SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 26, 1997
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NORTEK, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-6112 05-0314991
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
50 Kennedy Plaza, Providence, RI 02903-2360
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (401) 751-1600
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N/A
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets
On July 24, 1997, Nortek, Inc. ("Nortek"), its wholly-owned
subsidiary, NTK Sub, Inc. ("NTK Sub") and Ply Gem Industries, Inc. ("Ply
Gem") entered into an Agreement and Plan of Merger (the "Merger
Agreement"). In connection with the Merger Agreement, on July 29, 1997,
NTK Sub commenced a tender offer to purchase all outstanding shares of
Common Stock of Ply Gem, at a price of $19.50 per share, net to the
seller in cash. Upon entering into the Merger Agreement, Nortek and Ply
Gem simultaneously entered into a Stock Purchase Agreement whereby, among
other things, Nortek agreed to purchase 640,000 shares for an aggregate
purchase price of $12.0 million, and entered into agreements to terminate
employment with certain officers of Ply Gem.
On August 26, 1997, NTK Sub accepted for payment all shares of
common stock, par value $.25 per share (the "Shares") of Ply Gem tendered
pursuant to the offer for the Ply Gem Shares. On August 26, 1997, an
aggregate of approximately 12,979,496 Shares were tendered and not
withdrawn, which when added to the Shares owned by Nortek, constituted
approximately 93.1 percent of Ply Gem's Shares outstanding.
Prior to accepting for payment tendered Shares of Ply Gem on
August 26, 1997, Nortek sold $310.0 million aggregate principal amount
of 9 1/8% Senior Notes due 2007 ("9 1/8% Notes") in a private offering
(under an exemption pursuant to Securities and Exchange Commission
("SEC") Rule 144A) to qualified institutional investors at a slight
discount. Nortek used a portion of these net proceeds, together with
available cash, to purchase the Shares of Ply Gem, fund a $50.0 million
payment to terminate Ply Gem's existing accounts receivable
securitization program and pay certain fees and expenses.
Also on August 26, 1997, prior to the acquisition, Ply Gem
refinanced approximately $108.9 million of Ply Gem existing indebtedness.
NTK Sub paid or will pay consideration of approximately $282.7
million (which includes $12.0 million for the 640,000 shares discussed
above) for Ply Gem Shares, which consideration it has and will obtain
from Nortek. Ply Gem also canceled stock options for 6,233,191 shares
for consideration in the approximate amount of $37.4 million and has
canceled unvested stock for consideration in the approximate amount of
$1.95 million.
The merger of NTK Sub into Ply Gem (the "Merger"), pursuant to
the Merger Agreement occurred on September 4, 1997. As part of the
Merger, NTK Sub was merged with and into Ply Gem, resulting in Ply Gem
becoming a wholly-owned subsidiary of Nortek. Because NTK Sub was the
beneficial owner of more than 90% of the outstanding Shares, the Merger
was effected without a meeting of stockholders of Ply Gem. In the
Merger, each issued and outstanding Share (other than dissenting Shares)
not owned directly or indirectly by Nortek or Ply Gem was converted into
the right to receive $19.50 in cash, without interest.
Ply Gem is a leading manufacturer and distributor of building
products used in the remodeling or new construction of residential and
light commercial properties. Ply Gem's operations are located throughout
the United States and in Canada.
Item 7. Financial Statements, Pro Forma Financial Information and
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Exhibits.
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(a) Financial Statements of Business Acquired
The consolidated financial statements of Ply Gem
Industries, Inc. and subsidiaries as of December 31, 1996
and 1995 and for the three year period ended December 31,
1996, together with the notes thereto.
Unaudited consolidated condensed balance sheet of Ply Gem
Industries, Inc. and subsidiaries as of June 30, 1997,
together with unaudited consolidated condensed statements
of earnings and cash flows for the second quarter and six
months ended June 30, 1996 and 1997, together with the
notes thereto.
(b) Pro Forma Information
Unaudited Nortek, Inc. and Subsidiaries and Ply Gem Pro
Forma Combined Condensed Balance Sheet as of June 28,
1997, together with unaudited Nortek, Inc. and
Subsidiaries and Ply Gem Pro Forma Combined Condensed
Statement of Operations for the year ended December 31,
1996 and the six months and twelve months ended June 28,
1997.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of July 24,
1997 among Nortek, Inc., NTK Sub, Inc. and Ply Gem
Industries, Inc. (incorporated by reference to
Exhibit 2.1 to the form 8-K filed by Nortek, Inc. on
July 29, 1997, File No. 1-6112).
2.2 Amendment No. 1 dated as of September 2, 1997 to the
Agreement and Plan of Merger dated as of July 24,
1997 among Nortek, Inc., NTK Sub, Inc. and Ply Gem
Industries, Inc.
23.1 Consent of Independent Certified Public Accountants
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NORTEK, INC.
Date: September 10, 1997 By: /s/ Almon C. Hall
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Almon C. Hall
Vice President-Controller
Item 7(a) Financial Statements of Business Acquired
Consolidated Balance Sheets
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Ply Gem Industries, Inc. and Subsidiaries December 31,
1996 1995
ASSETS
Cash and cash equivalents $ 9,924,000 $ 8,107,000
Accounts receivable, net of allowance of
$3,039,000; $4,511,000 in 1995 28,003,000 31,736,000
Inventories 92,983,000 96,228,000
Prepaid and deferred income taxes 10,905,000 15,714,000
Other current assets 12,975,000 10,478,000
------------ ------------
Total current assets 154,790,000 162,263,000
Property, plant and equipment-at cost, net 90,681,000 81,832,000
Patents and trademarks, net of accumulated
amortization of $9,776,000; $8,971,000
in 1995 13,793,000 15,334,000
Intangible assets, net 14,794,000 15,507,000
Cost in excess of net assets acquired, net 21,618,000 23,081,000
Other assets 17,771,000 26,973,000
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Total assets $ 313,447,000 $ 324,990,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 50,937,000 $ 40,455,000
Accrued restructuring 1,138,000 4,480,000
Accrued payroll and commissions 10,408,000 7,790,000
Accrued insurance 4,285,000 4,400,000
Current maturities of long-term debt
and capital leases 1,380,000 458,000
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Total current liabilities 68,148,000 57,583,000
Long-term debt 73,166,000 93,135,000
Capital leases 9,231,000 7,106,000
Other liabilities 17,119,000 22,681,000
Stockholders' equity
Preferred stock, $.01 par value;
authorized 5,000,000 shares; none issued ___ ___
Common stock, $.25 par value; authorized
60,000,000 shares; issued 17,676,540 shares;
17,463,072 shares in 1995 4,419,000 4,366,000
Additional paid-in capital 149,226,000 148,618,000
Retained earnings 61,993,000 53,246,000
----------- -----------
215,638,000 206,230,000
Less:
Treasury stock-at cost (3,687,954 shares;
3,015,311 shares in 1995) 63,936,000 55,676,000
Unamortized restricted stock and note
receivable 5,919,000 6,069,000
----------- -----------
Total stockholders' equity 145,783,000 144,485,000
----------- -----------
Total liabilities and stockholders'
equity $ 313,447,000 $ 324,990,000
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The accompanying notes are an integral part of these statements.
Consolidated Statements of Operations
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Ply Gem Industries, Inc. and Subsidiaries
Years ended December 31,
1996 1995 1994
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Net sales $774,928,000 $755,198,000 $808,874,000
Cost of goods sold 626,424,000 630,552,000 653,270,000
------------ ------------ -------------
Gross profit 148,504,000 124,646,000 155,604,000
Selling, general and
administrative expenses 119,494,000 114,171,000 118,726,000
Write-down of long-lived assets --- 11,950,000 ---
Nonrecurring charges --- --- 40,962,000
----------- ----------- ------------
Income (loss) from operations 29,010,000 (1,475,000) (4,084,000)
Interest expense (6,773,000) (6,649,000) (7,479,000)
Other expense (2,658,000) (2,138,000) (386,000)
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Income (loss) before income
taxes 19,579,000 (10,262,000) (11,949,000)
Income tax provision (benefit) 9,125,000 (2,860,000) (3,418,000)
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NET INCOME (LOSS) $10,454,000 $ (7,402,000) $ (8,531,000)
============ ============ ==============
Earnings (loss) per share $ .74 $ (.51) $ (.62)
============ ============ ==============
Weighted average number of
shares outstanding 14,065,000 14,445,000 13,870,000
The accompanying notes are an integral part of these statements.
Consolidated Statements of Stockholders' Equity
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Ply Gem Industries, Inc. and Subsidiaries
Three years ended December 31, 1996, 1995 and 1994
Common stock
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Number Additional
of paid-in
Shares Amount capital
------- ------ -------
Balance at January 1, 1994 11,872,509 $2,968,000 $64,006,000
Cash dividends on common stock
($.12 per share)
Exercise of employee stock options 2,672,318 668,000 23,423,000
Tax benefit arising from exercise of
stock options 9,962,000
Conversion of debentures 2,751,328 688,000 48,379,000
Purchase of stock for treasury
Other 40 - 1,197,000
Net loss
Balance at December 31, 1994 17,296,195 4,324,000 146,967,000
Cash dividends on common stock
($.12 per share) - - -
Exercise of employee stock options 166,872 42,000 1,494,000
Tax benefit arising from exercise of
stock options 174,000
Shares held for distribution to employee
profit sharing trust - - -
Purchase of stock for treasury - - -
Other 5 - (17,000)
Net loss - - -
Balance at December 31, 1995 17,463,072 4,366,000 148,618,000
Cash dividends on common stock
($.12 per share) - - -
Exercise of employee stock options 213,468 53,000 1,916,000
Tax benefit arising from exercise of
stock options 367,000
Contribution of treasury stock to
employee profit sharing trusts (1,039,000)
Purchase of stock for treasury
Other (636,000)
Net income
----------- ---------- ------------
Balance at December 31, 1996 17,676,540 $4,419,000 $149,226,000
The accompanying notes are an integral part of these statements.
