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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 2, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________________ to ____________________
Commission file number 1-4087
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PLY GEM INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-1727150
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Third Avenue, New York, NY 10017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 212-832-1550
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1994
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Common stock, par value $.25 per share 14,683,074 Shares
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (Dollars in Thousands)
------ April 2, December 31,
1994 1993
---------------------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 3,378 $ 12,499
Marketable securities 1,942 1,942
Accounts receivable, net of allowance
of $7,654; $7,197 in 1993 63,568 54,432
Inventories 134,748 117,515
Prepaid expenses and other current assets 22,481 11,077
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Current assets 226,117 197,465
Funds held for construction 2,216 2,375
Property, plant and equipment -- at cost
net of accumulated depreciation and
amortization of $40,766; $38,704 in 1993 68,892 67,766
Patents and trademarks, net of accumulated
amortization of $6,959; $6,677 in 1993 17,315 17,595
Other intangible assets -- net 20,775 21,557
Cost in excess of net assets acquired -- net 26,104 26,492
Other assets 28,531 11,694
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$389,950 $344,944
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Accounts payable and accrued expenses $ 54,374 $ 55,764
Notes payable 2,514 2,365
Current maturities of long-term debt 946 2,841
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Current liabilities 57,834 60,970
Long-term debt 126,244 142,898
Capital leases 7,159 7,166
Deferred income taxes and other liabilities 21,984 4,968
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 5,000,000 shares;
none issued
Common stock, $.25 par value; authorized
30,000,000 shares; issued 16,642,268;
11,872,509; in 1993 4,161 2,968
Additional paid-in capital 138,850 64,006
Retained earnings 70,964 72,601
Less: Treasury stock--at cost
(1,982,993 shares; 910,073 in 1993) 36,018 9,362
Unamortized restricted stock 1,228 1,271
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Stockholders' equity 176,729 128,942
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$389,950 $344,944
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</TABLE>
See accompanying notes to financial statements.
2
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands)
Quarter Ended
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April 2 March 31
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1994 1993
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<S> <C> <C>
Net sales $163,412 $146,347
Cost of goods sold 136,935 120,338
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Gross profit 26,477 26,009
Selling, general and administrative
expenses 25,129 26,098
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Income (loss) from operations 1,348 (89)
Amortization of goodwill and other
intangibles (1,184) (1,196)
Interest expense (2,662) (2,392)
Investment and other income (expense), net 126 (42)
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Loss before income taxes (2,372) (3,719)
Income taxes benefit (1,067) (1,673)
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Net loss $ (1,305) (2,046)
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Loss per share:
Primary $(.11) $(.19)
Fully diluted (.11) (.19)
Weighted average number of shares
outstanding:
Primary 11,490,000 10,576,000
Fully diluted 11,490,000 10,576,000
Cash dividends per share $.03 $.03
</TABLE>
See accompanying notes to financial statements.
3
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
Quarter Ended
-------------
April 2, March 31,
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1994 1993
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<S> <C> <C> <C> <C>
Cash flows from operating activities
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Net loss $ (1,305) $ (2,046)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization $ 3,577 $ 3,131
Provision for doubtful accounts 725 1,997
Changes in assets and liabilities:
Accounts receivable (9,861) (12,469)
Inventories (17,233) (20,974)
Prepaid expenses and other
current assets (11,404) 717
Accounts payable and accrued expenses (2,413) 9,107
Other 1,202 (35,407) (1,655) (20,146)
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Net cash (used in) operating activities (36,712) (22,192)
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Cash flows from investing activities
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Additions to property, plant and equipment (3,311) (6,018)
Funds used for construction 159 3,919
Other 24 148
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Net cash (used in) investing activities (3,128) (1,951)
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Cash flows from financing activities
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Short-term debt borrowings, (repayments), net 149 (168)
Repayments of long-term debt (1,875) (2,394)
Long-term borrowings 33,326 26,000
Cash dividends (332) (323)
Other (549) (150)
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Net cash provided by financing activities 30,719 22,965
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Net increase (decrease) in cash and
cash equivalents (9,121) (1,178)
Cash and cash equivalents at beginning
of period 12,499 1,880
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Cash and cash equivalents at end of period $ 3,378 $ 702
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</TABLE>
See accompanying notes to financial statements.
