PGT Innovations Inc (PGTI) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PGT, Inc. fourth-quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference, Mr. Brad West. Sir, please go ahead.

Good morning and thank you for joining us for PGT's fourth-quarter and fiscal-year 2010 conference call. I am Brad West, Corporate Controller; and I am joined by Rod Hershberger, President and CEO; and Jeff Jackson, Executive Vice President and CFO. And Rod and Jeff will represent PGT on this morning's call.

Before we begin, let me remind everyone that today's conference call may contain statements concerning the Company's future prospects, business strategies and industry trends. Such statements are considered to be forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations and are subject to risk and uncertainty.

Actual results may vary materially from those contained in the forward-looking statements. Please refer to the February 24 press release and our most recent Form 8-K and other documents filed with the SEC. We undertake no obligation to publicly revise any forward-looking statements. A copy of our press release is posted on the Investor Relations section of our corporate website at www.pgtinc.com.

Included in the press release are the unaudited consolidated balance sheets and statements of operations prepared in accordance with GAAP, and adjusted information which was quantitatively reconciled to GAAP. Our company uses non-GAAP measurements as key metrics for evaluating performance internally. A detailed explanation of these non-GAAP measurements can be found in our Form 8-K filed February 24 with the SEC. These non-GAAP measurements are not intended to replace the presentation of financial results in accordance with GAAP. Rather, we believe these non-GAAP measurements provide additional information for investors to facilitate the comparison of past and present performance.

For today's call, Rod will provide an overview of our performance for the fourth quarter and full year; then Jeff just will discuss our results in more detail. After the prepared remarks, then we'll take your questions.

With that, let me turn the call over to Rod Hershberger. Rod?

Thanks, Brad. Good morning, everyone. I am pleased to report that we closed out 2010 with a 5.9% increase in sales, our first year-over-year sales increase since 2006. This includes an 8.4% increase in our fourth quarter of 2010 sales compared to the fourth quarter of 2009. Our growth was driven by our Florida market sales, with an increase of $4 million or 14.4% compared to prior year.

WinGuard sales increased by $1.7 million or 8%, due to both the success of our new aluminum door launched last fall and an increase in vinyl WinGuard sales where many replacement customers took advantage of tax credits offered. Vinyl WinGuard sales in Florida increased $1 million, including $542,000 in sales into the southern part of Florida. Our new PremierVue line of high-end vinyl impact products contributed $300,000 in additional sales.

Finally, a version of our new vinyl nonimpact product, SpectraGuard, designed for the Florida market and launched last year, contributed $1.1 million in additional sales. This growth was partially offset by a decrease in international sales, down $400,000 for the quarter, and a decrease in our out-of-state sales of $600,000 or 9.4%, driven by curtain wall revenue down $500,000.

Exclusive of curtain wall revenues, sales in the fourth quarter were up 10%, led by increases into both the R&R and new construction markets, both of which increased 10% over a year ago. As a percentage of total sales for the fourth quarter of 2010, R&R sales accounted for 74% and new construction sales accounted for 26% of sales.

Comparing our fourth quarter to the prior-year fourth quarter, the gross margin contribution from our fourth-quarter sales increase was offset by a shift in mix between impact and nonimpact and product mix within impact sales. In 2010, we recorded consolidation charges of $885,000 compared to restructuring charges of $1.1 million in 2009.

As a percentage of sales, adjusted gross margin was 25.8% in 2010, versus an adjusted gross margin of 28.2% in 2009. SG&A costs adjusted for the 2010 consolidation charges and 2009 restructuring charges increased $2.1 million, due mainly to an increase of $1 million in bonuses, $500,000 in increased salaries resulting from returning employees to their 2009 base, a $600,000 increase in non-cash stock compensation expense, and a $300,000 increase in healthcare costs.

Driven by our non-cash impairment charges of $5.6 million and consolidation charges of $2.1 million, we recorded a net loss of $12.2 million for the fourth quarter of 2010. These charges are a result of our decision to consolidate our operations into our Florida facility.