Number
Retained of
earnings shares Amount
-------- ------ ------
Balance at January 1, 1994 $72,601,000 910,073 9,362,000
Cash dividends on common stock
($.12 per share) (1,673,000)
Exercise of employee stock options 1,197,241 29,465,000
Tax benefit arising from exercise of
stock options
Conversion of debentures
Purchase of stock for treasury 640,700 12,175,000
Other (2,695) (48,000)
Net loss (8,531,000)
Balance at December 31, 1994 62,397,000 1,745,319 50l,954,000
Cash dividends on common stock
($.12 per share) (1,749,000)
Exercise of employee stock options 30,580 573,000
Tax benefit arising from exercise of
stock options
Shares held for distribution to employee
profit sharing trust (52,500) (819,000)
Purchase of stock for treasury 292,000 4,955,000
Other (88) 13,000
Net loss (7,402,000)
Balance at December 31, 1995 53,246,000 3,015,311 55,676,000
Cash dividends on common stock
($.12 per share) (1,707,000)
Exercise of employee stock options 63,612 915,000
Tax benefit arising from exercise of
stock options
Contribution of treasury stock to
employee profit sharing trusts (140,700) (2,608,000)
Purchase of stock for treasury
Other 752,200 9,998,000
Net income 10,454,000
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Balance at December 31, 1996 $61,993,000 3,687,954 $63,936,000
Consolidated Statements of Cash Flows
Ply Gem Industries, Inc. and Subsidiaries
Years ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $10,454,000 $(7,402,000) $(8,531,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation $11,359,000 $10,521,000 $ 8,733,000
Amortization 3,594,000 3,650,000 4,652,000
Non-cash profit sharing expense 2,243,000
Write-down of long-lived assets 11,950,000
Nonrecurring charges net of
cash payments of $5,223,000 35,739,000
Deferred taxes 3,339,000 3,644,000 (8,067,000)
Provision for doubtful account s1,982,000 1,505,000 874,000
Changes in assets and liabilities
Accounts receivable 1,751,000 9,617,000 10,515,000
Inventories 3,245,000 6,861,000 5,575,000
Prepaid expenses and other
current assets 2,135,000 (5,129,000) 1,459,000
Accounts payable and accrued
expenses 12,985,000 (8,195,000) 3,860,000
Income taxes payable (4,902,000)
Accrued restructuring (5,574,000) (10,608,000)
Other assets 3,141,000 (5,305,000) (1,061,000)
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40,200,000 18,511,000 57,377,000
Net cash provided by operating
activities 50,654,000 11,109,000 48,846,000
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (17,583,000) (27,827,000) (23,046,000)
Funds used for construction 1,327,000
Proceeds from property, plant and
equipment disposals 473,000 799,000 1,681,000
Proceeds from sales of marketable
securities, net 788,000
Other (17,000) 25,000 129,000
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Net cash used in investing
activities (17,127,000) (26,215,000) (19,909,000)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt repayments, net (2,330,000)
Repayment of long-term debt (533,000) (481,000) (881,000)
Net increase (decrease) in
revolving note borrowings with
original maturity of 90
days or less (19,540,000) 14,040,000 (14,884,000)
Purchase of stock for treasury (9,998,000) (4,955,000) (12,175,000)
Cash dividends (1,707,000) (1,749,000) (1,673,000)
Proceeds from exercise of
employee stock options 1,500,000 1,499,000 6,491,000
Other (1,432,000) 456,000 (1,581,000)
------------ --------- -----------
Net cash provided by (used in)
financing activities (31,710,000) 8,810,000 (27,033,000)
Net increase (decrease) in
cash and cash equivalents 1,817,000 (6,296,000) 1,904,000
Cash and cash equivalents at
beginning of year 8,107,000 14,403,000 12,499,000
Cash and cash equivalents at
end of year $ 9,924,000 $ 8,107,000 $14,403,000
The accompanying notes are an integral part of these statements.
Notes to Consolidated Financial Statements
Ply Gem Industries, Inc. and Subsidiaries
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Ply Gem Industries, Inc. ("Ply Gem") through its subsidiaries (the
"Company") operates predominantly in one industry segment, which
consists of the manufacture and sale of vinyl siding, wood and vinyl-
framed windows, doors, skylights, prefinished decorative plywood and
decorator wall and floor coverings, furniture components, pressure-
treated wood products and the distribution of other products for the
building products and home improvement markets.
Principles of Consolidation
The consolidated financial statements include the accounts of Ply Gem
Industries, Inc. and its wholly-owned subsidiaries after eliminating all
significant intercompany accounts and transactions. Certain prior year
items have been reclassified to conform to 1996 presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and temporary investments
having an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) method.
Long-Lived Assets
(a) Property, Plant and Equipment
Owned property, plant and equipment are depreciated over the estimated
useful lives of the assets using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes.
Service lives for principal assets are 5 to 35 years for buildings and
improvements and 3 to 12 years for machinery and equipment.
Leasehold improvements are amortized on a straight-line basis over their
respective lives or the terms of the applicable leases, including
expected renewal options, whichever is shorter. Capitalized leases are
amortized on a straight-line basis over the terms of the leases or their
economic useful lives.
(b)Patents and Trademarks
Purchased patents and trademarks are recorded at appraised value at time
of the business acquisition and are being amortized on a straight-line
basis over their estimated remaining economic lives; thirteen to
seventeen years for patents and thirty years for trademarks.
(c)Cost in Excess of Net Assets Acquired and Other Intangibles
Cost in excess of net assets acquired is being amortized from twenty to
thirty years on a straight-line basis. Other intangibles, which arose
primarily from the allocation of purchase prices of businesses acquired,
are being amortized on a straight-line basis over thirty-nine years.
The Company annually evaluates the carrying value of its long-lived
assets to evaluate whether changes have occurred that would suggest that
the carrying amount of such assets may not be recoverable based on the
estimated future undiscounted cash flows of the businesses to which the
assets relate. Any impairment loss would be equal to the amount by
which the carrying value of the assets exceed its fair value.
Income Taxes
Deferred income tax liabilities and assets reflect the tax effects of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes and net operating loss and credit carryforwards.
These differences are classified as current or noncurrent based upon the
classification of the related asset or liability. Deferred income tax
assets, such as benefits related to net operating loss and credit
carryforwards, are recognized to the extent that such benefits are more
likely than not to be realized.
Financial Instruments
The Company utilizes various financial instruments to manage interest
rate risk associated with its borrowings. Interest rate swap agreements
modify the interest characteristics of a portion of the Company's debt.
Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the
swap agreements as an adjustment to interest expense. Interest rate caps
are used to lock in a maximum interest rate if rates rise, but enables
the Company to otherwise pay lower market rates. The cost of interest
rate cap agreements are amortized to interest expense over the life of
the cap. Payments received as a result of the cap agreements reduce
interest expense. The unamortized costs of the cap agreements are
included in other assets.
The fair value for cash, receivables, accounts payable, and accrued
liabilities approximate carrying amount because of the short maturity of
these instruments. The fair value of long-term debt approximates its
carrying amount, as the debt carries variable interest rates.
Earnings (Loss) Per Share
Earnings (loss) per share of common stock is computed by dividing net
income (loss) by the weighted average number of common shares
outstanding. Stock options have been excluded from the calculations as
their effect would be anti-dilutive.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to
employees and directors with an exercise price equal to or greater than
the fair value of the shares at the date of grant. The Company accounts
for stock option grants in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, the Company
recognizes no compensation expense for the stock option grants.
Customers
The Company's products are distributed through an extensive network that
includes major retail home center chains, specialty home remodeling
distributors, lumber and building products wholesalers, professional
contractors and Company operated distribution centers. The products are
marketed predominately in the United States through Company sales
personnel and independent representatives. One customer accounted for
approximately 19% of the Company's net sales for the years ended
December 31, 1996 and 1995 and approximately 14% in 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 ACCOUNTS RECEIVABLE
The Company has a program which currently allows for the sale of up to
$50 million of undivided fractional interests in a designated pool of
eligible accounts receivable to a financial institution with limited
recourse. The program expires in April 1998. At December 31, 1996 and
1995 respectively, the Company sold $45 and $42 million of receivables
under this program. Program costs of $3,540,000, $3,205,000, and
$1,892,000 are included in "other expense" for 1996, 1995 and 1994,
respectively. $5,000,000, due from officer, was repaid subsequent to
year end.
