Attached files
file | filename |
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EX-4.1 - SECOND AMENDMENT TO CREDIT AGREEMENT - PLY GEM HOLDINGS INC | exhibit4-1.htm |
EX-31.2 - POE 302 CERTIFICATION - PLY GEM HOLDINGS INC | exhibit31-2.htm |
EX-31.1 - ROBINETTE 302 CERTIFICATION - PLY GEM HOLDINGS INC | exhibit31-1.htm |
UNITED
STATES
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 October 3,
2009
|
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: 333-114041
PLY
GEM HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
3089
|
20-0645710
|
(State
or other jurisdiction of incorporation or organization)
|
(Primary
Standard Industrial Classification Code Number)
|
(I.R.S.
Employer Identification No.)
|
5020
Weston Parkway, Suite 400
Cary,
North Carolina 27513
Registrant's telephone number,
including area code: 919-677-3900
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 ¨ No x*
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes [ ] No [ ]
Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated
filer ¨
Non-accelerated filer x
Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
As of
November 13, 2009, there were 100 shares of common stock, $0.01 par value,
outstanding.
* The
registrant is not required to file this Quarterly Report on Form 10-Q or other
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
but has filed all reports during the preceding 12 months that would have been
required pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. The filing is required, however, pursuant to the terms of the
indenture governing Ply Gem Industries, Inc.’s 11.75% senior secured notes due
2013.
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
FORM
10-Q
QUARTERLY
PERIOD ENDED OCTOBER 3, 2009
CONTENTS
PART
I – FINANCIAL INFORMATION
Item
1.
|
Condensed
Consolidated Financial Statements
|
|
Condensed
Consolidated Statements of Operations –
|
||
Three months ended October 3, 2009 and September 27, 2008
|
2
|
|
Condensed
Consolidated Statements of Operations –
|
||
Nine months ended October 3, 2009 and September 27, 2008
|
3
|
|
Condensed
Consolidated Balance Sheets –
|
||
October 3, 2009 and December 31, 2008 |
4
|
|
Condensed
Consolidated Statements of Cash Flows –
|
||
Nine months ended October 3, 2009 and September 27, 2008 |
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
6 | |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
|
And Results of Operations |
34
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
48 |
Item
4.
|
Controls
and Procedures
|
49 |
PART
II – OTHER INFORMATION
|
||
Item
1A.
|
Risk
Factors
|
50 |
Item
6.
|
Exhibits
|
50 |
Signatures
|
|
51 |
1
PART
I - FINANCIAL INFORMATION
Item
1. FINANCIAL
STATEMENTS
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For
the three months ended
|
||||||||
October
3,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Net
sales
|
$ | 293,469 | $ | 342,825 | ||||
Costs
and expenses:
|
||||||||
Cost
of products sold
|
216,091 | 277,437 | ||||||
Selling,
general and administrative expenses
|
33,482 | 36,958 | ||||||
Amortization
of intangible assets
|
4,916 | 4,913 | ||||||
Goodwill
impairment
|
- | 200,000 | ||||||
Total
costs and expenses
|
254,489 | 519,308 | ||||||
Operating
earnings (loss)
|
38,980 | (176,483 | ) | |||||
Foreign
currency gain (loss)
|
242 | (60 | ) | |||||
Interest
expense
|
(32,609 | ) | (30,300 | ) | ||||
Interest
income
|
32 | 176 | ||||||
Income
(loss) before benefit for income taxes
|
6,645 | (206,667 | ) | |||||
Provision
(benefit) for income taxes
|
2,260 | (15,835 | ) | |||||
Net
income (loss)
|
$ | 4,385 | $ | (190,832 | ) |
See
accompanying notes to condensed consolidated financial statements.
2
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For
the nine months ended
|
||||||||
October
3,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Net
sales
|
$ | 736,796 | $ | 940,478 | ||||
Costs
and expenses:
|
||||||||
Cost
of products sold
|
583,613 | 776,244 | ||||||
Selling,
general and administrative expenses
|
110,452 | 119,389 | ||||||
Amortization
of intangible assets
|
14,734 | 14,739 | ||||||
Goodwill
impairment
|
- | 200,000 | ||||||
Total
costs and expenses
|
708,799 | 1,110,372 | ||||||
Operating
earnings (loss)
|
27,997 | (169,894 | ) | |||||
Foreign
currency gain (loss)
|
84 | (555 | ) | |||||
Interest
expense
|
(99,489 | ) | (104,439 | ) | ||||
Interest
income
|
180 | 486 | ||||||
Loss
before benefit for income taxes
|
(71,228 | ) | (274,402 | ) | ||||
Benefit
for income taxes
|
(12,096 | ) | (42,235 | ) | ||||
Net
loss
|
$ | (59,132 | ) | $ | (232,167 | ) |
See
accompanying notes to condensed consolidated financial statements.
3
October
3,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Amounts
in thousands, except share amounts)
|
||||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 39,767 | $ | 58,289 | ||||
Accounts
receivable, less allowances of $6,195 and $6,405,
respectively
|
149,541 | 90,527 | ||||||
Inventories:
|
||||||||
Raw
materials
|
40,442 | 53,060 | ||||||
Work
in process
|
20,197 | 28,085 | ||||||
Finished
goods
|
34,549 | 42,267 | ||||||
Total
inventory
|
95,188 | 123,412 | ||||||
Prepaid
expenses and other current assets
|
21,811 | 19,985 | ||||||
Deferred
income taxes
|
- | 16,867 | ||||||
Total
current assets
|
306,307 | 309,080 | ||||||
Property
and Equipment, at cost:
|
||||||||
Land
|
3,727 | 3,709 | ||||||
Buildings
and improvements
|
35,517 | 35,206 | ||||||
Machinery
and equipment
|
259,043 | 253,290 | ||||||
Total
property and equipment
|
298,287 | 292,205 | ||||||
Less
accumulated depreciation
|
(149,876 | ) | (122,194 | ) | ||||
Total
property and equipment, net
|
148,411 | 170,011 | ||||||
Other
Assets:
|
||||||||
Intangible
assets, less accumulated amortization of $79,222 and
$64,488,
|
||||||||
respectively
|
178,980 | 193,604 | ||||||
Goodwill
|
392,532 | 390,779 | ||||||
Deferred
income taxes
|
2,686 | - | ||||||
Other
|
37,529 | 40,579 | ||||||
Total
other assets
|
611,727 | 624,962 | ||||||
$ | 1,066,445 | $ | 1,104,053 | |||||
LIABILITIES
AND STOCKHOLDER'S EQUITY (DEFICIT)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 71,413 | $ | 59,603 | ||||
Accrued
expenses and taxes
|
101,630 | 76,304 | ||||||
Total
current liabilities
|
173,043 | 135,907 | ||||||
Deferred
income taxes
|
2,739 | 28,355 | ||||||
Other
long-term liabilities
|
69,102 | 68,233 | ||||||
Long-term debt due to related parties | 234,707 | - | ||||||
Long-term
debt
|
885,236 | 1,114,186 | ||||||
Commitments
and contingencies
|
||||||||
Stockholder's
Equity (Deficit):
|
||||||||
Preferred
stock $0.01 par, 100 shares authorized, none issued and
outstanding
|
- | - | ||||||
Common
stock $0.01 par, 100 shares authorized, issued and
outstanding
|
- | - | ||||||
Additional
paid-in-capital
|
209,933 | 209,908 | ||||||
Accumulated
deficit
|
(506,125 | ) | (446,993 | ) | ||||
Accumulated
other comprehensive loss, net of tax
|
(2,190 | ) | (5,543 | ) | ||||
Total
stockholder's deficit
|
(298,382 | ) | (242,628 | ) | ||||
$ | 1,066,445 | $ | 1,104,053 |
See
accompanying notes to condensed consolidated financial statements.
4
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the nine months ended
|
||||||||
October
3,
|
September
27,
|
|||||||
2009
|
2008
|
|||||||
(Amounts in thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (59,132 | ) | $ | (232,167 | ) | ||
Adjustments
to reconcile net loss to cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
and amortization expense
|
42,269 | 47,235 | ||||||
Non-cash
interest expense, net
|
6,368 | 5,141 | ||||||
Loss
(gain) on foreign currency transactions
|
(84 | ) | 555 | |||||
Goodwill
impairment
|
- | 200,000 | ||||||
(Gain)
loss on sale of assets
|
(6 | ) | 844 | |||||
Write-off
of debt financing costs
|
- | 14,047 | ||||||
Deferred
income taxes
|
(11,105 | ) | (45,319 | ) | ||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable, net
|
(57,798 | ) | (58,387 | ) | ||||
Inventories
|
29,111 | (5,143 | ) | |||||
Prepaid
expenses and other current assets
|
(2,230 | ) | 948 | |||||
Accounts
payable
|
11,304 | 19,406 | ||||||
Accrued
expenses and taxes
|
29,656 | 5,617 | ||||||
Cash
payments on restructuring liabilities
|
(5,274 | ) | (6,803 | ) | ||||
Other
|
(201 | ) | 66 | |||||
Net
cash used in operating activities
|
(17,122 | ) | (53,960 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(5,546 | ) | (13,516 | ) | ||||
Proceeds
from sale of assets
|
78 | 8,812 | ||||||
Other
|
(109 | ) | (127 | ) | ||||
Net
cash used in investing activities
|
(5,577 | ) | (4,831 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from long-term debt
|
- | 693,504 | ||||||
Net
revolver borrowings
|
5,000 | - | ||||||
Payments
on long-term debt
|
- | (677,910 | ) | |||||
Debt
issuance costs paid
|
(1,215 | ) | (26,025 | ) | ||||
Equity
contributions
|
- | 30,310 | ||||||
Equity
repurchases
|
- | (793 | ) | |||||
Net
cash provided by financing activities
|
3,785 | 19,086 | ||||||
Impact
of exchange rate movements on cash
|
392 | (215 | ) | |||||
Net
decrease in cash and cash equivalents
|
(18,522 | ) | (39,920 | ) | ||||
Cash
and cash equivalents at the beginning of the period
|
58,289 | 52,053 | ||||||
Cash
and cash equivalents at the end of the period
|
$ | 39,767 | $ | 12,133 |
See
accompanying notes to condensed consolidated financial statements.
5
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of Ply Gem
Holdings, Inc. and its subsidiaries (referred to herein as “Ply Gem Holdings”,
“Ply Gem”, the “Company”, “we”, “us”, or “our”) have been prepared in accordance
with U.S. generally accepted accounting principles as described in the
consolidated financial statements and related notes included in our 2008 Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
30, 2009. These statements do not include all of the information and
footnotes required by U.S. generally accepted accounting principles and should
be read in conjunction with our 2008 Annual Report on Form 10-K. In
management’s opinion, all normal and recurring adjustments considered necessary
for a fair presentation have been included. Operating results for the
period from January 1, 2009 through October 3, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009.
The
condensed consolidated balance sheet at December 31, 2008 has been derived from
the audited consolidated financial statements of Ply Gem Holdings at that date,
but does not include all of the information and footnotes required by U.S.
generally accepted accounting principles for complete financial
statements.
The
Company’s fiscal quarters are based on periods ending on the last Saturday of
the last week in the quarter. Therefore, the financial results of
certain fiscal quarters will not be comparable to the prior and subsequent
fiscal quarters. The accompanying financial statements include the
Company’s condensed consolidated statements of operations for the three month
and nine month periods ended October 3, 2009 and September 27, 2008, the
condensed consolidated statements of cash flows for the nine month periods ended
October 3, 2009 and September 27, 2008, and the condensed consolidated balance
sheets for the Company as of October 3, 2009 and December 31, 2008.
Ply Gem
is a diversified manufacturer of residential and commercial building products,
which are sold primarily in the United States and Canada, and include a wide
variety of products for the residential and commercial construction, the
do-it-yourself and the professional remodeling and renovation markets.
The
demand for our products is seasonal, particularly in the Northeast and Midwest
regions of the United States and Western Canada, where inclement weather during
the winter months usually reduces the level of building and remodeling activity
in both the home repair and remodeling and new home construction
sectors. Our sales are usually lower during the first and fourth
quarters. As a result, the Company has historically had lower profits
or increased losses in the first quarter and reduced profits in the fourth
quarter of each calendar year due to seasonality and the weather. Our
results of operations for future quarters may be impacted by adverse weather
conditions. Since a portion of our manufacturing overhead and operating expenses
are relatively fixed throughout the year, operating income and net earnings tend
to be lower in quarters with lower sales levels. In addition, the
demand for cash to fund our working capital is greater from late in the fourth
quarter through the first quarter.
To a
significant extent our performance is dependent upon the levels of home repair
and remodeling and new home construction spending, all of which are affected by
such factors as interest rates, inflation, consumer confidence, unemployment,
and availability of consumer credit.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of Ply Gem
Holdings and its subsidiaries, all of which are wholly owned. All
intercompany accounts and transactions have been eliminated. The
Company has evaluated all subsequent events through the date that these
condensed consolidated financial statements were issued.
6
Reclassifications
Certain
amounts in the prior fiscal year have been reclassified to conform to the
presentation adopted in the current fiscal year with no effect on
net income (loss) or accumulated deficit.
