PGT Inc. (PGTI, Financial) filed Quarterly Report for the period ended 2009-10-03.
PGT INDUSTRIES pioneered the U.S. impact-resistant window and door industry and today is the nation's leading manufacturer and supplier of residential impact-resistant windows and doors. PGT is also one of the largest window and door manufacturers in the United States. The company's total line of custom windows and doors is now available throughout the eastern United States, the Gulf Coast and in a growing international market, which includes the Caribbean, South America and Australia. PGT's product line includes PGT Aluminum and Vinyl Windows and Doors; WinGuard Impact-Resistant Windows and Doors; PGT Architectural Systems; and Eze-Breeze Sliding Panels. PGT Industries is a wholly owned subsidiary of PGT, Inc. Pgt Inc. has a market cap of $81 million; its shares were traded at around $2.27 with and P/S ratio of 0.4.
As a result of impairment indicators related to the weakness in the housing market we identified during the second quarter of 2008, the Company evaluated its trademarks for impairment and compared the estimated fair value of its trademarks to their carrying value and preliminarily determined that there was no impairment. During the third quarter of 2008, as part of finalizing its second quarter impairment tests, the Company made certain changes to its projections that affected the previous estimate of fair value and, when compared to the carrying value of indefinite lived intangibles, resulted in a $0.3 million impairment charge in the third quarter of 2008. We performed our annual assessment of our trademarks as of January 3, 2009. Given a further decline in housing starts and the overall tightening of the credit markets, our revised forecasts indicated additional impairment was present, resulting in an additional impairment charge of $17.8 million in the fourth quarter of 2008. Due to the prolonged and continued challenging economic factors impacting the housing industry and our recent actual results, we evaluated our trademarks for impairment as of October 3, 2009 and determined that there was no impairment. Intangible assets not subject to amortization totaled $44.4 million at October 3, 2009. We will continue to evaluate the recoverability of our trademarks as continued declines in housing activity could result in additional impairment.
Effective August 14, 2009, we acquired certain operating assets of Hurricane. In addition to Hurricane s inventory and property and equipment, we also acquired the right to use Hurricane s design technology through the end of 2010, including the option to purchase the technology at any time through the end of 2010. We engaged a third-party valuation specialist to assist us in estimating the fair value of the identifiable intangible assets consisting of the right to use Hurricane s design technology and the related purchase option, which was determined to total $0.6 million at the date of the acquisition. The carrying value of the intangible assets of $0.6 million is included in other intangible assets, net, in the accompanying condense consolidated balance sheet at October 3, 2009. The intangible assets are being amortized on the straight-line basis over their estimated lives of approximately 1.3 years through the end of 2010. Amortization expense of less than $0.1 million is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the three months ended October 3, 2009.
Gross margin was $10.9 million, or 26.1% of sales, for the third quarter of 2009, a decrease of $5.3 million, or 32.9%, from $16.2 million, or 29.8% of sales, for the third quarter of 2008. This decrease was largely due to lower sales volumes of most of our products and the resulting loss of operating leverage against fixed costs, a change in mix and slight decrease in pricing, partially offset by spending reductions as a result of our cost savings initiatives. There were restructuring charges in cost of goods sold in the third quarter of 2009 $0.5 million. Adjusting for these charges, gross margin was $11.4 million, or 27.4% of sales, for the third quarter of 2009.
Selling, general and administrative expenses were $12.6 million for the third quarter of 2009, a decrease of $1.8 million, from $14.5 million for the 2008 third quarter. There were restructuring charges in selling, general and administrative expenses in the third quarter of 2009 of $0.4 million. Adjusting for these charges, selling, general and administrative expenses were $12.2 million for the third quarter of 2009, a decrease of $2.3 million. This decrease was mainly due to a $1.4 million decrease in personnel related costs as the result of the cost saving actions, a $0.5 million decrease in fuel costs and approximately $0.6 million of overall lower spending in other categories. These cost savings were partially offset by a $0.2 million increase in bad debt expense. As a percentage of sales, adjusted selling, general and administrative expenses were 29.5% the third quarter of 2009, compared to 26.6% for the third quarter of 2008, mainly due to the loss of leverage from the decrease in sales.
Interest expense, net was $1.7 million in the third quarter of 2009, a decrease of $0.5 million, from $2.2 million for the third quarter of 2008. The decrease was due to a lower level of debt during the third quarter of 2009 compared to the third quarter of 2008, partially offset by a higher interest rate on our debt during the third quarter of 2009 compared to the third quarter of 2008.
