<PAGE>
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 July 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-1727150
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 Third Avenue, New York, NY 10017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 212-832-1550
--------------------
- --------------------------------------------------------------------------------
(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
------ ------
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 July 30, 1994
- -------------------------------------- -------------------------------
Common stock, par value $.25 per share 14,853,506 Shares
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in Thousands)
July 2, December 31,
ASSETS 1994 1993
------ -------------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 10,193 $ 12,499
Marketable securities 1,879 1,942
Accounts receivable, net of allowance
of $7,790; $7,197 in 1993 77,355 54,432
Inventories 133,700 117,515
Prepaid expenses and other current assets 16,999 11,077
-------- --------
Current assets 240,126 197,465
Funds held for construction 2,114 2,375
Property, plant and equipment - at cost
net of accumulated depreciation and
amortization of $42,709; $38,704 in 1993 70,866 67,766
Patents and trademarks, net of accumulated
amortization of $7,250; $6,677 in 1993 17,027 17,595
Other intangible assets - net 20,226 21,557
Cost in excess of net assets acquired - net 25,761 26,492
Other assets 27,584 11,694
-------- --------
$403,704 $344,944
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued expenses $ 61,022 $ 55,764
Notes payable 2,365
Current maturities of long-term debt 928 2,841
-------- --------
Current liabilities 61,950 60,970
Long-term debt 129,264 142,898
Capital leases 7,153 7,166
Deferred income taxes and other liabilities 21,819 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 16,993,832;
11,872,509; in 1993 4,248 2,968
Additional paid-in capital 142,245 64,006
Retained earnings 76,785 72,601
Less: Treasury stock-at cost
(2,094,551 shares; 910,073 in 1993) 38,573 9,362
Unamortized restricted stock 1,187 1,271
-------- --------
Stockholders' equity 183,518 128,942
-------- --------
$403,704 $344,944
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands)
Quarter Ended
--------------
July 2 June 30
1994 1993
----------- -----------
<S> <C> <C>
Net sales $ 219,805 $ 184,422
Cost of goods sold 173,726 148,522
----------- -----------
Gross profit 46,079 35,900
Selling, general and
administrative expenses 31,353 25,703
----------- -----------
Income from operations 14,726 10,197
Amortization of goodwill and
other intangibles (1,141) (1,181)
Interest expense (1,750) (2,727)
Investment and other
income (expense), net (459) (23)
----------- -----------
Income before income taxes 11,376 6,266
Income taxes 5,111 2,819
----------- -----------
Net income $ 6,265 $ 3,447
=========== ===========
Earnings per share:
Primary $.40 $.31
Fully diluted .40 .31
Weighted average number of shares
outstanding:
Primary 15,756,000 11,254,000
Fully diluted 15,756,000 14,008,000
Cash dividends per share $.03 $.03
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in Thousands)
Six Months Ended
-----------------
July 2 June 30
1994 1993
----------- -----------
<S> <C> <C>
Net sales $ 383,217 $ 330,769
Cost of goods sold 310,661 268,860
----------- -----------
Gross profit 72,556 61,909
Selling, general and
administrative expenses 56,482 51,801
----------- -----------
Income from operations 16,074 10,108
Amortization of goodwill and
other intangibles (2,325) (2,377)
Interest expense (4,412) (5,119)
Investment and other
income (expense), net (333) (65)
----------- -----------
Income before income taxes 9,004 2,547
Income taxes 4,044 1,146
----------- -----------
Net income $ 4,960 $ 1,401
=========== ===========
Earnings per share:
Primary $.36 $.12
Fully diluted .34 .12
Weighted average number of shares
outstanding:
Primary 13,639,000 11,480,000
Fully diluted 14,623,000 14,234,000
Cash dividends per share $.06 $.06
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
Six Months Ended
------------------
July 2, June 30,
1994 1993
------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income $ 4,960 $ 1,401
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization $ 6,930 $ 6,270
Provision for doubtful accounts 1,123 2,433
Changes in assets and liabilities:
Accounts receivable (24,046) (22,486)
Inventories (16,185) (23,386)
Prepaid expenses and other (5,922) (833)
current assets
Accounts payable and
accrued expenses 5,258 14,526
Other 961 (31,881) 552 (22,924)
------- ------- ------- -------
Net cash (used in) operating
activities (26,921) (21,523)
------- -------
Cash flows from investing activities
- ------------------------------------
Additions to property, plant and
equipment (7,654) (11,157)
Funds used for construction 261 3,913
Other 285 532
------- -------
Net cash (used in) investing
activities (7,108) (6,712)
------- -------
Cash flows from financing activities
- ------------------------------------
Short-term debt borrowings, (repayments),
net (2,365) 3,674
Repayments of long-term debt (1,875) (4,604)
Long-term borrowings 36,328 31,215
Cash dividends (776) (646)
Other 411 (209)
------- -------
Net cash provided by financing
activities 31,723 29,430
------- -------
Net increase (decrease) in cash and
cash equivalents (2,306) 1,195
Cash and cash equivalents at beginning
of period 12,499 1,880
------- -------
Cash and cash equivalents at end of period $10,193 $ 3,075
======= =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
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 and will have
no material effect on the quarterly or six month comparisons.