Adjusted EBITDA was $228,000 in the fourth quarter of 2010, which is down from adjusted EBITDA of $2.9 million from prior year. The decrease in adjusted EBITDA was driven mainly by a shift in mix toward lower-margin nonimpact products, which offset contribution margin gained on additional sales, as well as the SG&A increases just described.

We recorded an adjusted net loss of $4.6 million in the fourth quarter compared to an adjusted net income of $2.5 million in the fourth quarter of 2009.

Within our core market, total housing starts were down 2.2%, multifamily starts were up 6.6%, but single-family starts decreased 3.7% compared to a year ago. Market conditions remain difficult, but overall housing starts and permits appear to have reached a bottom and are starting to show signs of life.

During the fourth quarter of 2010, we announced the decision to consolidate our North Carolina operations into our Florida facility. We expect that consolidation will enhance long-term competitiveness and improve efficiencies. Annualized savings will be $7 million, with about half of that realized in 2011.

Approximately 300 new positions are being created in Venice in support of a transition scheduled to be complete by the end of our second quarter. We received tremendous support from the local Economic Development Corporation in Sarasota County, which proved critical to our decision-making process. We believe transitioning to a centralized location will optimize our manufacturing capacity and logistics, positioning PGT to be a stronger company with focus on growing our share within our core windborne debris market areas.

During the fourth quarter of 2010, we acquired the intellectual property assets of Hurricane Window and Door Technologies of Fort Myers. We purchased the operating assets during 2009, and branded this high-end energy-efficient impact vinyl line, PremierVue. Designed specifically for the hurricane protection market, these products provide long-term energy and structural benefits that meet both the structural requirements of Miami-Dade for impact protection and energy rating requirements of programs sponsored by the Department of Energy.

Finally, during the quarter we used cash generated during 2010 to prepay $3 million of outstanding bank debt.

With that, I will turn the call over to Jeff who will review the results for the quarter in greater detail. Jeff?

Thank you, Rod. We are encouraged by the continued growth in our Florida market, with sales up 6.2% for our fiscal year ended January 1, 2011. Our fourth quarter Florida sales were up 14.4%, both positive indicators that the market is stabilizing and actually starting to grow.

Now let me give you more detail regarding our fourth-quarter results. We reported net sales of $39 million, which is an increase of 8.4% versus the prior-year's quarter. This increase continues to be driven by sales into the R&R market, up 10%. Sales into the R&R market represented 74% of our total sales, and were driven mainly by our vinyl window sales, which were up $3.3 million.

Our total sales dollar increase of $3 million was driven by sales within our core market, Florida, which increased $4 million in sales. Florida sales represented 81% of total sales in 2010, and 77% of total sales in 2009. This $4 million increase in Florida sales includes increases in WinGuard, both aluminum and vinyl, of $1.9 million, nonimpact vinyl of $1.3 million, and PremierVue of $300,000. The increases related to vinyl products show our commitment to sell into a changing Florida market.

In total, we have increased vinyl sales into our Florida market when compared to previous years by an average of 70% for the four quarters, beginning with the first quarter of 2010, when we launched our SpectraGuard product line designed for the Florida market.

This product, sales of which totaled $2.6 million for the year, combined with increases in vinyl WinGuard sales into Florida of $1 million, shows that we are positioning our company to serve and capitalize on opportunities presented by the shift to vinyl within our Florida market. In total, our WinGuard products, both aluminum and vinyl, continue to lead our sales, representing 61% of our sales for the fourth quarter.

Breaking down our sales drivers for the fourth quarter compared to 2009's fourth quarter, we have WinGuard sales at $23.8 million versus $22 million, up 8%. Vinyl, nonimpact and other product sales were $8 million versus $5.7 million, up 40%. Aluminum nonimpact product sales at $4.5 million versus $4.9 million, down 8%. Architectural Systems sales were $1.5 million versus $2.7 million, down 44%. PremierVue sales were $1 million versus $600,000 in the fourth quarter of 2009.