NOTE 3 INVENTORIES
The classification of inventories at the end of each year was as
follows:
1996 1995
Finished goods $53,833,000 $54,530,000
Work in progress 9,724,000 12,508,000
Raw materials 29,426,000 29,190,000
$92,983,000 $96,228,000
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at the end of each year consisted of
the following:
1996 1995
Land $ 2,668,000 $ 2,704,000
Buildings and improvements 27,044,000 24,853,000
Machinery and equipment 94,912,000 78,830,000
Transportation equipment 2,156,000 2,428,000
Furniture and fixtures 10,378,000 11,312,000
Capital leases 10,705,000 7,501,000
Construction in progress 5,575,000 5,777,000
153,438,000 133,405,000
Accumulated depreciation and amortization (62,757,000) (51,573,000)
$90,681,000 $81,832,000
During the fourth quarter of 1995, the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and recorded a non cash pretax charge of $12.0
million ($7.6 million after tax) related to the write-down of certain
long-lived assets. The charge consisted of a write-down of
approximately $9.5 million related to the Company's information system
and $2.5 million related primarily to certain machinery and equipment.
NOTE 5 INTANGIBLE AND OTHER ASSETS
Accumulated amortization of cost in excess of net assets acquired and
other intangible assets is $22,357,000 at December 31, 1996 and
$19,917,000 at December 31, 1995.
The balance sheet at December 31, 1996 includes notes receivable from an
officer. The 1992 Note ($5,400,000 principal amount at December 31,
1996 including current maturities), has an average interest rate of 7.1%
and is due in approximately equal annual installments through 2003.
Under the terms of the note, principal and interest are forgiven upon
the attainment of at least a 20% improvement in net income, as defined,
compared to the prior year or at the discretion of the Board of
Directors. Accordingly, the annual installments for 1996 and 1994 were
forgiven. The 1994 Note ($3,000,000 principal amount at December 31,
1996 including current maturities) and the 1995 Note ($5,000,000
principal amount at December 31, 1996) have interest rates which are the
higher of the Company's average bank borrowing rate or the applicable
Federal rate in effect for such period. They are payable in annual
installments of $250,000 each with the final payments due December 31,
1998 and April 30, 2001, respectively. Furthermore, under the terms of
the officer's employment agreement, the notes are forgiven upon the
occurrence of a change in control of the Company or the permanent
disability of the officer. The long-term portion of the 1992 and 1994
Notes are included in other assets. The 1995 Note has been reflected as
a reduction of stockholders' equity since the officer may reduce the
indebtedness through the Company's redemption of its shares which are
owned by the officer.
NOTE 6 STOCKHOLDERS' EQUITY
In addition to treasury stock, deductions from stockholders' equity
consists of unamortized restricted stock of $919,000 and $1,069,000 at
December 31, 1996 and 1995, respectively and notes receivable due from
officer of $5,000,000 at December 31, 1996 and 1995. See Note 5.
NOTE 7 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31
is as follows:
1996 1995 1994
Interest paid (net of $453,000 capitalized in 1996,
$746,000 in 1995 and $323,000 in 1994)$6,609,000$5,887,000$5,546,000
Income taxes paid $6,939,000 $ 872,000 $2,819,000
Noncash financing activities involve the issuance of common stock upon
conversion of $49,963,000 of the Company's Debentures in 1994 and in
1996 the Company acquired approximately $3.2 million of equipment under
capital leases.
NOTE 8 LONG-TERM DEBT
The composition of long-term debt at the end of each year was as
follows:
1996 1995
Revolving credit facility expiring in 1999 $66,000,000 $ 85,540,000
Industrial Development Revenue Bonds
maturing at various dates to 2012, generally at
floating interest rates which are reset periodically (6.0 % weighted
average interest rate for 1996) 7,561,000 7,955,000
Other 34,000
45,000
73,595,000 93,540,000
Less current maturities 429,000 405,000
$73,166,000 $ 93,135,000
The Company has a revolving credit facility with a syndicate of banks,
which provides financing of up to $200 million through February 1999.
Interest on borrowings are at varying rates based, at the Company's
option, on the London Interbank Offered Rate (LIBOR) plus a spread or
the bank's prime rate. The Company pays a facility fee quarterly which,
based on a formula, averaged .42% of the committed amount during 1996.
The average weighted interest rate on the credit facility for the year
1996 and 1995 was 6.7% and 6.9%, respectively (6.3% and 7.0% at December
31, 1996 and 1995, respectively). The credit facility includes
customary covenants, including covenants limiting the Company's ability
to pledge assets or incur liens on assets and financial covenants
requiring among other things, the Company to maintain a specified
leverage ratio, fixed charge ratio and tangible net worth levels. In
addition, the amount of annual dividends the Company can pay is limited
based on a formula. At December 31, 1996 $2,800,000 was available for
payments of dividends in 1997. Borrowings under this credit facility
are collateralized by the common stock of the Company's principal
subsidiaries.
The Company periodically enters into interest rate swap and cap
agreements as a hedge against interest rate exposure of its floating rate
bank debt. In 1996, the Company entered into $75 million of interest
rate swap agreements, whereby the Company will pay the counterparties
interest at a fixed rate of 5.53% and the counterparties will pay the
Company interest at a floating rate equal to one month LIBOR for a two
year period ending December 3, 1998. At the option of the
counterparties, the termination date may be extended to December 3, 1999
upon notice to the Company. The Company also entered into $75 million of
interest rate cap agreements which entitles the Company to receive from
the counterparties on a monthly basis an amount by which the Company's
interest payments on $75 million of its floating rate debt exceed 7%
during the period December 5, 1998 to December 5, 1999.
Future maturities of long-term debt, for the years 1997 through 2001,
are: 1997-$429,000; 1998-$446,000; 1999-$66,476,000; 2000-$495,000 and
2001-$525,000.
The net book value of property, plant and equipment pledged as
collateral under industrial revenue bonds was approximately $6,751,000
at December 31, 1996.
NOTE 9 INCOME TAXES
The income tax provision (benefit) for the years ended December 31
consisted of the following:
1996 1995 1994
Federal
Current $ 4,163,000 $ (7,485,000)$ (6,195,000)
Deferred 3,075,000 4,172,000 (7,353,000)
Foreign 13,000 7,000 (21,000)
State and local
Current 1,243,000 800,000 903,000
Deferred 264,000 (528,000) (714,000)
8,758,000 (3,034,000) (13,380,000)
Tax benefit from exercise of stock options 367,000 174,000
9,962,000
Actual tax provision (benefit)$9,125,000$ (2,860,000) $ (3,418,000)
The significant components of the Company's deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows:
1996 1995
Net deferred tax assets(liabilities) - current:
Nonrecurring charge $ 397,000 $1,917,000
Allowance for bad debts 1,765,000 1,567,000
Accrued expenses deductible for tax purposes when paid 3,682,000
2,775,000
State and local net operating loss and tax credit carryforwards2,465
,000 1,747,000
Other (227,000) 47,000
Total deferred tax assets 8,082,000 8,053,000
Valuation allowance for deferred tax assets(1,104,000) (897,000)
Net deferred tax current assets $6,978,000 $7,156,000
Net deferred tax liabilities (assets) - noncurrent:
Write-down of long-lived assets $(2,242,000) (4,107,000)
Nonrecurring charge (395,000) (1,073,000)
Accelerated depreciation 7,500,000 6,557,000
State net operating loss and credit carryforwards(916,000) -
Accrued expenses deductible for tax purposes when paid (2,254,000)
(2,318,000)
Income not recognized for book purposes (595,000) (671,000)
Other 1,522,000 1,070,000
Net deferred tax noncurrent liabilities (assets)$2,620,000$ (542,000)
As of December 31, 1996, the Company has deferred tax assets largely
attributable to the 1995 write-down of long-lived assets (see Note 4)
and various state net operating loss and tax credit carryforwards.
Deferred tax assets, net of the valuation reserve, are expected to be
realized through future taxable income and from the reversal of
temporary differences.
The actual income tax provision (benefit) varies from the Federal
statutory rate applied to consolidated pretax income (loss) as
follows:
1996 1995 1994
Income taxes at Federal statutory rate of 35% $6,853,000 $(3,592,000)
$(4,182,000)
Increases resulting from
State and local income taxes
net of Federal income tax benefit1,080,000 177,000 123,000
Amortization of cost in excess of net assets acquired534,000 478,000
509,000
Other-net 658,000 77,000 132,000
Actual tax provision (benefit)$9,125,000 $(2,860,000) $(3,418,000)
NOTE 10 RETIREMENT PLANS
The Company provides retirement benefits to certain of its salaried
and hourly employees through non-contributory defined benefit
pension plans. The benefits provided are primarily based upon length
of service and compensation, as defined. The Company funds the plans
in amounts as actuarially determined and to the extent deductible
for federal income tax purposes. The pension plan assets are
invested in a diversified portfolio of common stock and fixed income
securities.