Accounting
Policies and Use of Estimates
The
preparation of these condensed consolidated financial statements in conformity
with U.S. generally accepted accounting principles involves estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expense during the reporting
periods. Certain of the Company’s accounting policies require the
application of judgment in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to
an inherent degree of uncertainty. The Company periodically evaluates
the judgments and estimates used in their critical accounting policies to ensure
that such judgments and estimates are reasonable. Such estimates
include the allowance for doubtful accounts receivable, valuation reserve for
inventories, warranty reserves, legal contingencies, assumptions used in the
calculation of income taxes, and projected cash flows used in the goodwill and
intangible asset impairment tests. These judgments are based on the
Company’s historical experience, current trends and information available from
other sources, and are based on management’s best estimates and
judgments. The Company adjusts such estimates and assumptions when
facts and circumstances dictate. Illiquid credit markets, volatile
equity, foreign currency, and the depressed housing and remodeling market have
combined to increase the uncertainty inherent in such estimates and
assumptions. If different conditions result from those assumptions
used in the Company’s judgments, actual results could be materially different
from the Company’s estimates.
Inventories
Inventories
in the accompanying condensed consolidated balance sheets are valued at the
lower of cost or market. During the year ended December 31, 2008, the Company
elected to conform its method of valuing its inventory to the FIFO method from
the LIFO method for a portion of its inventory. The change in
accounting method occurred following the consolidation of the LIFO inventory
into another location that uses the FIFO method of accounting. The
Company determined that the impact of this change on 2008 interim periods was
not significant.
The
Company records provisions, as appropriate, to write-down obsolete and excess
inventory to estimated net realizable value. The process for
evaluating obsolete and excess inventory often requires the Company to make
subjective judgments and estimates concerning future sales levels, quantities
and prices at which such inventory will be sold in the normal course of
business. Accelerating the disposal process or incorrect estimates of
future sales may cause actual results to differ from estimates at the time such
inventory is disposed or sold. As of October
3, 2009, the Company had inventory purchase commitments of approximately $0.8
million.
Intangible Assets, Goodwill and other Long-lived
Assets
The
Company records impairment losses on long-lived assets including property, plant
and equipment and intangible assets when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts. The
Company evaluates impairment at the lowest level of identifiable cash flows
which are “U.S. Windows”, “Canadian Windows and Doors”, and
“Siding”. This is one level below the segment reporting unit level of
“Windows and Doors” and “Siding, Fencing, and Stone”. From an
economic standpoint, these levels represent the lowest level of reliable
information that is prepared and reviewed by executive management on a
consistent basis. There were no indicators of impairment at October
3, 2009. As of September 27, 2008 and December 31, 2008, the Company
determined that the historic decline in the U.S. housing market required a
re-evaluation of the Company’s forecasts. The Company’s revised
forecasts reflected reduced undiscounted cash flow projections for the affected
asset groups, which were believed to be indicative of a significant adverse
change in the business climate that could affect the value of the long-lived
asset groups. The Company tested for impairment using the “step one”
test for asset groups held and used, and determined that further impairment
testing of the fair value of the asset group (under “step two”) was not
necessary at September 27, 2008 and December 31, 2008 because the undiscounted
cash flows exceeded the carrying values of the long-lived assets of the
respective reporting units.
The
Company tests goodwill for impairment on an annual basis and between annual
tests in certain circumstances using a two-step process. The first
step is to compare the fair value of the reporting unit (“Windows and Doors” and
“Siding, Fencing, and Stone”) to the carrying value of the reporting
unit. If the carrying value exceeds the fair value, a second step
must be followed to calculate the impairment. The second step
involves calculating the fair value of the individual assets and liabilities of
the reporting unit and calculating the implied fair value of the
goodwill. See Note 3 to the condensed consolidated financial
statements for impairment calculations for the three and nine months ended
September 27, 2008.
7
Debt
Issuance Costs
Debt
issuance costs, composed of facility, agency, and certain legal fees associated
with acquiring new debt financing, are amortized over the contractual term of
the related agreement using the effective interest method. Debt
issuance costs, net of accumulated amortization, were approximately $29.1
million and $32.5 million at October 3, 2009 and December 31, 2008,
respectively, and have been recorded in other long term assets in the
accompanying condensed consolidated balance sheets.
Foreign
Currency
The
Company’s Canadian subsidiary, CWD Windows and Doors, Inc. (“CWD”), utilizes the
Canadian dollar as its functional currency. For reporting purposes,
the Company translates the assets and liabilities of its foreign entity at the
exchange rates in effect at the end of the reporting periods. Net
sales and expenses are translated using average exchange rates in effect during
the periods. Gains and losses from foreign currency translation are
credited or charged to accumulated other comprehensive income (loss) in the
accompanying condensed consolidated balance sheets.
For the
three month periods ended October 3, 2009 and September 27, 2008, the Company
recorded a gain from foreign currency transactions of approximately $0.2 million
and a loss from foreign currency transactions of approximately $0.1 million,
respectively. For the nine month periods ended October 3, 2009 and September 27,
2008, the Company recorded a gain from foreign currency transactions of
approximately $0.1 million and a loss from foreign currency transactions of
approximately $0.6 million, respectively. As of October 3, 2009, and
December 31, 2008, accumulated other comprehensive income (loss) included a
currency translation adjustment of approximately $2.8 million and $(0.6)
million, respectively.
Concentration
of Credit Risk
The
accounts receivable balance related to one customer of the Siding, Fencing and
Stone segment was approximately $10.3 million and $5.8 million at October 3,
2009 and December 31, 2008, respectively. This customer accounted for
approximately 9.9% of net sales for the nine month period ended October 3, 2009
and 10.2% of net sales for the nine months ended September 27,
2008.
Fair
Value Measurement
The
Company adopted the fair value accounting standard during the first quarter of
2008. The accounting standard for fair value provides guidance for
measuring fair value and requires certain disclosures. This standard does not
require any new fair value measurements, but rather applies to all other
accounting pronouncements that require or permit fair value measurements. This
standard does not apply to measurements related to share-based payments,
nor does it apply to measurements related to inventory.
The
accounting standard for fair value discusses valuation techniques, such as the
market approach (comparable market prices), the income approach (present value
of future income or cash flows), and the cost approach (cost to replace the
service capacity of an asset or replacement cost). The statement utilizes a fair
value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels. The following is a brief description
of those three levels:
·
|
Level 1:
Observable inputs such as quoted prices (unadjusted) in active markets for
identical assets or liabilities.
|
·
|
Level 2:
Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for
similar assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not
active.
|
·
|
Level 3:
Observable inputs that reflect the reporting entity’s own
assumptions.
|
The
hierarchy requires the use of observable market data, when available, and to
minimize the use of unobservable inputs when determining fair
value. The Company’s population of recurring financial assets and
liabilities subject to fair value measurements and the necessary disclosures are
as follows:
8
Quoted
Prices
|
Significant Other | |||||||||||||||||||
in
Active Markets
|
Significant
|
|||||||||||||||||||
for
identical
|
Observable
|
Unobservable
|
||||||||||||||||||
Carrying
|
Assets
|
Inputs
|
Inputs
|
|||||||||||||||||
Description
|
Value
|
Total
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||||
Assets:
|
||||||||||||||||||||
Money
market funds
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Liabilities:
|
||||||||||||||||||||
Senior
Subordinated Notes-9%
|
$ | 360,000 | $ | 198,000 | $ | 198,000 | $ | - | $ | - | ||||||||||
Senior
Secured Notes-11.75%
|
700,000 | 621,250 | 621,250 | - | - | |||||||||||||||
As
of October 3, 2009
|
$ | 1,060,000 | $ | 819,250 | $ | 819,250 | $ | - | $ | - | ||||||||||
Assets:
|
||||||||||||||||||||
Money
market funds
|
$ | 29,197 | $ | 29,197 | $ | 29,197 | $ | - | $ | - | ||||||||||
Liabilities:
|
||||||||||||||||||||
Senior
Subordinated Notes-9%
|
$ | 360,000 | $ | 86,400 | $ | 86,400 | $ | - | $ | - | ||||||||||
Senior
Secured Notes-11.75%
|
700,000 | 378,000 | 378,000 | - | - | |||||||||||||||
As
of December 31, 2008
|
$ | 1,060,000 | $ | 464,400 | $ | 464,400 | $ | - | $ | - | ||||||||||
The fair
value of the long-term debt instruments was determined by utilizing available
market information. The carrying value of the Company’s other
financial instruments approximates their fair value.
In
accordance with the fair value accounting standard, certain non-financial assets
and non-financial liabilities measured at fair value on a recurring basis
include reporting units measured at fair value in the first step of a goodwill
impairment test. Certain non-financial assets and non-financial
liabilities measured at fair value on a non-recurring basis include
non-financial assets and non-financial liabilities measured at fair value in the
second step of a goodwill impairment test, as well as intangible assets and
other non-financial long-lived assets measured at fair value for impairment
assessment.
New
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
authoritative guidance to affirm that the acquisition method of accounting
(previously referred to as the purchase method) be used for all business
combinations and for an acquirer to be identified for each business
combination. This guidance requires an acquirer to recognize
the assets acquired, the liabilities assumed, contingent consideration and any
noncontrolling interest in the acquiree at the acquisition date to be measured
at their fair values as of that date. It further requires that
acquisition-related costs be recognized separately from the acquisition and
expensed as incurred; that restructuring costs generally be expensed in periods
subsequent to the acquisition date; and that changes in accounting for deferred
tax asset valuation allowances and acquired income tax uncertainties after the
measurement period be recognized as a component of the provision for income
taxes. This guidance is effective for the Company’s fiscal year beginning
January 1, 2009, and is to be applied prospectively. The impact to the
Company will depend on future acquisition activity.
In
December 2008, the FASB issued authoritative guidance to require employers
to provide additional disclosures about plan assets of a defined benefit pension
or other post-retirement plan. The objective of this guidance is to
provide users of financial statements with an understanding of how investment
allocation decisions are made, the major categories of plan assets held by the
plans, the inputs and valuation techniques used to measure the fair value of
plan assets, significant concentration of risk within the Company’s plan assets,
and for fair value measurements determined using significant unobservable inputs
a reconciliation of changes between the beginning and ending balances. This
guidance is effective for fiscal years ending after December 15, 2009. The
Company will adopt the new disclosure requirements in the 2009 annual reporting
period.
In
January 2009, the FASB issued authoritative guidance on disclosures about
derivative instruments and hedging activities. This guidance required
qualitative disclosures about the objectives and strategies for using
derivatives, quantitative data about the fair value of and gains and losses on
derivative contracts, and details of credit-risk-related contingent features in
hedged positions. This guidance also requires enhanced disclosure regarding
derivative instruments in financial statements and how hedges affect an entity’s
financial position, financial performance and cash flows. The adoption of this
guidance did not have any impact on the Company’s condensed consolidated
financial statements.
9
In
April 2009, the FASB issued authoritative guidance on determining fair
value when the volume and level of activity for an asset or liability has
significantly decreased and identifying transactions that are not
orderly. This guidance clarifies the methodology used to determine
fair value when there is no active market or where the price inputs being used
represent distressed sales. This guidance also reaffirms the objective of fair
value measurement, as stated in authoritative guidance for fair value
measurements, which is to reflect how much an asset would be sold for in an
orderly transaction. It also reaffirms the need to use judgment to determine if
a formerly active market has become inactive, as well as to determine fair
values when markets have become inactive. This guidance is effective for
financial statement purposes for interim and annual financial statements issued
for fiscal periods ended after June 15, 2009. The Company adopted the
provisions of this guidance effective April 2009 and the adoption did not
have a material impact on the Company’s condensed consolidated financial
statements.
In
April 2009, the FASB issued authoritative guidance for interim disclosures
about fair value of financial instruments, which requires fair value disclosures
for financial instruments that are not reflected in the condensed consolidated
balance sheets at fair value. Prior to the issuance of this guidance, the fair
values of those assets and liabilities were disclosed only once each year. This
guidance requires the Company to disclose this information on a quarterly basis
and provide quantitative and qualitative information about fair value estimates
for all financial instruments not measured in the condensed consolidated balance
sheets at fair value. This guidance was effective in the quarter
ended July 4, 2009, and the adoption of these standards did not have a material
impact on the Company’s condensed consolidated financial
statements.
In April
2009, the FASB issued authoritative guidance on the determination of the useful
life of intangible assets. This guidance amends the factors that
should be considered in developing the renewal or extension assumptions used to
determine the useful life of a recognized intangible asset. This
guidance also requires expanded disclosure regarding the determination of
intangible asset useful lives. The Company adopted the provisions of this
guidance effective April 2009 and the adoption of this guidance did not have a
material impact on the Company’s condensed consolidated financial
statements.
In
May 2009, the FASB issued authoritative guidance regarding subsequent
events that provides guidance as to when an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements
and the necessary disclosures related to these events. This guidance
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date, that is, whether that date
represents the date the financial statements were issued or were available to be
issued. See “Principles of Consolidation” included in “Note 1
— Summary of Significant Accounting Policies” for the related disclosure.
The Company adopted the provisions of this guidance effective May 2009, and the
adoption of this guidance did not have a material impact on the Company’s
condensed consolidated financial statements.
In June
2009, the FASB issued authoritative guidance regarding accounting standards
codification and the hierarchy of the Generally Accepted Accounting Principles
(“GAAP”). This guidance has become the source of authoritative U.S.
GAAP recognized by the FASB and applied by nongovernmental
entities. This guidance was effective for financial statements issued
for interim and annual periods ending after September 15,
2009. The Company adopted the provisions of this guidance during the
third quarter, and the adoption of this guidance did not have a material impact
on the Company’s condensed consolidated financial statements.
10
2. BUSINESS
COMBINATIONS
United Stone Veneer
Acquisition
On
October 31, 2008, Ply Gem Industries, Inc. (“Ply Gem Industries”) a wholly-owned
subsidiary of the Company, completed the acquisition of substantially all of the
assets of United Stone Veneer, LLC (“USV”). The Company accounted for
the transaction as a purchase. USV manufactures stone veneer enabling
the Company to expand its building products offering across different areas and
capitalize on this product growth opportunity. The condensed
consolidated financial statements include the operating results of USV for
periods after October 31, 2008. As a result of the USV acquisition,
the Company changed the title of its “Siding, Fencing, and Railing” segment to
“Siding, Fencing, and Stone”.