Our adjusted gross margin for the fourth quarter was 25.8% versus adjusted gross margin of 28.2% in the fourth quarter of 2009. Our decrease in gross margin percentage of 240 basis points was driven by a change in mix towards vinyl products in both impact and nonimpact, which reduced our margins by about 250 basis points and increased overhead spending related to healthcare and other employee-related costs, which reduced margins by 150 basis points. Offsetting these decreases was an increase in volume, which improved margins by 140 basis points.

With respect to mix, our vinyl nonimpact products carry a contribution margin of approximately 21%, while impact products carry a contribution margin ranging from 45% to 50%. Our vinyl nonimpact margins are lower in part, due to the competitive nature of the markets for these products, especially outside of the state of Florida. We will continue to work on various initiatives to improve our vinyl nonimpact margins.

Our average cost of aluminum was approximately $2158 per metric ton during the fourth quarter, comprised of spot purchases averaging $2196 per metric ton for approximately 42% of our needs, and hedge purchases averaging $2130 per metric ton for 58% of our needs. This compares to the fourth quarter of 2009's average cost of $2087 per metric ton.

As of today, we are hedged approximately at 49% of our estimated needs for 2011, at an average of $2330 per metric ton. The current cash price as of February 24 was $2491 per metric ton.

Our coverage includes zero cost collars for approximately 20% of our second-half needs for 2011. These collars represent a ceiling at $2700 per metric ton and a floor at [$2300] per metric ton. Should prices remain within these ranges, these collars will have no effect.

Our selling, general and administrative expenses were $13.5 million, up $2.1 million when excluding consolidation, restructuring and non-cash impairment charges from both periods. Driving this increase was $1 million in incremental bonus expense, an increase in non-cash stock compensation expense of approximately $600,000, which going forward we anticipate non-cash stock expense to be $1.7 million in 2011; approximately $500,000 in increased salaries, resulting from returning employees to their 2009 base levels; approximately $300,000 in healthcare cost increases, offset by overall lower spending in various other categories of approximately $300,000.

Excluding consolidation, restructuring and non-cash impairment charges, SG&A as a percent of sales was 34.6% in the fourth quarter compared to 31.6% in prior-year's fourth quarter. Excluding non-cash stock compensation expense and additional bonus accrual of $1 million, SG&A as a percent of sales was 32.1% and 31.3% respectively.

Interest expense was $1.2 million compared to $1.6 million in the fourth quarter of 2009. The decrease relates to our lower debt compared to prior years as we made $20 million in payments in the last 12 months. At the end of the fourth quarter, the interest rate on our bank debt was 6.75% based on our credit agreement and its tiered interest rate structure.

As Rod mentioned earlier, in the fourth quarter of 2010, we decided to close our North Carolina facility and consolidate all operations into Florida. At this time I am pleased to report that the consolidation is on schedule and is expected to be completed by the end of our second quarter. Our timeline allows for us to move product lines with minimal impact on our customers.

In the fourth quarter, we recorded a non-cash impairment charge of $5.6 million related to our plant in North Carolina, as well as some equipment in connection with the consolidation. In addition, we recorded $2.1 million in consolidation charges related mainly to severance costs.

We will continue recording consolidation charges throughout the first and second quarters of 2011. At this time, we currently anticipate incurring between $6.5 million and $7 million in total cash consolidation charges, including the charges recorded in 2010.

Our estimated savings from the consolidation is approximately $7 million annually, of which we estimate to recognize $3 million in our fiscal year 2011.

During the fourth quarter of 2010, we did not record any tax expense or benefits. We had an effective tax rate of zero due to the full valuation allowance that we applied to our deferred tax assets. As a reminder, during the fourth quarter of 2009, our effective tax rate was a benefit of 106% due to a combination of two items; a loss carryback receivable of approximately $3.6 million related to recently passed legislation allowing companies to carry back 2009 or 2008 losses up to five years, as well as an intraperiod tax allocation of approximately $1.8 million. In May 2010, we did receive that refund of approximately $3.6 million related to our carryback.

Going forward we anticipate our tax rate in the range of 38% to 39%, absent any further adjustments in the valuation allowance. As we become more profitable, we will be in a good position to realize our deferred tax assets by offsetting future income.

