<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 JUNE 30, 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 JULY 28, 1997
- -------------------------------------- ----------------------------
COMMON STOCK, PAR VALUE $.25 PER SHARE 14,623,679 SHARES
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
- ---------------------------------------- ------------------ -----------
(UNAUDITED)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 7,952 $ 9,924
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
OF $2,713; $3,039 IN 1996 45,937 28,003
INVENTORIES 110,450 92,983
PREPAID AND DEFERRED INCOME TAXES 10,905 10,905
OTHER CURRENT ASSETS 14,931 12,975
-------- --------
TOTAL CURRENT ASSETS 190,175 154,790
PROPERTY, PLANT AND EQUIPMENT - AT COST
NET OF ACCUMULATED DEPRECIATION AND
AMORTIZATION OF $69,084; $62,757 IN 1996 101,543 90,681
PATENTS AND TRADEMARKS, NET OF ACCUMULATED
AMORTIZATION OF $10,331; $9,776 IN 1996 13,255 13,793
OTHER INTANGIBLE ASSETS - NET 14,380 14,794
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 20,887 21,618
OTHER ASSETS 18,220 17,771
-------- --------
TOTAL ASSETS $358,460 $313,447
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 70,755 $ 66,768
CURRENT MATURITIES OF LONG-TERM DEBT AND CAPITAL LEASES 1,528 1,380
-------- --------
TOTAL CURRENT LIABILITIES 72,283 68,148
LONG-TERM DEBT 111,496 73,166
CAPITAL LEASES 8,656 9,231
OTHER LIABILITIES 18,819 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 17,747,957;
17,676,450 IN 1996 4,437 4,419
ADDITIONAL PAID-IN CAPITAL 150,059 149,226
RETAINED EARNINGS 63,129 61,993
LESS: TREASURY STOCK-AT COST
(3,764,278 SHARES; 3,687,954 IN 1996) 64,766 63,936
UNAMORTIZED RESTRICTED STOCK AND NOTE RECEIVABLE 5,653 5,919
-------- --------
TOTAL STOCKHOLDERS' EQUITY 147,206 145,783
-------- --------
TOTAL LIABILITIES AND $358,460 $313,447
STOCKHOLDERS' EQUITY ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
QUARTER ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1996
-------- -------
NET SALES $218,916 $212,079
COST OF GOODS SOLD 177,405 169,385
-------- --------
GROSS PROFIT 41,511 42,694
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 30,050 32,591
MERGER EXPENSES 2,850 -
-------- --------
INCOME FROM OPERATIONS 8,611 10,103
INTEREST EXPENSE (1,982) (1,933)
OTHER EXPENSE, NET (754) (611)
-------- --------
INCOME BEFORE INCOME TAXES 5,875 7,559
INCOME TAXES 2,842 3,402
-------- --------
NET INCOME $ 3,033 $ 4,157
======== ========
EARNINGS PER SHARE:
PRIMARY $ .20 $ .28
FULLY DILUTED $ .20 .28
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
PRIMARY 16,586 16,102
FULLY DILUTED 16,586 16,102
CASH DIVIDENDS PER SHARE $ .03 $ .03
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
--------------------
JUNE 30, JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
NET SALES $381,728 $354,097
COST OF GOODS SOLD 313,403 290,889
-------- --------
GROSS PROFIT 68,325 63,208
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 56,626 55,988
MERGER EXPENSES 2,850 -
-------- --------
INCOME FROM OPERATIONS 8,849 7,220
INTEREST EXPENSES (3,649) (3,757)
OTHER EXPENSE, NET (1,239) (657)
-------- --------
INCOME BEFORE INCOME TAXES 3,961 2,806
INCOME TAXES 1,981 1,287
-------- --------
NET INCOME $ 1,980 $ 1,519
======== ========
EARNINGS PER SHARE:
PRIMARY $ .14 $ .11
FULLY DILUTED .14 .11
