<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, 1997 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 MAY 8, 1997
- --------------------------------------- -------------------------------
COMMON STOCK, PAR VALUE $.25 PER SHARE 13,926,978 SHARES
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ------ ----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 5,979 $ 9,924
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
OF $3,235; $3,039 IN 1996 39,027 28,003
INVENTORIES 107,886 92,983
PREPAID AND DEFERRED INCOME TAXES 11,571 10,905
OTHER CURRENT ASSETS 14,284 12,975
-------- --------
TOTAL CURRENT ASSETS 178,747 154,790
PROPERTY, PLANT AND EQUIPMENT - AT COST
NET OF ACCUMULATED DEPRECIATION AND
AMORTIZATION OF $66,113; $62,757 IN
1996 94,286 90,681
PATENTS AND TRADEMARKS, NET OF
ACCUMULATED AMORTIZATION OF
$10,053; $9,776 IN 1996 13,523 13,793
OTHER INTANGIBLE ASSETS - NET 14,587 14,794
COST IN EXCESS OF NET ASSETS ACQUIRED -
NET 21,252 21,618
OTHER ASSETS 17,549 17,771
-------- --------
TOTAL ASSETS $339,944 $313,447
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 64,215 $ 66,768
CURRENT MATURITIES OF LONG-TERM DEBT
AND CAPITAL LEASES 1,404 1,380
-------- --------
TOTAL CURRENT LIABILITIES 65,619 68,148
LONG-TERM DEBT 104,241 73,166
CAPITAL LEASES 8,910 9,231
OTHER LIABILITIES 17,325 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
17,685,211;
17,676,450 IN 1996 4,421 4,419
ADDITIONAL PAID-IN CAPITAL 149,600 149,226
RETAINED EARNINGS 60,519 61,993
LESS: TREASURY STOCK-AT COST
(3,766,383 SHARES; 3,687,954 IN
1996) 65,009 63,936
UNAMORTIZED RESTRICTED
STOCK AND NOTE RECEIVABLE 5,682 5,919
-------- --------
TOTAL STOCKHOLDERS' EQUITY 143,849 145,783
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $339,944 $313,447
</TABLE> ======== ========
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
2
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------
MARCH 31, MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
NET SALES $162,812 $142,018
COST OF GOODS SOLD 135,998 121,504
-------- --------
GROSS PROFIT 26,814 20,514
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 26,575 23,397
-------- --------
INCOME (LOSS) FROM OPERATIONS 239 (2,883)
INTEREST EXPENSE (1,668) (1,824)
OTHER EXPENSE, NET (484) (46)
-------- --------
LOSS BEFORE INCOME TAXES (1,913) (4,753)
INCOME TAX BENEFIT (861) (2,115)
-------- --------
NET LOSS $ (1,052) $ (2,638)
======== ========
LOSS PER SHARE:
PRIMARY $ (.08) $(.18)
FULLY DILUTED (.08) (18)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
PRIMARY 13,857 14,324
FULLY DILUTED 13,857 14,324
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, MARCH 31,
1997 1996
-------------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------
NET LOSS $ (1,052) $ (2,638)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH USED IN OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION $ 4,214 $ 3,835
PROVISION FOR DOUBTFUL ACCOUNTS 587 461
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (11,611) (9,991)
INVENTORIES (14,903) (8,246)
PREPAID AND DEFERRED INCOME TAXES (667) (1,866)
OTHER CURRENT ASSETS (1,308) (1,394)
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES (2,238) 372
OTHER 106 (25,820) (1,484) (18,313)
-------- -------- ------- --------
NET CASH USED IN OPERATING
ACTIVITIES (26,872) (20,951)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
ADDITIONS TO PROPERTY, PLANT AND
EQUIPMENT (6,969) (3,945)
OTHER - 101
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,969) (3,844)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
PURCHASE OF TREASURY SHARES (1,073) (2,158)
NET CHANGE IN REVOLVING NOTE
BORROWINGS WITH ORIGINAL
MATURITY OF 90 DAYS OR LESS 31,160 26,367
CASH DIVIDENDS (421) (441)
OTHER 230 547
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 29,896 24,315
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,945) (480)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,924 8,107
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 5,979 $ 7,627
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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.