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PGT INDUSTRIES pioneered the U.S. impact-resistant window and door industry and today is the nation's leading manufacturer and supplier of residential impact-resistant windows and doors. PGT is also one of the largest window and door manufacturers in the United States. The company's total line of custom windows and doors is now available throughout the eastern United States, the Gulf Coast and in a growing international market, which includes the Caribbean, South America and Australia. PGT's product line includes PGT Aluminum and Vinyl Windows and Doors; WinGuard Impact-Resistant Windows and Doors; PGT Architectural Systems; and Eze-Breeze Sliding Panels. PGT Industries is a wholly owned subsidiary of PGT, Inc. Pgt Inc. has a market cap of $81 million; its shares were traded at around $2.27 with and P/S ratio of 0.4.
Highlight of Business Operations:
On January 13, 2009, March 11, 2009 and September 24, 2009, we announced further restructurings of the Company as a result of continued analysis of our target markets, internal structure, projected run-rate, and efficiency. The restructurings resulted in an aggregate decrease in our workforce of approximately 325 employees and included employees at both our Venice, Florida and Salisbury, North Carolina locations. As a result of the restructurings, we recorded restructuring charges totaling $0.9 million in the third quarter of 2009, of which $0.5 million is classified within cost of goods sold and $0.4 million is classified within selling, general and administrative expenses, and $3.9 million in the first nine months of 2009, of which $1.9 million is classified within cost of sales and $2.0 million is classified within selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the three and nine months ended October 3, 2009. The charges related primarily to employee separation costs.As a result of impairment indicators related to the weakness in the housing market we identified during the second quarter of 2008, the Company evaluated its trademarks for impairment and compared the estimated fair value of its trademarks to their carrying value and preliminarily determined that there was no impairment. During the third quarter of 2008, as part of finalizing its second quarter impairment tests, the Company made certain changes to its projections that affected the previous estimate of fair value and, when compared to the carrying value of indefinite lived intangibles, resulted in a $0.3 million impairment charge in the third quarter of 2008. We performed our annual assessment of our trademarks as of January 3, 2009. Given a further decline in housing starts and the overall tightening of the credit markets, our revised forecasts indicated additional impairment was present, resulting in an additional impairment charge of $17.8 million in the fourth quarter of 2008. Due to the prolonged and continued challenging economic factors impacting the housing industry and our recent actual results, we evaluated our trademarks for impairment as of October 3, 2009 and determined that there was no impairment. Intangible assets not subject to amortization totaled $44.4 million at October 3, 2009. We will continue to evaluate the recoverability of our trademarks as continued declines in housing activity could result in additional impairment.
Effective August 14, 2009, we acquired certain operating assets of Hurricane. In addition to Hurricane s inventory and property and equipment, we also acquired the right to use Hurricane s design technology through the end of 2010, including the option to purchase the technology at any time through the end of 2010. We engaged a third-party valuation specialist to assist us in estimating the fair value of the identifiable intangible assets consisting of the right to use Hurricane s design technology and the related purchase option, which was determined to total $0.6 million at the date of the acquisition. The carrying value of the intangible assets of $0.6 million is included in other intangible assets, net, in the accompanying condense consolidated balance sheet at October 3, 2009. The intangible assets are being amortized on the straight-line basis over their estimated lives of approximately 1.3 years through the end of 2010. Amortization expense of less than $0.1 million is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the three months ended October 3, 2009.
Gross margin was $10.9 million, or 26.1% of sales, for the third quarter of 2009, a decrease of $5.3 million, or 32.9%, from $16.2 million, or 29.8% of sales, for the third quarter of 2008. This decrease was largely due to lower sales volumes of most of our products and the resulting loss of operating leverage against fixed costs, a change in mix and slight decrease in pricing, partially offset by spending reductions as a result of our cost savings initiatives. There were restructuring charges in cost of goods sold in the third quarter of 2009 $0.5 million. Adjusting for these charges, gross margin was $11.4 million, or 27.4% of sales, for the third quarter of 2009.
Selling, general and administrative expenses were $12.6 million for the third quarter of 2009, a decrease of $1.8 million, from $14.5 million for the 2008 third quarter. There were restructuring charges in selling, general and administrative expenses in the third quarter of 2009 of $0.4 million. Adjusting for these charges, selling, general and administrative expenses were $12.2 million for the third quarter of 2009, a decrease of $2.3 million. This decrease was mainly due to a $1.4 million decrease in personnel related costs as the result of the cost saving actions, a $0.5 million decrease in fuel costs and approximately $0.6 million of overall lower spending in other categories. These cost savings were partially offset by a $0.2 million increase in bad debt expense. As a percentage of sales, adjusted selling, general and administrative expenses were 29.5% the third quarter of 2009, compared to 26.6% for the third quarter of 2008, mainly due to the loss of leverage from the decrease in sales.
Interest expense, net was $1.7 million in the third quarter of 2009, a decrease of $0.5 million, from $2.2 million for the third quarter of 2008. The decrease was due to a lower level of debt during the third quarter of 2009 compared to the third quarter of 2008, partially offset by a higher interest rate on our debt during the third quarter of 2009 compared to the third quarter of 2008.
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