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
PRIMARY 13,842 14,251
FULLY DILUTED 13,842 14,251
CASH DIVIDENDS PER SHARE $ .06 $ .06
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------
JUNE 30, JUNE 30,
1997 1996
-------------------- -------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------
NET INCOME $ 1,980 $ 1,519
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION $ 8,367 $ 7,569
PROVISION FOR DOUBTFUL ACCOUNTS 460 1,526
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (18,394) (13,830)
INVENTORIES (17,467) (4,494)
PREPAID AND DEFERRED INCOME TAXES 0 1,272
PREPAID EXPENSES AND OTHER CURRENT ASSETS (1,956) (2,241)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,479 8,873
RESTRUCTURING (492) (4,294)
OTHER 1,251 (23,752) 3,550 (2,069)
-------- -------- -------- -------
NET CASH USED IN OPERATING ACTIVITIES (21,772) (550)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ----------------------------------------
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT (17,789) (8,623)
OTHER 243 117
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (17,546) (8,506)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ----------------------------------------
PURCHASE OF TREASURY SHARES (1,808) (4,630)
PROCEEDS FROM BORROWINGS 2,725 -
NET CHANGE IN REVOLVING NOTE BORROWINGS WITH ORIGINAL
MATURITY OF 90 DAYS OR LESS 35,900 9,460
CASH DIVIDENDS (844) (868)
OTHER 1,373 992
------ -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 37,346 4,954
------ -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,972) (4,102)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,924 8,107
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,952 $ 4,005
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED 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.
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 - ON JULY 24, 1997, PLY GEM INDUSTRIES, INC. ("THE COMPANY") ENTERED INTO
AN AGREEMENT AND PLAN OF MERGER ("AGREEMENT") WITH NORTEK, INC. ("NORTEK") AND
ITS SUBSIDIARY, NTK SUB, INC. (THE "PURCHASER") PURSUANT TO WHICH NORTEK
COMMENCED ON JULY 29, 1997, A CASH TENDER OFFER TO PURCHASE ALL OF THE
OUTSTANDING SHARES OF THE COMPANY FOR CASH CONSIDERATION OF $19.50 PER SHARE.
THE AGREEMENT IS SUBJECT TO CUSTOMARY CONDITIONS, INCLUDING THE TENDER OF A
MAJORITY OF THE OUTSTANDING SHARES, REGULATORY APPROVALS AND THE RECEIPT OF
FINANCING. ALSO, ON JULY 24, 1997, THE COMPANY TERMINATED ITS JUNE 24, 1997
MERGER AGREEMENT WITH ATRIUM ACQUISITION HOLDINGS CORP. (ATRIUM), AN AFFILIATE
OF HICKS, MUSE, TATE & FURST INCORPORATED. AS A RESULT, THE COMPANY PAID $12
MILLION TO ATRIUM WHICH WAS FUNDED BY THE SALE OF 640,000 SHARES OF THE
COMPANY'S STOCK TO NORTEK FOR THE SAME AMOUNT.
NOTE 3 - THE MAJOR CLASSES OF INVENTORIES WERE AS FOLLOWS:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
FINISHED GOODS $ 61,696 $53,833
WORK IN PROCESS 13,837 9,724
RAW MATERIALS 34,917 29,426
-------- -------
$110,450 $92,983
======== =======
</TABLE>
NOTE 4 - EARNINGS PER SHARE OF COMMON STOCK IS COMPUTED BY DIVIDING NET INCOME
BY THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING. EARNINGS PER SHARE
FOR THE SECOND QUARTER OF 1997 AND 1996 IS CALCULATED USING THE MODIFIED
TREASURY STOCK METHOD, WHICH LIMITS THE ASSUMED PURCHASE OF TREASURY SHARES TO
20% OF THE OUTSTANDING COMMON SHARES.
