-----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, Gcn0dcSb0tv9uDhJcI4J4xhhOZX6ol6mFd6yck76GLIjk7UyAVkrcq0lXf8ut++v DXKSlkt7mY2PwCdwk9eXdg== 0000950130-95-002458.txt : 19951119 0000950130-95-002458.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950130-95-002458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NONE 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: 95592689 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 September 30, 1995 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 6, 1995 - --------------------------------------- ------------------------------------- Common stock, par value $.25 per share 14,574,192 Shares PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands)
September 30, December 31, ASSETS 1995 1994 - ------ ------------ ----------- (Unaudited) Cash and cash equivalents $ 2,782 $ 14,403 Marketable securities 1,791 1,813 Accounts receivable, net of allowance of $6,006; $6,353 in 1994 52,585 42,243 Inventories 100,725 103,089 Prepaid and deferred income taxes 16,178 17,426 Prepaid expenses and other current assets 7,713 6,257 -------- -------- Total current assets 181,774 185,231 Property, plant and equipment - at cost net of accumulated depreciation and amortization of $50,513; $43,846 in 1994 92,749 77,084 Patents and trademarks, net of accumulated amortization of $8,682; $7,825 in 1994 15,613 16,464 Other intangible assets - net 15,809 16,586 Cost in excess of net assets acquired - net 23,636 24,647 Other assets 27,982 25,557 -------- -------- $357,563 $345,569 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------- Accounts payable and accrued expenses $ 59,102 $ 60,840 Accrued restructuring and other 6,662 13,413 Current maturities of long-term debt and capital leases 496 480 -------- -------- Total current liabilities 66,260 74,733 Long-term debt 101,681 79,501 Capital leases 7,119 7,159 Other liabilities 22,292 22,540 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 17,449,285; 17,296,195 in 1994 4,362 4,324 Additional paid-in capital 148,624 146,967 Retained earnings 61,581 62,397 Less: Treasury stock-at cost (2,879,935 shares; 2,745,319 in 1994) 53,287 50,954 Unamortized restricted stock 1,069 1,098 -------- -------- Total stockholders' equity 160,211 161,636 -------- -------- $357,563 $345,569 ======== ========
See accompanying notes to the consolidated financial statements. 2 PLY GEM INDUSTRIES, INC., AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands Except per Share Data)
Quarter Ended ---------------------------- September 30, October 1, 1995 1994 -------------- ------------ Net sales $ 207,099 $ 218,997 Cost of goods sold 169,540 172,344 ----------- ----------- Gross profit 37,559 46,653 Selling, general and administrative expenses 30,836 30,160 Nonrecurring charges - 36,275 ----------- ----------- Income (loss) from operations 6,723 (19,782) Interest expense (1,822) (1,614) Investment and other income (expense), net (536) (81) ----------- ----------- Income (loss) before income taxes 4,365 (21,477) Income taxes (benefit) 2,089 (7,500) ----------- ----------- Net income (loss) $ 2,276 $ (13,977) =========== =========== Earnings (loss) per share: Primary $.16 $(.95) Fully diluted .16 (.95) Weighted average number of shares outstanding: Primary 14,458 14,720 Fully diluted 14,458 14,720 Cash dividends per share $.03 $.03
See accompanying notes to consolidated financial statements. 3 PLY GEM INDUSTRIES, INC., AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands Except per Share Data)
Nine Months Ended ---------------------------- September 30, October 1, 1995 1994 ----------- ----------- Net sales $ 566,905 $ 602,214 Cost of goods sold 471,147 483,005 ----------- ----------- Gross profit 95,758 119,209 Selling, general and administrative expenses 87,783 88,967 Nonrecurring charges - 36,275 ----------- ----------- Income (loss) from operations 7,975 (6,033) Interest expense (5,070) (6,026) Investment and other income (expense), net (1,516) (414) ----------- ----------- Income (loss) before income taxes 1,389 (12,473) Income taxes (benefit) 750 (3,456) ----------- ----------- Net income (loss) $ 639 $ (9,017) =========== =========== Earnings (loss) per share: Primary $ .04 $(.66) Fully diluted .04 (.66) Weighted average number of shares outstanding: Primary 14,448 13,594 Fully diluted 14,448 13,594 Cash dividends per share $ .09 $ .09
See accompanying notes to consolidated financial statements. 4 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended ----------------- September 30, October 1, 1995 1994 ---------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: - ------------------------------------- Net income (loss) $ 639 $ (9,017) Adjustments to reconcile net income (loss) to net cash used in operating activities: Nonrecurring charges $ - $ 36,275 Depreciation and amortization 10,454 10,314 Provision for doubtful accounts 1,143 1,096 Changes in assets and liabilities: Accounts receivable (11,300) (22,684) Inventories 1,788 (11,145) Prepaid expenses and other current assets (208) (16,680) Accounts payable and accrued expenses (1,738) 6,999 Restructuring (8,386) - Other (1,803) (10,050) 910 5,085 -------- -------- -------- -------- Net cash used in operating activities (9,411) (3,932) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------- Additions to property, plant and equipment (23,256) (14,648) Other 951 2,390 -------- -------- Net cash used in investing activities (22,305) (12,258) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: - ------------------------------------- Purchase of treasury shares (2,190) - Long-term borrowings 22,361 19,834 Repayments of long-term debt (205) (2,925) Cash dividends (1,309) (1,222) Other 1,438 (1,875) -------- -------- Net cash provided by financing activities 20,095 13,812 -------- -------- Net decrease in cash and cash equivalents (11,621) (2,378) Cash and cash equivalents at beginning of period 14,403 12,499 -------- -------- Cash and cash equivalents at end of period $ 2,782 $ 10,121 ======== ========