4
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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. Certain
prior year items have been reclassified to conform to the 1994 presentation.
In 1994 the Company modified its interim fiscal reporting periods. Each
period will end on the Saturday nearest to the end of the respective calendar
quarters for March, June and September. This change will have no effect on the
annual reporting period which will continue to end on December 31.
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 - The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(In Thousands)
April 2, December 31,
1994 1993
-------- ------------
<S> <C> <C>
Finished goods $ 67,804 $ 56,630
Work in process 28,194 25,806
Raw materials 38,750 35,079
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$134,748 $117,515
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</TABLE>
NOTE 3 - Earnings per share of common stock are based on the weighted average
number of shares outstanding during each of the periods. Common stock
equivalents and the assumed conversion of the Company's Convertible Senior
Subordinated Discount Debentures in 1993 were not used because the results would
be anti-dilutive.
NOTE 4 - Supplemental cash flow information for the quarterly periods are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
April 2, March 31,
1994 1993
-------- ---------
<S> <C> <C>
Interest paid $ 994 $1,017
Income taxes paid 1,883 2,419
</TABLE>
Non-cash financing activities involve the issuance of common stock during the
first quarter of 1994 upon conversion of $49,963,000 of the Company's
subordinated debentures.
5
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 5 - The accumulated amortization of cost in excess of net assets acquired
and other intangibles is $23,968,000 at April 2, 1994 and $26,136,000 at
December 31, 1993.
NOTE 6 - The Company's loan agreements with its banks require the attainment
of certain working capital and tangible net worth levels and the maintenance
of various financial ratios, among its provisions. Under the most restrictive
of these covenants, at April 2, 1994 approximately $1,860,000 of retained
earnings was available for the payment of dividends in 1994.
NOTE 7 - Hoover, a wholly-owned subsidiary of the Company, is a defendant,
along with many other parties, in a number of commercial lawsuits, including a
purported class action on behalf of certain Maryland homeowners, alleging
property damage caused by alleged defects in certain pressure treated interior
wood products. Hoover has not manufactured or sold these products since August
1988. The Company is also a defendant in many of these suits. The number of
lawsuits pending, as of April 2, 1994, where Hoover is not being defended and
indemnified by a third party, as well as the number of lawsuits filed in 1993
and 1994 have declined significantly from earlier periods.
Many of the suits and claims have been settled. In those suits that remain
pending, direct defense costs are being paid by either insurance carriers, under
reservations of rights agreements, or out of insurance proceeds. Two actions
have proceeded to trial against Hoover and resulted in jury verdicts against it.
In one of these actions, judgment was entered in Hoover's favor by the court
after a jury verdict against it and the plaintiff's petition to appeal the
judgment entered in Hoover's favor was denied. Hoover is appealing the other
judgment and believes that it has meritorious grounds for overturning it in
whole or in part.
Hoover and the Company have engaged in litigation with their insurers
regarding coverage for these lawsuits and claims. Hoover has settled its
coverage claims with a majority of its insurers and is negotiating settlements
with others. Hoover and the Company believe they have meritorious claims for
coverage from their remaining unsettled insurers and are seeking declaratory
judgments confirming such coverage. The proceeds from settled insurance claims,
along with the proceeds from a settlement of claims by Hoover against certain
suppliers of materials used by it in the production of treated wood, are
available for the settlement of the underlying property damage actions,
including the jury verdict now on appeal. The Company believes that Hoover's
remaining coverage disputes will be resolved within the next two years 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, considered its history of successful settlements with
primary and excess insurers and consulted with counsel.