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
6
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - CONTINUED
PRESENTATION OF BASIC AND DILUTED EARNINGS PER SHARE TOGETHER WITH DISCLOSURE OF
HOW THE PER SHARE AMOUNTS WERE COMPUTED. ADOPTION OF THE NEW STANDARD WOULD NOT
HAVE HAD A MATERIAL EFFECT ON EARNINGS PER SHARE FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1997.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION FOR THE SIX MONTH PERIODS ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
INTEREST PAID $3,300 $3,156
INCOME TAXES PAID 1,098 387
</TABLE>
NOTE 6 - THE ACCUMULATED AMORTIZATION OF COST IN EXCESS OF NET ASSETS ACQUIRED
AND OTHER INTANGIBLE ASSETS ARE $23,502,000 AT JUNE 30, 1997 AND $22,357,000 AT
DECEMBER 31, 1996.
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 JUNE 30, 1997 APPROXIMATELY $1,900,000
OF RETAINED EARNINGS WAS AVAILABLE FOR THE PAYMENT OF DIVIDENDS IN 1997.
NOTE 8 - DURING THE SECOND QUARTER OF 1997, THE BOARD OF DIRECTORS ADOPTED
RESOLUTIONS PROVIDING FOR SEVERANCE PAYMENTS IN THE EVENT OF A CHANGE IN CONTROL
AND SUBSEQUENT TERMINATION, AS DEFINED, TO CERTAIN DESIGNATED EMPLOYEES OF THE
COMPANY. AT JUNE 30, 1997, THE MAXIMUM AMOUNT PAYABLE WOULD BE APPROXIMATELY
$5 MILLION.
NOTE 9 - 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.
7
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - CONTINUED
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 JUNE 30, 1997 FOR APPROXIMATELY $7.5
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.
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.
TWO PURPORTED STOCKHOLDERS OF THE COMPANY, FILED A COMPLAINT IN DELAWARE
CHANCERY COURT AGAINST THE COMPANY AND ITS BOARD OF DIRECTORS ("BOARD"). THE
COMPLAINT PURPORTS TO BE BROUGHT ON BEHALF OF A CLASS CONSISTING (WITH CERTAIN
EXCEPTIONS) OF ALL STOCKHOLDERS OF THE COMPANY, AND CHALLENGES AS INADEQUATE TO
SUCH STOCKHOLDERS THE CONSIDERATION TO BE PAID IN CONNECTION WITH THE JUNE 24,
1997 MERGER AGREEMENT WITH ATRIUM (THAT HAS SUBSEQUENTLY BEEN TERMINATED IN
CONNECTION WITH THE EXECUTION OF THE JULY 24, 1997 AGREEMENT WITH NORTEK
REFERRED TO IN NOTE 2). THE COMPLAINT ALLEGES, AMONG OTHER THINGS, THAT THE
PROPOSED PRICE TO BE PAID PURSUANT TO THE MERGER AGREEMENT WITH ATRIUM IS
INADEQUATE, AND THAT THE BOARD BREACHED THEIR FIDUCIARY DUTIES IN AGREEING TO
IT. THE COMPANY AND ITS BOARD BELIEVE THE COMPLAINT TO BE WITHOUT MERIT.
8
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED JUNE 30, 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 IN THE COMPANY'S PERIODIC
REPORTS ON FORMS 10-K, 10-Q AND 8-K AND OTHER REPORTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION.
ON JULY 24, 1997, THE COMPANY ENTERED INTO AN AGREEMENT WITH NORTEK AND THE
PURCHASER PURSUANT TO WHICH NORTEK COMMENCED ON JULY 29, 1997, A CASH TENDER
OFFER TO PURCHASE ALL OF THE OUTSTANDING SHARES OF THE COMPANY FOR CASH
CONSIDERATION OF $19.50 PER SHARE. THE AGREEMENT IS SUBJECT TO CUSTOMARY
CONDITIONS, INCLUDING THE TENDER OF A MAJORITY OF THE OUTSTANDING SHARES,
REGULATORY APPROVALS AND THE RECEIPT OF FINANCING. THE FOREGOING SUMMARY OF SUCH
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AGREEMENT WHICH IS
FILED AS AN EXHIBIT HERETO. ALSO, ON JULY 24, 1997, THE COMPANY TERMINATED ITS
JUNE 24, 1997 MERGER AGREEMENT WITH ATRIUM. AS A RESULT, THE COMPANY PAID $12
MILLION TO ATRIUM WHICH WAS FUNDED BY THE SALE OF 640,000 SHARES OF THE
COMPANY'S STOCK TO NORTEK FOR THE SAME AMOUNT.
