Window of Opportunity

By Hannah Wallace November 30, 2006

Last summer, when PGT Industries president Rod Hershberger returned from introducing the newly public Venice-based company and its stock to potential investors around the country, his employees-many of whom are now shareholders-joked with him as he walked among the manufacturing lines. "The first day back, people would say, 'Rod, pick it up. You're working for me now,'" says Hershberger.

It's been a surprising turn of events for a company (now trading on the NASDAQ as PGTI) that started as a scrawl on the back of a napkin in 1980. Today, PGT is the leading impact-resistant window supplier in the country, with a 50 percent share of the market. It is Sarasota and Manatee's largest manufacturing employer, with more than 2,100 employees, and also one of the region's fastest-growing companies, having increased revenues by 20 percent annually over the past eight years. Revenues in 2005 were estimated at $333 million. In the first half of 2006, the company reported record sales of $205 million, an increase of 30 percent over the prior year period, according to Business Wire, with adjusted net income in the first half increasing by 127 percent. Along the way, PGT has created an aggressive, team-driven corporate culture that has enabled it to meet major market challenges: persistent labor shortfalls, a competitive global manufacturing climate and rapid expansion and growth.

Hershberger moved to Venice in the '80s after the first company he worked for, Yoder Drilling in Ohio, rebuffed his request for an ownership stake. Through a friend, he met Paul Hostetler, who had also moved to Venice and, coincidentally, once worked for Yoder. Both had engineering backgrounds, and both loved to tinker. They sketched a porch enclosure design with an aluminum frame and flexible vinyl windows on the back of a cocktail napkin, created a company called Vinyl-Tech and opened with five employees.

By the mid-1980s, glass porch enclosures emerged as the company's biggest competition, so Vinyl-Tech followed suit by offering a glass window. In 1987, when their glass supplier ran behind and Vinyl-Tech had back orders for the first time, the partners began manufacturing their own windows under the name Progressive Glass Technologies.

Eventually Vinyl-Tech expanded into the Dade County building market. Not long after, in 1992, Hurricane Andrew devastated South Florida. It was a boon for PGT's business as Dade County solicited industry input to develop a more stringent building code, and PGT was a willing participant.

"It would be nice to say that this was a brilliant marketing idea, but we thought we could dominate Dade and Broward counties and we would learn a lot," Hershberger says. "We shared ideas with DuPont, and had a test lab so when DuPont had ideas, we could test them." Two years later, PGT produced the first window to meet Dade County's new standard.

Florida adopted a tougher statewide building code in 2001. Three years later, in the aftermath of the 2004 hurricane season, cities and states from Texas up the east coast and as far away as Long Island followed suit.

"PGT was in on the early stages," says Rich Walker, executive vice president of the American Architectural Manufacturers Association. "When Dade County first proposed a missile-impact test, they were right on the forefront. They've also been supportive of a unified testing standard for impact. PGT really helped in Florida-and on a national level-to get those tests uniform."

As PGT grew and developed its product line, Hershberger focused on production efficiency. The company encouraged employees to learn every job on the line and to collaborate to reduce wasted time and wasted movements.

In 1997, the company was at a crossroads. Its WinGuard impact-resistant hurricane window product was taking off, and revenues had reached $63 million. Hostetler, who was president at the time, sought out retired Reynolds Aluminum manufacturing executive Randy White in Colorado to help manage the growth. White was intrigued enough to fly to Florida and take a look. "They had the great attitude, the work ethic and the sense of urgency to improve," White says. "Most of the pieces of the puzzle of a successful, highly effective organization were there." What they didn't have, however, was a strategy to grow the company.

"What works when you are small doesn't work when you get bigger," says White, who became PGT's CEO. "They were getting to the awkward teenager stage and wanted to take it to the next level, but still maintain the small company family attitude."

White initiated a branding campaign, hiring Julie Heinsman, former brand manager for Armour Dial. "Our marketing had been technical in nature. There was no brand management," White explains. "Most people couldn't care less what brand of windows and doors go into their homes." Heinsman decided to change that, directing the marketing toward consumers rather than dealers. PGT held focus groups with consumers, changing the name of its products to reflect their function; for example, hurricane/impact products were renamed WinGuard and patio enclosures were renamed EzeBreeze. Homeowners quickly began "asking for PGT by name and brand," says White.

Internally, White says, there were three challenges: "Workforce availability, workforce availability and workforce availability." Turnover was high and many applicants lacked basic employability skills. "The first thing we had to teach is how to read a tape measure and fractions of an inch," he says.

White recruited human resources vice president Linda Gavit. "We took a good hard look at ourselves and came to the conclusion that we weren't treating ourselves the way we should. What a person really wants is to know that they are appreciated and to be compensated and the ability to get ahead," he says.

The company developed more in-house training programs, improved its compensation packages and offered tuition reimbursement for any field of study. They encouraged non-English speaking workers, such as Eastern Europeans (highly valued for their work ethic and math skills, says White) in south Sarasota County, to apply. Today, Latin Americans and Haitians are two of its fastest-growing employee groups, and PGT conducts employee meetings in several languages.

At the same time, the work teams that had been housed in half a dozen buildings were moved under one roof. New tensions developed. "Having to develop a team spirit over the entire team was difficult," says White. The employees were tested and trained in different communications styles and cross-trained in multiple skills so they could help avoid work slowdowns. "Manufacturing is physically demanding; it's a team sport. One independent worker can bottleneck the whole line," says White. "They either fully integrated or they didn't make it. Their fellow workers would not tolerate a non-team player."

PGT adopted gain sharing, a quarterly bonus program for teams that increased per-unit productivity, which also helped offset the labor shortage. "If a team builds 1,000 windows a day, and increases productivity, how many people did we not have to go find? That should be rewarded," says White.