The
preliminary purchase price was allocated to the assets and liabilities based on
their fair values. The following is the allocation of the purchase
price:
(Amounts
in thousands)
|
||||
Other
current assets, net of cash acquired
|
$ | 566 | ||
Inventories
|
307 | |||
Property,
plant and equipment
|
1,863 | |||
Goodwill
|
1,584 | |||
Current
liabilities
|
(706 | ) | ||
Purchase
price, net of cash acquired
|
$ | 3,614 |
The
goodwill is expected to be deductible for income tax purposes.
3. GOODWILL
IMPAIRMENT
The
Company records the excess of purchase price over the fair value of the net
assets of acquired companies as goodwill or other identifiable intangible
assets. The Company performs an annual test for goodwill impairment
during the fourth quarter of each year and also at any other date when events or
changes in circumstances indicate that the carrying value of these assets may
exceed their fair value. The Company has defined its reporting units
and performs the impairment testing of goodwill at the operating segment
level. The Company has aggregated US Windows and CWD into a single
reporting unit since they have similar economic
characteristics. Thus, the Company has two reporting units- (Siding,
Fencing, and Stone) and (Windows and Doors.) Separate valuations are
performed for each of these reporting units in order to test for
impairment. During the year ended December 31, 2008, the
Company acquired USV on October 31, 2008, which was included within the Siding,
Fencing, and Stone reporting unit.
The
Company uses the two-step method to determine goodwill impairment. If
the carrying amount of a reporting unit exceeds its fair value (Step One), the
Company measures the possible goodwill impairment based upon a hypothetical
allocation of the fair value estimate of the reporting unit to all of the
underlying assets and liabilities of the reporting unit, including previously
unrecognized intangible assets (Step Two). The excess of the
reporting unit’s fair value over the amounts assigned to its assets and
liabilities is the implied fair value of goodwill. An impairment loss
is recognized to the extent that a reporting unit’s recorded goodwill exceeds
the implied fair value of goodwill.
11
To
determine the fair value of its reporting units, the Company equally considers
both the income and market valuation methodologies. The income
valuation methodology uses the fair value of the cash flows that the reporting
unit can be expected to generate in the future. This method requires management
to project revenues, operating expenses, working capital investment, capital
spending and cash flows for the reporting unit over a multi-year period as well
as determine the weighted average cost of capital to be used as the discount
rate. The Company also utilizes the market valuation method to
estimate the fair value of the reporting units by utilizing comparable public
company multiples. These comparable public company multiples are then
applied to the reporting unit’s financial performance. The market
approach is more volatile as an indicator of fair value as compared to the
income approach as internal forecasts and projections have historically been
more stable. Since each approach has its merits, the Company equally
weights the approaches to balance the internal and external factors affecting
the Company’s fair value. This weighting is consistent with previous
years.
The
Company’s fair value estimates of its reporting units and goodwill are sensitive
to a number of assumptions including discount rates, cash flow projections,
operating margins, and comparable market multiples. In order to
accurately forecast future cash flows, the Company estimated single family
housing starts and the growth rate for the repair and remodeling market through
2013. These assumptions modeled the information published by the
National Association of Home Builders (“NAHB”). The Company estimated
housing starts growing from current levels to approximately 1,100,000 in 2013
(terminal growth year) and the repair and remodeling growth rate at
approximately 3.0% for 2013. The sales growth and operating earnings
increases coincided with the growth in these two key assumptions. The
Company utilized its weighted average cost of capital and its long-term growth
rate to derive the appropriate capitalization rate used in the terminal value
calculation. The Company utilized these fair value estimate
assumptions during the impairment reviews conducted in the quarter ended
September 27, 2008.
The
Company determined that the depressed residential housing and remodeling market
was a triggering event during the third quarter of 2008 with housing starts
declining to a historical low in August 2008 which caused U.S. Windows to lower
their forecasted cash flow projections. As a result of the interim
impairment test, the Company concluded that the Windows and Doors reporting unit
failed Step One of the impairment test comparing carrying value and fair
value. The Siding, Fencing, and Stone fair value exceeded its
carrying value by approximately 20% as of September 27, 2008. The
Step Two Windows and Doors impairment test results indicated that an estimated
impairment of approximately $200.0 million existed at September 27,
2008. This impairment was recognized within the Windows and Doors
segment in the third quarter of 2008.
The
Company performed the following sensitivity analysis on the reporting unit Step
One fair values as of September 27, 2008.
(amounts in
thousands)
Estimated
Windows and Doors reporting unit fair value decrease in the event of a 10%
increase in the weighting of the market multiples method
|
$ | (15,800 | ) | |
Estimated
Siding, Fencing, and Stone reporting unit fair value decrease in the event
of a 10% increase in the weighting of the market multiples
method
|
(500 | ) |
A summary
of the key assumptions utilized in the goodwill impairment analysis at September
27, 2008 as it relates to the Step One fair values and the sensitivities for
these assumptions follows:
Windows and Doors
|
Siding, Fencing, and Stone
|
|||||||
Income
approach:
|
||||||||
Estimated
housing starts in 2013
|
1,100,000 | 1,100,000 | ||||||
Terminal
growth rate
|
3.5 | % | 3.0 | % | ||||
Discount
rates
|
14.0 | % | 14.0 | % | ||||
Market
approach:
|
||||||||
Market
multiples
|
11.0 | 9.0 | ||||||
Control
premiums
|
20 | % | 10 | % | ||||
(amounts
in thousands)
|
Windows and Doors
|
Siding, Fencing, and Stone
|
||||||
Estimated
fair value decrease in the event of a 1%
|
||||||||
decrease
in the terminal year growth rate
|
$ | 26,629 | $ | 38,064 | ||||
Estimated
fair value decrease in the event of a 1%
|
||||||||
increase
in the discount rate
|
43,331 | 64,261 | ||||||
Estimated
fair value decrease in the event of a 1 basis
|
||||||||
point
decrease in market multiples
|
27,472 | 89,813 | ||||||
Estimated
fair value decrease in the event of a 1%
|
||||||||
decrease
in the control premium
|
2,518 | 7,348 |
After
considering these sensitivities, the Company concluded there is no assurance
that: 1) valuation multiples will not decline further , 2) discount rates will
not increase, or 3) the earnings, book values or projected earnings and cash
flows of the Company’s reporting units will not decline. The Company will
continue to analyze changes to these assumptions in future periods. The Company
will continue to evaluate goodwill during future periods and further declines in
the residential housing and remodeling markets could result in additional
goodwill impairments.
12
The
reporting unit goodwill balances were as follows as of October 3, 2009 and
December 31, 2008:
(Amounts
in thousands)
|
||||||||
October
3, 2009
|
December
31, 2008
|
|||||||
Windows
and Doors
|
$ | 72,425 | $ | 70,683 | ||||
Siding,
Fencing and Stone
|
320,107 | 320,096 | ||||||
$ | 392,532 | $ | 390,779 |
The
increase in goodwill during the nine months ended October 3, 2009 was due to
currency translation adjustments of approximately $1.1 million and purchase
price adjustments of approximately $0.6 million.
4. INTANGIBLE
ASSETS
The
following table presents the components of intangible assets as of October 3,
2009 and December 31, 2008:
Average
|
||||||||||||||||
Amortization
|
||||||||||||||||
Period
|
Accumulated
|
Net
Carrying
|
||||||||||||||
(in Years)
|
Cost
|
Amortization
|
Value
|
|||||||||||||
(Amounts
in thousands)
|
||||||||||||||||
As
of October 3, 2009
|
||||||||||||||||
Patents
|
14 | $ | 12,770 | $ | (5,241 | ) | $ | 7,529 | ||||||||
Trademarks/tradenames
|
15 | 85,644 | (20,000 | ) | 65,644 | |||||||||||
Customer
relationships
|
13 | 158,158 | (53,150 | ) | 105,008 | |||||||||||
Other
|
4 | 1,630 | (831 | ) | 799 | |||||||||||
Total
intangible assets
|
$ | 258,202 | $ | (79,222 | ) | $ | 178,980 | |||||||||
As
of December 31, 2008
|
||||||||||||||||
Patents
|
14 | $ | 12,770 | $ | (4,533 | ) | $ | 8,237 | ||||||||
Trademarks/tradenames
|
15 | 85,644 | (15,578 | ) | 70,066 | |||||||||||
Customer
relationships
|
13 | 158,158 | (43,850 | ) | 114,308 | |||||||||||
Other
|
4 | 1,520 | (527 | ) | 993 | |||||||||||
Total
intangible assets
|
$ | 258,092 | $ | (64,488 | ) | $ | 193,604 |
Amortization
expense for the remainder of 2009 and for fiscal years 2010, 2011, 2012, and
2013 is estimated to be approximately $4.9 million, $19.6 million, $19.2
million, $19.1 million, and $19.1 million, respectively.
13
5. COMPREHENSIVE
INCOME (LOSS)
Comprehensive
income (loss) is comprised of the following:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
3,
2009
|
September
27, 2008
|
October
3,
2009
|
September
27,
2008
|
|||||||||||||
(Amounts
in thousands)
|
||||||||||||||||
Net
income (loss)
|
$ | 4,385 | $ | (190,832 | ) | $ | (59,132 | ) | $ | (232,167 | ) | |||||
Foreign
currency translation adjustment
|
2,154 | (1,296 | ) | 3,352 | (1,875 | ) | ||||||||||
Comprehensive
income (loss)
|
$ | 6,539 | $ | (192,128 | ) | $ | (55,780 | ) | $ | (234,042 | ) |
6. LONG-TERM
DEBT
Long-term
debt in the accompanying condensed consolidated balance sheets at October 3,
2009 and December 31, 2008 consists of the following:
October 3, 2009
|
December 31, 2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Senior
secured asset based revolving credit facility
|
$ | 65,000 | $ | 60,000 | ||||
9%
Senior subordinated notes due 2012, including
unamortized
premium of $115 and $146
|
360,115 | 360,146 | ||||||
11.75%
Senior secured notes due 2013, net of
unamortized
discount of $5,172 and $5,960
|
694,828 | 694,040 | ||||||
$ | 1,119,943 | $ | 1,114,186 | |||||
Less: | ||||||||
9%
Senior subordinated notes due to related parties,
|
||||||||
including unamortized premium of $75 | 234,707 | - | ||||||
$ | 885,236 | $ | 1,114,186 |
11.75% Senior Secured Notes
due 2013
On June
9, 2008, Ply Gem Industries issued $700.0 million of 11.75% senior secured notes
due 2013 (the “Senior Secured Notes”) at an approximate 1.0% discount, yielding
proceeds of approximately $693.5 million. Ply Gem Industries used the
proceeds to repay all of the outstanding indebtedness under the existing senior
secured credit facility of approximately $676.2 million of term loan borrowings
and approximately $15.0 million of revolver borrowings. The Senior
Secured Notes will mature on June 15, 2013 and bear interest at the rate of
11.75% per annum. Interest will be paid semi-annually on June 15 and
December 15 of each year. On October 23, 2009, Ply Gem Industries
issued an additional $25.0 million of its Senior Secured Notes in a private
placement transaction. The net proceeds will be utilized for general
corporate purposes.
14
Prior to
April 1, 2011, Ply Gem Industries may redeem up to 35% of the aggregate
principal amount of the Senior Secured Notes with the net cash proceeds from
certain equity offerings at a redemption price equal to 111.75% of the aggregate
principal amount of the Senior Secured Notes, plus accrued and unpaid interest,
if any, provided that at least 65% of the original aggregate principal amount of
the Senior Secured Notes remains outstanding after the redemption. In
addition, not more than once during any twelve-month period, Ply Gem Industries
may redeem up to $70.0 million of the Senior Secured Notes at a redemption price
equal to 103% of the aggregate amount of the Senior Secured Notes, plus accrued
and unpaid interest, if any. At any time on or after April 1, 2011,
Ply Gem Industries may redeem the Senior Secured Notes, in whole or in part, at
declining redemption prices set forth in the indenture governing the Senior
Secured Notes, plus, in each case, accrued and unpaid interest, if any, to the
redemption date.
The
Senior Secured Notes are fully and unconditionally guaranteed on a joint and
several basis by Ply Gem Holdings and all of the domestic subsidiaries of Ply
Gem Industries (the “Guarantors”). The indenture governing the Senior
Secured Notes contains certain covenants that limit the ability of Ply Gem
Industries and its subsidiaries to incur additional indebtedness, pay dividends
or make other distributions or repurchase or redeem their stock, make loans and
investments, sell assets, incur certain liens, enter into agreements restricting
their ability to pay dividends, enter into transactions with affiliates, and
consolidate, merge or sell Ply Gem Industries’ assets. On November 3, 2008, Ply
Gem Industries completed its exchange offer with respect to the Senior Secured
Notes by exchanging $700.0 million Senior Secured Notes, which were registered
under the Securities Act of 1933, as amended (the "Securities Act"), for $700.0
million of the issued and outstanding Senior Secured Notes. Upon
completion of the exchange offer, all issued and outstanding Senior Secured
Notes were registered under the Securities Act.
The
Senior Secured Notes and the related guarantees are secured on a first-priority
lien basis by substantially all of the assets (other than the assets securing
the Company’s obligations under the senior secured asset-based revolving credit
facility, or ABL Facility, which consist primarily of accounts receivable and
inventory) of Ply Gem Industries and the Guarantors and on a second-priority
lien basis by the assets that secure the ABL Facility.
