the equity
interests of Ply Gem Canada pledged only to secure the Canadian
sub-facility.
F-79
The ABL Facility contains certain covenants that limit the
Companys ability and the ability of its subsidiaries to
incur additional indebtedness, pay dividends or make other
distributions or repurchase or redeem their stock, make loans
and investments, sell assets, incur certain liens, enter into
transactions with affiliates, and consolidate, merge or sell
assets. In particular, the Company is permitted to incur
additional debt in limited circumstances, including permitted
subordinated indebtedness in an aggregate principal amount not
to exceed $50.0 million at any time outstanding (subject to
the ability to incur additional permitted subordinated debt
provided that immediately after giving effect to such incurrence
excess availability is more than 25% of the lesser of the total
borrowing base and the aggregate commitments and Ply Gem
Industries is in pro forma compliance with the fixed charge
coverage ratio), purchase money indebtedness in an aggregate
amount not to exceed $15.0 million at any one time
outstanding, debt of foreign subsidiaries (other than Canadian
subsidiaries) in an aggregate amount not to exceed
$2.5 million at any one time outstanding, unsecured debt in
an aggregate amount not to exceed $50.0 million at any one
time outstanding and the refinancing of other debt under certain
circumstances. In addition, Ply Gem Industries is limited in its
ability to pay dividends or make other distributions to Ply Gem
Holdings. Permitted dividends and distributions include those
used to redeem equity of its officers, directors or employees
under certain circumstances, to pay taxes, to pay operating and
other corporate overhead costs and expenses in the ordinary
course of business in an aggregate amount not to exceed
$2.0 million in any calendar year plus reasonable and
customary indemnification claims of its directors and executive
officers and to pay fees and expenses related to any
unsuccessful debt or equity offering. Ply Gem Industries may
also make additional payments to Ply Gem Holdings which may be
used by Ply Gem Holdings to pay dividends or make other
distributions on its stock under the ABL Facility so long as
before and after giving effect to such dividend or other
distribution excess availability is greater than 25% of the
lesser of the total borrowing base and the aggregate commitments
and Ply Gem Industries is in pro forma compliance with the
consolidated fixed charge coverage ratio.
9.00% Senior
Subordinated Notes due 2012
Concurrently with the acquisition of Ply Gem Industries on
February 12, 2004, Ply Gem Industries issued
$225.0 million aggregate principal amount of its
9% Senior Subordinated Notes due 2012, which are guaranteed
by Ply Gem Holdings and the domestic subsidiaries of Ply Gem
Industries. Subsequently, in August 2004, in connection with the
MW acquisition, Ply Gem Industries issued an additional
$135.0 million of 9% Senior Subordinated Notes, which
are guaranteed by Ply Gem Holdings and the domestic subsidiaries
of Ply Gem Industries, including MWM Holding and its
subsidiaries. Ply Gem Industries pays interest semi-annually on
February 15 and August 15 of each year. As of December 31,
2009, certain affiliates of the Companys controlling
stockholder owned approximately $281.4 million of the
outstanding 9% Senior Subordinated Notes.
In connection with the issuance of $150.0 million aggregate
principal amount of 13.125% Senior Subordinated Notes due
2014 on January 11, 2010 (see description in corresponding
section below), Ply Gem Industries redeemed approximately
$141.2 million aggregate principal amount of the
9% Senior Subordinated Notes on February 16, 2010 at a
redemption price of 100% of the principal amount thereof plus
accrued interest. The Company accounted for this transaction as
a debt extinguishment. In addition to this debt extinguishment,
approximately $218.8 million aggregate principal amount of
the 9% Senior Subordinated Notes held by certain affiliates
of the Companys controlling stockholder were transferred
to the Companys indirect stockholders
F-80
and ultimately to Ply Gem Prime Holdings, the Companys
indirect parent company. Such notes were then transferred to Ply
Gem Holdings and then to Ply Gem Industries as a capital
contribution and cancelled on February 12, 2010. As such,
these 9% Senior Subordinated Notes were not outstanding as
of April 3, 2010.
Gain on
extinguishment of debt
As a result of the $141.2 million redemption of the
9% Senior Subordinated Notes on February 16, 2010, the
Company recognized a loss on extinguishment of debt of
approximately $2.2 million related predominantly to the
write off of unamortized debt issuance costs. On
February 12, 2010, as a result of the $218.8 million
contribution of the 9% Senior Subordinated Notes by an
affiliate of the Companys controlling stockholder in
exchange for equity of Ply Gem Prime valued at approximately
$114.9 million, the Company recognized a gain on
extinguishment of approximately $100.4 million, including
the write off of unamortized debt issuance costs of
approximately $3.5 million. The $98.2 million net gain
on debt extinguishment was recorded within other income
(expense) separately in the condensed consolidated statement of
operations for the period ended April 3, 2010.
13.125% Senior
Subordinated Notes due 2014
On January 11, 2010, Ply Gem Industries issued
$150.0 million of 13.125% Senior Subordinated Notes
due 2014 (the 13.125% Senior Subordinated
Notes) at an approximate 3.0% discount, yielding proceeds
of approximately $145.7 million. Ply Gem Industries used
the proceeds of the offering to redeem approximately
$141.2 million aggregate principal amount of its
9% Senior Subordinated Notes due 2012 and to pay certain
related costs and expenses. The $150.0 million Senior
Subordinated Notes will mature on July 15, 2014 and bear
interest at the rate of 13.125% per annum. Interest will be paid
semi-annually on January 15 and July 15 of each year.
Prior to January 15, 2012, Ply Gem Industries may redeem up
to 40% of the aggregate principal amount of the
13.125% Senior Subordinated Notes with the net cash
proceeds from certain equity offerings at a redemption price
equal to 113.125% of the aggregate principal amount of the
13.125% Senior Subordinated Notes, plus accrued and unpaid
interest, if any, provided that at least 60% of the original
aggregate principal amount of the 13.125% Senior
Subordinated Notes remains outstanding after the redemption. On
or after January 15, 2012, and prior to January 15,
2013, Ply Gem Industries may redeem up to 100% of the aggregate
principal amount of the 13.125% Senior Subordinated Notes
with the net cash proceeds from certain equity offerings at a
redemption price equal to 103% of the aggregate principal amount
of the 13.125% Senior Subordinated Notes, plus accrued and
unpaid interest, if any. On or after January 15, 2013, Ply
Gem Industries may redeem up to 100% of the aggregate principal
amount of the 13.125% Senior Subordinated Notes with the
net cash proceeds from certain equity offerings at a redemption
price equal to 100% of the aggregate principal amount of the
13.125% Senior Subordinated Notes, plus accrued and unpaid
interest, if any, to the redemption date.
The 13.125% Senior Subordinated Notes are unsecured and
subordinated in right of payment to all existing and future debt
of the Company, including the ABL Facility and the Senior
Secured Notes. The 13.125% Senior Subordinated Notes are
unconditionally guaranteed on a joint and several basis by Ply
Gem Holdings and all of the domestic subsidiaries of Ply Gem
Industries (other than certain unrestricted subsidiaries) on a
senior subordinated basis. The guarantees are general unsecured
obligations and are subordinated in right of payment to all
existing senior
F-81
debt of the guarantors, including their guarantees of the Senior
Secured Notes and the ABL Facility.
The indenture governing the 13.125% Senior Subordinated
Notes contains certain covenants that limit the ability of Ply
Gem Industries and its subsidiaries to incur additional
indebtedness, pay dividends or make other distributions or
repurchase or redeem their stock, make loans and investments,
sell assets, incur certain liens, enter into transactions with
affiliates, and consolidate, merge or sell Ply Gem
Industries assets. In particular, Ply Gem Industries may
not incur additional debt (other than permitted debt in limited
circumstances) unless, after giving effect to such incurrence,
the consolidated interest coverage ratio would be at least 2.00
to 1.00. In the absence of satisfying the consolidated interest
coverage ratio, Ply Gem Industries may only incur additional
debt in limited circumstances, including, purchase money
indebtedness in an aggregate amount not to exceed
$25.0 million at any one time outstanding, debt of foreign
subsidiaries in an aggregate amount not to exceed
$30.0 million at any one time outstanding, debt pursuant to
a general debt basket in an aggregate amount not to exceed
$25.0 million at any one time outstanding and the
refinancing of other debt under certain circumstances. In
addition, Ply Gem Industries is limited in its ability to pay
dividends or make other distributions to Ply Gem Holdings.
Permitted dividends and distributions include those used to
redeem equity of its officers, directors or employees under
certain circumstances, to pay taxes, to pay out-of-pocket costs
and expenses in an aggregate amount not to exceed $500,000 in
any calendar year, to pay customary and reasonable costs and
expenses of an offering of securities that is not consummated
and other dividends or distributions of up to
$20.0 million. Ply Gem Industries may also pay dividends or
make other distributions to Ply Gem Holdings so long as it can
incur $1.00 of additional debt pursuant to the 2.00 to 1.00
consolidated interest coverage ratio test described above and so
long as the aggregate amount of such dividend or distribution
together with certain other dividends and distributions does not
exceed 50% of consolidated net income plus certain other items.
The Company has two separate pension plans, the Ply Gem Group
Pension Plan and the MW Manufacturers, Inc. Retirement Plan.
The Companys net periodic expense for the combined pension
plans for the periods indicated consists of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
|
|
Service cost
|
|
$
|
40
|
|
|
$
|
44
|
|
Interest cost
|
|
|
506
|
|
|
|
500
|
|
Expected return on plan assets
|
|
|
(453
|
)
|
|
|
(366
|
)
|
Amortization of loss
|
|
|
78
|
|
|
|
126
|
|
|
|
|
|
|
|
Net periodic expense
|
|
$
|
171
|
|
|
$
|
304
|
|
|
|
F-82
|
|
7.
|
COMMITMENTS AND
CONTINGENCIES
|
Indemnifications
In connection with the Ply Gem acquisition, in which Ply Gem
Industries was acquired from Nortek in February 2004, Nortek has
agreed to indemnify the Company for certain liabilities as set
forth in the stock purchase agreement governing the Ply Gem
acquisition. In the event Nortek is unable to satisfy amounts
due under these indemnifications, the Company would be liable.
The Company believes that Nortek has the financial capacity to
honor its indemnification obligations and therefore does not
anticipate incurring any losses related to liabilities
indemnified by Nortek under the stock purchase agreement. A
receivable related to this indemnification has been recorded in
other long-term assets in the approximate amount of
$7.2 million and $7.4 million at April 3, 2010
and December 31, 2009, respectively. As of April 3,
2010 and December 31, 2009, the Company has recorded
liabilities in relation to these indemnifications of
approximately $2.7 million and $2.8 million,
respectively, in current liabilities and $4.5 million and
$4.6 million, respectively, in long-term liabilities,
consisting of the following:
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Product claim liabilities
|
|
$
|
3,422
|
|
|
$
|
3,505
|
|
Multiemployer pension plan withdrawal liability
|
|
|
3,239
|
|
|
|
3,292
|
|
Other
|
|
|
585
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
$
|
7,246
|
|
|
$
|
7,396
|
|
|
|
Warranty
claims
The Company sells a number of products and offers a number of
warranties on these products. The specific terms and conditions
of these warranties vary depending on the product sold and the
country in which the product is sold. The Company estimates the
costs expected to be incurred under its warranties and records a
liability for such costs at the time of sale, which is recorded
in both accrued expenses and other long-term liabilities in the
accompanying condensed consolidated balance sheets. Factors that
affect the Companys warranty liabilities include the
number of units sold, historical and anticipated rates of
warranty claims, cost per claim and new product introduction.