The components of pension expense are as follows:
1996 1995 1994
Service cost-benefits earned in current year$ 1,032,000 $ 1,013,000 $
1,044,000
Interest cost on projected benefit obligation 983,000 923,000
782,000
Income earned on plan assets (643,000) (1,053,000) (866,000)
Net amortization and deferral (317,000) 200,000 28,000
$ 1,055,000 $ 1,083,000 $ 988,000
Assumptions used in the computation of net pension expense are as
follows:
1996 1995 1994
Weighted average discount rate for plan obligations 8.0% 8.0%
8.0%
Rate of future compensation increases5.0 5.0 5.0
Weighted average rate of return on plan assets 8.8 8.8
8.8
The reconciliation of the funded status of the plans at year end
follows:
1996 1995
Accumulated benefit obligation:
Vested $ 11,200,000 $ 10,595,000
Nonvested 572,000 676,000
Total 11,772,000
11,271,000
Projected salary increases 2,050,000 1,793,000
Projected benefit obligation 13,822,000 13,064,000
Plan assets at fair value 12,883,000 12,088,000
Assets less than
projected benefit obligation (939,000) (976,000)
Unrecognized net (gain) loss (1,053,000) (1,111,000)
Unrecognized prior service cost 1,656,000 1,742,000
Unrecognized transition cost 120,000 158,000
Additional liability (1,403,000) (1,623,000)
Accrued pension $ (1,619,000) $ (1,810,000)
The Company maintains a discretionary profit sharing plan with a
voluntary 401(k) option for certain of its salaried and hourly
employees who vest after meeting certain minimum age and service
requirements. Profit sharing plan expense, including the Company's
401(k) match was $2,243,000, $1,371,000 and $2,636,000 for 1996, 1995
and 1994, respectively. The contributions consisted of the Company's
common stock.
NOTE 11 NONRECURRING CHARGES
During 1994, the Company recorded nonrecurring charges of $41.0 million
($25.7 million after tax), consisting of approximately $29.1 million
related to a restructuring program and $11.9 million for unusual items
primarily consisting of the write down of certain intangible assets and
discontinued products.
The status of the components of the restructuring provision at the end of
the year was:
Balance 1996 Balance at
at
December Activity December
31, 1995 31, 1996
Consolidation and closure of
facilities, including
severance and related costs $7,779,000 $5,663,00 $2,116,000
0
Other, including lease termination
expenses and
costs to execute the 235,000
restructuring program 235,000
$5,898,00
$8,014,000 0 $2,116,000
* *
*The following amounts are included in the consolidated balance sheet at
December 31, 1996 and 1995, respectively under the captions: "accrued
restructuring" ($1.1 and $4.5 million), "other liabilities" ($.8 and
$3.1 million), property, plant and equipment" (reduction of $.1 and $.2
million), and "various other asset accounts" (reduction of $.1 and $.2
million).
NOTE 12 STOCK PLANS
The Company's stock plans authorize the granting of incentive and non-
qualified stock options and restricted stock to executives, key
employees and directors of the Company. Stock options are granted at
prices not less than the fair market value on the date of grant. Option
terms, vesting and exercise periods vary except that the term of an
option may not exceed ten years. Certain options provide, among other
things, that in the event of a change in control, as defined, such
options will become immediately exercisable. At December 31, 1996,
approximately 531,000 shares were available for future grants under the
Company's plans.
In 1991, the Company granted 250,000 shares of restricted stock to an
executive officer of the Company. The restrictions on these shares will
be released at the rate of 25,000 shares per year upon the attainment of
certain performance goals and the continued employment of the officer.
These goals were attained in 1994 and 1996. The restrictions will be
released in the event of a change in control of the Company. The
unamortized restricted stock resulting from this stock award has been
deducted from stockholders' equity and is being amortized over the
periods earned.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation". Accordingly, no compensation
cost has been recognized for the stock option plans. Had compensation
cost been determined based on the fair value at the grant date for stock
option awards in 1995 and 1996 consistent with the provision of SFAS No.
123, the Company's net loss and loss per share for 1995 would have been
increased by approximately $2,100,000 or $.15 per share, respectively and
net income and earnings per share for 1996 would have been decreased by
approximately $3,800,000 or $.27 per share, respectively. During the
initial phase-in period of SFAS No. 123, such compensation may not be
representative of the future effects of applying this statement.
The weighted average fair value at date of grant for options granted
during 1996 and 1995 was $4.11 and $4.99 per option, respectively. The
fair value of each option at date of grant was estimated using the Black-
Scholes option pricing model with the following weighted average
assumptions for grants in 1996 and 1995, respectively: expected stock
price volatility 35% and 39%; expected lives of options of six and three
years; expected dividend rate of $.12 per year and risk free interest
rate of 6.26% and 5.81%. The pro forma effect for 1995 does not take
into account grants made prior to 1995.
Information regarding these option plans for 1996, 1995 and 1994 is as
follows:
1996 1995 1994
Weighted- Weighted-
Average Average
Exercise Exercise
(Shares in Shares Price Shares Price Shares
thousands)
Options
outstanding
beginning of 4,926 $14.10 4,479 $11.77 5,604
year..............
.....
Exercised.........
................... (216) 9.34 (167) 9.21 (2,672)
........
Granted...........
................... 1,436 13.10 776 16.18 1,589
........
Cancelled or (
forfeited......... (489) 17.64 (162) 20.13 42)
.......
Options
outstanding
end of 5,657 $13.72 4,926 $14.10 4,479
year..............
..............
The following table summarizes information about stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Weight
(Shares in ed- Weight Weight
thousands) Number Averag ed- Number ed-
Outstan e Averag Exerci Averag
Range of ding Remain e sable e
Exercise Prices at ing Exerci at Exerci
12/31/9 Contra se 12/31/ se
6 ctual Price 96 Price
Life
$ 6.63 to $ 9.75 4 years $
258 8.62 258 $ 8.62
10.25 to 13.75 6 years
3,407 11.73 3,097 11.66
14.25 to 18.875 7 years
926 16.21 926 16.21
19.125 to 20.125 8 years
1,066 19.14 1,066 19.14
5,657 5,347
NOTE 13 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its manufacturing, distribution and office
facilities as well as some transportation and manufacturing equipment
under noncancellable leases expiring at various dates through the year
2017. Certain real estate leases contain escalation clauses and
generally provide for payment of various occupancy costs.
Minimum future lease obligations on noncancellable leases in effect at
December 31, 1996 are as follows:
Capital Operating
leases leases
Year ending December 31,
1997 $1,115,000 $11,912,000
1998 1,161,000 10,889,000
1999 1,143,000 9,819,000
2000 138,000 8,013,000
2001 32,000 7,139,000
Subsequent years through 2017 7,000,000 43,816,000
Net minimum lease payments 10,589,000 $91,588,000
Amount representing interest 407,000
Present value of net minimum lease payments $10,182,000
(including $951,000 payable within one year)
Rental expense for operating leases amounted to approximately
$19,645,000 in 1996, $19,883,000 in 1995 and $19,993,000 in 1994.
Hoover Treated Wood Products, Inc.
Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary
of Ply Gem, is a defendant in a number of lawsuits alleging damage caused
by alleged defects in certain pressure treated interior wood products.
Hoover has not manufactured or sold these products since August, 1988.
The number of lawsuits pending has declined significantly from earlier
periods. Most of the suits have been resolved by dismissal or settlement
with settlements being paid out of insurance proceeds or other third
party recoveries. Hoover and Ply Gem are vigorously defending the suits
which remain pending and defense and indemnity costs are being paid out
of insurance proceeds and proceeds from a settlement by Hoover with
suppliers of material used in the production of interior treated wood
products.
Hoover and Ply Gem have engaged in coverage litigation with their
insurers and have settled their coverage claims with a majority of the
insurers. Ply Gem believes that the remaining coverage disputes will be
resolved on a satisfactory basis and a substantial amount of additional
coverage will be available to Hoover. In reaching this belief, it has
analyzed Hoover's insurance coverage and the status of the coverage
litigation, considered its history of settlements with primary and excess
insurers and consulted with counsel.
Hoover has recorded a receivable at December 31, 1996 for approximately
$8.9 million for the estimated proceeds and recoveries related to
insurance matters discussed above and recorded an accrual for the same
amount for its estimated cost to resolve those matters not presently
covered by existing settlements with insurance carriers and suppliers.
In evaluating the effect of the lawsuits, a number of factors have been
considered, including: the litigation history, the significant decline
in the number of cases, the availability of various legal defenses and
the likely availability of proceeds from additional insurance. Based on
its evaluation, the Company believes that the ultimate resolution of the
lawsuits and the insurance claims will not have a material effect upon
the financial position of the Company.
Letters of Credit
At December 31, 1996 approximately $20 million of letters of credit
issued by the Company's banks were outstanding, principally in
connection with certain financing transactions.
Other
Ply Gem and its subsidiaries are subject to legal actions from time to
time which have arisen in the ordinary course of its business. In the
opinion of management, the resolution of these claims will not
materially affect the financial position of the Company. The Company
has various commitments for the purchase of materials arising in the
ordinary course of business.
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14 Quarterly Results (Unaudited)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
Year Ended December
31, 1996
Net Sales $142,018 $212,079 $230,143 $190,688
Gross Profit 20,514 42,694 49,423 35,873
Income (loss) Before
Taxes (4,753) 7,559 12,924 3,849
Net Income (Loss) (2,638) 4,157 6,915 2,020
Per Share:
Primary (.18) .28 .45 .15
Fully Diluted (.18) .28 .45 .15
Year Ended December
31, 1995:
Net Sales $162,934 $203,265 $210,973 $178,026
Gross Profit 24,862 34,149 37,444 28,191
Income (loss) Before
Taxes (1) (4,594) 1,618 4,365 (11,651)
Net Income (Loss) (2,665) 1,028 2,276 (8,041)
Per Share:
Primary (.18) .07 .16 (.56)
Fully Diluted......... (.18) .07 .16 (.56)
(1) After charge of $12.0 million for the impairment of assets in the
fourth quarter. See Note 4 to the consolidated financial statements.