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)
July 2, December 31,
1994 1993
-------- ------------
<S> <C> <C>
Finished goods $ 69,634 $ 56,630
Work in process 26,909 25,806
Raw materials 37,157 35,079
-------- --------
$133,700 $117,515
======== ========
</TABLE>
NOTE 3 - Earnings per share of common stock are based on the weighted average
number of shares outstanding during each of the periods. Primary and fully
diluted earnings per share include the dilutive effect of unexercised stock
options as modified for options in excess of 20% of shares outstanding.
NOTE 4 - Supplemental cash flow information for the six month periods are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
July 2, June 30,
1994 1993
------- --------
<S> <C> <C>
Interest paid $2,181 $3,565
Income taxes paid 2,487 2,900
</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.
6
<PAGE>
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 $24,544,000 at July 2, 1994 and $26,136,000 at
December 31, 1993.
NOTE 6 - The Company's loan agreement 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 July 2, 1994 approximately $2,170,000 of retained earnings
was available for the payment of dividends for the balance of 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 July 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
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.
7
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In accordance with the provisions of Financial Accounting Standards Board
Interpretation No. 39, which became effective on January 1, 1994, Hoover has a
receivable at July 2, 1994 (included in other assets) for $16.5 million for the
estimated proceeds and recoveries related to insurance matters discussed above
and an accrual for 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. If this transaction had occurred on January 1, 1994
fully dilutive earnings per share for the six months ended July 2, 1994 would
have been $.36.
8
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 2, 1994
RESULTS OF OPERATIONS
- ---------------------
Substantially all operating entities of the Company reported higher sales
for the second quarter and first six months of 1994 when compared with the
corresponding periods in 1993. Net sales for the second quarter of 1994
increased to a record $219.8 million, a 19.2% increase from the corresponding
1993 period. Net sales for the first six months of 1994 were 15.9% higher from
the comparison period in 1993. Of the total net sales increase in the 1994
periods, approximately 65% is attributable to additional unit volume and
approximately 35% to increases in average selling prices.
Gross profit, expressed as a percent of sales, was 21.0% for the second
quarter of 1994 as compared with 19.5% for the same 1993 period. Improved labor
productivity, lower conversion costs and the absence of new plant start-up costs
incurred in 1993 were primarily responsible for the improvement in gross profit.
The first half of 1994 gross profit of 18.9% is substantially the same as in
1993.
Selling, general and administrative expenses, as a percent of sales, for
the 1994 second quarter were essentially flat compared to the prior year. For
the first half comparison, selling, general and administrative expenses were
14.7% in 1994 compared to 15.7% in 1993. The decline is primarily due to
economies resulting from absorption of fixed expenses over a larger sales base
and a lower provision for bad debts partially offset by higher employment costs.