The Company periodically assesses the adequacy of the recorded
warranty claims and adjusts the amounts as necessary. As of
April 3, 2010 and December 31, 2009, warranty
liabilities of approximately $10.3 million and
$10.4 million, respectively, have been recorded in current
liabilities and approximately $32.9 million and
$33.0 million, respectively, have been recorded in
long-term liabilities.
Changes in the Companys warranty liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
|
|
Balance, beginning of period
|
|
$
|
43,398
|
|
|
$
|
45,653
|
|
Warranty expense provided during period
|
|
|
2,851
|
|
|
|
2,915
|
|
Settlements made during period
|
|
|
(3,025
|
)
|
|
|
(4,070
|
)
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
43,224
|
|
|
$
|
44,498
|
|
|
|
F-83
Other
contingencies
The Company is subject to other contingencies, including legal
proceedings and claims arising out of its businesses that cover
a wide range of matters, including, among others, environmental
matters, contract and employment claims, product liability,
warranty and modification, adjustment or replacement of
component parts of units sold, which may include product
recalls. Product liability, environmental and other legal
proceedings also include matters with respect to businesses
previously owned. The Company has used various substances in
their products and manufacturing operations, which have been or
may be deemed to be hazardous or dangerous, and the extent of
its potential liability, if any, under environmental, product
liability and workers compensation statutes, rules,
regulations and case law is unclear. Further, due to the lack of
adequate information and the potential impact of present
regulations and any future regulations, there are certain
circumstances in which no range of potential exposure may be
reasonably estimated. Also, it is not possible to ascertain the
ultimate legal and financial liability with respect to
contingent liabilities, including lawsuits, and therefore no
such estimate has been made. However, the Company is not aware
of any contingencies for which a material loss is reasonably
possible.
|
|
8.
|
ACCRUED EXPENSES,
TAXES, AND OTHER LONG-TERM LIABILITIES
|
Accrued expenses and taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Insurance
|
|
$
|
5,157
|
|
|
$
|
5,210
|
|
Employee compensation and benefits
|
|
|
4,857
|
|
|
|
3,259
|
|
Sales and marketing
|
|
|
18,465
|
|
|
|
18,585
|
|
Product warranty
|
|
|
10,330
|
|
|
|
10,408
|
|
Short-term product claim liability
|
|
|
2,320
|
|
|
|
2,320
|
|
Accrued freight
|
|
|
1,034
|
|
|
|
466
|
|
Interest
|
|
|
30,838
|
|
|
|
16,844
|
|
Accrued pension
|
|
|
1,650
|
|
|
|
1,650
|
|
Accrued deferred compensation
|
|
|
2,081
|
|
|
|
2,081
|
|
Accrued taxes
|
|
|
4,815
|
|
|
|
1,993
|
|
Other
|
|
|
10,684
|
|
|
|
9,607
|
|
|
|
|
|
|
|
|
|
$
|
92,231
|
|
|
$
|
72,423
|
|
|
|
F-84
Other long-term liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Insurance
|
|
$
|
2,651
|
|
|
$
|
2,714
|
|
Pension liabilities
|
|
|
8,637
|
|
|
|
8,802
|
|
Multi-employer pension withdrawal liability
|
|
|
3,239
|
|
|
|
3,292
|
|
Product warranty
|
|
|
32,894
|
|
|
|
32,990
|
|
Long-term product claim liability
|
|
|
1,102
|
|
|
|
1,185
|
|
Long-term deferred compensation
|
|
|
1,919
|
|
|
|
1,821
|
|
Liabilities for tax uncertainties
|
|
|
9,813
|
|
|
|
9,735
|
|
Other
|
|
|
4,829
|
|
|
|
5,112
|
|
|
|
|
|
|
|
|
|
$
|
65,084
|
|
|
$
|
65,651
|
|
|
|
In November 2008, the Company announced the closure of its
Hammonton, New Jersey and Phoenix, Arizona window and door
manufacturing facilities. During December 2008, production began
to shift to other locations and production ceased at Hammonton
and Phoenix during 2009. By shifting production to other
facilities within the Company, the closures reduced costs and
increased operating efficiencies. Total costs are expected to be
approximately $5.4 million, including approximately
$1.0 million for personnel-related costs and approximately
$4.4 million in other facilities-related costs, which
include approximately $4.0 million in lease costs.
On April 2, 2009, the Company announced that it would
consolidate production across several of its manufacturing
facilities improving the Companys overall operating
efficiency. The Companys plans included shifting the
majority of the production from its Kearney, Missouri facility
to its other three vinyl siding manufacturing facilities. The
Company continues to operate the Kearney, Missouri facility on a
limited basis until the housing market recovers. The Company
also closed its Tupelo, Mississippi window and door
manufacturing facility. In addition, the Company consolidated
certain of the vinyl lineal production to its Rocky Mount,
Virginia facility and realigned production of its west coast
window and door facilities at Sacramento, California and Auburn,
Washington to better serve customers and improve overall
operating efficiency. In connection with the April 2, 2009
announcement, the Company expects to incur pre-tax exit and
restructuring costs, all of which will be cash charges, of
approximately $2.0 million, including approximately
$0.9 million for personnel-related costs, approximately
$0.1 million for contract termination costs, and
approximately $1.0 million in other facilities-related
costs.
F-85
The following table summarizes the Companys restructuring
activity for the three months ended April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued as of
|
|
|
Adjustments
|
|
|
Cash payments
|
|
|
Expensed
|
|
|
Accrued as of
|
|
(amounts in thousands)
|
|
December 31, 2009
|
|
|
during 2010
|
|
|
during 2010
|
|
|
during 2010
|
|
|
April 3, 2010
|
|
|
|
|
Hammonton, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract terminations
|
|
|
1,873
|
|
|
|
|
|
|
|
(732
|
)
|
|
|
32
|
|
|
|
1,173
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,873
|
|
|
$
|
|
|
|
$
|
(732
|
)
|
|
$
|
32
|
|
|
$
|
1,173
|
|
|
|
|
|
|
|
Phoenix, AZ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other termination benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract terminations
|
|
|
766
|
|
|
|
|
|
|
|
(184
|
)
|
|
|
14
|
|
|
|
596
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
766
|
|
|
$
|
|
|
|
$
|
(184
|
)
|
|
$
|
14
|
|
|
$
|
596
|
|
|
|
|
|
|
|
Kearney, MO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(105
|
)
|
|
$
|
105
|
|
|
$
|
|
|
|
|
|
|
|
|
Tupelo, MS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Contract terminations
|
|
|
109
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
1
|
|
|
|
37
|
|
Equipment removal and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109
|
|
|
$
|
|
|
|
$
|
(73
|
)
|
|
$
|
1
|
|
|
$
|
37
|
|
|
|
For the three month periods ended April 3, 2010 and
April 4, 2009, the Company expensed approximately
$0.2 million and $3.3 million, respectively, related
to this restructuring. For the three months ended April 3,
2010, approximately $0.1 million was recorded in selling,
general and administrative expenses in the Siding, Fencing and
Stone segment and approximately $0.1 million was recorded
in selling, general and administrative expenses in the Windows
and Doors segment. For the three months ended April 4,
2009, approximately $0.7 million was recorded in selling,
general and administrative expenses in the Siding, Fencing and
Stone segment and approximately $2.6 million were recorded
in selling, general and administrative expenses in the Windows
and Doors segment.
F-86
Effective tax
rate and debt transactions
Income taxes for interim periods have been included in the
accompanying condensed consolidated financial statements on the
basis of an estimated annual effective tax rate. In addition to
the amount of tax resulting from applying the estimated annual
effective tax rate to pre-tax income (loss), the Company
includes certain items treated as discrete events to arrive at
an estimated overall tax amount. For the period ended
April 3, 2010, the Companys estimated effective
income tax rate for the full year was approximately 11.4%, which
varied from the statutory rate primarily due to state tax
expense, a decrease in the valuation allowance, and to
cancellation of debt income offset by a repurchase premium and
original issue discount.
During February 2010, certain affiliates of the Companys
controlling stockholder contributed approximately
$218.8 million aggregate principal amount of 9% Senior
Subordinated Notes to Ply Gem Holdings in exchange for equity of
Ply Gem Prime valued at approximately $114.9 million. Prior
to this $218.8 million contribution to Ply Gem Holdings,
the affiliates of the Companys controlling stockholder
initially transferred the notes to Ply Gem Prime, the
Companys ultimate parent, which then contributed the notes
to Ply Gem Holdings. As a result of these debt transactions, the
Company recognized $35.3 million of additional cancellation
of indebtedness income (CODI) for income tax
purposes during the quarter ended April 3, 2010. During the
quarter ended April 4, 2009, affiliates of the
Companys controlling stockholder purchased a majority of
the 9% Senior Subordinated Notes. The Company determined
that approximately $95.7 million would be considered CODI
for the quarter ended April 4, 2009 as the acquiring party
was deemed a related party for tax purposes.
On February 17, 2009, President Obama signed into law the
American Recovery and Reinvestment Act of 2009 (the
Act). Among its provisions, the Act permits certain
taxpayers to elect to defer the taxation of CODI arising from
certain repurchases, exchanges or modifications of their
outstanding debt that occur during 2009 and 2010. For debt
acquired in 2009, the CODI can be deferred for five years and
then included in taxable income ratably over the next five
years. The CODI deferral and inclusion periods for debt acquired
during 2010 would be four years. If this election is made by
September 2010 for debt acquired in 2009 or September 2011 for
debt acquired during 2010, the Company would be required to
defer the deduction of all or a substantial portion of any
original issue discount (OID) expenses
as well as the CODI. These OID deductions also would be deferred
until 2014 and the Company would be allowed to deduct these
costs ratably over the same four or five-year period. The
Company does not currently plan to defer the 2009 or 2010 CODI.
In addition to the $35.3 million of 2010 CODI income
recognized for income tax purposes, the Company recognized a
repurchase premium deduction of approximately $10.3 million
and an OID deduction of approximately $17.8 million in
conjunction with the debt transactions occurring during the
quarter ended April 3, 2010. These deductions partially
offset the CODI that was recognized for income tax purposes in
the quarter ended April 3, 2010. The remaining
$7.2 million of CODI was offset during the quarter ended
April 3, 2010 by net operating losses.
F-87
Valuation
allowance
As of April 3, 2010, a full valuation allowance has been
provided against certain deferred tax assets as it is presently
deemed more likely than not that the benefit of such net tax
assets will not be utilized. Due to recent cumulative losses
accumulated by the Company, management did not rely upon
projections of future taxable income in assessing the
recoverability of deferred tax assets. The Company currently has
book goodwill of approximately $13.4 million that is not
amortized and results in a deferred tax liability of
approximately $2.9 million at April 3, 2010.
Therefore, the reversal of deferred tax liabilities related to
this goodwill is not considered a source of future taxable
income in assessing the realization of its deferred tax assets.
The Company continues to evaluate the realizability of its net
deferred tax assets and its estimates are subject to change.
Other tax
considerations
During the quarter ended April 4, 2009, the Company filed
an amended federal income tax return for the year ended
December 31, 2005 in order to adjust its net operating loss
limitations. The Company recorded the resulting income tax
benefit as an income tax receivable of approximately
$4.1 million. As of April 3, 2010 and
December 31, 2009, this amount has been recorded in prepaid
expenses and other current assets in the accompanying condensed
consolidated balance sheets.