Earnings (loss) per share calculations for each of the quarters
presented are based on the weighted average number of shares and common
equivalent shares outstanding during such periods. The sum of the quarters
may not necessarily be equal to the full year earnings per share amounts.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ply Gem Industries, Inc.
We have audited the accompanying consolidated balance sheets of Ply Gem
Industries, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conduct our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ply Gem Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995
and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
February 25, 1997
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars In Thousands)
June 30, December
ASSETS 1997 31,
1996
(Unaudited)
Cash and cash equivalents $ 7,952 $ 9,924
Accounts receivable, net of allowance
of $2,713; $3,039 in 1996 28,003
Inventories 110,450 92,983
Prepaid and deferred income taxes 10,905 10,905
Other current assets 14,931 12,975
Total current assets 190,175 154,790
Property, plant and equipment - at cost
net of accumulated depreciation and
amortization of $69,084; $62,757 in 1996 101,543 90,681
Patents and trademarks, net of accumulated
amortization of $10,331; $9,776 in 1996 13,255 13,793
Other intangible assets - net 14,380 14,794
Cost in excess of net assets acquired - net 20,887 21,618
Other assets 18,220 17,771
Total assets $358,460 $313,447
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 70,755 $ 66,768
Current maturities of long-term debt and 1,380
capital leases 1,528
Total current liabilities 72,283 68,148
Long-term debt 111,496 73,166
Capital leases 8,656 9,231
Other liabilities 18,819 17,119
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 5,000,000 shares; none -
issued
Common stock, $.25 par value; authorized
60,000,000 shares; issued 17,747,957; 4,437 4,419
17,676,450 in 1996
Additional paid-in capital 150,059 149,226
Retained earnings 63,129 61,993
Less: Treasury stock-at cost
(3,764,278 shares; 3,687,954 in 1996) 64,766 63,936
Unamortized restricted stock 5,919
and note receivable 5,653
Total stockholders' equity 147,206 145,783
Total liabilities and stockholders' $358,460 $313,447
equity
See accompanying notes to the consolidated financial statements.
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands Except per Share Data)
Quarter Ended
June 30, June 30,
1997 1996
Net sales $218,916 $212,079
Cost of goods sold 177,405 169,385
Gross profit 41,511 42,694
Selling, general and administrative 30,050 32,591
expenses
Merger expenses 2,850 -
Income from operations 8,611 10,103
Interest expense (1,982) (1,933)
Other expense, net (754) (611)
Income before income taxes 5,875 7,559
Income taxes 2,842 3,402
Net income $ 3,033 $ 4,157
Earnings per share:
Primary $ .20 $ .28
Fully diluted $ .20 .28
Weighted average number of shares
outstanding:
Primary 16,586 16,102
Fully diluted 16,586 16,102
Cash dividends per share $ .03 $ .03
See accompanying notes to consolidated financial statements.
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands Except per Share Data)
Six Months
Ended
June 30, June 30,
1997 1996
Net sales $381,728 $354,097
Cost of goods sold 313,403 290,889
Gross profit 68,325 63,208
Selling, general and administrative 56,626 55,988
expenses
Merger expenses 2,850 -
Income from operations 8,849 7,220
Interest expense (3,649) (3,757)
Other expense, net (1,239) (657)
Income before income taxes 3,961 2,806
Income taxes 1,981 1,287
Net income $ 1,980 $ 1,519
Earnings per share:
Primary $ .14 $ .11
Fully diluted .14 .11
Weighted average number of shares
outstanding:
Primary 13,842 14,251
Fully diluted 13,842 14,251
Cash dividends per share $ .06 $ .06
See accompanying notes to consolidated financial statements.
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
June 30, June 30,
1997 1996
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $1,980 $1,519
Adjustments to reconcile net
income
to net cash provided by (used
in)
operating activities:
Depreciation and amortization $ 8,367 $ 7,569
Provision for doubtful 460 1,526
accounts
Changes in assets and
liabilities:
Accounts receivable (18,394) (13,830)
Inventories (17,467) (4,494)
Prepaid and deferred income 0 1,272
taxes
Prepaid expenses and other (1,956) (2,241) `
current assets
Accounts payable and accrued 4,479 8,873
expenses
Restructuring (492) (4,294)
Other
1,251 (23,75 3,550 (2,069)
2)
Net cash used in operating
activities (21,77 (550)
2)
CASH FLOWS FROM INVESTING
ACTIVITIES
Additions to property, plant (17,78 (8,623)
and equipment 9)
Other
243 117
Net cash used in investing
activities (17,54 (8,506)
6)
CASH FLOWS FROM FINANCING
ACTIVITIES
Purchase of treasury shares (1,808 (4,630)
)
Proceeds from borrowings 2,725 -
Net change in revolving note
borrowings with original 35,900 9,460
maturity of 90 days or less
Cash dividends (844)
(868)
Other
1,373 992
Net cash provided by financing 4,954
activities 37,346
Net decrease in cash and cash (1,972 (4,102)
equivalents )
Cash and cash equivalents at 8,107
beginning of period 9,924
Cash and cash equivalents at $ $ 4,005
end of period 7,952
See accompanying notes to consolidated financial statements.
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 The accompanying financial statements have been prepared without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations.
These statements include all adjustments, consisting only of normal
recurring accruals, considered necessary for a fair presentation of
financial position and results of operations. The financial statements
included herein should be read in conjunction with the financial statements
and notes thereto included in the latest annual report on Form 10-K.
NOTE 2 On July 24, 1997, Ply Gem Industries, Inc. (the "Company") entered
into an Agreement and Plan of Merger ("Agreement") with Nortek, Inc.
("Nortek") and its subsidiary, NTK Sub, Inc. (the "Purchaser") pursuant to
which Nortek commenced on July 29, 1997, a cash tender offer to purchase all
of the outstanding shares of the Company for cash consideration of $19.50 per
share. The Agreement is subject to customary conditions, including the
tender of a majority of the outstanding shares, regulatory approvals and the
receipt of financing. Also on July 24, 1997, the Company terminated its June
24, 1997 merger agreement with Atrium Acquisition Holdings Corp. (Atrium), an
affiliate of Hicks, Muse, Tate & Furst Incorporated. As a result, the
Company paid $12 million to Atrium which was funded by the sale of 640,000
shares of the Company's stock to Nortek for the same amount.
NOTE 3 The major classes of inventories were as follows:
(In Thousands)
June 30, December 31,
1997 1996
Finished goods $ 61,696 $53,833
Work in process 13,837 9,724
Raw materials 34,917 29,426
$110,450 $92,983
NOTE 4Earnings per share of common stock is computed by dividing net income
by the weighted average number of common shares outstanding. Earnings per
share for the second quarter of 1997 and 1996 is calculated using the
modified treasury stock method, which limits the assumed purchase of treasury
shares to 20% of the outstanding common shares.
In February 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
which is effective for financial statements for both
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 CONTINUED
interim and annual periods ending after December 15, 1997. Early adoption of
the new standard is not permitted. The new standard eliminates primary and
fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure
of how the per share amounts were computed. Adoption of the new standard
would not have had a material effect on earnings per share for the three and
six months ended June 30, 1997.
NOTE 5 Supplemental cash flow information for the six month periods are as
follows:
(In Thousands)
June 30, June 30, 1996
1997
Interest paid $3,300 $3,156
Income taxes paid 1,098 387
NOTE 6The accumulated amortization of cost in excess of net assets acquired
and other intangible assets are $23,502,000 at June 30, 1997 and $22,357,000
at December 31, 1996.
NOTE 7The Company's loan agreements with its banks require the Company to
maintain a specified leverage ratio, fixed charge ratio and tangible net
worth levels and maintain certain financial ratios, among its provisions.
Under the most restrictive of these covenants, at June 30, 1997,
approximately $1,900,000
of retained earnings was available for the payment of dividends in 1997.
NOTE 8During the second quarter of 1997, the Board of Directors adopted
resolutions providing for severance payments in the event of a change in
control and subsequent termination, as defined, to certain designated
employees of the Company. At June 30, 1997, the maximum amount payable
would be approximately $5 million.
NOTE 9Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned
subsidiary of Ply Gem Industries, Inc. ("Ply Gem"), is a defendant in a
number of lawsuits alleging damage caused by alleged defects in certain
pressure treated interior wood products. Hoover has not manufactured or
sold these products since August, 1988. The number of lawsuits pending has
declined significantly from earlier periods. Most of the suits have been
resolved by dismissal or settlement with settlements being paid out of
insurance proceeds or other third party recoveries. Hoover and Ply Gem are
vigorously defending the suits which remain pending and defense and
indemnity costs are being paid out of insurance proceeds and proceeds from
a settlement by Hoover with suppliers of material used in the production of
interior treated wood products.
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 - CONTINUED
Hoover and Ply Gem have engaged in coverage litigation with their
insurers and have settled their coverage claims with a majority of the
insurers. Ply Gem believes that the remaining coverage disputes will be
resolved on a satisfactory basis and a substantial amount of additional
coverage will be available to Hoover. In reaching this belief, it has
analyzed Hoover's insurance coverage and the status of the coverage
litigation, considered its history of settlements with primary and excess
insurers and consulted with counsel.