In
addition, the Company’s stock ownership in its subsidiaries collateralizes the
Senior Secured Notes to the extent that such equity interests and other
securities can secure the notes without Rule 3-16 of Regulation S-X
under the Securities Act requiring separate financial statements of such
subsidiary to be filed with the Securities and Exchange
Commission. As of October 3, 2009, no subsidiary’s stock has been
excluded from the collateral arrangement due to the Rule 3-16
requirement.
Senior Secured Asset Based
Revolving Credit Facility due 2013
Concurrently
with the Senior Secured Notes offering on June 9, 2008, Ply Gem Industries, the
Company and the subsidiaries of Ply Gem Industries entered into a new senior
secured asset-based revolving credit facility (the “ABL
Facility”). The ABL Facility provided for revolving credit financing
of up to $150.0 million, subject to borrowing base availability, with a maturity
of five years (June 2013) including sub-facilities for letters of credit,
swingline loans, and borrowings in Canadian dollars and United States dollars by
CWD. On July 16, 2009, the Company amended the ABL facility,
increasing the available commitments to $175.0 million, and on October 9, 2009,
the Company further amended the ABL facility to among other things, allow for
the issuance of the additional $25.0 million of Senior Secured
Notes.
The ABL
Facility will mature on October 15, 2011 if Ply Gem Industries’ Senior
Subordinated Notes are not refinanced by such date. The Company may
need to refinance, extend the maturity or otherwise amend the ABL
facility. The Company’s ability to refinance the ABL facility and/or
Senior Subordinated Notes is dependent, among other things, on business
conditions and our financial performance. In addition, the ABL
Facility provides that the revolving commitments may be increased to $200.0
million, subject to certain terms and conditions. The Company had
borrowings of $65.0 million outstanding under the ABL Facility as of October 3,
2009.
As of
October 3, 2009, Ply Gem Industries had approximately $102.9 million of
contractual availability and approximately $76.5 million of borrowing base
availability under the ABL Facility, reflecting $65.0 million of borrowings
outstanding and approximately $7.1 million of letters of credit
issued.
The
interest rates applicable to loans under the ABL Facility are, at the Company’s
option, equal to either a base rate plus an applicable interest margin, or an
adjusted LIBOR rate plus an applicable interest margin, as defined in the ABL
Facility credit agreement. As of October 3, 2009, the Company’s
interest rate on the ABL Facility was approximately 6.0%. The ABL
Facility contains a requirement to maintain a fixed charge coverage ratio of
1.1:1.0 if the Company’s borrowings under the ABL Facility exceed certain
levels.
15
In July
2009, the Company amended the ABL Facility to increase the available commitments
by $25.0 million from $150.0 million to $175.0 million, and change both the
availability threshold for certain cash dominion events and compliance with the
fixed charge and other covenants from 15% of revolving credit commitments to 15%
of the lower of the revolving credit commitments or the borrowing base but not
less than $20.0 million. The Company must maintain excess availability of at
least $20.0 million to avoid being subject to the fixed charge covenant
ratio. As a condition to this availability increase, the applicable
margins payable on the loans were increased and made subject to certain
minimums. In October 2009, the Company amended the ABL Facility to
allow for the issuance of the additional $25.0 million Senior Secured Notes and
to permit certain refinancing transactions with respect to the Senior
Subordinated Notes (as defined below). The October amendment also
permits Ply Gem Industries to issue equity securities to Ply Gem Holdings, its
parent. The October 2009 amendment does not affect the $175.0 million
availability amount or the applicable interest rate margins under the ABL
Facility.
All
obligations under the ABL Facility, and the guarantees of those obligations, are
secured, subject to certain exceptions, by substantially all of the assets of
Ply Gem Industries and the Guarantors, including a first-priority security
interest in personal property consisting of accounts receivable, inventory,
cash, deposit accounts, and certain related assets and proceeds of the foregoing
and a second-priority security interest in, and mortgages on, substantially all
of Ply Gem Industries’ material owned real property and equipment and all assets
that secure the Senior Secured Notes on a first-priority basis. In
addition to being secured by the collateral securing the obligations of Ply Gem
Industries under the domestic collateral package, the obligations of CWD, which
is a borrower under the Canadian sub-facility under the ABL Facility, are also
secured by a first-priority security interest in substantially all of the assets
of such Canadian subsidiary, plus additional mortgages in Canada, and a pledge
by Ply Gem Industries of the remaining 35% of the equity interests of CWD
pledged only to secure the Canadian sub-facility.
9.00% Senior Subordinated
Notes due 2012
Concurrently
with the acquisition of Ply Gem Industries on February 12, 2004, Ply Gem
Industries issued $225.0 million aggregate principal amount of its senior
subordinated notes due 2012 (the “Senior Subordinated Notes”), which are
guaranteed by Ply Gem Holdings and the domestic subsidiaries of Ply Gem
Industries. Subsequently, in August 2004, in connection with the MW
acquisition, Ply Gem Industries issued an additional $135.0 million of Senior
Subordinated Notes, which are guaranteed by Ply Gem Holdings and the domestic
subsidiaries of Ply Gem Industries, including MWM Holding, Inc. and its
subsidiaries. Ply Gem Industries pays interest semi-annually on
February 15 and August 15 of each year. See Note 14 for related party
transaction related to the Senior Subordinated Notes.
On March
24, 2009, after receipt of the requisite consents, Ply Gem Industries entered
into a Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”) among
Ply Gem Industries, the Company, the other guarantors party thereto and U.S.
Bank National Association, as trustee, containing the amendments to the
indenture. The Fifth Supplemental Indenture eliminated substantially
all of the restrictive covenants of the indenture governing the Senior
Subordinated Notes, including, among other things, the limitation on
indebtedness, the change of control put provisions, the limitation on restricted
payments, the limitation on liens, the limitation on asset sales, the limitation
on transactions with affiliates, the limitation on dividends and other
restrictions affecting restricted subsidiaries, the limitation on layering
indebtedness and the limitation on the issuance or sale of equity interests in
restricted subsidiaries. The Fifth Supplemental Indenture also
eliminated certain events of default in the indenture governing the Senior
Subordinated Notes. The amendments contained in the Fifth
Supplemental Indenture became operative upon completion of the purchase of a
specified amount of the Senior Subordinated Notes by certain affiliates of the
Company’s controlling stockholder. In connection with this debt
modification, the Company incurred third-party fees of approximately $2.5
million during the nine months ended October 3, 2009 which has been recorded
within interest expense in the condensed consolidated statement of
operations.
Senior Term Loan
Facility
The
Company’s senior facilities with a syndicate of financial institutions and
institutional lenders provided for senior secured financing of up to
approximately $762.1 million. On May 23, 2008, the Company entered into an
amendment of the fifth amended and restated credit agreement which consisted of
changes to certain debt covenant ratios. The amendment also increased
the interest rate on the term loan and extended the maturity of the revolving
credit facility from February 12, 2009 to August 12, 2010. On May 23,
2008, Ply Gem received from CI Capital Partners LLC a $30.0 million cash equity
contribution as a condition to the credit facility amendment. On June
9, 2008, the Company used the proceeds from the Senior Secured Notes offering to
pay off the obligations under the senior term loan facility.
16
As a
result of the debt amendment that occurred on May 23, 2008 and the issuance of
Senior Secured Notes on June 9, 2008, the Company evaluated its financing costs
and expensed approximately $27.6 million of fees in the nine month period ended
September 27, 2008 which has been recorded within interest expense on the
condensed consolidated statement of operations. The Company deferred
costs of approximately $26.6 million in conjunction with this transaction which
have been recorded within other long-term assets in the condensed consolidated
balance sheets.
7. PENSION
PLANS
The
Company has two separate pension plans, the Ply Gem Group Pension Plan and the
MW Manufacturers, Inc. Retirement Plan.
The
Company’s net periodic expense for the combined pension plans for the periods
indicated consists of the following components:
For
the three
months
ended
October 3, 2009
|
For
the three
months
ended
September 27, 2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Service
cost
|
$ | 44 | $ | 48 | ||||
Interest
cost
|
500 | 506 | ||||||
Expected
return on plan assets
|
(366 | ) | (550 | ) | ||||
Amortization
of loss
|
125 | - | ||||||
Net
periodic expense
|
$ | 303 | $ | 4 |
For
the nine
months
ended
October 3, 2009
|
For
the nine
months
ended
September 27, 2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Service
cost
|
$ | 132 | $ | 145 | ||||
Interest
cost
|
1,500 | 1,517 | ||||||
Expected
return on plan assets
|
(1,098 | ) | (1,651 | ) | ||||
Amortization
of loss
|
377 | - | ||||||
Net
periodic expense
|
$ | 911 | $ | 11 |
17
8. COMMITMENTS
AND CONTINGENCIES
In
connection with the acquisition of Ply Gem Industries from Nortek, Inc.
(“Nortek”) in February 2004, Nortek agreed to indemnify the Company for
certain liabilities as set forth in the stock purchase agreement governing the
Ply Gem acquisition. In the event Nortek is unable to satisfy amounts
due under these indemnifications, the Company would be liable. The
Company believes that Nortek has the financial capacity and intent to honor its
indemnification obligations and therefore does not anticipate incurring any
losses related to liabilities indemnified by Nortek under the stock purchase
agreement. A receivable related to this indemnification has been
recorded in other long-term assets in the approximate amount of $7.6 million and
$7.8 million at October 3, 2009 and December 31, 2008,
respectively. The Company has indemnified third parties in certain
transactions involving dispositions of former subsidiaries. As of
October 3, 2009 and December 31, 2008, the Company has recorded liabilities in
relation to these indemnifications of approximately $2.5 million and $2.7
million, respectively, in current liabilities and $5.1 million and $5.1 million,
respectively, in long-term liabilities, consisting of the
following:
|
||||||||
October 3,
2009
|
December 31, 2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Product
claim liabilities
|
$ | 3,725 | $ | 3,718 | ||||
Multi-employer
pension plan withdrawal liability
|
3,342 | 3,492 | ||||||
Other
|
577 | 584 | ||||||
|
$ | 7,644 | $ | 7,794 |
The
Company sells a number of products and offers a number of warranties on these
products. The specific terms and conditions of these warranties vary
depending on the product sold and the country in which the product is
sold. The Company estimates the costs expected to be incurred under
its warranties and records a liability for such costs at the time of sale, which
is recorded in both accrued expenses and other long-term liabilities in the
accompanying condensed consolidated balance sheets. Factors that
affect the Company’s warranty liabilities include the number of units sold,
historical and anticipated rates of warranty claims, cost per claim and new
product introduction. The Company periodically assesses the adequacy
of the recorded warranty claims and adjusts the amounts as
necessary. As of October 3, 2009 and December 31, 2008, warranty
liabilities of approximately $11.1 million and $12.1 million, respectively, have
been recorded in current liabilities and approximately $32.9 million and $33.6
million, respectively, have been recorded in long-term liabilities.
Changes
in the Company’s warranty liabilities are as follows:
For
the three
months
ended
October 3, 2009
|
For
the three
months
ended
September 27,
2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Balance,
beginning of period
|
$ | 44,204 | $ | 48,793 | ||||
Warranty
expense during period
|
3,459 | 2,510 | ||||||
Settlements
made during period
|
(3,688 | ) | (4,715 | ) | ||||
Balance,
end of period
|
$ | 43,975 | $ | 46,588 |
18
For
the nine
months
ended
October 3, 2009
|
For
the nine
months
ended
September 27,
2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Balance,
beginning of period
|
$ | 45,653 | $ | 49,899 | ||||
Warranty
expense during period
|
9,986 | 9,136 | ||||||
Settlements
made during period
|
(11,664 | ) | (13,091 | ) | ||||
Liability
assumed with Pacific Windows acquisition
|
- | 644 | ||||||
Balance,
end of period
|
$ | 43,975 | $ | 46,588 |
The
Company is subject to other contingencies, including legal proceedings and
claims arising out of its businesses that cover a wide range of matters,
including, among others, environmental matters, contract and employment claims,
product liability, warranty and modification, adjustment or replacement of
component parts of units sold, which may include product
recalls. Product liability, environmental and other legal proceedings
also include matters with respect to businesses previously owned. The
Company has used various substances in their products and manufacturing
operations, which have been or may be deemed to be hazardous or dangerous, and
the extent of its potential liability, if any, under environmental, product
liability and workers’ compensation statutes, rules, regulations and case law is
unclear. Further, due to the lack of adequate information and the potential
impact of present regulations and any future regulations, there are certain
circumstances in which no range of potential exposure may be reasonably
estimated. Also, it is not possible to ascertain the ultimate legal
and financial liability with respect to contingent liabilities, including
lawsuits, and therefore no such estimate has been made. However, the
Company is not aware of any contingencies for which a material loss is
reasonably possible.
