<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 March 31, 1996 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, New York 10017
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 212-832-1550
-----------------------------
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 April 28,1996
- ------------------------------------ ----------------------------------
Common stock, par value $.25 per share 14,347,683 Shares
1
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
- ---------------------------------------- ------------------ ---------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 7,627 $ 8,107
Accounts receivable, net of allowance
of $4,712; $4,511 in 1995 42,550 33,020
Inventories 104,474 96,228
Prepaid and deferred income taxes 17,580 15,714
Other current assets 11,648 9,194
-------- --------
Total current assets 183,879 162,263
Property, plant and equipment - at cost
net of accumulated depreciation and
amortization of $55,359; $51,573 in 1995 82,748 81,832
Patents and trademarks, net of
accumulated amortization of $9,259;
$8,971 in 1995 15,059 15,334
Other intangible assets - net 15,254 15,507
Cost in excess of net assets acquired - net 22,715 23,081
Other assets 25,249 26,973
-------- --------
Total assets $344,904 $324,990
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Accounts payable and accrued expenses $ 53,017 $ 52,645
Accrued restructuring 3,122 4,480
Current maturities of long-term debt
and capital leases 464 458
-------- --------
Total current liabilities 56,603 57,583
-------- --------
Long-term debt 119,510 93,135
Capital leases 7,092 7,106
Other liabilities 20,831 22,681
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
17,611,157; 17,463,072 in 1995 4,403 4,366
Additional paid-in capital 149,126 148,618
Retained earnings 50,167 53,246
Unrealized appreciation in marketable
securities 1,060 -
Less: Treasury stock-at cost
(3,150,284 shares; 3,015,311 in 1995) 57,834 55,676
Unamortized restricted
stock and note receivable 6,054 6,069
-------- --------
Total stockholders' equity 140,868 144,485
-------- --------
Total liabilities and
stockholders' equity $344,904 $324,990
======== ========
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands Except per Share Data)
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31, April 1,
1996 1995
---------- ---------
<S> <C> <C>
Net sales $142,018 $162,934
Cost of goods sold 121,504 138,072
-------- --------
Gross profit 20,514 24,862
Selling, general and administrative expenses 23,397 27,406
-------- --------
Loss from operations (2,883) (2,544)
Interest expense (1,824) (1,478)
Other income (expense), net (46) (572)
-------- --------
Loss before income taxes (4,753) (4,594)
Income tax benefit (2,115) (1,929)
-------- --------
Net loss $ (2,638) $ (2,665)
======== ========
Loss per share:
Primary $ (.18) $ (.18)
Fully diluted (.18) (.18)
Weighted average number of shares
outstanding:
Primary 14,324 14,448
Fully diluted 14,324 14,448
Cash dividends per share $ .03 $ .03
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31, April 1,
1996 1995
------------------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------
Net loss $ (2,638) $ (2,665)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization $ 3,835 $ 3,394
Provision for doubtful accounts 461 207
Changes in assets and liabilities:
Accounts receivable (9,991) 6,134
Inventories (8,246) (6,550)
Prepaid and deferred income taxes (1,866) (1,016)
Other current assets (1,394) (1,941)
Accounts payable and
accrued expenses 372 (7,081)
Restructuring (1,358) (2,559)
Other (126) (18,313) (1,615) (11,027)
------- -------- ------- --------
Net cash used in operating (20,951) (13,692)
activities -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- ----------------------------------------
Additions to property, plant and equipment (3,945) (5,443)
Other 101 83
-------- --------
Net cash used in investing activities (3,844) (5,360)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ----------------------------------------
Purchase of treasury shares (2,158) (1,209)
Net change in revolving note
borrowings with original 26,367 15,408
maturity of 90 days or less
Cash dividends (441) (440)
Other 547 930
-------- --------
Net cash provided by financing activities 24,315 14,689
-------- --------
Net decrease in cash and cash equivalents (480) (4,363)
Cash and cash equivalents at beginning of period 8,107 14,403
-------- --------
Cash and cash equivalents at end of period $ 7,627 $ 10,040
======== ========
</TABLE>
See accompanying notes to financial statement
4
<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
1996 presentation.
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.
In 1996 the Company changed its interim fiscal reporting periods to conform
to calendar presentation. The change has no material effect on the interim
comparisons.
Note 2 - During 1994, the Company recorded a charge of approximately $29.1
million related to a restructuring program. The status of the components of the
restructuring provision at the end of the period was:
<TABLE>
<CAPTION>
(In Thousands)
Balance at
December 31, 1996 Balance at
1995 Activity March 31, 1996
------------ -------- --------------
<S> <C> <C> <C>
Consolidation and closure of
facilities, including
severance and related costs $7,779 $ 955 $6,824
Other, including lease termination
expenses and costs to execute the
restructuring program 235 235
------ ------- ------
$8,014 $ 955 $7,059*
====== ======= ======
</TABLE>
*The following amounts are included in the consolidated balance sheet at
March 31, 1996 under the captions: "accrued restructuring" ($3.1 million),
"other liabilities" ($3.1 million), "property, plant and equipment" (reduction
of $.3 million), inventories (reduction of $.5 million), and "accounts
receivable" (reduction of $.1 million).
NOTE 3 -The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(In Thousands)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Finished goods $ 61,375 $54,530
Work in process 13,208 12,508
Raw materials 29,891 29,190
-------- -------
$104,474 $96,228
======== =======
</TABLE>
5
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - Loss per share of common stock are based on the weighted average number
of shares outstanding during each of the periods. Common stock equivalents were
not used because the results would be anti-dilutive.
