<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 September 30, 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
------
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
- -------------------------------------------------------------------------------
(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 November 1, 1996
- -------------------------------------- -------------------------------
Common stock, par value $.25 per share 14,000,597 Shares
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
- ------ 1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 4,586 $ 8,107
Accounts receivable, net of allowance
of $4,190; $4,511 in 1995 51,016 33,020
Inventories 94,887 96,228
Prepaid and deferred income taxes 8,656 15,714
Other current assets 9,467 9,194
-------- --------
Total current assets 168,612 162,263
Property, plant and equipment - at cost
net of accumulated depreciation and
amortization of $60,397; $51,573 in
1995 87,274 81,832
Patents and trademarks, net of
accumulated amortization of $9,836;
$8,971 in 1995 14,503 15,334
Other intangible assets - net 14,786 15,507
Cost in excess of net assets acquired -
net 21,984 23,081
Other assets 21,616 26,973
-------- --------
Total assets $328,775 $324,990
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued expenses $ 68,468 $ 52,645
Accrued restructuring 1,182 4,480
Current maturities of long-term debt
and capital leases 574 458
-------- --------
Total current liabilities 70,224 57,583
Long-term debt 87,329 93,135
Capital leases 7,466 7,106
Other liabilities 19,526 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
17,623,885;
17,463,072 in 1995 4,406 4,366
Additional paid-in capital 148,652 148,618
Retained earnings 60,393 53,246
Unrealized appreciation in marketable
securities 238 -
Less: Treasury stock-at cost
(3,625,288 shares; 3,015,311 in
1995) 63,494 55,676
Unamortized restricted
stock and note receivable 5,965 6,069
-------- --------
Total stockholders' equity 144,230 144,485
-------- --------
Total liabilities and $328,775 $324,990
stockholders' equity ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands Except per Share Data)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
September 30, September 30,
1996 1995
-------------- --------------
<S> <C> <C>
Net sales $230,143 $210,973
Cost of goods sold 180,720 173,529
-------- --------
Gross profit 49,423 37,444
Selling, general and administrative
expenses 34,103 30,738
-------- --------
Income from operations 15,320 6,706
Interest expense (1,729) (1,822)
Other income (expense), net (667) (519)
-------- --------
Income before income taxes 12,924 4,365
Income taxes 6,009 2,089
-------- --------
Net income $ 6,915 $ 2,276
======== ========
Earnings per share:
Primary $ .45 $ .16
Fully diluted .45 .16
Weighted average number of shares
outstanding:
Primary 16,347 14,458
Fully diluted 16,347 14,458
Cash dividends per share $ .03 $ .03
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PLY GEM INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands Except per Share Data)
<TABLE>
<CAPTION>
Nine Months
Ended
-------------------------------
September 30, September 30,
1996 1995
-------------- --------------
<S> <C> <C>
Net sales $584,240 $577,172
Cost of goods sold 471,609 480,717
-------- --------
Gross profit 112,631 96,455
Selling, general and administrative
expenses 90,091 88,491
-------- --------
Income from operations 22,540 7,964
Interest expense (5,486) (5,070)
Other income (expense), net (1,324) (1,505)
-------- --------
Income before income taxes 15,730 1,389
Income taxes 7,296 750
-------- --------
Net income $ 8,434 $ 639
======== ========
Earnings per share:
Primary $ .58 $ .04
Fully diluted .58 .04
Weighted average number of shares
outstanding:
Primary 16,315 14,448
Fully diluted 16,315 14,448
Cash dividends per share $ .09 $ .09
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------------
September 30, September 30,
1996 1995
-------------------- --------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $ 8,434 $ 639
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization $ 11,311 $ 10,454
Provision for doubtful accounts 1,796 1,143
Changes in assets and liabilities:
Accounts receivable (19,792) (11,300)
Inventories 1,341 1,788
Prepaid and deferred income taxes 7,058 1,248
Prepaid expenses and other current
assets (35) (1,456)
Accounts payable and accrued
expenses 15,823 (1,738)
Restructuring (5,142) (8,386)
Other 4,046 16,406 (1,803) (10,050)
-------- -------- -------- --------
Net cash from (used in) operating
activities 24,840 (9,411)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to property, plant and equipment (14,466) (23,256)
Other 362 951
-------- --------
Net cash used in investing activities (14,104) (22,305)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Purchase of treasury shares (8,818) (2,190)
Net increase (decrease) in revolving
note borrowings with original
maturity of 90 days or less (5,450) 22,361
Cash dividends (1,287) (1,309)
