-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K2QVxdqWCbCeK2fDtJx5nNrwr2noiChOtv2r0CvoLT5KJmCp3gJPR418xL55/m2k wC0JKYAAoL/wB7X0nA4VvA== 0000940180-97-000688.txt : 19970811 0000940180-97-000688.hdr.sgml : 19970811 ACCESSION NUMBER: 0000940180-97-000688 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLY GEM INDUSTRIES INC CENTRAL INDEX KEY: 0000079209 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 111727150 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04087 FILM NUMBER: 97654426 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017-1401 BUSINESS PHONE: 2128321550 MAIL ADDRESS: STREET 1: PLY GEM INDUSTRIES INC STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017-1401 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL PLYWOOD CO INC DATE OF NAME CHANGE: 19680729 FORMER COMPANY: FORMER CONFORMED NAME: CRAFTMAN PLYWOOD CORP DATE OF NAME CHANGE: 19680212 FORMER COMPANY: FORMER CONFORMED NAME: CRAFTSMAN PLYWOOD CORP DATE OF NAME CHANGE: 19661006 10-Q 1 FORM 10-Q 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 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31, ASSETS 1997 1996 - ---------------------------------------- ------------------ ----------- (UNAUDITED) 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 ======== ========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 2 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 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA)
SIX MONTHS ENDED -------------------- JUNE 30, JUNE 30, 1997 1996 --------- --------- 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
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED ----------------------------------------- JUNE 30, JUNE 30, 1997 1996 -------------------- ------------------- 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 ======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 5 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:
(IN THOUSANDS) JUNE 30, 1997 DECEMBER 31, 1996 ------------- ----------------- FINISHED GOODS $ 61,696 $53,833 WORK IN PROCESS 13,837 9,724 RAW MATERIALS 34,917 29,426 -------- ------- $110,450 $92,983 ======== =======
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 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:
(IN THOUSANDS) JUNE 30, 1997 JUNE 30, 1996 ------------- ------------- INTEREST PAID $3,300 $3,156 INCOME TAXES PAID 1,098 387
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 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 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 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 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:
FOR WITHHELD ---------- -------- 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
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 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 EX-11 2 COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE QUARTER ENDED JUNE 30, (IN THOUSANDS)
1997 1996 ---------------- ---------------- FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED ------- ------- ------- ------- 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
1 EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 7,952 0 48,650 2,713 110,450 190,175 170,627 69,084 358,460 72,283 120,152 0 0 4,437 142,769 358,460 381,728 381,728 313,403 0 0 460 3,649 3,961 1,981 1,980 0 0 0 1,980 .14 .14
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