We had a net loss in the fourth quarter of $12.2 million or $0.23 diluted share versus a net income of $301,000 or $0.01 per diluted share in the fourth quarter of our prior year. This net loss in the fourth quarter of 2010 includes $2.1 million in consolidation charges and $5.6 million in non-cash impairment charges.

The net income in the fourth quarter of 2009 includes $1.5 million in restructuring charges and $742,000 in non-cash asset impairment charges. Adjusting for consolidation, restructuring costs and asset impairment charges, there was an adjusted net loss of $0.09 in the fourth quarter of 2010, as compared to net income of $0.07 in the fourth quarter of 2009.

As a result of the rights offering completed near the end of the first quarter, weighted average outstanding diluted shares were $53.7 million in the fourth quarter versus prior-year's weighted average outstanding diluted shares of $37 million.

Adjusted EBITDA was $228,000 for the fourth quarter versus adjusted EBITDA of $2.9 million in the fourth quarter of 2009. The 2010 EBITDA was adjusted for consolidation charges of $2.1 million and $5.6 million in non-cash asset impairment charges I mentioned earlier.

The 2009 EBITDA was adjusted for prior-year restructuring charges of $1.5 million and $742,000 in non-cash asset impairment charges. The decrease in EBITDA of $2.6 million is due mainly to a shift in mix towards our lower -margin products, which offset margin gains from additional sales, as well as the previously mentioned $1 million in bonus accrual, an increase in our non-cash stock compensation expense of $600,000, and approximately $500,000 increased salaries resulting from the return -- returning employees to their 2009 base levels, and approximately $300,000 in healthcare cost increases.

As additional information, our fourth-quarter depreciation and amortization totaled $3.7 million. A reconciliation of net income and EBITDA is included in our earnings release for your reference.

Now turning to the balance sheet. At quarter-end, our net working capital excluding cash decreased by $3.7 million compared to the end of the third quarter. Days sales outstanding stayed flat at 42 days during the quarter. In reviewing free cash flow for the quarter, we had adjusted EBITDA excluding noncash stock compensation of $900,000.

We repaid $3 million in long-term debt. We had acquisition costs of $2.6 million. We had capital additions of $800,000. Cash paid for interest was $900,000, and we received $3.6 million from working capital primarily related to AR and inventory.

Additionally, we used $400,000 related mainly to margin placements, resulting in cash on hand of $22 million at the end of the fourth quarter.

Our net debt and corresponding leverage ratio at the end of the fourth quarter of 2010 was approximately $28 million and 1.7 times. This compares to net debt of $60.6 million at the end of last year's fourth quarter.

Our annual sales growth was the first we have seen since 2006. We believe the worst is over, but we still had bumps to overcome including high unemployment rates, declining prices in homes, high inventories of unsold homes, including so-called shadow market of unsold homes, and ongoing legal issues surrounding the foreclosures.

This will be a good year to position our company for when the Florida market does return, and we expect vinyl products to obtain a larger share of market than in the past, and we have taken steps necessary to dominate the Florida vinyl market.

In addition, we are taking steps, including the consolidation of our North Carolina facility, to improve our entire production chain and gain more efficiencies. Accordingly, we will be in a stronger position to improve our margins going forward.

With that, let me turn the call back over to Rod. Rod?

Thanks, Jeff. Our new products, including our new vinyl sliding glass door introduced at the 2011 International Builders Show, demonstrates our continued commitment to be on the cutting edge of new product development and to produce high-quality products that fill previously unfulfilled needs in the marketplace.

Although our decision to close our North Carolina plant and concentrate our efforts in our core market of Florida and the Gulf Coast regions was a difficult one, it also properly reflects our continued focus on serving markets which have the greatest potential to drive long-term, profitable growth.

We believe that focusing our efforts on the Florida market and coastal markets from Texas to the mid-Atlantic will be the best use of our core competencies and ensure continued and even expanding market dominance in these areas.