9. ACCRUED
EXPENSES, TAXES, AND OTHER LONG-TERM LIABILITIES
Accrued
expenses and taxes consist of the following at October 3, 2009 and December 31,
2008:
October 3, 2009
|
December 31,
2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Insurance
|
$ | 5,181 | $ | 5,169 | ||||
Employee
compensation and benefits
|
6,361 | 6,705 | ||||||
Sales
and marketing
|
24,121 | 18,023 | ||||||
Product
warranty
|
11,101 | 12,069 | ||||||
Short-term
product claim liability
|
2,075 | 2,321 | ||||||
Accrued
freight
|
1,954 | 748 | ||||||
Interest
|
30,206 | 17,238 | ||||||
Accrued
severance
|
234 | 471 | ||||||
Accrued
pension
|
1,810 | 1,810 | ||||||
Accrued
deferred compensation
|
2,081 | 1,886 | ||||||
Accrued
taxes
|
2,730 | 1,188 | ||||||
Other
|
13,776 | 8,676 | ||||||
$ | 101,630 | $ | 76,304 |
19
Other
long-term liabilities consist of the following at October 3, 2009 and December
31, 2008:
October 3, 2009
|
December 31, 2008
|
|||||||
(Amounts
in thousands)
|
||||||||
Insurance
|
$ | 3,449 | $ | 3,697 | ||||
Pension
liabilities
|
10,817 | 10,744 | ||||||
Multi-employer
pension withdrawal liability
|
3,342 | 3,492 | ||||||
Product
warranty
|
32,874 | 33,584 | ||||||
Long-term
product claim liability
|
1,649 | 1,396 | ||||||
Long-term
deferred compensation
|
1,711 | 3,416 | ||||||
Liabilities
for tax uncertainties
|
10,128 | 7,806 | ||||||
Other
|
5,132 | 4,098 | ||||||
$ | 69,102 | $ | 68,233 |
10. RESTRUCTURING
In
September 2008, the Company commenced its plan to move certain metal production
from its Valencia, Pennsylvania facility to its Sidney, Ohio
facility. The Valencia facility remained open on a reduced production
schedule, primarily performing contract coating for third
parties. Total costs to move this production were approximately $2.0
million consisting of termination benefits, contract termination costs and other
restructuring costs of approximately $0.7 million, $0.1 million and $1.2
million, respectively.
In
November 2008, the Company announced the closure of its Hammonton, New Jersey
and Phoenix, Arizona window and door manufacturing facilities. During
December 2008, production began to shift to other locations and production
ceased at Hammonton and Phoenix during 2009. By shifting production
to other facilities within the Company, the closures reduced costs and increased
operating efficiencies. Total costs are expected to be approximately
$5.4 million, including approximately $0.9 million for personnel-related costs
and approximately $4.5 million in other facilities-related costs, which include
approximately $4.1 million in lease costs.
On April
2, 2009, the Company announced that it would consolidate production across
several of its manufacturing facilities improving the Company’s overall
operating efficiency. The Company’s plans include shifting the
majority of the production from its Kearney, Missouri facility to its other
three vinyl siding manufacturing facilities. The Company plans to
continue to operate the Kearney facility on a limited basis until the housing
market recovers. The Company also plans to close its Tupelo,
Mississippi window and door manufacturing facility. In addition, the
Company will consolidate certain of the vinyl lineal production to its Rocky
Mount, Virginia facility and realign production of its west coast window and
door facilities at Sacramento, California and Auburn, Washington to better serve
customers and improve overall operating efficiency. In connection with the April
2, 2009 announcement, the Company expects to incur pre-tax exit and
restructuring costs, all of which will be cash charges, of approximately $2.3
million, including approximately $1.1 million for personnel-related costs,
approximately $0.5 million for contract termination costs, and approximately
$0.7 million in other facilities-related costs.
20
The
following table summarizes the Company’s restructuring activity for the nine
months ended October 3, 2009:
(amounts
in thousands)
|
Accrued
as of
|
Adjustments
|
Cash
payments
|
Expensed
|
Accrued
as of
|
|||||||||||||||
December 31, 2008
|
during 2009
|
during 2009
|
during 2009
|
October 3, 2009
|
||||||||||||||||
Valencia, PA
|
||||||||||||||||||||
Severance
costs
|
$ | 243 | $ | - | $ | (362 | ) | $ | 119 | $ | - | |||||||||
Equipment
removal and other
|
- | - | (889 | ) | 889 | - | ||||||||||||||
$ | 243 | $ | - | $ | (1,251 | ) | $ | 1,008 | $ | - | ||||||||||
Hammonton, NJ
|
||||||||||||||||||||
Severance
costs
|
$ | 217 | $ | (36 | ) | $ | (872 | ) | $ | 691 | $ | - | ||||||||
Other
termination benefits
|
- | 136 | (136 | ) | - | - | ||||||||||||||
Contract
terminations
|
- | 312 | (577 | ) | 2,515 | 2,250 | ||||||||||||||
Equipment
removal and other
|
- | - | (191 | ) | 191 | - | ||||||||||||||
$ | 217 | $ | 412 | $ | (1,776 | ) | $ | 3,397 | $ | 2,250 | ||||||||||
Phoenix, AZ
|
||||||||||||||||||||
Severance
costs
|
$ | 11 | $ | - | $ | (44 | ) | $ | 33 | $ | - | |||||||||
Other
termination benefits
|
- | 16 | (16 | ) | - | - | ||||||||||||||
Contract
terminations
|
- | - | (490 | ) | 1,423 | 933 | ||||||||||||||
Equipment
removal and other
|
- | - | (184 | ) | 184 | - | ||||||||||||||
$ | 11 | $ | 16 | $ | (734 | ) | $ | 1,640 | $ | 933 | ||||||||||
Kearney, MO
|
||||||||||||||||||||
Severance
costs
|
$ | - | $ | - | $ | (612 | ) | $ | 651 | $ | 39 | |||||||||
Equipment
removal and other
|
- | - | (610 | ) | 610 | - | ||||||||||||||
$ | - | $ | - | $ | (1,222 | ) | $ | 1,261 | $ | 39 | ||||||||||
Tupelo, MS
|
||||||||||||||||||||
Severance
costs
|
$ | - | $ | - | $ | (145 | ) | $ | 145 | $ | - | |||||||||
Contract
terminations
|
- | - | (31 | ) | 140 | 109 | ||||||||||||||
Equipment
removal and other
|
- | - | (43 | ) | 43 | - | ||||||||||||||
$ | - | $ | - | $ | (219 | ) | $ | 328 | $ | 109 | ||||||||||
Auburn, WA
|
||||||||||||||||||||
Severance
costs
|
$ | - | $ | - | $ | (44 | ) | $ | 239 | $ | 195 | |||||||||
Contract
terminations
|
- | - | - | - | - | |||||||||||||||
Equipment
removal and other
|
- | - | (28 | ) | 18 | (10 | ) | |||||||||||||
$ | - | $ | - | $ | (72 | ) | $ | 257 | $ | 185 |
For the
three and nine month periods ended October 3, 2009, the Company incurred costs
of approximately $0.9 million and $7.9 million, respectively. For the
three months ended October 3, 2009, approximately $0.6 million was recorded in
selling, general and administrative expenses in the Siding, Fencing and Stone
segment and approximately $0.3 million was recorded primarily in selling,
general and administrative expenses in the Windows and Doors
segment. For the nine months ended October 3, 2009, approximately
$2.3 million was recorded in selling, general and administrative expenses in the
Siding, Fencing and Stone segment and approximately $5.6 million was recorded
primarily in selling, general and administrative expenses in the Windows and
Doors segment.
21
11. INCOME
TAXES
The
Company utilizes the asset and liability method of accounting for income taxes
which requires that deferred tax assets and liabilities be recorded to reflect
the future tax consequences of temporary differences between the book and tax
basis of various assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of changes in tax rates on deferred
tax assets and liabilities is recognized as income or expense in the period in
which the rate change occurs. A valuation allowance is established to
offset any deferred tax assets if, based upon the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.
Estimates
are required with respect to, among other things, the appropriate state income
tax rates to use in the various states that the Company and its subsidiaries are
required to file, the potential utilization of operating and capital loss
carry-forwards for both federal and state income tax purposes and valuation
allowances required, if any, for tax assets that may not be realized in the
future. The Company establishes reserves when, despite our belief
that our tax return positions are fully supportable, certain positions could be
challenged, and the positions may not be fully sustained. Subsequent
to February 12, 2004, U.S. federal income tax returns are prepared and filed by
Ply Gem Investment Holdings, Inc. on behalf of itself, Ply Gem Holdings, and Ply
Gem Industries and its subsidiaries. The existing tax sharing
agreement between Ply Gem Holdings and Ply Gem Investment Holdings, Inc., under
which tax liabilities for each respective party are computed on a stand-alone
basis, was amended during 2006 to include Ply Gem Prime Holdings,
Inc. U.S. subsidiaries file unitary, combined federal income tax
returns and separate state income tax returns. CWD Windows and Doors
files separate Canadian income tax returns.
Income
taxes for the interim periods have been included in the accompanying condensed
consolidated financial statements on the basis of an estimated annual effective
tax rate. In addition to the amount of tax resulting from applying the estimated
annual effective tax rate to pre-tax income (loss), the Company includes certain
items treated as discrete events to arrive at an estimated overall tax
amount. As of October 3, 2009, the Company’s estimated effective
income tax rate for the full year was approximately 17.8%, which varied from the
statutory rate primarily due to state tax expense, an increase in the valuation
allowance, and the tax benefit associated with cancellation of debt
income. As of October 3, 2009, a full valuation allowance has been
provided against certain deferred tax assets as it is presently deemed more
likely than not that the benefit of such net tax assets will not be utilized.
Due to recent cumulative losses accumulated by the Company, management did not
rely upon projections of future taxable income in assessing the recoverability
of deferred tax assets. At December 31, 2008, the Company was in a
net deferred tax liability position and had sufficient taxable income from
reversing taxable temporary differences to realize the federal deferred tax
assets. The Company scheduled out the reversing temporary differences
associated with their deferred tax assets and deferred tax liabilities to
conclude that a full valuation allowance was not necessary at December 31,
2008. The Company currently has book goodwill of approximately $13.4
million that is not amortized and results in a deferred tax liability of
approximately $2.2 million at October 3, 2009. Therefore, the
reversal of deferred tax liabilities related to this goodwill is not considered
a source of future taxable income in assessing the realization of its deferred
tax assets. The Company continues to evaluate the realizability of
its net deferred tax assets and its estimates are subject to
change. During the three and nine months ended October 3, 2009, the
Company’s valuation allowance increased by approximately $9.2 million and $26.4
million, respectively. As of September 27, 2008, the Company’s
estimated effective tax rate for the full year was 37.8%.
Affiliates
of the Company’s controlling stockholder have purchased approximately $234.7
million of the Senior Subordinated Notes as of October 3,
2009. The Company determined that approximately $115.1 million would
be considered cancellation of indebtedness (“COD”) income as the acquiring party
was deemed a related party for tax purposes. In connection with this
transaction, the Company was able to reduce certain tax attributes
including net operating losses ("NOLs") and tax basis in certain
assets in lieu of recognizing approximately $115.1 million of COD income for
income tax purposes during the nine months ended October 3, 2009. For
the three months ended October 3, 2009, the Company was able to reduce certain
tax attributes including NOLs and tax basis in certain assets in lieu of
recognizing $19.3 million of COD income for tax purposes. The Company is in
the process of determining the COD amount for the additional Senior Subordinated
Notes purchased by affiliates of the Company’s stockholder subsequent to October
3, 2009. The impact of this transaction will be recognized during the
fourth quarter.
On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”). Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010. The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years. The Company does not believe it will have any federal cash
income tax expense associated with the COD income.
During
2009, the Company filed an amended federal income tax return for the year ended
December 31, 2005 in order to adjust its net operating loss
limitations. The Company recorded the resulting income tax benefit as
an income tax receivable of approximately $4.1 million as of October 3, 2009,
which has been recorded in prepaid expenses and other current assets in the
accompanying condensed consolidated balance sheet as of October 3,
2009.
22
Despite
our belief that our tax return positions are consistent with applicable tax
laws, the Company believes that certain positions could be challenged by taxing
authorities. Our tax reserves reflect the difference between the tax
benefit claimed on tax returns and the amount recognized in the financial
statements. These reserves have been established based on management’s
assessment as to potential exposure attributable to permanent differences and
interest applicable to both permanent and temporary differences. The
tax reserves are reviewed periodically and adjusted in light of changing facts
and circumstances, such as progress of tax audits, lapse of applicable statutes
of limitations and changes in tax law. During the three and nine
months ended October 3, 2009, the Company increased the tax contingency reserve
by $0.1 million and $2.3 million, respectively, predominantly for state income
tax items. During the next twelve months, it is reasonably possible
the Company may reverse approximately $6.0 million of tax contingency reserves
primarily related to additional federal and state taxes that have expiring
statutes of limitations. The Company’s federal income tax return for
the tax year ended December 31, 2008 is currently under examination by the
Internal Revenue Service as well as the 2005 amended net operating loss
limitation.
12. STOCK-BASED
COMPENSATION
Stock Option
Plan
A
rollforward of stock options outstanding during the nine months ended October 3,
2009 is as follows:
Stock Options
|
Weighted-Average
Exercise
Price
|
Weighted-Average
Remaining Contractual Term
(Years)
|
||||||||||
Balance
at January 1, 2009
|
314,694 | $ | 48.79 | 7.83 | ||||||||
Granted
|
- | - | - | |||||||||
Forfeited
or expired
|
(6,900 | ) | $ | 44.20 | - | |||||||
Balance
at October 3, 2009
|
307,794 | $ | 48.89 | 6.98 |
As of
October 3, 2009, 105,094 options have vested. At October 3, 2009, the
Company had approximately $0.1 million of total unrecognized compensation
expense that will be recognized over a weighted average period of 2.1
years.
Other Share-Based
Compensation
Upon
completion of the acquisition of Ply Gem, the acquisition of MW and the
acquisition of AWC Holding Company and its subsidiaries (collectively,
“Alenco”), certain members of management made a cash contribution to Ply Gem
Prime Holdings, Inc. in exchange for shares of Ply Gem Prime Holdings, Inc.’s
common stock. Ply Gem Prime
Holdings, Inc. is the sole shareholder of Ply Gem Investment Holdings, Inc.,
which is the sole shareholder of Ply Gem Holdings.
23
A
rollforward of Ply Gem Prime Holdings, Inc.’s common stock shares during the
nine months ended October 3, 2009 is as follows.