RESULTS OF OPERATIONS
- ---------------------
NET SALES FOR THE SECOND QUARTER OF 1997 TOTALED $218.9 MILLION, AN
INCREASE OF 3.2% OVER THE SAME PERIOD IN 1996. FOR THE SIX MONTHS ENDED JUNE 30,
1997, NET SALES INCREASED 7.8% FROM $354.1 MILLION IN 1996 TO $381.7 MILLION IN
1997. THREE OUT OF FOUR OF THE COMPANY'S BUSINESS GROUPS REPORTED INCREASED
SALES IN 1997 WHEN COMPARED TO 1996. APPROXIMATELY THREE-QUARTERS OF THE
CONSOLIDATED SALES GROWTH FOR THE PERIODS WAS ATTRIBUTED TO UNIT VOLUME
INCREASES AND THE REMAINDER TO INCREASES IN AVERAGE SELLING PRICES.
GROSS MARGINS WERE 19.0% IN THE SECOND QUARTER OF 1997 COMPARED WITH 20.1%
FOR THE SAME PERIOD IN 1996. GROSS MARGINS FOR THE FIRST HALF OF 1997 AND 1996
WERE 17.9%. GROSS MARGINS FOR THE QUARTER WERE AFFECTED BY HIGHER RAW MATERIAL
COSTS, PARTICULARLY PVC RESIN AND COSTS ASSOCIATED WITH THE INTRODUCTION OF A
NEW WINDOW PRODUCT LINE.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, AS A PERCENTAGE OF SALES, FOR
THE 1997 SECOND QUARTER DECLINED TO 13.7% FROM 15.4% FOR THE CORRESPONDING
PERIOD IN 1996. FOR THE SIX MONTH COMPARISON PERIODS, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES DECLINED TO 14.8% FROM 15.8%. THE IMPROVEMENT PRIMARILY
RELATES TO THE COMPANY'S ONGOING EFFORT TO REDUCE SELLING, GENERAL AND
ADMINISTRATIVE COSTS.
INCOME FROM OPERATIONS FOR THE SECOND QUARTER OF 1997, EXCLUDING MERGER
COSTS OF $2.9 MILLION, WAS $11.5 MILLION COMPARED WITH $10.1 MILLION RECORDED IN
THE SECOND QUARTER OF 1996. EXCLUDING MERGER COSTS, INCOME FROM OPERATIONS FOR
THE FIRST SIX MONTHS OF 1997 ADVANCED 62% TO $11.7 MILLION COMPARED WITH $7.2
MILLION FOR THE 1996 COMPARISON PERIOD. THE IMPROVEMENT RESULTED PRIMARILY FROM
IMPROVED OPERATING RESULTS AS DISCUSSED IN THE PRECEDING PARAGRAPHS.
9
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED JUNE 30, 1997
RESULTS OF OPERATIONS - (CONTINUED)
- -----------------------------------
THE COMPANY'S EFFECTIVE TAX RATE IN THE SECOND QUARTER OF 1997 WAS 48.4%,
WHICH COMPARES WITH 45.0% IN THE SECOND QUARTER OF 1996. THE EFFECTIVE TAX RATE
FOR FIRST SIX MONTHS OF 1997 WAS 50% COMPARED WITH 45.9% RECORDED IN THE
COMPARISON PERIOD. THE HIGHER EFFECTIVE TAX RATES ARE DUE PRIMARILY TO CERTAIN
NON-DEDUCTIBLE MERGER COSTS.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
THE COMPANY USED $21.8 MILLION IN CASH FROM OPERATIONS DURING THE FIRST
HALF OF 1997 COMPARED TO $.5 MILLION IN THE CORRESPONDING 1996 PERIOD. THE
USAGE OF CASH WAS DUE TO HIGHER LEVELS OF WORKING CAPITAL IN THE COMPANY'S
WINDOWS, DOORS AND SIDING SUBSIDIARIES.