Interest expense declined approximately $1 million for the second quarter
of 1994 when compared to the second quarter of 1993. Lower interest expense for
the quarter resulted from the conversion of the Company's 10% debentures into
stock on March 25, 1994, partially offset by higher borrowing levels primarily
needed to support the higher level of operations and slightly higher interest
rates.
Income from operations for the second quarter of 1994 was $14.7 million
compared with $10.2 million last year. The 44% increase in operating income for
the quarter as well as the increase for the first half of 1994 is primarily
attributable to the reasons cited in the preceding paragraphs.
The Company continues to explore various strategies to reduce costs
including reduction in employment levels, consolidation or closure of certain
operating locations, and consolidation of product lines. In pursuit of greater
stockholder value, these strategies may lead to charges beginning in the third
quarter which would likely be recovered through cost savings in future periods.
9
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 2, 1994
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company used $26.9 million in cash from operations during the first six
months of 1994 principally as a result of an increase in working capital
primarily associated with the higher level of overall business activity and the
timing of the tax benefit related to the exercise of stock options.
Significant investing activities during the first six months of 1994
include capital expenditures of $7.7 million primarily incurred in the Company's
Windows, Doors and Siding Group.
Significant financing activities in the first six months of 1994 related to
the net increase in revolving credit borrowings of $36.3 million used
principally to finance the working capital and capital enditures of the Company.
The Company's current ratio was 3.9 to 1 at July 2, 1994 compared to 3.2 at
December 31, 1993.
Available bank credit facilities were approximately $40 million at July 2,
1994.
10
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
July 2, 1994
PART II - OTHER INFORMATION
All items are inapplicable except:
Item 1. Legal Proceedings
See Note 7 to the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Ply Gem Industries, Inc. was held on
May 14, 1994.
(b) The directors named in the Proxy Statement constituting the entire Board of
Directors were elected to one year terms expiring in 1995, as follows:
FOR WITHHELD
---------- --------
Albert Hersh 10,273,434 587,830
Jeffrey S. Silverman 10,278,298 582,966
Herbert P. Dooskin 10,279,123 582,141
Joseph Goldenberg 10,274,972 586,292
David Gotterer 10,274,600 586,664
Elihu H. Modlin 10,278,593 582,671
Monte R. Haymon 10,279,123 582,141
(c) A proposal submitted to the stockholders for approval of the 1994 employee
Incentive Stock Plan was adopted as follows:
FOR THE PROPOSAL: 6,144,420
AGAINST THE PROPOSAL: 2,748,287
WITHHELD: 58,480
(d) A proposal submitted to the stockholders for adoption of the 1994 Incentive
Compensation Plan was adopted as follows:
FOR THE PROPOSAL: 8,848,615
AGAINST THE PROPOSAL: 1,357,816
WITHHELD: 48,429
The Notice of Annual Meeting of Shareholders and Proxy Statement for Ply Gem
Industries, Inc. dated April 15, 1994 was filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Act and is incorporated herein by
reference.
11
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
July 2, 1994
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 11 - Schedule of Computation of Net Income Per Share
(b) Reports - None
12
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
July 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.
------------------------
(Registrant)
Date: August 15, 1994 /s/ Herbert P. Dooskin
--------------- ------------------------
Executive Vice President
Principal Financial Officer
13
<PAGE>
Exhibit 11
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Quarter Six Months
Ended Ended
July 2, 1994 July 2, 1994
------------ ------------
<S> <C> <C>
Weighted average common shares outstanding,
net of unamortized restricted stock 14,570,000 13,025,000
Add: shares assumed to be issued upon
exercise of employee stock options at
the average market price under the
modified treasury stock method and
restricted stock earned 1,186,000 614,000
----------- -----------
Primary shares 15,756,000 13,639,000
----------- -----------
Add: additional shares assumed to be
issued upon exercise of employee stock
options at quarter - end market price
(if higher than average market price) -0- 984,000
----------- -----------
Fully diluted shares 15,756,000 14,623,000
=========== ===========
Net Income $ 6,265,000 $ 4,960,000
=========== ===========
Primary earnings per share $.40 $.36
==== ====
Fully diluted earnings per share .40 .34
=== ===
</TABLE>
14