Common
Stock
Shares
Owned by
Management
|
||||
Balance
at January 1, 2009
|
642,895 | |||
Shares
issued
|
- | |||
Shares
repurchased
|
- | |||
Balance
at October 3, 2009
|
642,895 |
13. SEGMENT
INFORMATION
The
Company’s operating segments are components of the business for which separate
financial information is available and are evaluated regularly by management in
deciding how to allocate resources and in assessing
performance. Operating segments meeting certain aggregation criteria
are combined into one reportable segment for disclosure purposes.
The
Company has two reportable segments: 1) Siding, Fencing, and Stone, and 2)
Windows and Doors. Prior to the acquisition of USV on October 31,
2008, the Siding, Fencing, and Stone segment was titled Siding, Fencing, and
Railing and did not include USV.
The
operating earnings (loss) of each segment includes the revenue generated on
transactions involving products within that segment less identifiable
expenses. Corporate unallocated income and expenses include items
which are not directly attributed to or allocated to either of our reporting
segments. Such items include interest, legal costs, corporate
payroll, and unallocated finance and accounting expenses. Corporate unallocated
assets include deferred financing costs, cash and certain non-operating
receivables.
Three
months ended
|
Nine
months ended
|
|||||||||||||||
October 3, 2009
|
September 27, 2008
|
October 3, 2009
|
September 27, 2008
|
|||||||||||||
(Amounts
in thousands)
|
(Amounts
in thousands)
|
|||||||||||||||
Net
Sales
|
||||||||||||||||
Siding,
Fencing, and Stone
|
$ | 182,166 | $ | 216,446 | $ | 456,239 | $ | 572,756 | ||||||||
Windows
and Doors
|
111,303 | 126,379 | 280,557 | 367,722 | ||||||||||||
$ | 293,469 | $ | 342,825 | $ | 736,796 | $ | 940,478 | |||||||||
Operating
Earnings (loss)
|
||||||||||||||||
Siding,
Fencing, and Stone
|
$ | 39,721 | $ | 27,146 | $ | 59,956 | $ | 44,952 | ||||||||
Windows
and Doors
|
3,010 | (201,171 | ) | (21,671 | ) | (207,519 | ) | |||||||||
Unallocated
|
(3,751 | ) | (2,458 | ) | (10,288 | ) | (7,327 | ) | ||||||||
$ | 38,980 | $ | (176,483 | ) | $ | 27,997 | $ | (169,894 | ) | |||||||
As
of
|
As
of
|
|||||||||||||||
October 3, 2009
|
December 31, 2008
|
|||||||||||||||
Total
assets
|
||||||||||||||||
Siding,
Fencing, and Stone
|
$ | 645,032 | $ | 655,183 | ||||||||||||
Windows
and Doors
|
346,843 | 357,471 | ||||||||||||||
Unallocated
|
74,570 | 91,399 | ||||||||||||||
$ | 1,066,445 | $ | 1,104,053 |
24
14. RELATED
PARTY TRANSACTIONS
The
Company has entered into two advisory agreements with an affiliate of CI Capital
Partners LLC, formerly Caxton-Iseman Capital, LLC (the “Caxton-Iseman Party”),
which we refer to as the “Debt Financing Advisory Agreement” and the “General
Advisory Agreement”. The Caxton-Iseman Party provides the Company
with acquisition and financial advisory services as the Board of Directors shall
reasonably request. Under the General Advisory Agreement, the Company
expensed management fees to the Caxton-Iseman Party of approximately $0.4
million and $0.8 million within selling, general, and administrative expenses
for the three month periods ended October 3, 2009 and September 27, 2008,
respectively, and approximately $1.8 million and $1.6 million within selling,
general, and administrative expenses for the nine month periods ended October 3,
2009 and September 27, 2008, respectively.
As of
October 3, 2009, certain affiliates of the Company's controlling
stockholder have acquired approximately $234.7 million of the outstanding Senior
Subordinated Notes. Subsequent to October 3, 2009, these affiliates had
acquired an additional $46.7 million of the outstanding Senior Subordinated
Notes bringing the total owned by related parties to approximately $281.4
million including an unamortized premium of approximately $0.1 million. In
the future, the Company and its affiliates may consider conducting exchange or
tender offers for its indebtedness or purchasing or otherwise acquiring its
indebtedness.
25
15. GUARANTOR
/ NON-GUARANTOR FINANCIAL INFORMATION
The Senior Secured Notes and Senior Subordinated Notes were both
issued by our direct subsidiary, Ply Gem Industries, and are fully and
unconditionally guaranteed on a joint and several basis by the Company and
certain of Ply Gem Industries’ 100% owned subsidiaries. Accordingly,
the following guarantor and non-guarantor information is presented as of October
3, 2009 and December 31, 2008 and for the three and nine month periods ended
October 3, 2009 and September 27, 2008. The non-guarantor information
presented represents CWD, our Canadian subsidiary.
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
|
||||||||||||||||||||||||
For
the three months ended October 3, 2009
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
Net
sales
|
$ | - | $ | - | $ | 272,504 | $ | 20,965 | $ | - | $ | 293,469 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||||||||||
Cost
of products sold
|
- | - | 202,346 | 13,745 | - | 216,091 | ||||||||||||||||||
Selling,
general and
|
||||||||||||||||||||||||
administrative
expenses
|
- | 3,742 | 26,662 | 3,078 | - | 33,482 | ||||||||||||||||||
Intercompany
administrative
|
||||||||||||||||||||||||
charges
|
- | - | 2,730 | - | (2,730 | ) | - | |||||||||||||||||
Amortization
of intangible assets
|
- | 9 | 4,907 | - | - | 4,916 | ||||||||||||||||||
Total
costs and expenses
|
- | 3,751 | 236,645 | 16,823 | (2,730 | ) | 254,489 | |||||||||||||||||
Operating
earnings (loss)
|
- | (3,751 | ) | 35,859 | 4,142 | 2,730 | 38,980 | |||||||||||||||||
Foreign
currency gain
|
- | - | - | 242 | - | 242 | ||||||||||||||||||
Intercompany
interest
|
- | 30,210 | (29,842 | ) | (368 | ) | - | - | ||||||||||||||||
Interest
expense
|
- | (32,543 | ) | (66 | ) | - | - | (32,609 | ) | |||||||||||||||
Interest
income
|
- | 12 | 20 | - | - | 32 | ||||||||||||||||||
Intercompany
administrative income
|
- | 2,730 | - | - | (2,730 | ) | - | |||||||||||||||||
Income
(loss) before equity in
|
||||||||||||||||||||||||
subsidiaries'
income
|
- | (3,342 | ) | 5,971 | 4,016 | - | 6,645 | |||||||||||||||||
Equity
in subsidiaries' income
|
4,385 | 6,590 | - | - | (10,975 | ) | - | |||||||||||||||||
Income
before provision (benefit)
|
||||||||||||||||||||||||
for
income taxes
|
4,385 | 3,248 | 5,971 | 4,016 | (10,975 | ) | 6,645 | |||||||||||||||||
Provision
(benefit) for income taxes
|
- | (1,137 | ) | 2,158 | 1,239 | - | 2,260 | |||||||||||||||||
Net
income
|
$ | 4,385 | $ | 4,385 | $ | 3,813 | $ | 2,777 | $ | (10,975 | ) | $ | 4,385 | |||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Foreign
currency translation adjustments
|
- | - | - | 2,154 | - | 2,154 | ||||||||||||||||||
Total
comprehensive income
|
$ | 4,385 | $ | 4,385 | $ | 3,813 | $ | 4,931 | $ | (10,975 | ) | $ | 6,539 |
26
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
|
||||||||||||||||||||||||
For
the three months ended September 27, 2008
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
Net
sales
|
$ | - | $ | - | $ | 319,721 | $ | 23,104 | $ | - | $ | 342,825 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||||||||||
Cost
of products sold
|
- | - | 262,433 | 15,004 | - | 277,437 | ||||||||||||||||||
Selling,
general and
|
||||||||||||||||||||||||
administrative
expenses
|
- | 2,458 | 30,843 | 3,657 | - | 36,958 | ||||||||||||||||||
Intercompany
administrative
|
||||||||||||||||||||||||
charges
|
- | - | 3,202 | - | (3,202 | ) | - | |||||||||||||||||
Amortization
of intangible assets
|
- | - | 4,913 | - | - | 4,913 | ||||||||||||||||||
Goodwill
impairment
|
- | - | 178,107 | 21,893 | - | 200,000 | ||||||||||||||||||
Total
costs and expenses
|
- | 2,458 | 479,498 | 40,554 | (3,202 | ) | 519,308 | |||||||||||||||||
Operating
loss
|
- | (2,458 | ) | (159,777 | ) | (17,450 | ) | 3,202 | (176,483 | ) | ||||||||||||||
Foreign
currency loss
|
- | - | - | (60 | ) | - | (60 | ) | ||||||||||||||||
Intercompany
interest
|
- | 30,379 | (29,841 | ) | (538 | ) | - | - | ||||||||||||||||
Interest
expense
|
- | (30,278 | ) | (29 | ) | 7 | - | (30,300 | ) | |||||||||||||||
Interest
income
|
- | 85 | 74 | 17 | - | 176 | ||||||||||||||||||
Intercompany
administrative income
|
- | 3,202 | - | - | (3,202 | ) | - | |||||||||||||||||
Income
(loss) before equity in
|
||||||||||||||||||||||||
subsidiaries'
income (loss)
|
- | 930 | (189,573 | ) | (18,024 | ) | - | (206,667 | ) | |||||||||||||||
Equity
in subsidiaries' income (loss)
|
(190,832 | ) | (191,722 | ) | - | - | 382,554 | - | ||||||||||||||||
Income
(loss) before income tax
|
||||||||||||||||||||||||
provision
(benefit)
|
(190,832 | ) | (190,792 | ) | (189,573 | ) | (18,024 | ) | 382,554 | (206,667 | ) | |||||||||||||
Provision
(benefit) for income taxes
|
- | 40 | (11,939 | ) | (3,936 | ) | - | (15,835 | ) | |||||||||||||||
Net
loss
|
$ | (190,832 | ) | $ | (190,832 | ) | $ | (177,634 | ) | $ | (14,088 | ) | $ | 382,554 | $ | (190,832 | ) | |||||||
Other
comprehensive loss:
|
||||||||||||||||||||||||
Foreign
currency translation adjustments
|
- | - | - | (1,296 | ) | - | (1,296 | ) | ||||||||||||||||
Total
comprehensive loss
|
$ | (190,832 | ) | $ | (190,832 | ) | $ | (177,634 | ) | $ | (15,384 | ) | $ | 382,554 | $ | (192,128 | ) |
27
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
|
||||||||||||||||||||||||
For
the nine months ended October 3, 2009
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
Net
sales
|
$ | - | $ | - | $ | 691,917 | $ | 44,879 | $ | - | $ | 736,796 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||||||||||
Cost
of products sold
|
- | - | 552,436 | 31,177 | - | 583,613 | ||||||||||||||||||
Selling,
general and
|
||||||||||||||||||||||||
administrative
expenses
|
- | 10,276 | 91,727 | 8,449 | - | 110,452 | ||||||||||||||||||
Intercompany
administrative
|
||||||||||||||||||||||||
charges
|
- | - | 6,928 | - | (6,928 | ) | - | |||||||||||||||||
Amortization
of intangible assets
|
- | 12 | 14,722 | - | - | 14,734 | ||||||||||||||||||
Total
costs and expenses
|
- | 10,288 | 665,813 | 39,626 | (6,928 | ) | 708,799 | |||||||||||||||||
Operating
earnings (loss)
|
- | (10,288 | ) | 26,104 | 5,253 | 6,928 | 27,997 | |||||||||||||||||
Foreign
currency gain
|
- | - | - | 84 | - | 84 | ||||||||||||||||||
Intercompany
interest
|
- | 90,833 | (89,526 | ) | (1,307 | ) | - | - | ||||||||||||||||
Interest
expense
|
- | (99,353 | ) | (136 | ) | - | - | (99,489 | ) | |||||||||||||||
Interest
income
|
- | 30 | 148 | 2 | - | 180 | ||||||||||||||||||
Intercompany
administrative income
|
- | 6,928 | - | - | (6,928 | ) | - | |||||||||||||||||
Income
(loss) before equity in
|
||||||||||||||||||||||||
subsidiaries'
income (loss)
|
- | (11,850 | ) | (63,410 | ) | 4,032 | - | (71,228 | ) | |||||||||||||||
Equity
in subsidiaries' income (loss)
|
(59,132 | ) | (49,294 | ) | - | - | 108,426 | - | ||||||||||||||||
Income
(loss) before provision
|
||||||||||||||||||||||||
(benefit)
for income taxes
|
(59,132 | ) | (61,144 | ) | (63,410 | ) | 4,032 | 108,426 | (71,228 | ) | ||||||||||||||
Provision
(benefit) for income taxes
|
- | (2,012 | ) | (11,327 | ) | 1,243 | - | (12,096 | ) | |||||||||||||||
Net
income (loss)
|
$ | (59,132 | ) | $ | (59,132 | ) | $ | (52,083 | ) | $ | 2,789 | $ | 108,426 | $ | (59,132 | ) | ||||||||
Other
comprehensive income (loss):
|