SIGNIFICANT INVESTING ACTIVITIES IN THE FIRST QUARTER OF 1997 INCLUDE
CAPITAL EXPENDITURES OF $17.8 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 $35.9 MILLION USED PRINCIPALLY TO FINANCE THE SEASONAL WORKING
CAPITAL REQUIREMENTS AND CAPITAL EXPENDITURES OF THE COMPANY. THE COMPANY
BORROWED $2.7 MILLION TO FINANCE THE PURCHASE OF ONE OF ITS FACILITIES WHICH IT
HAD PREVIOUSLY LEASED.
THE COMPANY'S CURRENT RATIO IMPROVED TO 2.6 TO 1 AT JUNE 30, 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 $46 MILLION AT JUNE 30, 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.
10
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
JUNE 30, 1997
PART II - OTHER INFORMATION
ALL ITEMS ARE INAPPLICABLE EXCEPT:
ITEM 1. LEGAL PROCEEDINGS.
SEE NOTE 9 TO THE CONSOLIDATED FINANCIAL STATEMENTS.
ITEM 2(C)
ON JULY 24, 1997, PURSUANT TO A STOCK PURCHASE AGREEMENT BETWEEN THE
REGISTRANT AND NORTEK, INC. ("NORTEK") DATED AS OF THAT DATE, THE REGISTRANT
SOLD 640,000 SHARES OF ITS COMMON STOCK HELD IN TREASURY TO NORTEK AT A PRICE OF
$18.75 PER SHARE. THE SALE CONSTITUTED A TRANSACTION BY AN ISSUER NOT INVOLVING
A PUBLIC OFFERING IN ACCORDANCE WITH SECTION 4(2) OF THE SECURITIES ACT OF 1933,
AND WAS THEREFORE EXEMPT FROM REGISTRATION UNDER SUCH ACT.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(A) THE ANNUAL MEETING OF STOCKHOLDERS OF PLY GEM INDUSTRIES, INC. WAS HELD
ON MAY 9, 1997.
(B) THE DIRECTORS NAMED IN THE PROXY STATEMENT CONSTITUTING THE ENTIRE BOARD
OF DIRECTORS WERE ELECTED TO ONE YEAR TERMS EXPIRING IN 1998, AS FOLLOWS:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
HERBERT P. DOOSKIN 11,583,306 804,636
JOSEPH GOLDENBERG 11,587,719 805,223
ALBERT HERSH 11,575,921 812,021
WILLIAM LILLEY 11,583,411 804,531
ELIHU H. MODLIN 11,536,377 811,565
JEFFREY S. SILVERMAN 11,578,965 808,977
DANA R. SNYDER 11,583,410 808,532
</TABLE>
THE NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT FOR PLY GEM
INDUSTRIES, INC. DATED APRIL 11, 1997 WAS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO REGULATION 14A OF THE ACT AND IS INCORPORATED HEREIN BY
REFERENCE.
ITEM 5.
THE INFORMATION CONTAINED IN THE REGISTRANT'S SOLICITION/RECOMMENDATION
STATEMENT ON SCHEDULE 14D-9, AS AMENDED (THE "SCHEDULE 14D-9"), FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO THE TENDER OFFER MADE ON JULY
29, 1997 BY NTK SUB, INC., A WHOLLY OWNED SUBSIDIARY OF NORTEK, TO PURCHASE ALL
OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK, IS INCORPORATED BY REFERENCE
HEREIN.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBIT: EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
EXHIBIT 99.1 - THE AGREEMENT AND PLAN OF MERGER AMONG NORTEK,
NTK SUB, INC. AND REGISTRANT DATED AS OF JULY
24, 1997 (INCORPORATED BY REFERENCE HEREIN FROM
EXHIBIT 1 TO THE SCHEDULE 14D-9).