The Worker, Homeownership, and Business Assistance Act of 2009
provided for a five year carryback of net operating losses for
either 2008 or 2009 losses. Additionally, the ninety percent
limitation on the usage of alternative minimum tax net operating
loss deductions was suspended during this extended carryback
period. The Company has prepared an amended 2008 carryback claim
in order to receive a refund of the alternative minimum tax paid
for tax years 2005 through 2007 totaling approximately
$1.1 million, which has been recorded in prepaid expenses
and other current assets in the consolidated balance sheets as
of April 3, 2010 and December 31, 2009.
Tax
uncertainties
Despite our belief that our tax return positions are consistent
with applicable tax laws, the Company believes that certain
positions could be challenged by taxing authorities. Our tax
reserves reflect the difference between the tax benefit claimed
on tax returns and the amount recognized in the financial
statements. These reserves have been established based on
managements assessment as to potential exposure
attributable to permanent differences and interest applicable to
both permanent and temporary differences. The tax reserves are
reviewed periodically and adjusted in light of changing facts
and circumstances, such as progress of tax audits, lapse of
applicable statutes of limitations and changes in tax law.
During the three months ended April 3, 2010, the Company
increased the tax contingency reserve by $0.1 million for
interest related to previously recorded tax uncertainties. The
Companys federal income tax returns for the tax years
ended December 31, 2006, 2007 and 2008 are currently under
examination by the Internal Revenue Service as well as the 2005
amended net operating loss limitation.
F-88
|
|
11.
|
STOCK-BASED
COMPENSATION
|
Stock Option
Plan
A rollforward of stock options outstanding during the three
months ended April 3, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
|
Weighted-average
|
|
|
remaining
|
|
|
|
|
|
|
exercise
|
|
|
contractual term
|
|
|
|
Stock options
|
|
|
price
|
|
|
(years)
|
|
|
|
|
Balance at January 1, 2010
|
|
|
334,044
|
|
|
$
|
51.33
|
|
|
|
6.98
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2010
|
|
|
334,044
|
|
|
$
|
51.33
|
|
|
|
6.73
|
|
|
|
As of April 3, 2010, 105,094 options have vested. At
April 3, 2010, the Company had approximately
$0.1 million of total unrecognized compensation expense
that will be recognized over a weighted average period of
1.65 years.
Other
Share-Based Compensation
Upon completion of the acquisition of Ply Gem, the acquisition
of MW and the acquisition of AWC Holding Company and its
subsidiaries (collectively, Alenco), certain members
of management made a cash contribution to Ply Gem Prime in
exchange for shares of Ply Gem Primes common stock. Ply
Gem Prime is the sole shareholder of Ply Gem Holdings.
A rollforward of Ply Gem Primes common stock shares during
the three months ended April 3, 2010 is as follows.
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
shares owned by
|
|
|
|
management
|
|
|
|
|
Balance at January 1, 2010
|
|
|
642,895
|
|
Shares issued
|
|
|
7,512
|
|
Shares repurchased
|
|
|
(38,000
|
)
|
|
|
|
|
|
Balance at April 3, 2010
|
|
|
612,407
|
|
|
|
Phantom
stock
Upon the completion of the Ply Gem Acquisition and the MW
Acquisition, certain members of management contributed their
investment in predecessor companies in exchange for phantom
common stock units and phantom preferred stock units which were
governed by a phantom stock plan. Under the phantom stock plan,
each participants interest in the plan was recorded in a
bookkeeping account; however, no stock was initially issued
under the phantom stock plan. Each account recorded a number of
units so that, any phantom common stock units were
deemed to be invested in common stock and any phantom
preferred stock units were deemed invested in senior
preferred stock. Under the plan, upon liquidation and payment of
a
F-89
participants account, the value of the account generally
was to be paid to the participant either in cash or in shares of
Ply Gem Primes stock having a fair market value equal to
the account balance, in the discretion of Ply Gem Prime.
In 2006, the Company converted all phantom common and preferred
stock units into a cash account payable on a fixed schedule in
years 2007 and beyond. The value of the portion of each cash
account that represented phantom common units equaled the number
of phantom common stock units credited to the phantom plan
account on September 25, 2006 multiplied by $10.00. From
September 25, 2006 through January 31, 2007, the value
of the cash account was updated as if interest was credited on
such value and compounded at December 31, 2006 at a rate
equal to the applicable federal rate for short-term loans. This
portion of the account was paid to each party in a single
lump-sum cash payment on January 31, 2007. The value of the
portion of the cash account that represented the value of the
phantom preferred stock units equaled the face amount of the
number of shares of senior preferred stock represented by such
units. This portion of the account is credited with deemed
earnings, as if with interest, at an annual rate of 10%
compounded semi-annually as of each June 30 and
December 31, from the date of issuance of the phantom
preferred stock unit through the date of payment. This portion
of the account is payable on each of August 31, 2009, 2010,
and 2011, such that one third of the original face amount, plus
deemed earnings, is paid on each such date, or, if earlier, the
officers death, disability or a change of control. During
the year ended December 31, 2009, the Company made cash
phantom stock payments of approximately $1.8 million. As of
April 3, 2010 and December 31, 2009, the Company
accrued on its consolidated balance sheet approximately
$2.1 million and $2.1 million, respectively, in
accrued expenses and taxes and approximately $1.9 million
and $1.8 million, respectively in other long term
liabilities for the phantom stock.
The Companys operating segments are components of the
business for which separate financial information is available
and are evaluated regularly by management in deciding how to
allocate resources and in assessing performance.
The Company has two reportable segments (which are also its
operating segments): 1) Siding, Fencing, and Stone,
and 2) Windows and Doors. The operating earnings (loss) of
each segment includes the revenue generated on transactions
involving products within that segment less identifiable
expenses. Corporate unallocated income and expenses include
items which are not directly attributed to or allocated to
either of the reporting segments. Such items include interest,
legal costs, corporate payroll, and unallocated finance and
accounting expenses. Corporate unallocated assets include debt
issuance costs, cash and certain non-operating receivables.
F-90
The following is a summary of the Companys segment
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
(amounts in thousands)
|
|
April 3, 2010
|
|
|
April 4, 2009
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
117,668
|
|
|
$
|
108,460
|
|
Windows and Doors
|
|
|
86,537
|
|
|
|
74,291
|
|
|
|
|
|
|
|
|
|
$
|
204,205
|
|
|
$
|
182,751
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
10,514
|
|
|
$
|
(7,517
|
)
|
Windows and Doors
|
|
|
(10,756
|
)
|
|
|
(21,682
|
)
|
Unallocated
|
|
|
(3,461
|
)
|
|
|
(3,609
|
)
|
|
|
|
|
|
|
|
|
$
|
(3,703
|
)
|
|
$
|
(32,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of
|
|
|
|
April 3, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Siding, Fencing, and Stone
|
|
$
|
623,136
|
|
|
$
|
604,753
|
|
Windows and Doors
|
|
|
327,952
|
|
|
|
333,876
|
|
Unallocated
|
|
|
60,213
|
|
|
|
43,404
|
|
|
|
|
|
|
|
|
|
$
|
1,011,301
|
|
|
$
|
982,033
|
|
|
|
|
|
13.
|
RELATED PARTY
TRANSACTIONS
|
The Company has entered into two advisory agreements with an
affiliate of CI Capital Partners LLC, formerly Caxton-Iseman
Capital, LLC (the Caxton-Iseman Party), which we
refer to as the Debt Financing Advisory Agreement
and the General Advisory Agreement. The
Caxton-Iseman Party provides the Company with acquisition and
financial advisory services as the Board of Directors shall
reasonably request. Under the General Advisory Agreement, the
Company expensed management fees to the Caxton-Iseman Party of
approximately $0.2 million and $0.7 million within
selling, general, and administrative expenses for the three
month periods ended April 3, 2010 and April 4, 2009,
respectively.
During February 2010, certain affiliates of the Companys
controlling stockholder contributed approximately
$218.8 million aggregate principal amount of 9% Senior
Subordinated Notes to Ply Gem Holdings in exchange for equity of
Ply Gem Prime valued at approximately $114.9 million. Prior
to this $218.8 million contribution, the affiliates of the
Companys controlling stockholder initially transferred the
notes to Ply Gem Prime, the Companys ultimate parent,
which then contributed the notes to Ply Gem Holdings. As a
result of these debt transactions, the Company paid interest to
related parties of approximately $9.8 million during the
quarter ended April 3, 2010. These interest payments have
been recorded within interest expense in the Companys
condensed consolidated statement of operations.
F-91
During the quarter ended April 3, 2010, the Company
received equity contributions of approximately $1.2 million
from certain members of management. In addition, the Company
repurchased equity of approximately $1.9 million from
certain former members of management.
|
|
14.
|
GUARANTOR /
NON-GUARANTOR FINANCIAL INFORMATION
|
The Senior Secured Notes and 13.125% Senior Subordinated
Notes were both issued by our direct subsidiary, Ply Gem
Industries, and the Senior Secured Notes and the
13.125% Senior Subordinated Notes are fully and
unconditionally guaranteed on a joint and several basis by the
Company and certain of Ply Gem Industries wholly owned
subsidiaries. Accordingly, the following guarantor and
non-guarantor information is presented as of April 3, 2010
and December 31, 2009, and for the three month periods
ended April 3, 2010 and April 4, 2009. The
non-guarantor information presented represents our Canadian
subsidiary.