We also believe this strategy will provide the most benefit for our stockholders, employees and other stakeholders. I thank all our employees and our customers for continuing to believe in us, commit to our strategy and outperform our expectations.

With that, I will conclude and Jeff and I will be happy to answer your questions. Karen, if you could get the first question please.

(Operator Instructions) Nishu Sood, Deutsche Bank.

Hey, it's actually Rob Hansen on for Nishu. So now that you have closed the North Carolina plant, is this a broader kind of strategy change where you won't be focusing on sales outside of Florida? Do you still have sales in place up and down outside of Florida, and is that going to continue to be a focus?

A couple things, Rob. Our North Carolina plant, about 60 -- between 60% and 65% of the product we were manufacturing, we were shipping back into Florida. It was kind of -- if we go back, the reminder is that we were out of capacity in our Florida facility and we needed to expand so we could continue to grow. And with the downturn in the construction market that, of course, no longer is the case. So a lot of that product was coming back into the Florida market.

Additionally, we were trying to expand a little bit into the Midwest, and that is the part that we have pulled back. So we don't have all the salespeople in place, but we do have salespeople in place in the entire coastal areas. So everything we have talked about from Texas to the mid-Atlantic and up through those states, we are still covering those areas.

We are seeing a little bit of strength in some of those areas, making some inroads. So we will continue to really focus on kind of that market that we do really well in.

Okay, and what is the utilization rate now in Venice, now that you have kind of transferred this stuff -- the other operations over?

Right now, we are currently in that transfer process. We will be finished with that at the end of the second quarter. So, Rob, I would hate to answer that question until the end of the second quarter when we have all of the lines up running.

Okay. And what was the WinGuard gross margin this quarter? I don't think I caught that.

The WinGuard margins were 35% this quarter, and then all other was 10%.

Okay, and just over the past few quarters, it has usually been over 40% and whatnot. Any reason -- I guess what is the reason for the delta this quarter?

Well, if you look at it compared to our fourth quarter of 2009, it is shear mix. The mix within WinGuard itself has changed more towards vinyl versus aluminum. That is having an impact on us as aluminum costs have increased.

And also we are gaining more efficiencies in vinyl, but we just started running the PremierVue line about a year ago. We are still getting efficiencies out of that. So we have some ways to go there in terms of what we can do on the cost and efficiency side in improving margins on those products, on the vinyl products.

If you look at it compared to the third quarter, it did decrease on the third quarter. Again, fixed costs stayed about the same, but it was just sales leverage. During the third quarter we had a much more robust sales quarter, and we were able to leverage those costs, fixed costs, a lot better. So it just depends on what cut you want to look at, if this is a sequential quarter or if it is this time last year.

All right, well --.

We do expect increasing those margins over time, but again, we've got to get the plant consolidated and up and running, and then we have got to drive efficiencies through the production to increase the vinyl margins.

All right. Well, thanks, guys.

Sam Darkatsh, Raymond James.

Ron, Jeff, Brad, how are you?

Great, Sam, how are you doing?

I'm doing great. I have three questions, and two of them I guess piggybacked the last set of questions that we just heard. First off, you gave contribution margins in your script for both WinGuard and also for nonimpact. I am guessing those were on the EBIT line?

If you were just talking about the impact of volumes running through, could you help us, excluding mix, excluding charges, what contribution margins might look like on the gross line for both the impact and nonimpact?

Excluding mix? Excluding --?

Like the charges, like you had this quarter and next.

Yes, I would say -- let's say normalized contribution margins for WinGuard, again, are going to range on the vinyl side closer to the 35% to 40%. On the aluminum side, 45% to 50%, depending on the product.

On the nonimpact side, the vinyl side, anywhere from 15% to 20%. On aluminum, anywhere from -- I would say -- 17% to 21%, 22%. We typically have a little bit better margins on nonimpact aluminum. But again, that depends on the aluminum prices and what they do.

And are those variable margins on the gross line for cost of sales or for the EBIT line?

Gross.

Oh, those are on the gross line. Okay, got you, all right. So on the operating expenses then, how would you ascertain the fixed versus variable components of that then, at this point?