Other 1,298 1,233
-------- --------
Net cash provided (used) in financing
activities (14,257) 20,095
-------- --------
Net decrease in cash and cash
equivalents (3,521) (11,621)
Cash and cash equivalents at
beginning of period 8,107 14,403
-------- --------
Cash and cash equivalents at end of
period $ 4,586 $ 2,782
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
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, results of operations and cash flows of the Company. 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 Balance at
December 31, 1996 September 30,
1995 Activity 1996
------------ -------- -------------
<S> <C> <C> <C>
Consolidation and closure of
facilities, including
severance and related costs $7,779 $4,777 $ 3,002
Other, including lease termination
expenses and costs to execute
the restructuring program 235 150 85
------ ------- -------
$8,014 $4,927 3,087 *
====== ====== =======
</TABLE>
*The following amounts are included in the consolidated balance sheet at
September 30, 1996 under the captions: "accrued restructuring" ($1.2 million),
"other liabilities" ($1.2 million), "property, plant and equipment" (reduction
of $ .2 million), "inventories" (reduction of $ .4 million), and "accounts
receivable" (reduction of $.1 million).
NOTE 3 -The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(In Thousands)
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Finished goods $52,797 $54,530
Work in process 12,403 12,508
Raw materials 29,687 29,190
------- -------
$94,887 $96,228
======= =======
</TABLE>
6
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - Earnings per share of common stock are computed by dividing net income
by the weighted average number of common shares outstanding for the periods.
The dilutive effect of stock options has been excluded from the calculations in
1995 as their effect would be anti-dilutive. Earnings per share for the three
and nine months ended September 30, 1996 are calculated using the modified
treasury stock method, which limits the assumed purchase of treasury shares to
20% of the outstanding common shares.
NOTE 5 - Supplemental cash flow information for the nine month periods are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Interest paid $5,302 $4,632
Income taxes paid 665 797
</TABLE>
NOTE 6 - The accumulated amortization of cost in excess of net assets acquired
and other intangible assets are $21,766,000 at September 30, 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 September 30, 1996 approximately
$1,500,000 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 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 the
Company are vigorously defending those 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.
Hoover and the Company have engaged in coverage litigation with their
insurers and have settled their coverage claims with a majority of the insurers.
The Company 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 September 30, 1996 (included in other
assets) for approximately $9.7 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.
7
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - (Continued)
- --------------------
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.
8
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 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
- ---------------------
The Company reported significantly better operating results for the third
quarter of 1996 when compared with the third quarter of 1995. On a net sales
increase of approximately 9%, net income tripled to $6.9 million up from $2.3
million for the same quarter a year ago. Operating income increased almost two
and one-half times to $15.3 million from $6.7 million for the quarterly
comparison periods. Similar gains were experienced for the nine month
comparison periods. The primary reasons for the improvements are discussed
below.
Net sales for the third quarter of 1996, which were the highest in the
Company's history, totaled $230.1 million, an increase of about 9% over the same
period in 1995. Third quarter sales growth was driven primarily by the Company's
Windows, Doors and Siding and Specialty Woods businesses which experienced
double digit growth for the quarter. Approximately 80% of the consolidated sales
growth was attributed to unit volume increases and the remainder to increases in
average selling prices. For the nine months ended September 30, 1996, net sales
were $584.2 million, as compared with $577.2 million for the corresponding
period in 1995.
Gross profit, expressed as a percentage of sales, was 21.5% in the third
quarter of 1996 compared with 17.7% for the same period in 1995. Gross profit
dollars increased approximately $12 million or 32% for the comparison period.
Gross profit for the nine months of 1996 was 19.3%, as compared with 16.7% in
1995. The significant improvement was primarily attributable to lower raw
material costs, particularly PVC resin and glass, improved manufacturing
efficiencies and process improvements.