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. The Company revised the statement of operations reporting format to include amortization expense relating to intangible assets as a selling, general and administrative expense. Previously such amortization had been reported as a separate expense caption after income from operations. In addition, certain other prior year items have been reclassified to conform to the 1995 presentation. These statements include all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of financial position and results of operations. The financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the latest annual report on Form 10-K. In 1994 the Company modified its interim fiscal reporting periods. Each period will end on the Saturday nearest to the end of the respective calendar quarters for March, June and September. This change will have no effect on the annual reporting period which will continue to end on December 31. 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:
(In Thousands) Balance at 1995 December 31, Net Balance at 1994 Activity September 30, 1995 ------------ -------- ------------------ Consolidation and closure of facilities, including severance and related costs $15,100 $ 6,200 $ 8,900 Other severance and related costs 3,900 1,800 2,100 Abandonment of certain information systems 1,300 1,300 - Other, including lease termination expenses and costs to execute the restructuring program 2,000 1,600 400 ------- ------- ------- $22,300 $10,900 $11,400* ======= ======= =======
* The following amounts are included in the consolidated balance sheet at September 30, 1995 under the captions: "accrued restructuring and other" ($6.0 million), "other liabilities" ($3.3 million), property, plant and equipment" (reduction of $1.4 million), inventory (reduction of $.1 million), "accounts receivable" (reduction of $.5 million) and various other asset accounts (reduction of $.1 milion). The Company has completed the consolidation or closure of six facilities since the inception of the program. During the third quarter of 1995, the Company wrote-off additional discontinued products and announced the closure of an administrative office. These items were not included in the original nonrecurring/restructuring charge recorded in 1994. Based on current estimates, existing accruals are adequate to cover the above items because the estimated cost to implement certain strategies was reduced or the initiatives were cancelled. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion. 6 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 -The major classes of inventories were as follows:
(In Thousands) September 30, 1995 December 31, 1994 ------------------- ----------------- Finished goods $ 51,024 $ 52,390 Work in process 13,669 18,002 Raw materials 36,032 32,697 -------- -------- $100,725 $103,089 ======== ========
NOTE 4 - Earnings (loss) per share of common stock are computed by dividing net earnings (loss) by the weighted average number of common shares outstanding. Stock options have been excluded from the calculations for the quarter and nine month periods ended September 30, 1995 and 1994 as their effect would be anti- dilutive. NOTE 5 - Supplemental cash flow information for the nine month periods are as follows:
(In Thousands) September 30, 1995 October 1, 1994 ------------------ --------------- Interest paid $4,632 $3,617 Income taxes paid 797 2,707
NOTE 6 - The accumulated amortization of cost in excess of net assets acquired and other intangibles is $24,481,000 September 30, 1995 and $22,975,000 at December 31, 1994. NOTE 7 - During the third quarter of 1995, the Board of Directors amended 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 September 30, 1995 the maximum amount payable would be approximately $6 million. Under the previous plan the maximum amount payable would have been approximately $14 million at December 31, 1994. NOTE 8 - The Company's loan agreements with its banks require a specified leverage ratio, fixed charge ratio and tangible net worth levels as well as the maintenance of certain other financial ratios, among its provisions. Under the most restrictive of these covenants, at September 30, 1995 approximately $1,600,000 of retained earnings was available for the payment of dividends in 1995. NOTE 9 - Hoover Treated Wood Products, Inc. ("Hoover"), a wholly-owned subsidiary of the Company, is a defendant, along with many other parties, in a number of commercial lawsuits, including a purported class action on behalf of certain Maryland homeowners, alleging property damage caused by alleged defects in certain pressure treated interior wood products. Hoover has not manufactured or sold these products since August 1988. The Company is also a defendant in some of these suits. The number of lawsuits pending, as of September 30, 1995, as well as the number of lawsuits filed since 1993, have declined significantly from earlier periods. 