F-92
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three months ended April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
188,785
|
|
|
$
|
15,420
|
|
|
$
|
|
|
|
$
|
204,205
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
|
|
|
|
156,224
|
|
|
|
11,084
|
|
|
|
|
|
|
|
167,308
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
3,452
|
|
|
|
26,915
|
|
|
|
3,439
|
|
|
|
|
|
|
|
33,806
|
|
Intercompany administrative charges
|
|
|
|
|
|
|
|
|
|
|
2,823
|
|
|
|
177
|
|
|
|
(3,000
|
)
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
9
|
|
|
|
6,785
|
|
|
|
|
|
|
|
|
|
|
|
6,794
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
3,461
|
|
|
|
192,747
|
|
|
|
14,700
|
|
|
|
(3,000
|
)
|
|
|
207,908
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
|
|
|
|
(3,461
|
)
|
|
|
(3,962
|
)
|
|
|
720
|
|
|
|
3,000
|
|
|
|
(3,703
|
)
|
Foreign currency gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
104
|
|
Intercompany interest
|
|
|
|
|
|
|
29,344
|
|
|
|
(29,039
|
)
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(33,960
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
(34,007
|
)
|
Interest income
|
|
|
|
|
|
|
9
|
|
|
|
43
|
|
|
|
1
|
|
|
|
|
|
|
|
53
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
98,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,187
|
|
Intercompany administrative income
|
|
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in subsidiaries income (loss)
|
|
|
|
|
|
|
93,119
|
|
|
|
(33,005
|
)
|
|
|
520
|
|
|
|
|
|
|
|
60,634
|
|
Equity in subsidiaries income (loss)
|
|
|
54,102
|
|
|
|
(28,985
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,117
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes
|
|
|
54,102
|
|
|
|
64,134
|
|
|
|
(33,005
|
)
|
|
|
520
|
|
|
|
(25,117
|
)
|
|
|
60,634
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
10,032
|
|
|
|
(3,662
|
)
|
|
|
162
|
|
|
|
|
|
|
|
6,532
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
54,102
|
|
|
$
|
(29,343
|
)
|
|
$
|
358
|
|
|
$
|
(25,117
|
)
|
|
$
|
54,102
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
|
|
|
|
|
|
1,314
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
54,102
|
|
|
$
|
54,102
|
|
|
$
|
(29,343
|
)
|
|
$
|
1,672
|
|
|
$
|
(25,117
|
)
|
|
$
|
55,416
|
|
|
|
F-93
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the three months ended April 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
173,623
|
|
|
$
|
9,128
|
|
|
$
|
|
|
|
$
|
182,751
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
|
|
|
|
162,592
|
|
|
|
7,099
|
|
|
|
|
|
|
|
169,691
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
3,609
|
|
|
|
34,747
|
|
|
|
2,606
|
|
|
|
|
|
|
|
40,962
|
|
Intercompany administrative charges
|
|
|
|
|
|
|
|
|
|
|
1,737
|
|
|
|
|
|
|
|
(1,737
|
)
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
4,906
|
|
|
|
|
|
|
|
|
|
|
|
4,906
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
|
|
|
|
3,609
|
|
|
|
203,982
|
|
|
|
9,705
|
|
|
|
(1,737
|
)
|
|
|
215,559
|
|
|
|
|
|
|
|
Operating loss
|
|
|
|
|
|
|
(3,609
|
)
|
|
|
(30,359
|
)
|
|
|
(577
|
)
|
|
|
1,737
|
|
|
|
(32,808
|
)
|
Foreign currency loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
(88
|
)
|
Intercompany interest
|
|
|
|
|
|
|
30,351
|
|
|
|
(29,842
|
)
|
|
|
(509
|
)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(33,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,756
|
)
|
Interest income
|
|
|
|
|
|
|
9
|
|
|
|
55
|
|
|
|
1
|
|
|
|
|
|
|
|
65
|
|
Intercompany administrative income
|
|
|
|
|
|
|
1,737
|
|
|
|
|
|
|
|
|
|
|
|
(1,737
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in subsidiaries loss
|
|
|
|
|
|
|
(5,268
|
)
|
|
|
(60,146
|
)
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
(66,587
|
)
|
Equity in subsidiaries loss
|
|
|
(55,538
|
)
|
|
|
(51,144
|
)
|
|
|
|
|
|
|
|
|
|
|
106,682
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes
|
|
|
(55,538
|
)
|
|
|
(56,412
|
)
|
|
|
(60,146
|
)
|
|
|
(1,173
|
)
|
|
|
106,682
|
|
|
|
(66,587
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
(874
|
)
|
|
|
(9,854
|
)
|
|
|
(321
|
)
|
|
|
|
|
|
|
(11,049
|
)
|
|
|
|
|
|
|
Net loss
|
|
$
|
(55,538
|
)
|
|
$
|
(55,538
|
)
|
|
$
|
(50,292
|
)
|
|
$
|
(852
|
)
|
|
$
|
106,682
|
|
|
$
|
(55,538
|
)
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(55,538
|
)
|
|
$
|
(55,538
|
)
|
|
$
|
(50,292
|
)
|
|
$
|
(1,259
|
)
|
|
$
|
106,682
|
|
|
$
|
(55,945
|
)
|
|
|
F-94
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
27,240
|
|
|
$
|
828
|
|
|
$
|
3,591
|
|
|
$
|
|
|
|
$
|
31,659
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
106,083
|
|
|
|
8,877
|
|
|
|
|
|
|
|
114,960
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
|
|
|
|
|
|
|
|
37,421
|
|
|
|
4,310
|
|
|
|
|
|
|
|
41,731
|
|
Work in process
|
|
|
|
|
|
|
|
|
|
|
24,862
|
|
|
|
735
|
|
|
|
|
|
|
|
25,597
|
|
Finished goods
|
|
|
|
|
|
|
|
|
|
|
39,961
|
|
|
|
2,156
|
|
|
|
|
|
|
|
42,117
|
|
|
|
|
|
|
|
Total inventory
|
|
|
|
|
|
|
|
|
|
|
102,244
|
|
|
|
7,201
|
|
|
|
|
|
|
|
109,445
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
498
|
|
|
|
17,453
|
|
|
|
3,962
|
|
|
|
|
|
|
|
21,913
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
27,738
|
|
|
|
226,608
|
|
|
|
23,631
|
|
|
|
|
|
|
|
277,977
|
|
Investments in subsidiaries
|
|
|
(143,831
|
)
|
|
|
(325,098
|
)
|
|
|
|
|
|
|
|
|
|
|
468,929
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
3,565
|
|
|
|
174
|
|
|
|
|
|
|
|
3,739
|
|
Buildings and improvements
|
|
|
|
|
|
|
|
|
|
|
34,652
|
|
|
|
1,111
|
|
|
|
|
|
|
|
35,763
|
|
Machinery and equipment
|
|
|
|
|
|
|
1,272
|
|
|
|
256,149
|
|
|
|
7,116
|
|
|
|
|
|
|
|
264,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272
|
|
|
|
294,366
|
|
|
|
8,401
|
|
|
|
|
|
|
|
304,039
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(467
|
)
|
|
|
(163,392
|
)
|
|
|
(3,930
|
)
|
|
|
|
|
|
|
(167,789
|
)
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
|
|
|
805
|
|
|
|
130,974
|
|
|
|
4,471
|
|
|
|
|
|
|
|
136,250
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
167,270
|
|
|
|
|
|
|
|
|
|
|
|
167,270
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
382,472
|
|
|
|
10,809
|
|
|
|
|
|
|
|
393,281
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
761
|
|
|
|
2,844
|
|
|
|
|
|
|
|
3,605
|
|
Intercompany note receivable
|
|
|
|
|
|
|
1,097,761
|
|
|
|
|
|
|
|
|
|
|
|
(1,097,761
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
31,670
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
32,918
|
|
|
|
|
|
|
|
Total other assets
|
|
|
|
|
|
|
1,129,431
|
|
|
|
551,751
|
|
|
|
13,653
|
|
|
|
(1,097,761
|
)
|
|
|
597,074
|
|
|
|
|
|
|
|
|
|
$
|
(143,831
|
)
|
|
$
|
832,876
|
|
|
$
|
909,333
|
|
|
$
|
41,755
|
|
|
$
|
(628,832
|
)
|
|
$
|
1,011,301
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
3,472
|
|
|
$
|
60,909
|
|
|
$
|
3,718
|
|
|
$
|
|
|
|
$
|
68,099
|
|
Accrued expenses and taxes
|
|
|
|
|
|
|
37,378
|
|
|
|
52,062
|
|
|
|
2,791
|
|
|
|
|
|
|
|
92,231
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
40,850
|
|
|
|
112,971
|
|
|
|
6,509
|
|
|
|
|
|
|
|
160,330
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
2,940
|
|
|
|
|
|
|
|
|
|
|
|
2,940
|
|
Intercompany note payable
|
|
|
|
|
|
|
|
|
|
|
1,088,999
|
|
|
|
8,762
|
|
|
|
(1,097,761
|
)
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
9,079
|
|
|
|
55,026
|
|
|
|
979
|
|
|
|
|
|
|
|
65,084
|
|
Long-term debt due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
926,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
926,778
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
324,174
|
|
|
|
324,174
|
|
|
|
178,106
|
|
|
|
10,070
|
|
|
|
(512,350
|
)
|
|
|
324,174
|
|
(Accumulated deficit) retained earnings
|
|
|
(469,643
|
)
|
|
|
(469,643
|
)
|
|
|
(528,709
|
)
|
|
|
13,797
|
|
|
|
984,555
|
|
|
|
(469,643
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
1,638
|
|
|
|
1,638
|
|
|
|
|
|
|
|
1,638
|
|
|
|
(3,276
|
)
|
|
|
1,638
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(143,831
|
)
|
|
|
(143,831
|
)
|
|
|
(350,603
|
)
|
|
|
25,505
|
|
|
|
468,929
|
|
|
|
(143,831
|
)
|
|
|
$
|
(143,831
|
)
|
|
$
|
832,876
|
|
|
$
|
909,333
|
|
|
$
|
41,755
|
|
|
$
|
(628,832
|
)
|
|
$
|
1,011,301
|
|
|
|
F-95
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
7,341
|
|
|
$
|
2,592
|
|
|
$
|
7,130
|
|
|
$
|
|
|
|
$
|
17,063
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
86,657
|
|
|
|
7,771
|
|
|
|
|
|
|
|
94,428
|
|
Inventories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
|
|
|
|
|
|
|
|
35,151
|
|
|
|
4,636
|
|
|
|
|
|
|
|
39,787
|
|
Work in process
|
|
|
|
|
|
|
|
|
|
|
22,632
|
|
|
|
711
|
|
|
|
|
|
|
|
23,343
|
|
Finished goods
|
|
|
|
|
|
|
|
|
|
|
32,505
|
|
|
|
2,445
|
|
|
|
|
|
|
|
34,950
|
|
|
|
|
|
|
|
Total inventory
|
|
|
|
|
|
|
|
|
|
|
90,288
|
|
|
|
7,792
|
|
|
|
|
|
|
|
98,080
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
current assets
|
|
|
|
|
|
|
512
|
|
|
|
15,793
|
|
|
|
3,143
|
|
|
|
|
|
|
|
19,448
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
5,748
|
|
|
|
14
|
|
|
|
|
|
|
|
5,762
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
7,853
|
|
|
|
201,078
|
|
|
|
25,850
|
|
|
|
|
|
|
|
234,781
|
|
Investments in subsidiaries
|
|
|
(313,482
|
)
|
|
|
(320,928
|
)
|
|
|
|
|
|
|
|
|
|
|
634,410
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
3,565
|
|
|
|
167
|
|
|
|
|
|
|
|
3,732
|
|
Buildings and improvements
|
|
|
|
|
|
|
|
|
|
|
34,639
|
|
|
|
1,048
|
|
|
|
|
|
|
|
35,687
|
|
Machinery and equipment
|
|
|
|
|
|
|
1,272
|
|
|
|
253,233
|
|
|
|
6,814
|
|
|
|
|
|
|
|
261,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272
|
|
|
|
291,437
|
|
|
|
8,029
|
|
|
|
|
|
|
|
300,738
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(425
|
)
|
|
|
(155,023
|
)
|
|
|
(3,588
|
)
|
|
|
|
|
|
|
(159,036
|
)
|
|
|
|
|
|
|
Total property and equipment, net
|
|
|
|
|
|
|
847
|
|
|
|
136,414
|
|
|
|
4,441
|
|
|
|
|
|
|
|
141,702
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
174,064
|
|
|
|
|
|
|
|
|
|
|
|
174,064
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
382,472
|
|
|
|
10,366
|
|
|
|
|
|
|
|
392,838
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,716
|
|
|
|
|
|
|
|
2,716
|
|
Intercompany note receivable
|
|
|
|
|
|
|
1,101,260
|
|
|
|
|
|
|
|
|
|
|
|
(1,101,260
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
34,704
|
|
|
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
35,932
|
|
|
|
|
|
|
|
Total other assets
|
|
|
|
|
|
|
1,135,964
|
|
|
|
557,764
|
|
|
|
13,082
|
|
|
|
(1,101,260
|
)
|
|
|
605,550
|
|
|
|
|
|
|
|
|
|
$
|
(313,482
|
)
|
|
$
|
823,736
|
|
|
$
|
895,256
|
|
|
$
|
43,373
|
|
|
$
|
(466,850
|
)
|
|
$
|
982,033
|
|
|
|
|
|
|
|
Liabilities and stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
4,354
|
|
|
$
|
45,352
|
|
|
$
|
3,127
|
|
|
$
|
|
|
|
$
|
52,833
|
|
Accrued expenses and taxes
|
|
|
|
|
|
|
22,745
|
|
|
|
47,424
|
|
|
|
2,254
|
|
|
|
|
|
|
|
72,423
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
27,099
|
|
|
|
92,776
|
|
|
|
5,381
|
|
|
|
|
|
|
|
125,256
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
4,211
|
|
|
|
|
|
|
|
|
|
|
|
4,211
|
|
Intercompany note payable
|
|
|
|
|
|
|
|
|
|
|
1,088,999
|
|
|
|
12,261
|
|
|
|
(1,101,260
|
)
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
9,722
|
|
|
|
54,990
|
|
|
|
939
|
|
|
|
|
|
|
|
65,651
|
|
Long-term debt due to related parties
|
|
|
|
|
|
|
281,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281,376
|
|
Long-term debt
|
|
|
|
|
|
|
819,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