Hoover has recorded a receivable at June 30, 1997 for approximately
$7.5 million for the estimated proceeds and recoveries related to insurance
matters discussed above and recorded an accrual for the same
amount for its estimated cost to resolve those matters not presently covered
by existing settlements with insurance carriers and suppliers.
In evaluating the effect of the lawsuits, a number of factors have
been considered, including, the litigation history, the significant decline
in the number of cases, the availability of various legal defenses and the
likely availability of proceeds from additional insurance. Based on its
evaluation, the Company believes that the ultimate resolution of the lawsuits
and the insurance claims will not have a material effect upon the financial
position of the Company.
Two purported stockholders of the Company, filed a complaint in
Delaware Chancery Court against the Company and its Board of Directors
("Board"). The complaint purports to be brought on behalf of a class
consisting (with certain exceptions) of all stockholders of the Company, and
challenges as inadequate to such stockholders the consideration to be paid in
connection with the June 24, 1997 merger agreement with Atrium (that has
subsequently been terminated in connection with the execution of the July 24,
1997 Agreement with Nortek referred to in Note 2). The complaint alleges,
among other things, that the proposed price to be paid pursuant to the merger
agreement with Atrium is inadequate, and that the Board breached their
fiduciary duties in agreeing to it. The Company and its Board believe the
complaint to be without merit.
Item 7(b) Pro Forma Information
NORTEK, INC. AND SUBSIDIARIES
PLY GEM INDUSTRIES, INC
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statement of
operations of Nortek, Inc. and Subsidiaries, ("Pro Forma Nortek") for the
year ended December 31, 1996 and the six months and twelve months ended June
28, 1997 give effect to (i) the acquisition of Ply Gem, the sale of
$310,000,000 principal amount of 9 1/8% Senior Notes due 2007, ( the "9 1/8%
Notes"), the extension of credit under the Ply Gem Credit Facility to
refinance certain existing indebtedness of Ply Gem and the termination of Ply
Gem's accounts receivable securitization program (collectively, the
"Transactions"), (ii) the issuance of the 9 1/4% Senior Notes due 2007 (the
"9 1/4% Notes")in March, 1997 and (iii) a portion of the estimated cost
reductions which are directly attributable to the acquisition as if all of
the foregoing had occurred on January 1, 1996. In addition, the unaudited
adjusted pro forma condensed consolidated statement of operations ("Adjusted
Pro Forma Nortek") for the year ended December 31, 1996 and the six months
and twelve months ended June 28, 1997 give effect to all of the estimated
cost reductions (as discussed below). The unaudited pro forma condensed
consolidated balance sheet for Pro Forma Nortek as of June 28, 1997 gives
effect to the transactions as if they occurred on that date.
Nortek expects to realize pre-tax annual cost savings of approximately $23.4
million, based on the last twelve months ended June 28, 1997, as a result of
the acquisition. These savings are expected to result from several actions,
including: (i) the elimination of expenses associated with Ply Gem's New York
headquarters; (ii) the consolidation into Nortek of certain of Ply Gem's
corporate functions such as legal, accounting and risk management; and (iii)
the identification and rationalization of underperforming product lines. Of
the $23.4 million of expected pre-tax savings, $7.9 million is included in
footnote (o) for the twelve months ended June 28, 1997 and represents
estimated cost reductions directly attributable to the acquisition. The
remaining $15.5 million is included in footnote (t) for the twelve months
ended June 28, 1997 and relates to additional estimated cost savings and
operating efficiencies which management expects will result from the
acquisition.
The effect of the issuance of the 9 1/4% Notes is reflected in Nortek's June
28, 1997 unaudited condensed consolidated balance sheet since such issuance
occurred prior to the date of such balance sheet.
The acquisition is accounted for under the purchase method of accounting.
The accompanying unaudited pro forma condensed consolidated financial
statements have been prepared utilizing a preliminary purchase price
allocation. The preliminary purchase price allocation is subject to
refinement until all pertinent information regarding the acquisition is
obtained and, accordingly, the amounts presented herein are subject to
change.
NORTEK, INC. AND SUBSIDIARIES
PLY GEM INDUSTRIES, INC
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(Continued)
The accompanying Pro Forma Nortek information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations which would actually have been reported had the above
transactions been in effect during the periods presented or which may be
reported in the future. The results of operations for the six months ended
June 28, 1997 are not necessarily indicative of the results of operations to
be expected for the full year.
The accompanying unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the audited and unaudited
Consolidated Financial Statements and related Notes thereto for Ply Gem's and
Nortek's periodic reports on Form 10-K and Form 10-Q filed with the
Securities and Exchange Commission.
When used in this discussion, the word "expects" and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, over which Nortek has no control, which
could cause actual results to differ materially from those presented. These
risks and uncertainties include estimated cost reductions. Readers are
cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. Nortek undertakes no obligation to
republish revised forward-looking statements to reflect events or
circumstances after the date thereof or to reflect the occurrence of
unanticipated events. Readers are also urged to carefully review and
consider the various disclosures made by Nortek, in this report, as well as
Nortek's periodic reports on Forms 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission.
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of June 28, 1997
Nortek Ply Gem Pro Forma Pro Forma
Historical Historical Adjustments Nortek
(Dollar Amounts in millions)
ASSETS
Unrestricted:
Cash and cash equivalents $ 56.8 $ 8.0 $ --- (a)$ 64.8
Marketable securities avail-
able for sale 168.6 --- (110.5) (b) 58.1
Restricted:
Cash and marketable securities 5.7 --- --- 5.7
Accounts receivable, net 137.8 45.9 49.2 (c) 232.9
Inventories, net 107.7 110.5 --- 218.2
Prepaid expenses 4.3 --- --- 4.3
Other current assets 13.8 14.9 (3.8)(d) 24.9
Prepaid income taxes 20.0 10.9 --- 30.9
Total current assets 514.7 190.2 (65.1) 639.8
Property, plant and equipment,
net 138.0 101.5 --- 239.5
Goodwill and other intangibles 88.9 20.9 227.9 (e) 337.7
Deferred debt expense 11.0 1.2 10.1 (f) 22.3
Other assets 20.4 44.7 (7.2)(g) 57.9
Total assets $773.0 $358.5 $165.7 $1,297.2
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Notes payable $ 12.9 $ --- $ --- $ 12.9
Current maturities of long-term
Debt 5.1 1.5 --- 6.6
Accounts payable 86.3 36.9 --- 123.2
Accrued expenses and taxes, net101.0 33.9 9.0 (h) 143.9
Total current liabilities 205.3 72.3 9.0 286.6
Deferred income taxes 18.3 2.6 (3.6)(i) 17.3
Other long-term liabilities 19.5 16.2 --- 35.7
Notes, mortgages, capital leases
and obligations payable less
current maturities 408.8 120.2 307.5 (j) 836.5
Preference stock --- --- --- ---
Common stock 16.0 4.4 (4.4) 16.0
Special common stock .8 --- --- .8
Additional paid-in capital 135.3 150.1 (150.1) 135.3
Retained earnings 48.2 63.1 (63.1) 48.2
Cumulative translation, pension
and other adjustments (4.0) (5.6) 5.6 (4.0)
Treasury stock-common (73.3) (64.8) 64.8 (73.3)
Treasury stock-special common (1.9) --- --- (1.9)
Total stockholders' investment121.1 147.2 (147.2)(k) 121.1
Total liabilities and
stockholders' investment$773.0 $358.5 $ 165.7 $1,297.2
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
Nortek Nortek
Historical Adjustments As Adjusted
(Dollar Amounts in Millions, Except Per Share Data)
Net sales $969.8 $ --- $969.8
Cost of products sold 709.9 --- 709.9
Gross profit 259.9 --- 259.9
Selling, general and admini-
strative expense 199.8 --- 199.8
Operating income 60.1 --- 60.1
Interest expense (30.1) (12.2)(l) (42.3)
Other expense --- --- ---
Interest income 5.3 --- 5.3
Net gain on investment and
marketable securities .7 --- .7
Earnings before provision for
income taxes 36.0 (12.2) 23.8
Provision for income taxes 14.0 (4.1)(m) 9.9
Net earnings $ 22.0 $ (8.1) $ 13.9
Net earnings per share (v) $ 2.05 $ 1.30
Fully diluted weighted average