Well, at this point -- again, I hesitate to answer that right now because we are consolidating, and we are definitely impacting a lot of those fixed expenses in North Carolina's consolidation into this plant.

Our overhead typically as a percent of sales averages 18%, 20%. We are attacking that with the consolidation, so I expect to drive that percentage down, those fixed costs down. When I say overhead, that is our fixed costs.

So I don't feel comfortable giving any kind of guidance on that at this point until we all figure out the impact of the North Carolina consolidation.

Sam, in the past we have talked a little bit -- we've manufactured PremierVue here in Florida, but the rest of our impact vinyl is manufactured in North Carolina. And I think I mentioned to Rob -- I don't know if I did or not, but I think I mentioned to Rob that we are shipping about 60-some-percent of our product from North Carolina back down.

So there is a saving in transportation costs when you move it all here, since a lot of that product was coming back down. But I am not sure that we are ready to talk about exactly what those numbers are going to be yet.

Maybe I'm confused then. The overhead that you are referring to, I think, Jeff, is on the cost of sales line. In terms of the SG&A or the operating expenses, what costs ultimately when things shake out are leverageable? Just trying to get a sense of how much is variable on the SG&A line.

Yes, on the SG&A line, I think that is why Rod mentioned the distribution. That is where we carry our distribution costs. That is definitely leverageable on the SG&A line, and that is where we are getting actually probably the majority of our SG&A savings. That and the sales commission type line.

Got you. The second question or line of questions. Outside of the State of Florida, your sales have been running roughly $8 million a quarter, and I guess this gets back to the prior questioner.

It sounds like you're going to be walking away from some accounts that it may make it less profitable or economic, at least, to service. So on a normalized basis then, what should we look at over the next year or two from a quarterly run rate out of the non-Florida sales?

We expect our non-Florida sales to come closer to -- on a quarterly basis, I would say $2.5 million a quarter on average. Because we still sell our Eze-Breeze product outside the state. We will continue to do that.

And we will still, like Rod said, sell the coastal -- we're up the coast. We have sales reps in the Carolinas, we have them in the Panhandle, down through Louisiana, up through Texas actually. So we will still be hitting those markets. It will be vinyl impact probably related, we are hoping, more higher-margin stuff. But $2.5 million a quarter in sales outside the state is probably a good starting point.

And that would occur after the plant's closed?

Yes.

Okay. Last question. You mentioned in the scripts and in the release last night that the tax incentives may have pulled forward some demand into the fourth quarter.

Any sense of quantification or how you would judge the impact of that? How is January and February looking? What do we think in terms of what type of impact that might have had?

You know, maybe I will kind of jump in and answer that question initially from the overall market view, and then I will try to quantify a little bit better for how it affected us. I think window and door companies saw a pretty good uptick in sales in December, some in November and December from the tax credits, and we saw a little bit of that same thing.

We probably weren't affected quite as much as some of the national companies, because our market is driven a lot by impact. And a $1500 tax credit when you have to upgrade to IG impact, all the bells and whistles, you are adding as much or more cost to the product than you are getting back in tax rebates. And the energy savings you get in the market that we serve doesn't really give you quite as good a payback.

So I don't think it affected us quite as much as others. I think we saw some pull-in, and we definitely saw that in December where we were getting phone calls and people had to have the product and had to get it installed before the end of the year.

To put a number on it, Sam, I don't know that I can put a good, accurate number on it. We came into January being maybe a little bit softer than we thought January would be, but not a lot. January is always a little bit softer month because people just -- it takes a little bit of time to ramp back up after the holidays. And we attributed a little bit of that softness to the tax credit.

We also attributed a little bit of it to the weather, every place other than Florida. So we definitely were affected by that. So I think it had a small effect, but I don't think it was a real large one.

Thank you much.

Hey, Sam, I wanted to clarify one question you asked earlier about the impact of kind of pulling back from out-of-state. The number you had mentioned, $8 million a quarter or so, that -- I looked to see where you might have gotten that number.