||||||||||||||||||||||||
Foreign
currency translation adjustments
|
- | - | - | 3,352 | - | 3,352 | ||||||||||||||||||
Total
comprehensive income (loss)
|
$ | (59,132 | ) | $ | (59,132 | ) | $ | (52,083 | ) | $ | 6,141 | $ | 108,426 | $ | (55,780 | ) |
28
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
|
||||||||||||||||||||||||
For
the nine months ended September 27, 2008
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
Net
sales
|
$ | - | $ | - | $ | 875,775 | $ | 64,703 | $ | - | $ | 940,478 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||||||||||
Cost
of products sold
|
- | - | 733,205 | 43,039 | - | 776,244 | ||||||||||||||||||
Selling,
general and
|
||||||||||||||||||||||||
administrative
expenses
|
- | 7,327 | 100,377 | 11,685 | - | 119,389 | ||||||||||||||||||
Intercompany
administrative
|
||||||||||||||||||||||||
charges
|
- | - | 8,765 | - | (8,765 | ) | - | |||||||||||||||||
Amortization
of intangible assets
|
- | - | 14,739 | - | - | 14,739 | ||||||||||||||||||
Goodwill
impairment
|
- | - | 178,107 | 21,893 | - | 200,000 | ||||||||||||||||||
Total
costs and expenses
|
- | 7,327 | 1,035,193 | 76,617 | (8,765 | ) | 1,110,372 | |||||||||||||||||
Operating
loss
|
- | (7,327 | ) | (159,418 | ) | (11,914 | ) | 8,765 | (169,894 | ) | ||||||||||||||
Foreign
currency loss
|
- | - | - | (555 | ) | - | (555 | ) | ||||||||||||||||
Intercompany
interest
|
- | 70,888 | (70,232 | ) | (656 | ) | - | - | ||||||||||||||||
Interest
expense
|
- | (103,790 | ) | - | (649 | ) | - | (104,439 | ) | |||||||||||||||
Interest
income
|
- | 332 | 80 | 74 | - | 486 | ||||||||||||||||||
Intercompany
administrative income
|
- | 8,765 | - | - | (8,765 | ) | - | |||||||||||||||||
Loss
before equity in
|
||||||||||||||||||||||||
subsidiaries'
loss
|
- | (31,132 | ) | (229,570 | ) | (13,700 | ) | - | (274,402 | ) | ||||||||||||||
Equity
in subsidiaries' loss
|
(232,167 | ) | (213,488 | ) | - | - | 445,655 | - | ||||||||||||||||
Loss
before income tax benefit
|
(232,167 | ) | (244,620 | ) | (229,570 | ) | (13,700 | ) | 445,655 | (274,402 | ) | |||||||||||||
Benefit
for income taxes
|
- | (12,453 | ) | (27,272 | ) | (2,510 | ) | - | (42,235 | ) | ||||||||||||||
Net
loss
|
$ | (232,167 | ) | $ | (232,167 | ) | $ | (202,298 | ) | $ | (11,190 | ) | $ | 445,655 | $ | (232,167 | ) | |||||||
Other
comprehensive loss:
|
||||||||||||||||||||||||
Foreign
currency translation adjustments
|
- | - | - | (1,875 | ) | - | (1,875 | ) | ||||||||||||||||
Total
comprehensive loss
|
$ | (232,167 | ) | $ | (232,167 | ) | $ | (202,298 | ) | $ | (13,065 | ) | $ | 445,655 | $ | (234,042 | ) |
29
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONDENSED
CONSOLIDATING BALANCE SHEET
|
||||||||||||||||||||||||
As
of October 3, 2009
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Current
Assets:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
$ | - | $ | 34,650 | $ | 2,452 | $ | 2,665 | $ | - | $ | 39,767 | ||||||||||||
Accounts
receivable, net
|
- | - | 138,098 | 11,443 | - | 149,541 | ||||||||||||||||||
Inventories:
|
||||||||||||||||||||||||
Raw
materials
|
- | - | 35,770 | 4,672 | - | 40,442 | ||||||||||||||||||
Work
in process
|
- | - | 19,209 | 988 | - | 20,197 | ||||||||||||||||||
Finished
goods
|
- | - | 32,166 | 2,383 | - | 34,549 | ||||||||||||||||||
Total
inventory
|
- | - | 87,145 | 8,043 | - | 95,188 | ||||||||||||||||||
Prepaid
expenses and other
|
||||||||||||||||||||||||
current
assets
|
- | 2,319 | 17,597 | 1,895 | - | 21,811 | ||||||||||||||||||
Total
current assets
|
- | 36,969 | 245,292 | 24,046 | - | 306,307 | ||||||||||||||||||
Investments
in subsidiaries
|
(298,382 | ) | (303,978 | ) | - | - | 602,360 | - | ||||||||||||||||
Property
and Equipment, at cost:
|
||||||||||||||||||||||||
Land
|
- | - | 3,565 | 162 | - | 3,727 | ||||||||||||||||||
Buildings
and improvements
|
- | - | 34,568 | 949 | - | 35,517 | ||||||||||||||||||
Machinery
and equipment
|
- | 1,259 | 251,192 | 6,592 | - | 259,043 | ||||||||||||||||||
- | 1,259 | 289,325 | 7,703 | - | 298,287 | |||||||||||||||||||
Less
accumulated depreciation
|
- | (384 | ) | (146,179 | ) | (3,313 | ) | - | (149,876 | ) | ||||||||||||||
Total
property and equipment, net
|
- | 875 | 143,146 | 4,390 | - | 148,411 | ||||||||||||||||||
Other
Assets:
|
||||||||||||||||||||||||
Intangible
assets, net
|
- | - | 178,980 | - | - | 178,980 | ||||||||||||||||||
Goodwill
|
- | - | 382,472 | 10,060 | - | 392,532 | ||||||||||||||||||
Deferred
income taxes
|
- | - | - | 2,686 | - | 2,686 | ||||||||||||||||||
Intercompany
note receivable
|
- | 1,101,260 | - | - | (1,101,260 | ) | - | |||||||||||||||||
Other
|
- | 36,726 | 803 | - | - | 37,529 | ||||||||||||||||||
Total
other assets
|
- | 1,137,986 | 562,255 | 12,746 | (1,101,260 | ) | 611,727 | |||||||||||||||||
$ | (298,382 | ) | $ | 871,852 | $ | 950,693 | $ | 41,182 | $ | (498,900 | ) | $ | 1,066,445 | |||||||||||
LIABILITIES
AND STOCKHOLDER'S EQUITY (DEFICIT)
|
||||||||||||||||||||||||
Current
Liabilities:
|
||||||||||||||||||||||||
Accounts
payable
|
$ | - | $ | 797 | $ | 65,947 | $ | 4,669 | $ | - | $ | 71,413 | ||||||||||||
Accrued
expenses and taxes
|
- | 37,361 | 60,736 | 3,533 | - | 101,630 | ||||||||||||||||||
Total
current liabilities
|
- | 38,158 | 126,683 | 8,202 | - | 173,043 | ||||||||||||||||||
Deferred
income taxes
|
- | - | 2,739 | - | - | 2,739 | ||||||||||||||||||
Intercompany
note payable
|
- | - | 1,088,999 | 12,261 | (1,101,260 | ) | - | |||||||||||||||||
Other
long-term liabilities
|
- | 12,133 | 55,945 | 1,024 | - | 69,102 | ||||||||||||||||||
Long-term debt due to related parties | - | 234,707 | - | - | - | 234,707 | ||||||||||||||||||
Long-term
debt
|
- | 885,236 | - | - | - | 885,236 | ||||||||||||||||||
Commitments
and contingencies
|
||||||||||||||||||||||||
Stockholder's
Equity (Deficit):
|
||||||||||||||||||||||||
Preferred
stock
|
- | - | - | - | - | - | ||||||||||||||||||
Common
stock
|
- | - | - | - | - | - | ||||||||||||||||||
Additional
paid-in-capital
|
209,933 | 209,933 | 157,964 | 5,318 | (373,215 | ) | 209,933 | |||||||||||||||||
Retained
earnings (accumulated deficit)
|
(506,125 | ) | (506,125 | ) | (481,637 | ) | 11,627 | 976,135 | (506,125 | ) | ||||||||||||||
Accumulated
other
|
||||||||||||||||||||||||
comprehensive
income (loss)
|
(2,190 | ) | (2,190 | ) | - | 2,750 | (560 | ) | (2,190 | ) | ||||||||||||||
Total
stockholder's equity (deficit)
|
(298,382 | ) | (298,382 | ) | (323,673 | ) | 19,695 | 602,360 | (298,382 | ) | ||||||||||||||
$ | (298,382 | ) | $ | 871,852 | $ | 950,693 | $ | 41,182 | $ | (498,900 | ) | $ | 1,066,445 |
30
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONDENSED
CONSOLIDATING BALANCE SHEET
|
||||||||||||||||||||||||
As
of December 31, 2008
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||
Current
Assets:
|
||||||||||||||||||||||||
Cash
and cash equivalents
|
$ | - | $ | 46,181 | $ | 4,490 | $ | 7,618 | $ | - | $ | 58,289 | ||||||||||||
Accounts
receivable, net
|
- | - | 83,537 | 6,990 | - | 90,527 | ||||||||||||||||||
Inventories:
|
||||||||||||||||||||||||
Raw
materials
|
- | - | 49,448 | 3,612 | - | 53,060 | ||||||||||||||||||
Work
in process
|
- | - | 27,137 | 948 | - | 28,085 | ||||||||||||||||||
Finished
goods
|
- | - | 40,133 | 2,134 | - | 42,267 | ||||||||||||||||||
Total
inventory
|
- | - | 116,718 | 6,694 | - | 123,412 | ||||||||||||||||||
Prepaid
expenses and other
|
||||||||||||||||||||||||
current
assets
|
- | 3,956 | 15,559 | 470 | - | 19,985 | ||||||||||||||||||
Deferred
income taxes
|
- | - | 13,924 | 2,943 | - | 16,867 | ||||||||||||||||||
Total
current assets
|
- | 50,137 | 234,228 | 24,715 | - | 309,080 | ||||||||||||||||||
Investments
in subsidiaries
|
(242,628 | ) | (289,731 | ) | - | - | 532,359 | - | ||||||||||||||||
Property
and Equipment, at cost:
|
||||||||||||||||||||||||
Land
|
- | - | 3,565 | 144 | - | 3,709 | ||||||||||||||||||
Buildings
and improvements
|
- | - | 34,378 | 828 | - | 35,206 | ||||||||||||||||||
Machinery
and equipment
|
- | 1,246 | 246,211 | 5,833 | - | 253,290 | ||||||||||||||||||
- | 1,246 | 284,154 | 6,805 | - | 292,205 | |||||||||||||||||||
Less
accumulated depreciation
|
- | (257 | ) | (119,426 | ) | (2,511 | ) | - | (122,194 | ) | ||||||||||||||
Total
property and equipment, net
|
- | 989 | 164,728 | 4,294 | - | 170,011 | ||||||||||||||||||
Other
Assets:
|
||||||||||||||||||||||||
Intangible
assets, net
|
- | - | 193,604 | - | - | 193,604 | ||||||||||||||||||
Goodwill
|
- | - | 381,854 | 8,925 | - | 390,779 | ||||||||||||||||||
Intercompany
note receivable
|
- | 1,107,260 | - | - | (1,107,260 | ) | - | |||||||||||||||||
Other
|
- | 40,273 | 306 | - | - | 40,579 | ||||||||||||||||||
Total
other assets
|
- | 1,147,533 | 575,764 | 8,925 | (1,107,260 | ) | 624,962 | |||||||||||||||||
$ | (242,628 | ) | $ | 908,928 | $ | 974,720 | $ | 37,934 | $ | (574,901 | ) | $ | 1,104,053 | |||||||||||
LIABILITIES
AND STOCKHOLDER'S EQUITY (DEFICIT)
|
||||||||||||||||||||||||
Current
Liabilities:
|
||||||||||||||||||||||||
Accounts
payable
|
$ | - | $ | 1,070 | $ | 55,304 | $ | 3,229 | $ | - | $ | 59,603 | ||||||||||||
Accrued
expenses and taxes
|
- | 24,600 | 49,795 | 1,909 | - | 76,304 | ||||||||||||||||||
Total
current liabilities
|
- | 25,670 | 105,099 | 5,138 | - | 135,907 | ||||||||||||||||||
Deferred
income taxes
|
- | - | 28,355 | - | - | 28,355 | ||||||||||||||||||
Intercompany
note payable
|
- | - | 1,088,999 | 18,261 | (1,107,260 | ) | - | |||||||||||||||||
Other
long-term liabilities
|
- | 11,700 | 55,623 | 910 | - | 68,233 | ||||||||||||||||||
Long-term
debt
|
- | 1,114,186 | - | - | - | 1,114,186 | ||||||||||||||||||
Commitments
and contingencies
|
||||||||||||||||||||||||
Stockholder's
Equity (Deficit):
|
||||||||||||||||||||||||
Preferred
stock
|
- | - | - | - | - | - | ||||||||||||||||||
Common
stock
|
- | - | - | - | - | - | ||||||||||||||||||
Additional
paid-in-capital
|
209,908 | 209,908 | 126,198 | 5,389 | (341,495 | ) | 209,908 | |||||||||||||||||
Retained
earnings (accumulated deficit)
|
(446,993 | ) | (446,993 | ) | (429,554 | ) | 8,838 | 867,709 | (446,993 | ) | ||||||||||||||
Accumulated
other
|
||||||||||||||||||||||||
comprehensive
income (loss)
|
(5,543 | ) | (5,543 | ) | - | (602 | ) | 6,145 | (5,543 | ) | ||||||||||||||
Total
stockholder’s equity (deficit)
|
(242,628 | ) | (242,628 | ) | (303,356 | ) | 13,625 | 532,359 | (242,628 | ) | ||||||||||||||
$ | (242,628 | ) | $ | 908,928 | $ | 974,720 | $ | 37,934 | $ | (574,901 | ) | $ | 1,104,053 |
31
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONSOLIDATING
STATEMENT OF CASH FLOWS
|
||||||||||||||||||||||||
For
the nine months ended October 3, 2009
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
Cash
flows from operating
|
||||||||||||||||||||||||
activities:
|
||||||||||||||||||||||||
Net
income (loss)
|
$ | (59,132 | ) | $ | (59,132 | ) | $ | (52,083 | ) | $ | 2,789 | $ | 108,426 | $ | (59,132 | ) | ||||||||
Adjustments
to reconcile net
|
||||||||||||||||||||||||
income
(loss) to cash provided by
|
||||||||||||||||||||||||
(used
in) operating activities:
|
||||||||||||||||||||||||
Depreciation
and amortization
|
||||||||||||||||||||||||
expense
|
- | 127 | 41,620 | 522 | - | 42,269 | ||||||||||||||||||
Non-cash
interest expense, net
|
- | 6,368 | - | - | - | 6,368 | ||||||||||||||||||
Gain
on foreign currency transactions
|