"We pay people for knowledge, not longevity," says Hershberger. "The more you know, the more you get paid. PGT is not an easy place to work. It's tough and we know it's tough. The expectation is you come in and work on your product and figure better ways to do it."

At the same time, Hershberger says he has learned to let his leadership team make mistakes. "You learn how to hire good people and leave them go," he says. "There's probably somebody out there smart enough to manage every detail of a $300 million to $400 million company, but not me," he says.

The labor force deficiencies were acute enough to propel White and Hershberger into the community. "We dealt with the things that were in our control, which were how to attract and retain employees. We spoke out about external factors such as the cost of living and education," says White. While White's passion was K-12 and technical education, it was Hershberger who identified the impact of the housing market.

"He had affordable housing figured out before everybody else did," says Peter Straw, executive director of the Sarasota Manatee Area Manufacturers Association.

And when Hurricane Charley passed 15 miles from the Venice plant and affected 800 employees, the facility disaster plan was quickly converted to a relief effort for PGT's workers. The company rented space to provide food and supplies, washing machines, generators and tarps for employee use in what is now regarded as a model in this area for rapid deployment of disaster relief.

By 2000, Hostetler, who now runs Triple Diamond Enterprises in Venice, was ready to cash out. "It was a $100 million company and he thought it was time to sell," says Hershberger. White was persuaded to extend his original five-year commitment so that Hostetler could retire from PGT. "To recapitalize and entice new investors, I had to agree to stay on for a while," White says.

Originally, Hershberger and White wanted to be purchased by a large window name like Andersen Windows, but, not wanting to cede control of the business, the partners quickly settled on financial investor Linsalata Capital Partners. "We know our culture is working well for us. We believe strongly in it. A financial buyer expects management to stay and run the company," Hershberger says. "We knew that when we hit critical mass, their job was to sell us. We hit our five-year targets in under three years."

When PGT sought to expand outside Florida, the company purchased window and door manufacturer Binnings Building Products of Lexington, N.C. "It was a relatively small business at a good price. It made sense to acquire it," Hershberger says.

But even as employees ramped up productivity in Lexington, the plant was deteriorating. "You could put a bucket under the roof when it rained, and the second floor was sagging under the weight of some of our machinery," Hershberger says.

Davidson County's economic development authorities had offered incentives for PGT to stay in Lexington. But an hourly employee there e-mailed Hershberger a news article about the GDX automotive plant in neighboring Rowan County that was closing operations to move to Mexico, even though the facility had just been built in 1996. It was not yet listed for sale. Hershberger and his wife were in Lexington, but decided to take a quick detour to Salisbury to tour the facility. "It was perfect for us," he says.

Economic development officials in both Sarasota and Manatee have lamented the loss of jobs as several major local manufacturers expanded or moved to the Carolinas. PGT still grapples with a labor shortage here, with as many as 150 positions, from line workers to management, unfilled at any given time. In North Carolina, the company found the bounty of workers needed to fuel its growth. "We knew it would take 50 to 60 employees to ramp up the line. A plant supervisor spoke to the media and the job openings were announced on television that night. The next day, without any advertising but that announcement, we had 700 to 800 applications," Hershberger says. PGT plans to add 712 positions in Salisbury over the next five years.

Still, Hershberger adds, "Can we do a little bit more for our business here?" For example, PGT was approved in 2002 for a stoplight at the accident-prone intersection of Knights Trail and Laurel Road, the turn-in to the local facility. Sarasota County has applied for a grant from the Florida office of Tourism, Trade and Economic Development to fund the improvement, contingent in part upon PGT's proven investment here, but the process has frustrated Hershberger. "The good news is, they sent us a letter stating they would install a traffic light in 2008 for $625,000," he says. Meanwhile, PGT reports it has added 448 employees and spent $16 million on building improvements since 2005.

"There is a serious form of cognitive dissonance," says White. "The county talks about wanting a diverse economy, and there are stars who have worked hard for it. Yet the support.somehow, things never get done."

Straw, of the local manufacturing association, agrees. "They succeeded in spite of the barriers to business growth, not because of the incentives," he says. "Less than 10 percent of the state's economy is manufacturing. We're not the 800-pound gorilla. But if it's all based on tourism, if it's all service sector, that's not good either." While Sarasota County's average manufacturing wage is $37,670, PGT employees can earn much more; the human resources department benchmarks to national wage data, which is higher than Florida's wage level. Entry-level employees can work their way up to leadership positions in two or three years, and $50,000 would be a starting-level wage for team leader, says Gavit.

Hershberger says PGT is committed to both Sarasota and Salisbury as it expands and markets products up the east coast and even in the Caribbean.

PGT's market research projects that impact-resistant hurricane protection-windows and shutters-in code-driven areas could become a $2 billion industry. Currently, sales are concentrated in Florida.

Does Hershberger have concern about a takeover? He laughs. "Sixty percent of the company is owned by PGT management and its financial sponsor," he says. "If someone can do it better, if they can figure out a better way to do it, more power to them."

PGT Quick Facts North Venice.


Leadership: Founded in 1980 as Vinyl-Tech by Rod Hershberger and Paul Hostetler. Current president: Rod Hershberger.

Revenues: $333 million in 2005, a 24 percent increase over 2004; $205 million in first half of 2006, a 30 percent increase over first-half 2005.

IPO launched: June 28, 2006 for $14 per share under NASDAQ symbol PGTI.

Facilities: 485,000-square-foot manufacturing and fleet facilities in North Venice and a 390,000-square foot manufacturing facility in Salisbury, N.C.

Employees: 2,100-plus in North Venice and 300 in Salisbury, N.C.

Top product line: WinGuard impact-resistant hurricane windows and doors composed of laminated glass in a heavy-duty aluminum or PVC frame.

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