Selling, general and administrative expenses, as a percentage of sales, for
the third quarter and first nine months of 1996 were essentially flat compared
to the 1995 comparison periods.
9
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
Results of Operations - (Continued)
- -----------------------------------
The Company's effective tax rate in the third quarter of 1996 was 46.5%,
which compares with 47.9% in the third quarter of 1995. The effective tax rate
for first nine months of 1996 and 1995 was 46.4% and 54.0% respectively. The
lower effective tax rates for the comparison periods are due primarily to the
lower proportion of non-deductible amortization to income before taxes.
Liquidity and Capital Resources
- -------------------------------
The Company generated $24.8 million in cash from operations during the
first nine months of 1996 compared to usage of $9.4 million in the corresponding
1995 period. The significant improvement is due to improved operating results
and improved management of working capital.
Significant investing activities in the first nine months of 1996 include
capital expenditures of $14.5 million, compared to $23.3 million for the
corresponding 1995 period, primarily incurred by the Company's Windows, Doors
and Siding subsidiaries. Significant first nine months of 1996 financing
activities related to the net decrease in revolving credit borrowings of $5.5
million and purchase of treasury shares of $8.8 million.
The Company's current ratio of 2.4 to 1 at September 30, 1996 was
substantially the same as it was at the end of 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 $67 million at September 30, 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 for the next operating cycle.
10
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
September 30, 1996
PART II - OTHER INFORMATION
All items are inapplicable except:
Item 1. Legal Proceedings.
See Note 8 to the consolidated financial statements.
Item 5. Other information
On August 2, 1995, the Company engaged the investment banking firm Bear, Stearns
& Co. Inc. to explore strategic alternatives for the intent of maximizing
shareholders value, including the possible sale of the Company. On July 16,
1996 the Company announced the conclusion of the Bear, Stearns & Co. Inc.
engagement with respect to the aforesaid.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: Exhibit 11 - Schedule of computation of net income per
share
Exhibit 27 - Financial Data Schedule
(b) Reports - No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
11
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 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: November 13, 1996 /s/ Herbert P. Dooskin
------------------- ------------------------
Executive Vice President
Principal Financial Officer
12
<PAGE>
Exhibit 11
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
Three and Nine Months Ended September 30,
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
------------------------ ------------------------
Fully Fully
Primary Diluted Primary Diluted
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding during the period......... 13,915,000 13,915,000 14,139,000 14,139,000
Excess of weighted average number of shares
issuable upon exercise of employee
stock options over 20% of shares
outstanding at end of the period.... 2,432,000 2,432,000 2,176,000 2,176,000
---------- ----------- ----------- -----------
Weighted average number of shares....... 16,347,000 16,347,000 16,315,000 16,315,000
========== =========== =========== ===========
Proceeds available to repay debt:
From exercise of options, including
tax benefits, at average market
price.......................... $36,903,000 $71,419,000
From exercise of options,
including tax benefits, at end
of period market price............ $37,431,000 $69,657,000
----------- ----------- ----------- -----------
$36,903,000 $37,431,000 $71,419,000 $69,657,000
----------- ----------- ----------- -----------
Interest saved, net of taxes............ 377,000 382,000 971,000 1,095,000
Net income as reported.................. 6,915,000 6,915,000 8,434,000 8,434,000
----------- ----------- ----------- -----------
Adjusted net income.................... $ 7,292,000 $ 7,297,000 $ 9,405,000 $ 9,529,000
=========== =========== =========== ===========
Per share............................... $.45 $.45 $.58 $.58
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,586
<SECURITIES> 0
<RECEIVABLES> 55,206
<ALLOWANCES> 4,190
<INVENTORY> 94,887
<CURRENT-ASSETS> 168,612
<PP&E> 147,671
<DEPRECIATION> 60,397
<TOTAL-ASSETS> 328,775
<CURRENT-LIABILITIES> 70,224
<BONDS> 94,795
0
0
<COMMON> 4,406
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 328,775
<SALES> 584,240
<TOTAL-REVENUES> 584,240
<CGS> 471,609
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,796
<INTEREST-EXPENSE> 5,486
<INCOME-PRETAX> 15,730
<INCOME-TAX> 7,296
<INCOME-CONTINUING> 8,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,434
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
</TABLE>