EXHIBIT 99.2 - THE STOCK PURCHASE AGREEMENT, DATED AS OF JULY
24, 1997, BETWEEN NORTEK AND REGISTRANT
(INCORPORATED BY REFERENCE HEREIN FROM EXHIBIT 5
TO THE SCHEDULE 14D-9).
EXHIBIT 99.3 - NON-COMPETE AND TERMINATION AGREEMENT, DATED AS
OF JULY 24, 1997, BETWEEN NORTEK, THE COMPANY
AND JEFFREY S. SILVERMAN, AS AMENDED ON JULY 25,
1997 (INCORPORATED BY REFERENCE HEREIN FROM
EXHIBIT 7 TO THE SCHEDULE 14D-9).
EXHIBIT 99.4 - TERMINATION AND RELEASE AGREEMENT, DATED AS OF
JULY 24, 1997, BETWEEN NORTEK, THE COMPANY AND
HERBERT P. DOOSKIN, AS AMENDED ON JULY 25, 1997.
(INCORPORATED BY REFERENCE HEREIN FROM EXHIBIT 8
TO THE SCHEDULE 14D-9).
EXHIBIT 99.5 - REGISTRATION RIGHTS AGREEMENT, DATED AS OF JULY
24, 1997, BETWEEN NORTEK AND THE COMPANY,
(INCORPORATED BY REFERENCE HEREIN FROM EXHIBIT 6
TO THE SCHEDULE 14D-9).
EXHIBIT 99.6 - FIRST AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, DATED AS OF JULY 24, 1997 AMONG
ATRIUM ACQUISITION CORP., ATRIUM/PG ACQUISITION
CORP., JEFFREY S. SILVERMAN, DANA R. SNYDER AND
HERBERT P. DOOSKIN, THE COMPANY, NORTEK AND
OFFEROR. (INCORPORATED BY REFERENCE HEREIN FROM
EXHIBIT 11 TO THE SCHEDULE 14D-9.)
(B) ON JUNE 25, 1997, THE COMPANY FILED A REPORT ON FORM 8K, REPORTING THAT
ON JUNE 24, 1997 THE COMPANY ENTERED INTO AN AGREEMENT AND PLAN OF MERGER
WITH ATRIUM.
11
<PAGE>
PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 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: AUGUST 8, 1997 /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
QUARTER ENDED JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding during year............. 13,827 13,827 14,179 14,179
Excess of weighted average number of
shares issuable upon exercise of
employee stock options over 20% of
shares outstanding at end
of quarter.......................... 2,759 2,759 1,923 1,923
------- ------- ------- -------
Weighted average number of shares....... 16,586 16,586 16,102 16,102
======= ======= ======= =======
Proceeds available to repay debt:
From exercise of options, including
tax benefits, at average market
price.............................. $37,772 $29,562
From exercise of options, including
tax benefits, at quarter-end -
market price....................... $33,447 $30,508
------- ------- ------- -------
$37,772 $33,447 $29,562 $30,508
------- ------- ------- -------
Interest saved, net of taxes............ 409 362 302 312
Net income as reported.................. 3,033 3,033 4,157 4,157
------- ------- ------- -------
Adjusted net income..................... $ 3,442 $ 3,395 $ 4,459 $ 4,469
======= ======= ======= =======
Per share............................... $.20 $.20 $.28 $.28
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,952
<SECURITIES> 0
<RECEIVABLES> 48,650
<ALLOWANCES> 2,713
<INVENTORY> 110,450
<CURRENT-ASSETS> 190,175
<PP&E> 170,627
<DEPRECIATION> 69,084
<TOTAL-ASSETS> 358,460
<CURRENT-LIABILITIES> 72,283
<BONDS> 120,152
0
0
<COMMON> 4,437
<OTHER-SE> 142,769
<TOTAL-LIABILITY-AND-EQUITY> 358,460
<SALES> 381,728
<TOTAL-REVENUES> 381,728
<CGS> 313,403
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 460
<INTEREST-EXPENSE> 3,649
<INCOME-PRETAX> 3,961
<INCOME-TAX> 1,981
<INCOME-CONTINUING> 1,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,980
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