7 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 9 - (Continued) - Most of the suits and claims have been resolved by dismissal or settlement. In those suits that remain pending, direct defense costs are being paid out of insurance proceeds. Two actions have proceeded to trial against Hoover and resulted in jury verdicts against it. In one of these actions, judgment was entered in Hoover's favor by the court after a jury verdict against it and the plaintiff's petition to appeal the judgment entered in Hoover's favor was denied. In the other case, the judgment against Hoover was vacated and the case was settled with proceeds from insurance settlements. Hoover and the Company have engaged in litigation with some of their insurers regarding coverage for these lawsuits and claims. Hoover has settled its coverage claims with a majority of its insurers and is negotiating settlements with others. Hoover and the Company believe they have meritorious claims for coverage from their remaining unsettled insurers and are seeking declaratory judgments confirming such coverage. The proceeds from settled insurance claims, along with the proceeds from a settlement of claims by Hoover against certain suppliers of materials used by it in the production of treated wood, are available for the settlement of the underlying property damage actions, including the jury verdict now on appeal. The Company believes that Hoover's remaining coverage disputes will be resolved within the next two years on a satisfactory basis and a substantial amount of additional coverage will be available to Hoover. In reaching this belief, it has analyzed Hoover's insurance coverage, considered its history of successful settlements with primary and excess insurers and consulted with counsel. Hoover and the Company are vigorously defending the underlying lawsuits which cannot be resolved on a reasonable basis and believe that they have meritorious defenses to those suits including, in the case of the Company, the defense that it has been improperly joined, as it did not manufacture or market the Hoover products at issue, and is not legally liable for the damage allegedly caused by them. Hoover has recorded a receivable at September 30, 1995 (included in other assets) for approximately $12.7 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. In evaluating the effect of the lawsuits, a number of factors have been considered, including: the number and exposure posed by the pending lawsuits; the significant decline in the number of lawsuits filed since 1993 and to date; the availability of various legal defenses, including statutes of limitations; the existence of settlement protocols; an agreement indemnifying Hoover as to certain past and future claims; and Hoover's experience to date in settling with its insurance companies and the likely availability of proceeds from additional insurance. Based on its evaluation, the Company believes that the ultimate resolution of the lawsuits and the insurance claims will not have a material adverse effect upon the financial position of the Company. 8 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, 1995 Results of Operations - --------------------- Net sales for the third quarter of 1995 totaled $207.1 million, a decrease of 5.4% over the same period in 1994. For the nine months ended September 30, 1995, net sales declined from $602.2 million to $566.9 million or 5.9% from the comparison period in 1994. The primary cause of the decline in sales was the Company's planned exit or de-emphasis of certain low margin products. Excluding these products, net sales were essentially even for the 1995 comparison periods. The Company's Windows, Doors and Siding businesses experienced a 7.5% increase in sales for the quarterly comparison periods. This increase was largely offset by lower dollar sales volume at the Company's Specialty Wood businesses which continue to the impacted by low lumber prices and lower volume at the Company's Distribution businesses. Gross profit, expressed as a percentage of sales, was 18.1% in the third quarter of 1995 compared with 21.3% for the same 1994 period. For the first nine months of 1995 gross profit was 16.9% as compared to 19.8% for the first nine months of 1994. The 1995 gross margins have been impacted by higher conversion costs, including costs related to the restructuring program such as training and moving costs, and new product manufacturing start-up costs. In addition, higher commodity costs, particularly PVC resin and glass had a negative impact on gross margins, as did declining lumber prices in the Company's Specialty Wood businesses. Selling, general and administrative expenses, as a percentage of sales, was 14.9% in the third quarter of 1995 compared with 13.8% for the same 1994 period. For the first nine months of 1995 selling, general and administrative expenses were 15.5% as compared to 14.8% for the first nine months of 1994. The increase is primarily due to the absorption of such expenses over lower sales levels. As reported selling, general and administrative expenses were essentially even for the comparison periods. Interest expense declined approximately $1.0 million for the first nine months of 1995 when compared to the first nine months of 1994 and was approximately the same for the quarterly comparison periods. Lower interest expense for the first nine months of 1995 resulted primarily from the conversion of the Company's 10% debentures into common stock on March 25, 1994. Investment