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)
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Finished goods $ 61,908 $53,833
Work in process 12,000 9,724
Raw materials 33,978 29,426
-------- -------
$107,886 $92,983
======== =======
</TABLE>
NOTE 3 - 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.
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 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. The new
standard would have had no effect on the Company's first quarter loss per
share.
5
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - Supplemental cash flow information for the quarterly periods are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Interest paid $1,484 $1,412
Income taxes paid 830 154
</TABLE>
NOTE 5 - The accumulated amortization of cost in excess of net assets acquired
and other intangible assets are $22,930,000 at March 31, 1997 and $22,357,000
at December 31, 1996.
NOTE 6 - 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, 1997 approximately
$2,500,000 of retained earnings was available for the payment of dividends in
1997.
NOTE 7 - Hoover 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.
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 March 31, 1997 for approximately $8.5
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.
6
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - 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.
7
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997
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 first quarter of 1997 were $162.8 million, an increase of
approximately 15% over 1996 first quarter sales of $142.0 million. The sales
growth was driven by strong demand for the Company's products, particularly in
its Windows, Doors and Siding and Specialty Woods businesses. Approximately
three-quarters of the consolidated sales growth was attributed to unit volume
increases and the remainder to increases in average selling prices. Sales for
the first quarter of 1996 were impacted by a harsh winter.
Gross margins increased to 16.5% in 1997 from 14.4% in 1996 for the
quarterly comparison periods. Gross profit for the first quarter of 1997
increased 31% to $26.8 million, as compared to prior year's gross profit of
$20.5 million. Substantially all of the Company's businesses reported higher
gross profit for the quarterly comparison periods. The significant improvement
resulted primarily from improved productivity, lower unit freight costs and
product mix.
Selling, general and administrative expenses, as a percentage of net
sales, were 16.3% for the first three months of 1997, approximately even with
the comparison quarter.
The Company recorded first quarter 1997 income from operations of
$239,000 compared with an operating loss of $2.9 million reported in the first
quarter of 1996. The significant improvement in income from operations in 1997
resulted primarily from revenue growth and improved operating results in the
Company's businesses.
8
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997
Liquidity and Capital Resources
-------------------------------
The Company used $26.9 million in cash from operations during the first
quarter of 1997 compared to $21.0 million in the corresponding 1996 period.
The usage of cash was due to a planned inventory increase at one of the
Company's subsidiaries in anticipation of strong demand for its products in the
second and third quarters of 1997.
Significant investing activities in the first quarter of 1997 include
capital expenditures of $7.0 million primarily for expanded capacity in one of
the Company's Windows, Doors and Siding subsidiaries. Significant first quarter
1997 financing activities related to the net increase in revolving credit
borrowings of $31.2 million used principally to finance the seasonal working
capital requirements and capital expenditures of the Company.
The Company's current ratio improved to 2.7 to 1 at March 31, 1997
compared to 2.3 to 1 at December 31, 1996.
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 $54 million at March 31, 1997.
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 7 to the consolidated financial statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: Exhibit 27 - Financial Data Schedule
(b) Reports: None
10
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
March 31, 1997
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, 1997 /s/ Herbert P. Dooskin
--------------------------- -----------------------
Executive Vice President
Principal Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,979
<SECURITIES> 0
<RECEIVABLES> 42,262
<ALLOWANCES> 3,235
<INVENTORY> 107,886
<CURRENT-ASSETS> 178,747
<PP&E> 160,339
<DEPRECIATION> 66,113
<TOTAL-ASSETS> 339,944
<CURRENT-LIABILITIES> 65,619
<BONDS> 113,151
0
0
<COMMON> 4,421
<OTHER-SE> 139,428
<TOTAL-LIABILITY-AND-EQUITY> 339,944
<SALES> 162,812
<TOTAL-REVENUES> 162,812
<CGS> 135,998
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 587
<INTEREST-EXPENSE> 1,668
<INCOME-PRETAX> (1,913)
<INCOME-TAX> (861)
<INCOME-CONTINUING> (1,052)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,052)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