Shares outstanding (in thousands) 10,722 10,722
EBITDA (w) $82.6 $82.6
Ratio of earnings to fixed charges(x) 2.1x 1.5x
For the Year Ended December 31, 1996 - (Continued)
Nortek
As Ply Gem Combined
Adjusted Historical Total
Net sales $969.8 $774.9 $1,744.7
Cost of products sold 709.9 626.4 1,336.3
Gross profit 259.9 148.5 408.4
Selling, general and admini-
strative expense 199.8 119.5 319.3
Operating income 60.1 29.0 89.1
Interest expense (42.3) (6.8) (49.1)
Other expense --- (2.6) (2.6)
Interest income 5.3 --- 5.3
Net gain on investment and
marketable securities .7 --- .7
Earnings before provision for
income taxes 23.8 19.6 43.4
Provision for income taxes 9.9 9.1 19.0
Net earnings $ 13.9 $ 10.5 $ 24.4
Net earnings per share (v) $ 1.30
Fully diluted weighted average
shares outstanding (in thousands) 10,722
EBITDA(w) $82.6
Ratio of earnings to fixed charges(x) 1.5x
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
For the Year Ended December 31, 1996 - (Continued)
Adjusted
Pro Pro
Combined Forma Forma
Total Adjustments Nortek Nortek
Net sales $1,744.7 $ --- $1,744.7 $1,744.7
Cost of products sold 1,336.3 4.5 (n) 1,340.8 1,340.8
Gross profit 408.4 (4.5) 403.9 403.9
Selling, general and admini-
strative expense 319.3 (8.6)(o) 310.7 297.1(t)
Operating income 89.1 4.1 93.2 106.8
Interest expense (49.1) (30.8)(p) (79.9) (79.9)
Other expense (2.6) 2.9 (q) .3 .3
Interest income 5.3 --- 5.3 5.3
Net gain on investment and
marketable securities .7 --- .7 .7
Earnings before provision for
income taxes 43.4 (23.8) 19.6 33.2
Provision for income taxes 19.0 (6.0)(s) 13.0 17.8(u)
Net earnings $ 24.4 $(17.8) $ 6.6 $ 15.4
Net earnings per share (v) $ .62 $ 1.44
Fully diluted weighted average
shares outstanding (in thousands) 10,722 10,722
EBITDA(w) $ 135.2 $ 148.0
Ratio of earnings to fixed charges(x) 1.2x 1.4x
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 1997
Nortek Nortek
Historical Adjustments As Adjusted
(Dollar Amounts in Millions, Except Per Share Data)
Net sales $469.2 $ --- $469.2
Cost of products sold 342.5 --- 342.5
Gross profit 126.7 --- 126.7
Selling, general and admini-
strative expense 96.8 --- 96.8
Operating income 29.9 --- 29.9
Interest expense (18.5) (2.5)(l) (21.0)
Other expense --- --- ---
Interest income 4.4 --- 4.4
Net gain on investment and
marketable securities .2 --- .2
Earnings before provision for
income taxes 16.0 (2.5) 13.5
Provision for income taxes 5.6 (.8)(m) 4.8
Net earnings $ 10.4 $ (1.7) $ 8.7
Net earnings per share(v) $ 1.05 $ .88
Fully diluted weighted average
Shares outstanding(in thousands) 9,923 9,923
EBITDA(w) $ 41.7 $ 41.7
Ratio of earnings to fixed charges(x) 1.8x 1.6x
For the Six Months ended June 28, 1997 - (Continued)
Nortek
As Ply Gem Combined
Adjusted Historical Total
Net sales $469.2 $381.7 $850.9
Cost of products sold 342.5 313.4 655.9
Gross profit 126.7 68.3 195.0
Selling, general and admini-
strative expense 96.8 59.5 156.3
Operating income 29.9 8.8 38.7
Interest expense (21.0) (3.6) (24.6)
Other expense --- (1.2) (1.2)
Interest income 4.4 --- 4.4
Net gain on investment and
marketable securities .2 --- .2
Earnings before provision for
income taxes 13.5 4.0 17.5
Provision for income taxes 4.8 2.0 6.8
Net earnings $ 8.7 $ 2.0 $ 10.7
Net earnings per share (v) $ .88
Fully diluted weighted average
shares outstanding (in thousands) 9,923
EBITDA(w) $ 41.7
Ratio of earnings to fixed charges(x) 1.6x
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 28, 1997
For the Six Months ended June 28, 1997 - (Continued)
Adjusted
Pro Pro
Combined Forma Forma
Total Adjustments Nortek Nortek
Net sales $850.9 $ --- $850.9 $850.9
Cost of products sold 655.9 2.3(n) 658.2 658.2
Gross profit 195.0 (2.3) 192.7 192.7
Selling, general and admini-
strative expense 156.3 (6.6)(o) 149.7 142.0 (t)
Operating income 38.7 4.3 43.0 50.7
Interest expense (24.6) (15.2)(p) (39.8) (39.8)
Other expense (1.2) 1.4 (q) .2 .2
Interest income 4.4 (1.7)(r) 2.7 2.7
Net gain on investment and
marketable securities .2 --- .2 .2
Earnings before provision for
income taxes 17.5 (11.2) 6.3 14.0
Provision for income taxes 6.8 (3.7)(s) 3.1 5.8 (u)
Net earnings $ 10.7 $ (7.5) $ 3.2 $ 8.2
Net earnings per share (v) $ .32 $ .83
Fully diluted weighted average
shares outstanding (in thousands) 9,923 9,923
EBITDA(w) $ 65.5 $ 72.8
Ratio of earnings to fixed charges(x) 1.1x 1.3x
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 28, 1997
Nortek Nortek
Historical Adjustments As Adjusted
(Dollar Amounts in Millions, Except Per Share Data)
Net sales $957.8 $ --- $957.8
Cost of products sold 695.2 --- 695.2
Gross profit 262.6 --- 262.6
Selling, general and admini-
strative expense 198.4 --- 198.4
Operating income 64.2 --- 64.2
Interest expense (33.1) (8.6)(l) (41.7)
Other expense --- --- ---
Interest income 6.9 --- 6.9
Net gain on investment and
marketable securities .9 --- .9
Earnings before provision for
income taxes 38.9 (8.6) 30.3
Provision for income taxes 14.7 (2.9)(m) 11.8
Net earnings $ 24.2 $ (5.7) $ 18.5
Net earnings per share (v) $ 2.40 $ 1.84
Fully diluted weighted average
Shares outstanding (in thousands) 10,074 10,074
EBITDA(w) $87.4 $87.4
Ratio of earnings to fixed charges(x) 2.1x 1.7x
For the Twelve Months ended June 28, 1997 - (Continued)
Nortek
As Ply Gem Combined
Adjusted Historical Total
Net sales $957.8 $802.5 $1,760.3
Cost of products sold 695.2 648.9 1,344.1
Gross profit 262.6 153.6 416.2
Selling, general and admini-
strative expense 198.4 123.0 321.4
Operating income 64.2 30.6 94.8
Interest expense (41.7) (6.6) (48.3)
Other expense --- (3.2) (3.2)
Interest income 6.9 --- 6.9
Net gain on investment and
marketable securities .9 --- .9
Earnings before provision for
income taxes 30.3 20.8 51.1
Provision for income taxes 11.8 9.8 21.6
Net earnings $ 18.5 $ 11.0 $ 29.5
Net earnings per share (v) $ 1.84
Fully diluted weighted average
shares outstanding (in thousands) 10,074
EBITDA(w) $87.4
Ratio of earnings to fixed charges(x) 1.7x
NORTEK, INC. AND SUBSIDIARIES AND PLY GEM INDUSTRIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 28, 1997
For the Twelve Months ended June 28, 1997 - (Continued)
Adjusted
Pro Pro
Combined Forma Forma
Total Adjustments Nortek Nortek
Net sales $1,760.3 $ --- $1,760.3 $1,760.3
Cost of products sold 1,344.1 4.5 (n) 1,348.6
1,348.6
Gross profit 416.2 (4.5) 411.7 411.7
Selling, general and admini-
strative expense 321.4 (11.1)(o) 310.3 294.8(t)
Operating income 94.8 6.6 101.4 116.9
Interest expense (48.3) (31.0)(p) (79.3) (79.3)
Other expense (3.2) 3.0 (q) (.2) (.2)
Interest income 6.9 (1.7)(r) 5.2 5.2
Net gain on investment and
marketable securities .9 --- .9 .9
Earnings before provision for
income taxes 51.1 (23.1) 28.0 43.5
Provision for income taxes 21.6 (6.6)(s) 15.0 20.4(u)
Net earnings $ 29.5 $(16.5) $ 13.0 $ 23.1
Net earnings per share (v) $ 1.29 $ 2.30
Fully diluted weighted average
shares outstanding (in thousands) 10,074 10,074
EBITDA(w) $ 144.9 $ 159.6
Ratio of earnings to fixed charges(x) 1.3x 1.5x
See Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
NORTEK, INC. AND SUBSIDIARIES
AND PLY GEM INDUSTRIES, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Millions)
As of
June 28,
1997
(a)Cash and cash equivalents:
Total sources of financing for the acquisition and related
transactions:
Gross proceeds from the 9 1/8% Notes $307.5
Proceeds from the sale of marketable securities 110.5
Extension of credit under Ply Gem Credit Facility 101.9
$519.9
Total uses of financing for the acquisition and related
transactions:
Consideration paid for Ply Gem common stock and cancella-
tion of options 310.2
Funding of termination fees and costs under prior acquisi-
tion agreement 12.0
Refinancing of existing Ply Gem indebtedness 101.9
Termination of accounts receivable securitization program 50.0
Consideration paid for termination of management agreements 24.5
Fees, expenses and other costs related to the Transactions 21.3
(519.9)
-------
$ 0.0
========
(b)Marketable securities available for sale:
Sale of marketable securities to fund the acquisition
and related transactions $(110.5)
========
(c)Accounts receivable:
Forgiveness of notes receivable in connection with the
termination of management agreements $ (.8)
Termination and repurchase of amounts outstanding under
Ply Gem's accounts receivable securitization program 50.0
-------
$ 49.2
=======
(d)Other current assets:
Forgiveness of notes receivable in connection with the
termination of management agreements $ (3.8)
(e)Goodwill:
Additional cost in excess of net assets acquired, net $ 227.9
(f)Deferred debt expense:
Financing costs related to the offering and extension
of credit under Ply Gem Credit Facility $ 10.7
Write-off deferred debt expense related to refinanced
indebtedness (.6)
--------
$ 10.1
========
NORTEK, INC. AND SUBSIDIARIES