and other income expense, net was $1.5 million for the nine months ended September 30, 1995 compared to $.4 million for the same period a year ago. The increase is primarily due to higher accounts receivable program costs due to an increase in the amount of receivables sold under this program. The Company's effective tax rate in the third quarter of 1995 was 47.9%, which compares with 34.9% in the third quarter of 1994. The effective tax rate for first nine months of 1995 and 1994 was 54.0% and 27.7%, respectively. The lower effective tax rates for the 1994 periods, which were used to compute the tax benefit on the losses of those periods, are primarily due the higher proportion of non-deductible amortization of goodwill to loss before income taxes and to certain state tax benefits related to the nonrecurring charge, which in accordance with the criteria set forth in Financial Accounting Standards Board Statement No. 109, were not recognized. The higher effective tax rates for the 1995 periods are affected by the higher proportion of non- deductible amortization of goodwill as compared to income before taxes. Furthermore, both nine month periods reflect revisions to the estimated annual rate which is expected to be applicable for the year. 9 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, 1995 Results of Operations (Continued) - --------------------------------- During 1994 the Company commenced a restructuring program designed to improve its cost structure primarily through facilities consolidations and closures, abandonment of certain information systems and workforce reductions and accrued $29.1 million for these planned actions. Implementation of several initiatives included in the restructuring program have been delayed or have resulted in higher costs than originally anticipated. As a result the Company does not expect to realize the majority of the savings from full implementation of the restructuring program until 1996 and thereafter. As previously disclosed, however, there can be no assurance that the Company will realize any significant future savings. As a result of the aforementioned factors, the Company experienced lower levels of operating and net income for the quarterly and nine month comparison periods. The Company is taking a number of steps to improve operating results in the balance of 1995 and beyond. These actions include: implementation of a new information system at the Company's window businesses; aggressive procurement initiatives, particularly with regard to PVC resin and glass; elimination of costly consulting fees; reduction of administrative expenses; and the creation and implementation of new employee productivity programs. As a result of the actions outlined above, the Company believes that operating results for the next twelve months will show improvement from the comparison period. Liquidity and Capital Resources - ------------------------------- The Company used $9.4 million in cash from operations during the first nine months of 1995 principally as a result of costs related to restructuring activities. Significant investing activities during the first nine months of 1995 include capital expenditures of $23.3 million primarily incurred in the Company's Windows, Doors and Siding subsidiaries and costs associated with the Company's new information system. Significant financing activities in the first nine months of 1995 related to the net increase in revolving credit borrowings of $22.4 million used principally to finance the working capital and capital expenditures of the Company. The Company's current ratio improved to 2.7 to 1 at September 30, 1995 compared to 2.5 at December 31, 1994. 10 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, 1995 Liquidity and Capital Resources (Continued) - ------------------------------------------- The Company has a revolving credit facility with a syndicate of twelve banks which provides financing through February 1999. Availability under this facility was approximately $55 million at September 30, 1995. 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. 11 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES September 30, 1995 PART II - OTHER INFORMATION All items are inapplicable except: Item 1. Legal Proceedings. See Note 9 to the consolidated financial statements. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Reports - Dated August 2, 1995, reporting that the Company engaged the investment banking firm of Bear, Stearns & Co. Inc. to explore strategic alternatives for the Company with the intent of maximizing shareholder value, including the possible sale of the Company. The Company does not expect to disclose developments with respect to its exploration of strategic alternatives unless and until it is in a position to announce a definitive transaction. Furthermore, no assurances can be given that the process will result in any specific transaction. 12 PLY GEM INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q September 30, 1995 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 14, 1995 /s/ Herbert P. Dooskin ------------------ ----------------------------- Executive Vice President Principal Financial Officer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1995 JAN-01-1994 SEP-30-1995 2,782 1,791 58,591 6,006 100,725 181,774 143,262 50,513 357,563 66,260 108,800 4,362 0 0 155,849 357,563 566,905 566,905 471,147 471,147 0 1,143 5,070 1,389 750 639 0 0 0 639 .04 .04
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