And that is probably including our international market as well, because if you look at our total out-of-state sales for the year -- out-of-state meaning out of Florida within the US -- was about $25 million, international was about $8 million. Obviously, international is not changing. We actually think international will grow year-over-year.

So when I say $2.5 million, I am referring to just that out-of-state Florida, but not the international piece. I just want to make sure you're aware of that.

So it will be closer to $4 million or $4.5 million then a quarter.

Exactly.

Okay, got you. Very, very helpful. Thank you.

(Operator Instructions) Michael Rehaut, JPMorgan.

Hey, guys. This is actually Will Wong on for Mike. How are you?

Hey, Will.

I just had a quick question. Aluminum prices have been trending upwards, and I know you guys have -- I think it was 58% of your aluminum spend for 2011 hedged. But can you talk a little bit about any price increases that you might think are in the near future, if you expect any price increases, just given that you guys haven't really increased prices in the last two years, I think? But with the increase in price, do you expect any price increases?

Actually, we do. We were planning on and have announced to our customer base a price increase on average, I think it was 4% across the board kind of a -- obviously, it's going to be different by product line, but it averages out about 4% price increase, mainly to deal -- actually, entirely to deal with increased costs in both aluminum and glass. Both of those costs have increased year-over-year on us.

So we are going to be passing those cost increases along to the customer. That price increase will become effective April of this year, so we see that in the second -- the benefits of that in the second quarter.

Okay, great. And then in terms of the new product launches, you guys talked a little about the vinyl sliding glass door. Do you have any -- or can you give us a little bit more color in terms of what you expect from the new product launches in terms of contribution to revenue?

Yes. I mean in terms of a contribution, on the impact side it's going to be one of our hopefully higher-margin products. We have designed it, priced it, and as such. Because again, we are trying to drive more of the impact margins into the business.

From a sales point of view, we have already got approximately -- we launched it, so to speak, at the IBS in January. We have already gotten orders in-house. Obviously, if the market starts turning more towards vinyl, we think those orders are going to increase given the mix shift, and actually drive more window sales along with that. Because if you think about people are hesitant to put -- mix aluminum with vinyl in terms of windows.

If you look at a contribution to sales, I don't know, I would say I would feel comfortable -- we are talking anywhere from $5 million in type sales for this new product over the next 18 months.

Well, just to kind of give you a little bit of history too, we introduced the new aluminum door. We had expectations last year or 2010 of what it would be if we actually exceeded expectations. We sold close to $20 million of that door.

I want to clarify that wasn't incremental sales, because that also cannibalized some of the other door products that we had, but from an introduction standpoint we have been very successful with some of those pretty high-end, extremely high-performing products, and this new vinyl door is kind of that same thing.

Now the difference with the vinyl door and the aluminum door is the vinyl door should not be cannibalizing anything other than if people want to upgrade to an energy-efficient product, it may cannibalize some of the lower energy efficiencies. But from a product that it's replacing, it is not replacing anything. So we have some pretty high expectations for that door.

Okay. Then in terms of housing starts, I guess, they were down here year-over-year in the fourth quarter, but obviously with the first half of the year there was impact of the tax credit, housing tax credit. What are your guys' expectations for Florida housing starts in 2011?

We think housing starts are going to bump up. Saying it is going to jump up by 10% or 15% is really not saying much because starts are so low. They are coming off of a real low base now.

We have done some exercises in the past where we have talked about housing starts in Florida if you normalize it over the last 15 years, it is between 5.5 and 6 starts per 1000 people, which gives us 100,000 starts a year approximately.

We are coming off of a year where we did, I think, 20-some-thousand starts. We think it will go up to a little over 30,000, but that is still about one-third of where you would expect the housing starts to be on a normalized type market.

Okay. Thank you.

Thank you. I see no further questions in queue. I would like to turn the conference back to Mr. Jeff Jackson for any concluding remarks.

Well, thank you for joining us today. We look forward to speaking with you again next quarter, and if you have any further questions, please give me a call. Thank you.

Ladies and gentlemen, thanks for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone have a good day.