819,021
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
209,939
|
|
|
|
209,939
|
|
|
|
153,646
|
|
|
|
7,246
|
|
|
|
(370,831
|
)
|
|
|
209,939
|
|
(Accumulated deficit) retained earnings
|
|
|
(523,745
|
)
|
|
|
(523,745
|
)
|
|
|
(499,366
|
)
|
|
|
13,439
|
|
|
|
1,009,672
|
|
|
|
(523,745
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
324
|
|
|
|
324
|
|
|
|
|
|
|
|
4,107
|
|
|
|
(4,431
|
)
|
|
|
324
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(313,482
|
)
|
|
|
(313,482
|
)
|
|
|
(345,720
|
)
|
|
|
24,792
|
|
|
|
634,410
|
|
|
|
(313,482
|
)
|
|
|
|
|
|
|
|
|
$
|
(313,482
|
)
|
|
$
|
823,736
|
|
|
$
|
895,256
|
|
|
$
|
43,373
|
|
|
$
|
(466,850
|
)
|
|
$
|
982,033
|
|
|
|
F-96
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended April 3, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
54,102
|
|
|
$
|
54,102
|
|
|
$
|
(29,343
|
)
|
|
$
|
358
|
|
|
$
|
(25,117
|
)
|
|
$
|
54,102
|
|
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
42
|
|
|
|
15,217
|
|
|
|
195
|
|
|
|
|
|
|
|
15,454
|
|
Non-cash interest expense, net
|
|
|
|
|
|
|
2,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,730
|
|
Gain on foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
(104
|
)
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
(98,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,187
|
)
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
3,716
|
|
|
|
30
|
|
|
|
|
|
|
|
3,746
|
|
Equity in subsidiaries net income (loss)
|
|
|
(54,102
|
)
|
|
|
28,985
|
|
|
|
|
|
|
|
|
|
|
|
25,117
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
(19,426
|
)
|
|
|
(734
|
)
|
|
|
|
|
|
|
(20,160
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
(11,956
|
)
|
|
|
870
|
|
|
|
|
|
|
|
(11,086
|
)
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
13
|
|
|
|
(1,679
|
)
|
|
|
(810
|
)
|
|
|
|
|
|
|
(2,476
|
)
|
Accounts payable
|
|
|
|
|
|
|
(882
|
)
|
|
|
15,553
|
|
|
|
438
|
|
|
|
|
|
|
|
15,109
|
|
Accrued expenses and taxes
|
|
|
|
|
|
|
14,142
|
|
|
|
5,771
|
|
|
|
516
|
|
|
|
|
|
|
|
20,429
|
|
Cash payments on restructuring liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,094
|
)
|
Other
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
|
|
115
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
950
|
|
|
|
(23,240
|
)
|
|
|
874
|
|
|
|
|
|
|
|
(21,416
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(2,987
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(3,029
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(2,986
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(3,028
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
145,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,709
|
|
Net revolver borrowings
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Payments on long-term debt
|
|
|
|
|
|
|
(141,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,191
|
)
|
Proceeds from intercompany investment
|
|
|
|
|
|
|
(20,001
|
)
|
|
|
24,462
|
|
|
|
(4,461
|
)
|
|
|
|
|
|
|
|
|
Debt issuance costs paid
|
|
|
|
|
|
|
(4,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,868
|
)
|
Equity contributions
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
Equity repurchases
|
|
|
|
|
|
|
(1,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,900
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
18,949
|
|
|
|
24,462
|
|
|
|
(4,461
|
)
|
|
|
|
|
|
|
38,950
|
|
Impact of exchange rate movement on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
19,899
|
|
|
|
(1,764
|
)
|
|
|
(3,539
|
)
|
|
|
|
|
|
|
14,596
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
7,341
|
|
|
|
2,592
|
|
|
|
7,130
|
|
|
|
|
|
|
|
17,063
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
|
|
|
$
|
27,240
|
|
|
$
|
828
|
|
|
$
|
3,591
|
|
|
$
|
|
|
|
$
|
31,659
|
|
|
|
F-97
PLY GEM HOLDINGS,
INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended April 4, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Ply Gem
|
|
|
Ply Gem
|
|
|
Guarantor
|
|
|
guarantor
|
|
|
Consolidating
|
|
|
|
|
(amounts in thousands)
|
|
Holdings, Inc.
|
|
|
Industries, Inc.
|
|
|
subsidiaries
|
|
|
subsidiary
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(55,538
|
)
|
|
$
|
(55,538
|
)
|
|
$
|
(50,292
|
)
|
|
$
|
(852
|
)
|
|
$
|
106,682
|
|
|
$
|
(55,538
|
)
|
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
43
|
|
|
|
13,683
|
|
|
|
170
|
|
|
|
|
|
|
|
13,896
|
|
Non-cash interest expense, net
|
|
|
|
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,044
|
|
Loss on foreign currency transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
88
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(15,133
|
)
|
|
|
37
|
|
|
|
|
|
|
|
(15,096
|
)
|
Equity in subsidiaries net income (loss)
|
|
|
55,538
|
|
|
|
51,144
|
|
|
|
|
|
|
|
|
|
|
|
(106,682
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
(18,124
|
)
|
|
|
2,198
|
|
|
|
|
|
|
|
(15,926
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
16,519
|
|
|
|
525
|
|
|
|
|
|
|
|
17,044
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
184
|
|
|
|
(1,800
|
)
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
(2,817
|
)
|
Accounts payable
|
|
|
|
|
|
|
256
|
|
|
|
(10,696
|
)
|
|
|
(1,074
|
)
|
|
|
|
|
|
|
(11,514
|
)
|
Accrued expenses and taxes
|
|
|
|
|
|
|
13,979
|
|
|
|
2,301
|
|
|
|
5,125
|
|
|
|
|
|
|
|
21,405
|
|
Cash payments on restructuring liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,926
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,926
|
)
|
Other
|
|
|
|
|
|
|
11
|
|
|
|
(32
|
)
|
|
|
(355
|
)
|
|
|
|
|
|
|
(376
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
12,123
|
|
|
|
(65,500
|
)
|
|
|
4,661
|
|
|
|
|
|
|
|
(48,716
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(109
|
)
|
|
|
(2,301
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
(2,446
|
)
|
Proceeds from sale of assets
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(109
|
)
|
|
|
(2,280
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
(2,425
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolver borrowings
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Proceeds from intercompany
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
|
|
|
|
|
|
|
(54,465
|
)
|
|
|
64,073
|
|
|
|
(9,608
|
)
|
|
|
|
|
|
|
|
|
Debt issuance costs paid
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
(44,491
|
)
|
|
|
64,073
|
|
|
|
(9,608
|
)
|
|
|
|
|
|
|
9,974
|
|
Impact of exchange rate movement on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(32,477
|
)
|
|
|
(3,707
|
)
|
|
|
(4,890
|
)
|
|
|
|
|
|
|
(41,074
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
46,181
|
|
|
|
4,490
|
|
|
|
7,618
|
|
|
|
|
|
|
|
58,289
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
|
|
|
$
|
13,704
|
|
|
$
|
783
|
|
|
$
|
2,728
|
|
|
$
|
|
|
|
$
|
17,215
|
|
|
|
F-98
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution.
|
The following sets forth the expenses and costs (other than
underwriting discounts and commissions) expected to be incurred
in connection with the issuance and distribution of the common
stock registered hereby. None of the expenses and costs in
connection with the offering of the common stock registered
hereby will be borne by the selling stockholders (other than
underwriting discounts and commissions). Other than the SEC
registration fee, the FINRA fee and the New York Stock Exchange
fee, the amounts set forth below are estimates:
|
|
|
|
|
|
SEC registration fee
|
|
$
|
21,390
|
|
FINRA fee
|
|
|
30,500
|
|
NYSE fee
|
|
|
*
|
|
Printing expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Blue Sky fees and expenses
|
|
|
*
|
|
Transfer agent fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
|
*
|
|
|
|
|
|
|
*
|
|
To be provided by amendment.
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Directors liability; indemnification of directors and
officers. Section 145(a) of the Delaware General
Corporation Law provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in
the right of the corporation, because the person is or was a
director or officer of the corporation. Such indemnity may be
against expenses (including attorneys fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the
best interests of the corporation and if, with respect to any
criminal action or proceeding, the person did not have
reasonable cause to believe the persons conduct was
unlawful.
Section 145(b) of the Delaware General Corporation Law
provides, in general, that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a
judgment in its favor because the person is or was a director or
officer of the corporation, against any expenses (including
attorneys fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner
the person reasonably believed
II-1
to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to be indemnified for such expenses
which the Court of Chancery or such other court shall deem
proper.
Section 145(g) of the Delaware General Corporation Law
provides, in general, that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is
or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or
arising out of the persons status as such, whether or not
the corporation would have the power to indemnify the person
against such liability under the provisions of the law. Our
amended and restated certificate of incorporation provides that,
to the fullest extent permitted by applicable law, a director
will not be liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director. In addition,
our by-laws provide that we will indemnify each director and
officer and may indemnify employees and agents, as determined by
our board, to the fullest extent provided by the laws of the
State of Delaware.
The foregoing statements are subject to the detailed provisions
of Section 145 of the Delaware General Corporation Law and
our amended and restated certificate of incorporation and
by-laws.
Section 102 of the Delaware General Corporation Law permits
the limitation of directors personal liability to the
corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach
of the directors duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
the law, (iii) breaches under Section 174 of the
Delaware General Corporation Law, which relates to unlawful
payments of dividends or unlawful stock repurchase or
redemptions, and (iv) any transaction from which the
director derived an improper personal benefit.
Reference is made to Item 17 for our undertakings with
respect to indemnification for liabilities arising under the
Securities Act.
We maintain directors and officers liability
insurance for our officers and directors.
The underwriting agreement for this offering will provide that
each underwriter severally agrees to indemnify and hold harmless
the Company, each of our directors, each of our officers who
signs the registration statement, and each person who controls
the Company within the meaning of the Securities Act but only
with respect to written information relating to such underwriter
furnished to the Company by or on behalf of such underwriter
specifically for inclusion in the documents referred to in the
foregoing indemnity.
Under the Stockholders Agreement, we will agree to indemnify the
CI Partnerships from any losses arising directly or indirectly
out of the CI Partnerships actual, alleged or deemed control or
ability to influence control of us or the actual or alleged act
or omission of any director nominated by the CI Partnerships,
including any act or omission in connection with this offering.