NOTE 5 - Supplemental cash flow information for the quarterly periods are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
March 31, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Interest paid $1,412 $1,430
Income taxes paid 154 270
</TABLE>
NOTE 6 - The accumulated amortization of cost in excess of net assets acquired
and other intangible assets are $20,535,000 at March 31, 1996 and $19,917,000 at
December 31, 1995.
NOTE 7 - The 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 March 31, 1996 approximately $2,400,000
of retained earnings was available for the payment of dividends in 1996.
NOTE 8- Hoover Treated Wood Products, Inc.("Hoover"), a wholly-owned subsidiary
of the Company, is a defendant, in a number of commercial lawsuits, 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 number of lawsuits pending, as of March 31, 1996 as well as the number
of lawsuits filed since 1993 have declined significantly from earlier periods.
Most of the suits and claims have been resolved by dismissal or settlement. A
purported class action on behalf of certain Maryland homeowners was dismissed in
November, 1995 when the Maryland Court of Appeals, the State's highest court,
found that the homeowners had no viable claims against Hoover. In those suits
that remain pending, direct defense costs are being paid 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. In the
other case, the judgment against Hoover was vacated and the case was settled
with proceeds from insurance settlements.
Hoover and the Company have engaged in litigation with some of 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. 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.
6
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
Hoover has recorded a receivable at March 31, 1996 (included in other assets)
for approximately $10.9 million for the estimated proceeds and recoveries
related to insurance matters discussed above and recorded 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 evaluating the effect of the lawsuits, a number of factors have been
considered, including: the number and exposure posed by the pending lawsuits;
the significant decline in the number of lawsuits filed in 1994 and 1995; 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 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.
7
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996
When used in this discussion, the words "believes", "anticipates", "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. The Company undertakes no obligation to republish
revised forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. Readers are
also urged to carefully review and consider the various disclosures made by the
Company, in this report, as well as the Company's periodic reports on Forms 10-
K, 10-Q and 8-K filed with the Securities and Exchange Commission.
Results of Operations
- ---------------------
Net sales for the first quarter of 1996 were approximately $142.0 million
compared to $162.9 million for the corresponding 1995 period. The 12.8% decline
was primarily due to lower unit volume in the Company's Windows, Doors and
Siding subsidiaries caused by an unusually harsh winter, particularly in the
regions of the United States which are the primary markets for the Company's
exterior building products. Approximately one-third of the decline in net sales
was due to the Company's plan exit or de-emphasis of certain low margin
products.
Gross profit, expressed as a percentage of net sales, was 14.4% for the first
quarter of 1996 compared to 15.3% for the corresponding period in 1995. The
lower margins were due primarily to product mix and competitive pricing issues
in the Company's Distribution businesses offset somewhat by lower raw material
costs, particularly PVC resin.
Selling, general and administrative expenses, as a percentage of net sales,
were 16.5% for the first quarter of 1996 as compared to 16.8% for the
corresponding 1995 period. In absolute dollars, selling, general and
administrative expenses declined $4.0 million for the comparison periods.
In general, the improvement primarily reflects the efforts by the Company to
realign its cost structure by reducing administrative costs and managing
expense growth relative to sales growth. Specifically the improvement is
primarily due to lower employment costs related in part to the reduction in work
force and lower incentive compensation expense.
Liquidity and Capital Resources
- -------------------------------
The Company used $21.0 million in cash from operations during the first
quarter of 1996 compared to $13.7 million in the corresponding 1995 period. The
usage of cash is due to seasonal working capital needs. Significant
investing activities in the first quarter of 1996 include capital expenditures
of $3.9 million primarily incurred by the Company's Windows, Doors and Siding
subsidiaries. Significant first quarter 1996 financing activities related to
the net increase in revolving credit borrowings of $26.4 million used
principally to finance the working capital requirements and capital expenditures
of the Company as well as lower outstandings under the Company's accounts
receivable program.
8
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Company's current ratio improved to 3.2 to 1 at March 31, 1996 compared
to 2.8 to 1 at December 31, 1995.
The Company has a revolving credit facility with a syndicate of eleven banks
which provides financing through February 1999. Availability under this
facility was approximately $30 million at March 31, 1996.
The Company anticipates that internally generated funds from operations,
existing cash balances and the Company's existing credit facility should be
sufficient to satisfy its cash requirements over the next twelve months.
9
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
March 31, 1996
PART II - OTHER INFORMATION
All items are inapplicable except:
Item 1. Legal Proceedings.
See Note 8 to the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports: Dated August 2, 1995, the Company reported on Form 8-K that it
had engaged the investment banking firm of Bear, Stearns & Co. Inc. to explore
strategic alternatives for the Company with the intent of maximizing shareholder
value, including the possible sale of the Company. The Company does not expect
to disclose developments with respect to its exploration of strategic
alternatives unless and until it is in a position to announce a definitive
transaction. Furthermore, no assurances can be given that the process will
result in any specific transaction.
10
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
March 31, 1996
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: May 14, 1996___ /s/ Herbert P. Dooskin
----------------------------
Executive Vice President
Principal Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,627
<SECURITIES> 0
<RECEIVABLES> 47,262
<ALLOWANCES> 4,712
<INVENTORY> 104,474
<CURRENT-ASSETS> 183,879
<PP&E> 138,107
<DEPRECIATION> 55,359
<TOTAL-ASSETS> 344,904
<CURRENT-LIABILITIES> 56,603
<BONDS> 126,602
0
0
<COMMON> 4,403
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 344,904
<SALES> 142,018
<TOTAL-REVENUES> 142,018
<CGS> 121,504
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 461
<INTEREST-EXPENSE> 1,824
<INCOME-PRETAX> (4,753)
<INCOME-TAX> (2,115)
<INCOME-CONTINUING> (2,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,638)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