AND PLY GEM INDUSTRIES, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In Millions)
As of
June 28,1997
(g)Other assets:
Forgiveness of notes receivable in connection with the
termination of management agreements $ (7.2)
(h)Accrued expenses and taxes:
Estimated liabilities incurred in connection with the
acquisition $ 9.0
(i)Deferred income taxes:
To record deferred taxes related to the acquisition $ (3.6)
(j)Notes, mortgages, capital leases and obligations payable
less current maturities:
9 1/8% Notes issued $ 307.5
Extension of credit under the Ply Gem Credit Facility 101.9
Refinancing of existing Ply Gem indebtedness (101.9)
$ 307.5
(k)Stockholders' investment:
To eliminate equity in connection with the acquisition $(152.2)
Forgiveness of notes receivable in connection with the
termination of management agreements 5.0
$(147.2)
Six Months Twelve Months
Year Ended Ended Ended
December 31, June 28, June 28,
1996 1997 1997
(l)Interest expense:
Interest expense related to the
9 1/4% Notes issued in March
1997 $(16.2) $ (3.3) $ (11.4)
Amortization of related debt
Issuance costs (.5) (.1) (.4)
Reduction of interest expense
related to debt refinanced with
a portion of the proceeds from
the 9 1/4% Notes issued in
March 1997 4.5 .9 3.2
$(12.2) $ (2.5) $ (8.6)
NORTEK, INC. AND SUBSIDIARIES
AND PLY GEM INDUSTRIES, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In Millions)
Six Months Twelve Months
Year Ended Ended Ended
December 31, June 28, June 28,
1996 1997 1997
(m)Tax provision:
Tax benefit on the interest
expense adjustments related to
the 9 1/4% Notes issued in
March 1997 and the related
refinancing $ (4.1) $ (.8) $ (2.9)
(n)Reflects the following adjustment
to cost of sales:
Increased amortization of
goodwill over 40 years due to
the acquisition $ 4.5 $ 2.3 $ 4.5
(o)Reflects the following adjustments
to selling, general and administra-
tive expense:
Elimination of Ply Gem's non-
recurring costs related to the
acquisition $ (.8) $ (2.9) $ (3.2)
Estimated cost reductions
directly attributable to the
acquisition (7.8) (3.7) (7.9)
$ (8.6) $ (6.6) $(11.1)
(p)Interest expense:
Interest expense at a rate of
9 1/8% on the Notes issued in
the offering $ (28.3) $(14.1) $(28.3)
Amortization of related debt
issuance costs (1.0) (.5) (1.0)
Amortization of debt discount (.2) (.1) (.2)
Interest expense at an assumed
rate of 6 3/4% on indebtedness
assumed to be outstanding
under the Ply Gem Credit
Facility (7.0) (3.5) (7.0)
Reduction in interest expense
related to the refinancing of
existing Ply Gem indebtedness 5.7 3.0 5.5
$(30.8) $(15.2) $(31.0)
NORTEK, INC. AND SUBSIDIARIES
AND PLY GEM INDUSTRIES, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In Millions)
Six Months Twelve Months
Year Ended Ended Ended
December 31, June 28, June 28,
1996 1997 1997
(q)Other expense:
Decrease in other expense, net due
to termination and repurchase of
amounts outstanding under Ply
Gem's accounts receivable
securitization program $ 2.9 $ 1.4 $ 3.0
(r)Interest income:
Reduction in interest income on
marketable securities sold to
fund the acquisition and
related transactions $ --- $ (1.7) $ (1.7)
(s)Tax provision:
Tax benefit on the interest
expense adjustments related
to the 9 1/8% Notes, the Ply
Gem Credit Facility and the
refinancing of existing Ply
Gem indebtedness $ (9.7) $ (4.9) $ (9.8)
Tax provision on the elimina-
tion of Ply Gem's non-recurring
costs related to the
acquisition .3 .7 1.0
Tax provision on the estimated
cost reductions directly
attributable to the acquisition
referred to in note (o) above 3.4 1.1 2.8
Tax benefit on the reduction in
interest income related to the
sale of marketable securities
used to fund the acquisition
and related transactions --- (.6) (.6)
$ (6.0) $ (3.7) $ (6.6)
NORTEK, INC. AND SUBSIDIARIES
AND PLY GEM INDUSTRIES, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In Millions)
(t)Additional estimated cost savings
and operating efficiencies related
to the acquisition including
depreciation and amortization
expense of approximately $.8, $.4
and $.8 for the year ended
December 31, 1996, the six months
ended June 28, 1997 and the
twelve months ended June 28, 1997,
respectively $ (13.6) $ (7.7) $(15.5)
(u)Tax provision on the additional
estimated cost savings and
operating efficiencies related
to the acquisition referred to in
note (t) above $ 4.8 $ 2.7 $ 5.4
(v)Pro forma primary and fully diluted earnings per share are computed on
the same basis as the historical amounts.
(w)"EBITDA" is operating earnings plus depreciation and amortization (other
than amortization of deferred debt expense and debt discount). EBITDA
should not be considered as an alternative to net earnings as a measure
of Nortek's operating results or to cash flows as a measure of liquidity.
EBITDA principally differs from net increase (decrease) in unrestricted
cash and cash equivalents shown on the Consolidated Statement of Cash
Flows, prepared in accordance with generally accepted accounting
principles, in that EBITDA does not reflect capital expenditures,
borrowings, principal and interest payments under debt and capital lease
obligations, income tax payments and cash flows from other operating,
investing and financing activities.
(x)For purposes of calculating this ratio, "earnings" consist of earnings
before provision for income taxes and fixed charges. "Fixed charges"
consist of interest expense and the estimated interest portion of rental
payments on operating leases.
EXHIBIT 2.2
AMENDMENT NO. 1
TO THE MERGER AGREEMENT
Dated as of September 2, 1997
Nortek, Inc., a Delaware corporation ("Parent"), NTK Sub, Inc., a
Delaware corporation and wholly owned subsidiary of Parent ("Sub") and
Ply Gem Industries, Inc., a Delaware corporation (the "Company")
hereby agrees as follows:
1. Reference to Merger Agreement: Definitions. Reference is
hereby made to the Agreement and Plan of Merger (including the
Schedules and Exhibits thereto, the "Merger Agreement") among Parent,
Sub and the Company. Terms defined in the Merger Agreement and not
otherwise defined herein are used herein with the meanings so defined.
2. Amendment to the Merger Agreement. Subject to all the terms
and conditions hereof, the Merger Agreement shall, on the date hereof,
be amended as follows:
2.1 Amendment to Section 2.4(c). Section 2.4(c) of the
Merger Agreement shall be amended to read in its entirety as
follows:
" (c) At the Effective Time, Article IV of the
Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended to
decrease the number of authorized shares of Company Common
Stock to an aggregate amount of Three Thousand (3,000) as of
the Effective Time, to change the par value of such shares
of Company Common Stock to $.01 per share and to eliminate
any authorized preferred stock, by operation of this
Agreement and by virtue of the Merger without any further
action by the stockholders or directors of the Surviving
Corporation and, as so amended, such Certificate of
Incorporation shall be the Certificate of Incorporation of
the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL."
2.2 Amendment to Section 2.4(d). Section 2.4(d) of the
Merger Agreement shall be amended to read in its entirety as
follows:
" (d) The By-Laws of Sub as in effect at the Effective
Time shall be the bylaws (the "Bylaws") of the Surviving
Corporation until thereafter amended as provided by
applicable law, the Certificate of Incorporation or the
Bylaws."
2.3 Amendment to Section 3.1(a). Section 3.1(a) of the
Merger Agreement shall be amended to read in its entirety as
follows:
" (a) Capital Stock of Sub. Each share of the capital
stock of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully
paid and nonassessable share of common stock, par value $.01
per share, of the Surviving Corporation."
3. Miscellaneous. Except to the extent specifically
amended by this Amendment, the Merger Agreement shall remain
unmodified, and the Merger Agreement, as amended hereby is
confirmed as being in full force and effect.
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be executed and delivered by its duly authorized
officer as of the date first above written.
NORTEK, INC.
By: /s/ Richard J. Harris
----------------------
Title: Vice President
NTK SUB, INC.
By: /s/ Kevin W. Donnelly
----------------------
Title: Vice President
PLY GEM INDUSTRIES, INC.
By: /s/ Almon C. Hall
--------------------
Title: Vice President
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Nortek, Inc.
As independent certified public accountants, we hereby
consent to the incorporation of our report of Ply Gem
Industries, Inc. dated February 25, 1997, included in this
Form 8-K (File No. 1-6112) into Nortek, Inc.'s previously
filed registration statements on Form S-8 (File Nos. 33-
22527 and 33-47897).
/s/Grant Thornton LLP
___________________
GRANT THORNTON LLP
New York, New York
September 10, 1997