We expect to enter into an indemnification agreement with each
of our executive officers and directors that provides, in
general, that we will indemnify them to the fullest extent
permitted by law in connection with their service to us or on
our behalf.
II-2
|
|
Item 15.
|
Recent Sales
of Unregistered Securities.
|
The following is a summary of our transactions within the past
three years involving sales of our securities that were not
registered under the Securities Act.
In connection with the merger described in Certain
relationships and related party transactionsReorganization
transactions, the registrant will
issue shares
of common stock based on an assumed public offering price of
$ per share (the midpoint of the
estimated public offering price range set forth on the cover
page of this prospectus). The shares of common stock described
above will be issued in reliance on the exemption provided by
Section 4(2) of the Securities Act on the basis that it
will not involve a public offering.
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules.
|
(a) Exhibits.
The following documents are exhibits to the Registration
Statement:
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
2
|
.1
|
|
Stock Purchase Agreement, dated as of December 19, 2003,
among Ply Gem Investment Holdings, Inc., (f/k/a CI Investment
Holdings, Inc.), Nortek, Inc. and WDS LLC (incorporated by
reference from Exhibit 2.1 to the Companys
Registation Statement on
Form S-4
(File
No. 333-114041)).
|
|
2
|
.2
|
|
Stock Purchase Agreement, dated as of July 23, 2004, among
Ply Gem Industries, Inc., MWM Holding, Inc. and the
stockholders listed on Schedule 1 thereto (incorporated by
reference from Exhibit 2.2 to the Companys
Registration Statement on
Form S-4
(File
No. 333-114041)).
|
|
2
|
.3
|
|
Securities Purchase Agreement, dated as of February 6,
2006, among Ply Gem Industries, Inc., and all of the direct and
indirect stockholders, warrant holders and stock option holders
of AWC Holding Company and FNL Management Corp., an Ohio
corporation, as their representative (incorporated by reference
from Exhibit 2.1 on
Form 8-K
dated March 2, 2006 (File
No. 333-114041-07)).
|
|
2
|
.4
|
|
Stock Purchase Agreement, dated as of September 22, 2006,
among Ply Gem Industries, Inc., Alcoa Securities Corporations
and Alcoa Inc. (incorporated by reference from Exhibit 2.1
to the Companys
Form 8-K,
dated November 6, 2006 (File
No. 333-114041-07)).
|
|
2
|
.5
|
|
First Amendment, dated as of October 31, 2006, to the Stock
Purchase Agreement, dated as of September 22, 2006, among
Ply Gem Industries, Inc., Alcoa Securities Corporations and
Alcoa Inc. (incorporated by reference from Exhibit 2.2 to
the Companys
Form 8-K,
dated November 6, 2006 (File
No. 333-114041-07)).
|
|
2
|
.6*
|
|
Merger Agreement by and among Ply Gem Prime Holdings, Inc. and
Ply Gem Holdings, Inc.
|
|
3
|
.1*
|
|
Form of Amended and Restated Certificate of Incorporation.
|
|
3
|
.2*
|
|
Form of Amended and Restated By-laws.
|
|
4
|
.1*
|
|
Specimen Stock Certificate.
|
II-3
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
4
|
.2
|
|
Amendment and Restatement Agreement, dated as of July 16,
2009, to the Credit Agreement dated as of June 9, 2008,
among Ply Gem Holdings, Inc., Ply Gem Industries, Inc., CWD
Windows and Doors, Inc., the other borrowers named therein, each
lender from time to time party thereto, Credit Suisse, Cayman
Islands Branch, as Administrative Agent, U.S. Swing Line Lender
and U.S. L/C Issuer, General Electric Capital Corporation, as
Collateral Agent, Credit Suisse, Toronto Branch, as Canadian
Swing Line Lender and Canadian L/C Issuer, and the other agents
party thereto.
|
|
4
|
.3
|
|
Second Amendment, dated as of October 9, 2009, to the
Credit Agreement dated as of June 9, 2008 and amended and
restated as of July 16, 2009, among Ply Gem Holdings, Inc.,
Ply Gem Industries, Inc., CWD Windows and Doors, Inc., the other
borrowers named therein, each lender from time to time party
thereto, Credit Suisse, Cayman Islands Branch, as Administrative
Agent, U.S. Swing Line Lender and U.S. L/C Issuer, General
Electric Capital Corporation, as Collateral Agent, Credit
Suisse, Toronto Branch, as Canadian Swing Line Lender and
Canadian L/C Issuer, and the other agents party thereto
(incorporated by reference from Exhibit 4.1 to the
Companys
Form 10-Q,
dated November 13, 2009 (File
No. 333-114041-07)).
|
|
4
|
.4*
|
|
Third Amendment to the Credit Agreement dated as of June 9,
2008 and amended and restated as of July 16, 2009, to be
entered into among Ply Gem Holdings, Inc., Ply Gem Industries,
Inc., CWD Windows and Doors, Inc., the other borrowers named
therein, each lender from time to time party thereto, Credit
Suisse, Cayman Islands Branch, as Administrative Agent, U.S.
Swing Line Lender and U.S. L/C Issuer, General Electric Capital
Corporation, as Collateral Agent, Credit Suisse, Toronto Branch,
as Canadian Swing Line Lender and Canadian L/C Issuer, and the
other agents party thereto.
|
|
4
|
.5
|
|
Indenture, dated as of June 9, 2008, among Ply Gem
Industries, Inc., the Guarantors named therein and U.S. Bank
National Association, as Trustee and Noteholder Collateral Agent
(incorporated by reference from Exhibit 4.1 to the
Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.6
|
|
Lien Subordination and Intercreditor Agreement, dated as of
June 9, 2008, among General Electric Capital Corporation,
as Collateral Agent, U.S. Bank National Association, as Trustee
and Noteholder Collateral Agent, Ply Gem Industries, Inc., Ply
Gem Holdings, Inc. and the subsidiaries of Ply Gem Industries,
Inc. listed on Schedule I thereto (incorporated by
reference from Exhibit 4.4 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.7
|
|
Collateral Agreement, dated June 9, 2008, among Ply Gem
Industries, Inc., Ply Gem Holdings, Inc., the Guarantors named
therein and U.S. Bank National Association, as Noteholder
Collateral Agent (incorporated by reference from
Exhibit 4.5 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.8
|
|
Intellectual Property Collateral Agreement, dated June 9,
2008, by Ply Gem Industries, Inc., Ply Gem Holdings, Inc. and
the subsidiaries of Ply Gem Industries, Inc. listed on the Annex
thereto in favor of U.S. Bank National Association, as
Noteholder Collateral Agent (incorporated by reference from
Exhibit 4.6 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
II-4
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
4
|
.9
|
|
U.S. Security Agreement, dated June 9, 2008, among Ply Gem
Industries, Inc., the domestic Guarantors party thereto, General
Electric Capital Corporation, as Collateral Agent, and Credit
Suisse Securities (USA) LLC, as Administrative Agent
(incorporated by reference from Exhibit 4.7 to the
Companys
Form 10-Q,
dated August 11, 2008
(File No. 333-114041-07)).
|
|
4
|
.10
|
|
U.S. Guaranty, dated June 9, 2008, among the domestic
Guarantors party thereto and General Electric Capital
Corporation, as Collateral Agent (incorporated by reference from
Exhibit 4.8 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.11
|
|
Intellectual Property Security Agreement, dated June 9,
2008, among Ply Gem Industries, Inc., certain domestic
Guarantors party thereto and General Electric Capital
Corporation, as Collateral Agent (incorporated by reference from
Exhibit 4.9 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.12
|
|
Canadian Security Agreement, dated June 9, 2008, by CWD
Windows and Doors, Inc. in favor of General Electric Capital
Corporation, as Collateral Agent (incorporated by reference from
Exhibit 4.10 to the Companys
Form 10-Q,
dated August 11, 2008
(File No. 333-114041-07)).
|
|
4
|
.13
|
|
Intellectual Property Security Agreement, dated June 9,
2008, by CWD Windows and Doors, Inc. in favor of General
Electric Capital Corporation, as Collateral Agent (incorporated
by reference from Exhibit 4.11 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.14
|
|
Indenture, dated as of January 11, 2010, among Ply Gem
Industries, Inc., the Guarantors party thereto and U.S. Bank
National Association, as trustee (incorporated by reference from
Exhibit 4.19 to the Companys
Form 10-K,
dated March 19, 2010
(File No. 333-114041-07)).
|
|
4
|
.15
|
|
Registration Rights Agreement, dated January 11, 2010,
among Ply Gem Industries, Inc., the Guarantors party thereto and
the initial purchasers named in the purchase agreement
(incorporated by reference from Exhibit 4.20 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
5
|
.1*
|
|
Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
LLP as to legality of the common stock.
|
|
10
|
.1
|
|
Amended and Restated Ply Gem Prime Holdings Phantom Stock Plan,
dated as of February 24, 2006 (incorporated by reference
from Exhibit 10.3 to the Companys
Form 10-K,
dated March 27, 2006 (File
No. 333-114041-07)).
|
|
10
|
.2
|
|
Amendment to Ply Gem Prime Holdings Phantom Stock Plan, dated as
of September 25, 2006 (incorporated by reference from
Exhibit 10.3 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.3
|
|
Phantom Incentive Unit Award Agreement Amendment letter to Lynn
Morstad, dated as of September 25, 2006 (incorporated by
reference from Exhibit 10.5 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.4
|
|
Phantom Incentive Unit Award Agreement Amendment letter to
Michael Haley, dated as of September 25, 2006 (incorporated
by reference from Exhibit 10.6 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.5
|
|
Ply Gem Prime Holdings 2004 Stock Option Plan, dated as of
February 24, 2006. (incorporated by reference from
Exhibit 10.4 to the Companys
Form 10-K,
dated March 27, 2006 (File
No. 333-114041-07)).
|
II-5
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
10
|
.6
|
|
Form of Incentive Stock Option Agreement for Ply Gem Prime
Holdings, Inc. 2004 Stock Option Plan (incorporated by reference
from Exhibit 10.5 to the Companys
Form 10-K,
dated March 27, 2006 (File
No. 333-114041-07)).
|
|
10
|
.7
|
|
General Advisory Agreement dated as of February 12, 2004,
between Ply Gem Industries, Inc. and CxCIC LLC (incorporated by
reference from Exhibit 10.14 to the Companys
Registration Statement on
Form S-4
(File
No. 333-114041)).
|
|
10
|
.8*
|
|
Second Amended and Restated Tax Sharing Agreement between Ply
Gem Holdings, Inc. and Ply Gem Industries, Inc.
|
|
10
|
.9
|
|
Stock Purchase Agreement, dated as of November 22, 2002,
between Alcoa Building Products, Inc., Ply Gem Industries, Inc.
and Nortek, Inc. (incorporated by reference from
Exhibit 10.18 to the Companys Registration Statement
on
Form S-4
(File
No. 333-114041)).