Hoover and the Company are vigorously defending the underlying lawsuits
which cannot be resolved on a reasonable basis and believe that they have
meritorious defenses to those suits including, in the case of the Company, the
6
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defense that it has been improperly joined, as it did not manufacture or market
the Hoover products at issue, and is not legally liable for the damage allegedly
caused by them.
At April 2, 1994, in accordance with the provisions of Financial Accounting
Standards Board Interpretation No. 39, which became effective on January 1,
1994, Hoover recorded a receivable (included in other assets) for $17.2 million
for the estimated proceeds and recoveries related to insurance matters discussed
above and accrued the same amount (included in other liabilities), for its
estimated cost to resolve those matters not presently covered by existing
settlements with insurance carriers and suppliers. In estimating both this
liability, which Hoover expects to discharge over the next four years, and its
anticipated additional insurance recoveries, Hoover and the Company have
considered a number of factors, including: the number and exposure posed by the
pending lawsuits; the significant decline in the number of lawsuits filed in
1993 and 1994; the availability of various legal defenses, including statutes of
limitations; the existence of settlement protocols; an agreement indemnifying
Hoover as to certain past and future claims; and Hoover's experience to date in
settling with its insurance companies and the likely availability of 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
adverse effect upon the financial position of the Company.
NOTE 8 - During the period February 23 to March 23, 1994 holders of $49,963,000
principal amount of 10% Convertible Senior Subordinated Discount Debentures, due
October 1, 2008, exchanged them for 2,751,328 shares of common stock of the
Company. The remaining $37,000 of the original $50 million face amount was
redeemed by the Company.
7
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONAL AND RESULTS OF OPERATIONS
QUARTER ENDED APRIL 2, 1994
Results of Operations
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Net sales for the first quarter of 1994 increased approximately 12% to
$163.4 million from the corresponding 1993 period. Of the total net sales
increase in 1994, approximately 70% is attributable to additional unit volume
and approximately 30% to increases in average selling prices. Substantially all
operating entities of the Company reported higher sales for the first quarter of
1994 when compared with the corresponding period in 1993. In 1994 the Company
charged its interim fiscal reporting periods. The change had no material effect
on the quarterly comparisons.
Gross profit, expressed as a percentage of net sales, was 16.2% for the
first quarter of 1994 compared to 17.8% for the corresponding period in 1993.
The lower margin in 1994 was primarily due to the absence of inventory wood
price gains experienced in 1993 and to a lesser extent competitive pricing
pressures.
Selling, general and administrative expenses, as a percent of net sales,
were 15.4% for the 1994 first quarter compared to 17.8% for the corresponding
period in 1993. The decline is primarily due to economies resulting from the
absorption of fixed expenses over a larger sales base and lower provision for
bad debts.
The net loss for the first quarter of 1994 was $1.3 million compared with a
net loss of $2.0 million for the first quarter of 1993. The lower loss
experienced during the first quarter of 1994 resulted from the factors described
above.
Liquidity and Capital Resources
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The Company used $36.9 million in cash from operations during the first
quarter of 1994 principally as a result of a seasonal increases in working
capital and from the timing of the tax benefit related to the exercise of stock
options. Significant first quarter 1994 financing activities related to the net
increase in revolving credit borrowings of $33 million used principally to
finance the working capital requirements of the Company.
The Company's current ratio was 3.9 to 1 at April 2, 1994 compared to 3.2 to
1 at December 31, 1993.
Available bank credit facilities were approximatley $41 million at April 2,
1994.
8
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
April 2, 1994
PART II - OTHER INFORMATION
All items are inapplicable except:
Item 1. Legal Proceedings
See Note 7 to the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports - Dated February 24, 1994 reporting on a $200 million five
year credit agreement with a group of banks.
9
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PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
April 2, 1994
S I G N A T U R E S
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 thereunto duly authorized.
Ply Gem Industries, Inc.
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(Registrant)
Date: May 17, 1994 Herbert P. Dooskin
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Executive Vice President
Principal Financial Officer
10