|
|
10
|
.10
|
|
Amended and Restated Retention Agreement with John Wayne, dated
as of December 31, 2008 (incorporated by reference from
Exhibit 10.13 to the Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.11
|
|
Letter to John Wayne, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.14 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
10
|
.12
|
|
Amended and Restated Retention Agreement with Lynn A. Morstad,
dated as of December 31, 2008 (incorporated by reference
from Exhibit 10.14 to the Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.13
|
|
Letter to Lynn A. Morstad, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.16 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
10
|
.14
|
|
Amended and Restated Retention Agreement with Keith Pigues,
dated as of December 31, 2008 (incorporated by reference
from Exhibit 10.15 to the Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.15
|
|
Letter to Keith Pigues, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.18 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
10
|
.16
|
|
Employment Agreement with Gary Robinette, dated as of
August 14, 2006 (incorporated by reference from
Exhibit 10.2 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.17
|
|
Retention Bonus Award letter to Gary Robinette, dated as of
November 7, 2008 (incorporated by reference from
Exhibit 10.1 to the Companys
Form 10-Q,
dated November 10, 2008 (File
No. 333-114041-07).
|
|
10
|
.18
|
|
Retention Bonus Award Amendment with Gary Robinette, dated
May 27, 2010.
|
|
10
|
.19
|
|
Retention Agreement with Shawn Poe, dated as of November 7,
2008 (incorporated by reference from Exhibit 10.1 to the
Companys
Form 10-Q,
dated November 10, 2008 (File
No. 333-114041-07)).
|
|
10
|
.20
|
|
Letter to Shawn Poe, dated as of February 11, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.19 to the
Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.21
|
|
Letter to Shawn Poe, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.23 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
II-6
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
10
|
.22
|
|
Purchase Agreement, dated January 6, 2010, among Ply Gem
Holdings, Inc., Ply Gem Industries, Inc., each of the direct and
indirect domestic subsidiaries of Ply Gem Industries, Inc. and
the initial purchasers named therein (incorporated by reference
from Exhibit 10.24 to the Companys
Form 10-K,
dated March 19, 2010
(File No. 333-114041-07)).
|
|
10
|
.23*
|
|
Form of Registration Rights Agreement by and among Ply Gem
Holdings, Inc., Caxton-Iseman (Ply Gem), L.P. and Caxton-Iseman
(Ply Gem) II, L.P. and other parties named therein.
|
|
10
|
.24*
|
|
Form of Second Amended and Restated Stockholders Agreement
by and among Ply Gem Holdings, Inc., Ply Gem Prime Holdings,
Inc., Caxton-Iseman (Ply Gem), L.P.,
Caxton-Iseman
(Ply Gem) II, L.P., the management stockholders named therein,
the other investors named therein, and for purposes of certain
sections only, Rajaconda Holdings, Inc.
|
|
10
|
.25*
|
|
Form of Indemnification Agreement.
|
|
10
|
.26*
|
|
Ply Gem Holdings 2010 Equity Award Plan.
|
|
10
|
.27*
|
|
Form of Equity Award Agreement for 2010 Equity Award Plan.
|
|
10
|
.28*
|
|
Ply Gem Holdings 2010 Annual Bonus Plan.
|
|
10
|
.29*
|
|
Form of Tax Receivable Agreement by and among Ply Gem Holdings,
Inc. and the Tax Receivable Entity.
|
|
10
|
.30
|
|
Subscription Agreement, dated May 27, 2010, between Ply Gem
Prime Holdings, Inc. and each of the investors named therein.
|
|
10
|
.31
|
|
Repurchase Agreement, dated May 27, 2010, between Gary
Robinette and Ply Gem Prime Holdings, Inc.
|
|
10
|
.32*
|
|
Termination Agreement between Ply Gem Industries, Inc. and CxCIC
LLC.
|
|
10
|
.33
|
|
MW Manufacturers, Inc. Retirement Plan.
|
|
10
|
.34
|
|
MW Manufacturers, Inc. Supplemental Executive Retirement Plan.
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
23
|
.2
|
|
Consent of KPMG LLP, independent registered public accounting
firm.
|
|
23
|
.3*
|
|
Consent of Paul, Weiss, Rifkind, Wharton & Garrison
LLP (included in Exhibit 5.1 to this Registration
Statement).
|
|
24
|
.1
|
|
Powers of Attorney (included on signature pages of this
Part II).
|
|
|
|
|
|
*
|
|
To be filed by amendment.
|
|
|
|
Previously filed.
|
(b) Financial Statement Schedules.
Schedule IIValuation and Qualifying Accounts
Schedules not listed above have been omitted because information
required to be set forth is not applicable or is shown in the
financial statements or the notes thereto.
II-7
Report of
Independent Registered Public Accounting Firm
The Board of
Directors and Stockholder
of Ply Gem Holdings, Inc.
We have audited the consolidated financial statements of Ply Gem
Holdings, Inc. and subsidiaries as of December 31, 2009,
and for the year then ended, and have issued our report thereon
dated March 19, 2010 (except for Note 1
Earnings (loss) per common share, for which the date is
May 27, 2010), included elsewhere in this Registration
Statement. Our audit also included the financial statement
schedule as of and for the year ended December 31, 2009
listed in Schedule II of this Registration Statement. This
schedule is the responsibility of the Companys management.
Our responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 19, 2010
II-8
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholder
Ply Gem Holdings, Inc.:
Under date of March 30, 2009, except for
Note 1 Earnings (loss) per common share, which
is as of May 25, 2010, we reported on the consolidated
balance sheet of Ply Gem Holdings, Inc. and subsidiaries as of
December 31, 2008 and the related consolidated statements
of income, stockholders equity (deficit) and comprehensive
income (loss) and cash flows for the years ended
December 31, 2008 and 2007, which are included in the
prospectus. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related
consolidated financial statement schedule in the registration
statement. This financial statement schedule is the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
Raleigh, North Carolina
March 30, 2009
II-9
SCHEDULE IIVALUATION
AND QUALIFYING ACCOUNTS
PLY GEM HOLDINGS, INC. AND SUBSIDIARIES
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to
|
|
|
Uncollectible
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
pacific
|
|
|
accounts
|
|
|
Balance at
|
|
|
|
beginning
|
|
|
costs and
|
|
|
other
|
|
|
windows
|
|
|
written off, net
|
|
|
end of
|
|
(Amounts in thousands)
|
|
of year
|
|
|
expenses
|
|
|
accounts
|
|
|
Acquisition
|
|
|
of recoveries
|
|
|
year
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales allowances
|
|
$
|
6,405
|
|
|
$
|
3,959
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
$
|
(4,876
|
)
|
|
$
|
5,467
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales allowances
|
|
$
|
7,320
|
|
|
$
|
3,091
|
|
|
$
|
965
|
|
|
$
|
|
|
|
$
|
(4,971
|
)
|
|
$
|
6,405
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and sales allowances
|
|
$
|
6,802
|
|
|
$
|
1,864
|
|
|
$
|
(1,351
|
)
|
|
$
|
1,541
|
|
|
$
|
(1,536
|
)
|
|
$
|
7,320
|
|
|
|
See accompanying reports of
independent registered public accounting firms.
II-10
(a) The undersigned registrant hereby undertakes to provide
to the underwriters at the closing date specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant duly caused this Amendment No. 2 to
the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cary,
State of North Carolina, on August 5, 2010.
PLY GEM HOLDINGS, INC.
Name: Shawn K. Poe
|
|
|
|
Title:
|
Vice President, Chief Financial
|
Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 2 to the registration statement
has been signed on August 5, 2010 by the following persons
in the capacities indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
*
Gary
E. Robinette
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
/s/ Shawn
K. Poe
Shawn
K. Poe
|
|
Vice President, Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
|
|
|
|
*
Frederick
J. Iseman
|
|
Chairman of the Board and Director
|
|
|
|
*
Robert
A. Ferris
|
|
Director
|
|
|
|
*
Steven
M. Lefkowitz
|
|
Director
|
|
|
|
*
John
D. Roach
|
|
Director
|
|
|
|
*
Michael
P. Haley
|
|
Director
|
|
|
|
*
Timothy
T. Hall
|
|
Director
|
II-12
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
*
Jeffrey
T. Barber
|
|
Director
|
|
|
|
*By: /s/ Shawn
K. Poe
Shawn
K. Poe
Attorney-in-Fact
|
|
|
II-13
EXHIBIT INDEX
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
2
|
.1
|
|
Stock Purchase Agreement, dated as of December 19, 2003,
among Ply Gem Investment Holdings, Inc., (f/k/a CI Investment
Holdings, Inc.), Nortek, Inc. and WDS LLC (incorporated by
reference from Exhibit 2.1 to the Companys
Registration Statement on
Form S-4
(File
No. 333-114041)).
|
|
2
|
.2
|
|
Stock Purchase Agreement, dated as of July 23, 2004, among
Ply Gem Industries, Inc., MWM Holding, Inc. and the
stockholders listed on Schedule 1 thereto (incorporated by
reference from Exhibit 2.2 to the Companys
Registration Statement on
Form S-4
(File No. 333-114041)).
|
|
2
|
.3
|
|
Securities Purchase Agreement, dated as of February 6,
2006, among Ply Gem Industries, Inc., and all of the direct and
indirect stockholders, warrant holders and stock option holders
of AWC Holding Company and FNL Management Corp., an Ohio
corporation, as their representative (incorporated by reference
from Exhibit 2.1 on
Form 8-K
dated March 2, 2006 (File
No. 333-114041-07)).
|
|
2
|
.4
|
|
Stock Purchase Agreement, dated as of September 22, 2006,
among Ply Gem Industries, Inc., Alcoa Securities Corporations
and Alcoa Inc. (incorporated by reference from Exhibit 2.1
to the Companys
Form 8-K,
dated November 6, 2006 (File
No. 333-114041-07)).
|
|
2
|
.5
|
|
First Amendment, dated as of October 31, 2006, to the Stock
Purchase Agreement, dated as of September 22, 2006, among
Ply Gem Industries, Inc., Alcoa Securities Corporations and
Alcoa Inc. (incorporated by reference from Exhibit 2.2 to
the Companys
Form 8-K,
dated November 6, 2006 (File
No. 333-114041-07)).
|
|
2
|
.6*
|
|
Merger Agreement by and among Ply Gem Prime Holdings, Inc. and
Ply Gem Holdings, Inc.
|
|
3
|
.1*
|
|
Form of Amended and Restated Certificate of Incorporation.
|
|
3
|
.2*
|
|
Form of Amended and Restated By-laws.
|
|
4
|
.1*
|
|
Specimen Stock Certificate.
|
|
4
|
.2
|
|
Amendment and Restatement Agreement, dated as of July 16,
2009, to the Credit Agreement dated as of June 9, 2008,
among Ply Gem Holdings, Inc., Ply Gem Industries, Inc., CWD
Windows and Doors, Inc., the other borrowers named therein, each
lender from time to time party thereto, Credit Suisse, Cayman
Islands Branch, as Administrative Agent, U.S. Swing Line Lender
and U.S. L/C Issuer, General Electric Capital Corporation, as
Collateral Agent, Credit Suisse, Toronto Branch, as Canadian
Swing Line Lender and Canadian L/C Issuer, and the other agents
party thereto.
|
|
4
|
.3
|
|
Second Amendment, dated as of October 9, 2009, to the
Credit Agreement dated as of June 9, 2008 and amended and
restated as of July 16, 2009, among Ply Gem Holdings, Inc.,
Ply Gem Industries, Inc., CWD Windows and Doors, Inc., the other
borrowers named therein, each lender from time to time party
thereto, Credit Suisse, Cayman Islands Branch, as Administrative
Agent, U.S. Swing Line Lender and U.S. L/C Issuer, General
Electric Capital Corporation, as Collateral Agent, Credit
Suisse, Toronto Branch, as Canadian Swing Line Lender and
Canadian L/C Issuer, and the other agents party thereto
(incorporated by reference from Exhibit 4.1 to the
Companys
Form 10-Q,
dated November 13, 2009 (File
No. 333-114041-07)).
|
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
4
|
.4*
|
|
Third Amendment to the Credit Agreement dated as of June 9,
2008 and amended and restated as of July 16, 2009, to be
entered into among Ply Gem Holdings, Inc., Ply Gem Industries,
Inc., CWD Windows and Doors, Inc., the other borrowers named
therein, each lender from time to time party thereto, Credit
Suisse, Cayman Islands Branch, as Administrative Agent, U.S.
Swing Line Lender and U.S. L/C Issuer, General Electric Capital
Corporation, as Collateral Agent, Credit Suisse, Toronto Branch,
as Canadian Swing Line Lender and Canadian L/C Issuer, and the
other agents party thereto.
|
|
4
|
.5
|
|
Indenture, dated as of June 9, 2008, among Ply Gem
Industries, Inc., the Guarantors named therein and U.S. Bank
National Association, as Trustee and Noteholder Collateral Agent
(incorporated by reference from Exhibit 4.1 to the
Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.6
|
|
Lien Subordination and Intercreditor Agreement, dated as of
June 9, 2008, among General Electric Capital Corporation,
as Collateral Agent, U.S. Bank National Association, as Trustee
and Noteholder Collateral Agent, Ply Gem Industries, Inc., Ply
Gem Holdings, Inc. and the subsidiaries of Ply Gem Industries,
Inc. listed on Schedule I thereto (incorporated by
reference from Exhibit 4.4 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.7
|
|
Collateral Agreement, dated June 9, 2008, among Ply Gem
Industries, Inc., Ply Gem Holdings, Inc., the Guarantors named
therein and U.S. Bank National Association, as Noteholder
Collateral Agent (incorporated by reference from
Exhibit 4.5 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.8
|
|
Intellectual Property Collateral Agreement, dated June 9,
2008, by Ply Gem Industries, Inc., Ply Gem Holdings, Inc. and
the subsidiaries of Ply Gem Industries, Inc. listed on the Annex
thereto in favor of U.S. Bank National Association, as
Noteholder Collateral Agent (incorporated by reference from
Exhibit 4.6 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.9
|
|
U.S. Security Agreement, dated June 9, 2008, among Ply Gem
Industries, Inc., the domestic Guarantors party thereto, General
Electric Capital Corporation, as Collateral Agent, and Credit
Suisse Securities (USA) LLC, as Administrative Agent
(incorporated by reference from Exhibit 4.7 to the
Companys
Form 10-Q,
dated August 11, 2008
(File No. 333-114041-07)).
|
|
4
|
.10
|
|
U.S. Guaranty, dated June 9, 2008, among the domestic
Guarantors party thereto and General Electric Capital
Corporation, as Collateral Agent (incorporated by reference from
Exhibit 4.8 to the Companys
Form 10-Q,
dated August 11, 2008
(File No. 333-114041-07)).
|
|
4
|
.11
|
|
Intellectual Property Security Agreement, dated June 9,
2008, among Ply Gem Industries, Inc., certain domestic
Guarantors party thereto and General Electric Capital
Corporation, as Collateral Agent (incorporated by reference from
Exhibit 4.9 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.12
|
|
Canadian Security Agreement, dated June 9, 2008, by CWD
Windows and Doors, Inc. in favor of General Electric Capital
Corporation, as Collateral Agent (incorporated by reference from
Exhibit 4.10 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
4
|
.13
|
|
Intellectual Property Security Agreement, dated June 9,
2008, by CWD Windows and Doors, Inc. in favor of General
Electric Capital Corporation, as Collateral Agent (incorporated
by reference from Exhibit 4.11 to the Companys
Form 10-Q,
dated August 11, 2008 (File
No. 333-114041-07)).
|
|
4
|
.14
|
|
Indenture, dated as of January 11, 2010, among Ply Gem
Industries, Inc., the Guarantors party thereto and U.S. Bank
National Association, as trustee (incorporated by reference from
Exhibit 4.19 to the Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
4
|
.15
|
|
Registration Rights Agreement, dated January 11, 2010,
among Ply Gem Industries, Inc., the Guarantors party thereto and
the initial purchasers named in the purchase agreement
(incorporated by reference from Exhibit 4.20 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
5
|
.1*
|
|
Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
LLP as to legality of the common stock.
|
|
10
|
.1
|
|
Amended and Restated Ply Gem Prime Holdings Phantom Stock Plan,
dated as of February 24, 2006 (incorporated by reference
from Exhibit 10.3 to the Companys
Form 10-K,
dated March 27, 2006 (File
No. 333-114041-07)).
|
|
10
|
.2
|
|
Amendment to Ply Gem Prime Holdings Phantom Stock Plan, dated as
of September 25, 2006 (incorporated by reference from
Exhibit 10.3 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.3
|
|
Phantom Incentive Unit Award Agreement Amendment letter to Lynn
Morstad, dated as of September 25, 2006 (incorporated by
reference from Exhibit 10.5 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.4
|
|
Phantom Incentive Unit Award Agreement Amendment letter to
Michael Haley, dated as of September 25, 2006 (incorporated
by reference from Exhibit 10.6 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.5
|
|
Ply Gem Prime Holdings 2004 Stock Option Plan, dated as of
February 24, 2006. (incorporated by reference from
Exhibit 10.4 to the Companys
Form 10-K,
dated March 27, 2006 (File
No. 333-114041-07)).
|
|
10
|
.6
|
|
Form of Incentive Stock Option Agreement for Ply Gem Prime
Holdings, Inc. 2004 Stock Option Plan (incorporated by reference
from Exhibit 10.5 to the Companys
Form 10-K,
dated March 27, 2006 (File
No. 333-114041-07)).
|
|
10
|
.7
|
|
General Advisory Agreement dated as of February 12, 2004,
between Ply Gem Industries, Inc. and CxCIC LLC (incorporated by
reference from Exhibit 10.14 to the Companys
Registration Statement on
Form S-4
(File
No. 333-114041)).
|
|
10
|
.8*
|
|
Second Amended and Restated Tax Sharing Agreement between Ply
Gem Holdings, Inc. and Ply Gem Industries, Inc.
|
|
10
|
.9
|
|
Stock Purchase Agreement, dated as of November 22, 2002,
between Alcoa Building Products, Inc., Ply Gem Industries, Inc.
and Nortek, Inc. (incorporated by reference from
Exhibit 10.18 to the Companys Registration Statement
on
Form S-4
(File
No. 333-114041)).
|
|
10
|
.10
|
|
Amended and Restated Retention Agreement with John Wayne, dated
as of December 31, 2008 (incorporated by reference from
Exhibit 10.13 to the Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
10
|
.11
|
|
Letter to John Wayne, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.14 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
10
|
.12
|
|
Amended and Restated Retention Agreement with Lynn A. Morstad,
dated as of December 31, 2008 (incorporated by reference
from Exhibit 10.14 to the Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.13
|
|
Letter to Lynn A. Morstad, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.16 to the
Companys
Form 10-K,
dated March 19, 2010
(File No. 333-114041-07)).
|
|
10
|
.14
|
|
Amended and Restated Retention Agreement with Keith Pigues,
dated as of December 31, 2008 (incorporated by reference
from Exhibit 10.15 to the Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.15
|
|
Letter to Keith Pigues, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.18 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
10
|
.16
|
|
Employment Agreement with Gary Robinette, dated as of
August 14, 2006 (incorporated by reference from
Exhibit 10.2 to the Companys
Form 10-Q
dated November 13, 2006 (File
No. 333-114041-07)).
|
|
10
|
.17
|
|
Retention Bonus Award letter to Gary Robinette, dated as of
November 7, 2008 (incorporated by reference from
Exhibit 10.1 to the Companys
Form 10-Q,
dated November 10, 2008 (File
No. 333-114041-07).
|
|
10
|
.18
|
|
Retention Bonus Award Amendment with Gary Robinette, dated
May 27, 2010.
|
|
10
|
.19
|
|
Retention Agreement with Shawn Poe, dated as of November 7,
2008 (incorporated by reference from Exhibit 10.1 to the
Companys
Form 10-Q,
dated November 10, 2008 (File
No. 333-114041-07)).
|
|
10
|
.20
|
|
Letter to Shawn Poe, dated as of February 11, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.19 to the
Companys
Form 10-K,
dated March 30, 2009 (File
No. 333-114041-07)).
|
|
10
|
.21
|
|
Letter to Shawn Poe, dated as of December 8, 2009,
regarding Renewal of Amended and Restated Retention Agreement
(incorporated by reference from Exhibit 10.23 to the
Companys
Form 10-K,
dated March 19, 2010 (File
No. 333-114041-07)).
|
|
10
|
.22
|
|
Purchase Agreement, dated January 6, 2010, among Ply Gem
Holdings, Inc., Ply Gem Industries, Inc., each of the direct and
indirect domestic subsidiaries of Ply Gem Industries, Inc. and
the initial purchasers named therein (incorporated by reference
from Exhibit 10.24 to the Companys
Form 10-K,
dated March 19, 2010
(File No. 333-114041-07)).
|
|
10
|
.23*
|
|
Form of Registration Rights Agreement by and among Ply Gem
Holdings, Inc.,
Caxton-Iseman
(Ply Gem), L.P. and Caxton-Iseman (Ply Gem) II, L.P. and other
parties named therein.
|
|
10
|
.24*
|
|
Form of Second Amended and Restated Stockholders Agreement
by and among Ply Gem Holdings, Inc., Ply Gem Prime Holdings,
Inc., Caxton-Iseman (Ply Gem), L.P., Caxton-Iseman (Ply Gem) II,
L.P., the management stockholders named therein, the other
investors named therein, and for purposes of certain sections
only, Rajaconda Holdings, Inc.
|
|
10
|
.25*
|
|
Form of Indemnification Agreement.
|
|
|
|
|
|
|
Exhibit
|
|
|
number
|
|
Description
|
|
|
|
10
|
.26*
|
|
Ply Gem Holdings 2010 Equity Award Plan.
|
|
10
|
.27*
|
|
Form of Equity Award Agreement for 2010 Equity Award Plan.
|
|
10
|
.28*
|
|
Ply Gem Holdings 2010 Annual Bonus Plan.
|
|
10
|
.29*
|
|
Form of Tax Receivable Agreement by and among Ply Gem Holdings,
Inc. and the Tax Receivable Entity.
|
|
10
|
.30
|
|
Subscription Agreement, dated May 27, 2010, between Ply Gem
Prime Holdings, Inc. and each of the investors named therein.
|
|
10
|
.31
|
|
Repurchase Agreement, dated May 27, 2010, between Gary
Robinette and Ply Gem Prime Holdings, Inc.
|
|
10
|
.32*
|
|
Termination Agreement between Ply Gem Industries, Inc. and CxCIC
LLC.
|
|
10
|
.33
|
|
MW Manufacturers, Inc. Retirement Plan.
|
|
10
|
.34
|
|
MW Manufacturers, Inc. Supplemental Executive Retirement Plan.
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
23
|
.2
|
|
Consent of KPMG LLP, independent registered public accounting
firm.
|
|
23
|
.3*
|
|
Consent of Paul, Weiss, Rifkind, Wharton & Garrison
LLP (included in Exhibit 5.1 to this Registration
Statement).
|
|
24
|
.1
|
|
Powers of Attorney (included on signature pages of this
Part II).
|
|
|
|
|
|
*
|
|
To be filed by amendment.
|
|
|
|
Previously filed.
|