- | - | - | (84 | ) | - | (84 | ) | ||||||||||||||||
Gain
on sale of assets
|
- | - | (6 | ) | - | - | (6 | ) | ||||||||||||||||
Deferred
income taxes
|
- | - | (11,611 | ) | 506 | - | (11,105 | ) | ||||||||||||||||
Equity
in subsidiaries' loss
|
59,132 | 49,294 | - | - | (108,426 | ) | - | |||||||||||||||||
Changes
in operating assets and
|
||||||||||||||||||||||||
liabilities:
|
||||||||||||||||||||||||
Accounts
receivable, net
|
- | - | (54,561 | ) | (3,237 | ) | - | (57,798 | ) | |||||||||||||||
Inventories
|
- | - | 29,573 | (462 | ) | - | 29,111 | |||||||||||||||||
Prepaid
expenses and other
|
||||||||||||||||||||||||
current
assets
|
- | 1,636 | (2,485 | ) | (1,381 | ) | - | (2,230 | ) | |||||||||||||||
Accounts
payable
|
- | (273 | ) | 10,717 | 860 | - | 11,304 | |||||||||||||||||
Accrued
expenses and taxes
|
- | 12,345 | 10,025 | 7,286 | - | 29,656 | ||||||||||||||||||
Cash
payments on restructuring liabilities
|
- | - | (5,274 | ) | - | - | (5,274 | ) | ||||||||||||||||
Other
|
- | 25 | (133 | ) | (93 | ) | - | (201 | ) | |||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||||||||
operating
activities
|
- | 10,390 | (34,218 | ) | 6,706 | - | (17,122 | ) | ||||||||||||||||
Cash
flows from investing
|
||||||||||||||||||||||||
activities:
|
||||||||||||||||||||||||
Capital
expenditures
|
- | (12 | ) | (5,427 | ) | (107 | ) | - | (5,546 | ) | ||||||||||||||
Proceeds
from sale of assets
|
- | - | 78 | - | - | 78 | ||||||||||||||||||
Other
|
- | - | (109 | ) | - | - | (109 | ) | ||||||||||||||||
Net
cash used in
|
||||||||||||||||||||||||
investing
activities
|
- | (12 | ) | (5,458 | ) | (107 | ) | - | (5,577 | ) | ||||||||||||||
Cash
flows from financing
|
||||||||||||||||||||||||
activities:
|
||||||||||||||||||||||||
Net
revolver borrowings
|
- | 5,000 | - | - | - | 5,000 | ||||||||||||||||||
Proceeds
from intercompany
|
||||||||||||||||||||||||
investment
|
- | (25,694 | ) | 37,638 | (11,944 | ) | - | - | ||||||||||||||||
Debt
issuance costs paid
|
- | (1,215 | ) | - | - | - | (1,215 | ) | ||||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||||||||
financing
activities
|
- | (21,909 | ) | 37,638 | (11,944 | ) | - | 3,785 | ||||||||||||||||
Impact
of exchange rate movement
|
||||||||||||||||||||||||
on
cash
|
- | - | - | 392 | - | 392 | ||||||||||||||||||
Net
decrease in cash
|
||||||||||||||||||||||||
and
cash equivalents
|
- | (11,531 | ) | (2,038 | ) | (4,953 | ) | - | (18,522 | ) | ||||||||||||||
Cash
and cash equivalents at the
|
||||||||||||||||||||||||
beginning
of the period
|
- | 46,181 | 4,490 | 7,618 | - | 58,289 | ||||||||||||||||||
Cash
and cash equivalents at the end
|
||||||||||||||||||||||||
of
the period
|
$ | - | $ | 34,650 | $ | 2,452 | $ | 2,665 | $ | - | $ | 39,767 |
32
PLY
GEM HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||
CONSOLIDATING
STATEMENT OF CASH FLOWS
|
||||||||||||||||||||||||
For
the nine months ended September 27, 2008
|
||||||||||||||||||||||||
Guarantor
|
Issuer
|
Non-
|
||||||||||||||||||||||
Ply
Gem
|
Ply
Gem
|
Guarantor
|
Guarantor
|
Consolidating
|
||||||||||||||||||||
Holdings, Inc.
|
Industries, Inc.
|
Subsidiaries
|
Subsidiary
|
Adjustments
|
Consolidated
|
|||||||||||||||||||
(Amounts
in thousands)
|
||||||||||||||||||||||||
Cash
flows from operating
|
||||||||||||||||||||||||
activities:
|
||||||||||||||||||||||||
Net
loss
|
$ | (232,167 | ) | $ | (232,167 | ) | $ | (202,298 | ) | $ | (11,190 | ) | $ | 445,655 | $ | (232,167 | ) | |||||||
Adjustments
to reconcile net
|
||||||||||||||||||||||||
loss
to cash provided by
|
||||||||||||||||||||||||
(used
in) operating activities:
|
||||||||||||||||||||||||
Depreciation
and amortization
|
||||||||||||||||||||||||
expense
|
- | 102 | 46,535 | 598 | - | 47,235 | ||||||||||||||||||
Non-cash
interest expense, net
|
- | 5,141 | - | - | - | 5,141 | ||||||||||||||||||
Goodwill
impairment
|
- | - | 178,107 | 21,893 | - | 200,000 | ||||||||||||||||||
Loss
on foreign currency transactions
|
- | - | - | 555 | - | 555 | ||||||||||||||||||
Loss
on sale of assets
|
- | - | 844 | - | - | 844 | ||||||||||||||||||
Write-off
debt financing costs
|
- | 14,047 | - | - | - | 14,047 | ||||||||||||||||||
Deferred
income taxes
|
- | - | (45,532 | ) | 213 | - | (45,319 | ) | ||||||||||||||||
Equity
in subsidiaries' loss
|
232,167 | 213,488 | - | - | (445,655 | ) | - | |||||||||||||||||
Changes
in operating assets and
|
||||||||||||||||||||||||
liabilities:
|
||||||||||||||||||||||||
Accounts
receivable, net
|
- | - | (56,767 | ) | (1,620 | ) | - | (58,387 | ) | |||||||||||||||
Inventories
|
- | - | (3,604 | ) | (1,539 | ) | - | (5,143 | ) | |||||||||||||||
Prepaid
expenses and other
|
||||||||||||||||||||||||
current
assets
|
- | 1,886 | (700 | ) | (238 | ) | - | 948 | ||||||||||||||||
Accounts
payable
|
- | 1,057 | 17,930 | 419 | - | 19,406 | ||||||||||||||||||
Accrued
expenses and taxes
|
- | 14,200 | (691 | ) | (7,892 | ) | - | 5,617 | ||||||||||||||||
Cash
payments on restructuring liabilities
|
- | - | (6,803 | ) | - | - | (6,803 | ) | ||||||||||||||||
Other
|
- | - | 25 | 41 | - | 66 | ||||||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||||||||
operating
activities
|
- | 17,754 | (72,954 | ) | 1,240 | - | (53,960 | ) | ||||||||||||||||
Cash
flows from investing
|
||||||||||||||||||||||||
activities:
|
||||||||||||||||||||||||
Capital
expenditures
|
- | (629 | ) | (11,908 | ) | (979 | ) | - | (13,516 | ) | ||||||||||||||
Proceeds
from sale of assets
|
- | 5,810 | 3,002 | - | - | 8,812 | ||||||||||||||||||
Other
|
- | (127 | ) | - | - | - | (127 | ) | ||||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||||||||
investing
activities
|
- | 5,054 | (8,906 | ) | (979 | ) | - | (4,831 | ) | |||||||||||||||
Cash
flows from financing
|
||||||||||||||||||||||||
activities:
|
||||||||||||||||||||||||
Proceeds
from long-term debt
|
- | 693,504 | - | - | - | 693,504 | ||||||||||||||||||
Proceeds
from intercompany
|
||||||||||||||||||||||||
investment
|
- | (94,752 | ) | 76,492 | 18,260 | - | - | |||||||||||||||||
Payments
on long-term debt
|
- | (657,347 | ) | - | (20,563 | ) | - | (677,910 | ) | |||||||||||||||
Debt
issuance costs paid
|
- | (26,025 | ) | - | - | - | (26,025 | ) | ||||||||||||||||
Equity
contributions
|
- | 30,310 | - | - | - | 30,310 | ||||||||||||||||||
Equity
repurchases
|
- | (793 | ) | - | - | - | (793 | ) | ||||||||||||||||
Net
cash provided by (used in)
|
||||||||||||||||||||||||
financing
activities
|
- | (55,103 | ) | 76,492 | (2,303 | ) | - | 19,086 | ||||||||||||||||
Impact
of exchange rate movement
|
||||||||||||||||||||||||
on
cash
|
- | - | - | (215 | ) | - | (215 | ) | ||||||||||||||||
Net
decrease in cash
|
||||||||||||||||||||||||
and
cash equivalents
|
- | (32,295 | ) | (5,368 | ) | (2,257 | ) | - | (39,920 | ) | ||||||||||||||
Cash
and cash equivalents at the
|
||||||||||||||||||||||||
beginning
of the period
|
- | 40,446 | 5,423 | 6,184 | - | 52,053 | ||||||||||||||||||
Cash
and cash equivalents at the end
|
||||||||||||||||||||||||
of
the period
|
$ | - | $ | 8,151 | $ | 55 | $ | 3,927 | $ | - | $ | 12,133 |
33
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The
information contained in this discussion and in the unaudited Condensed
Consolidated Financial Statements and Accompanying Notes presented in this Form
10-Q should be read in conjunction with information set forth in Ply Gem
Holdings’ Annual Report on Form 10-K. Certain statements in this
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” are “forward-looking statements”. See “Special Note
Regarding Forward-Looking Statements.” As used in this Quarterly
Report on Form 10-Q, the “Company”, “we”, “us”, and “our” refer to Ply Gem
Holdings and its subsidiaries, except where the context otherwise requires or as
otherwise indicated.
Overview
We are a
leading manufacturer of residential exterior building products in North
America. We offer a comprehensive product line of vinyl siding and
skirting, vinyl windows and doors, vinyl and composite fencing and railing, and
stone veneer that serves both the home repair and remodeling and the new home
construction sectors in the United States and Western Canada. Vinyl
building products have the leading share of sales by volume in siding and
windows, and a fast growing share of sales by volume in fencing in the United
States. We also manufacture vinyl and aluminum soffit and siding accessories,
aluminum trim coil, wood, vinyl, aluminum, and vinyl and aluminum clad windows,
and steel and fiberglass doors, enabling us to bundle complementary and
color-matched products and accessories with our core vinyl
products. We believe our broad product offering and
geographically diverse manufacturing base allow us to better serve our customers
and provide us with a competitive advantage over other vinyl building products
suppliers. We have two reportable segments: (i) Siding, Fencing, and
Stone, and (ii) Windows and Doors.
We are a holding company with no operations or assets of our own other than the capital stock of our subsidiaries. The terms of Ply Gem Industries’ ABL Facility place restrictions on its ability to pay dividends and otherwise transfer assets to us. Further, the terms of the indenture governing Ply Gem Industries' Senior Secured Notes places restrictions on the ability of Ply Gem Industries and our other subsidiaries to pay dividends and otherwise transfer assets to us.
PVC resin
and aluminum are major components in the production of our products and changes
in PVC resin and aluminum prices have a direct impact on our cost of products
sold. Historically, we have been able to pass on the price increases
to our customers. The results of operations for individual quarters
can be negatively impacted by a delay between the time of raw material cost
increases and price increases that we implement in our products, or conversely
can be positively impacted by a delay between the time of a raw material price
decrease and competitive pricing moves that we implement
accordingly.
Financial
statement presentation
Net Sales. Net
sales represent the selling price of our products plus certain shipping charges
less applicable provisions for discounts and allowances. Allowances
include cash discounts, volume rebates and gross returns among
others.
Cost of products
sold. Cost of products sold includes direct material and
manufacturing costs, manufacturing depreciation, third-party and in-house
delivery costs and product warranty expense.
Selling, general and administrative
expenses. Selling, general and administrative expenses, or
“SG&A expenses,” includes all non-product related operating expenses,
including selling, marketing, research and development costs, information
technology and other general and administrative expenses.
Operating earnings
(loss). Operating earnings (losses) represents net sales less
cost of products sold, SG&A expenses and amortization of intangible
assets.
Comparability. All
periods after the USV acquisition in October 2008 include the results of
operations of USV. As a result, the three and nine month periods
ended October 3, 2009 will not be directly comparable to the three and nine
month periods ended September 27, 2008.
34
Impact
of weather
Since our
building products are intended for exterior use, our sales and operating
earnings tend to be lower during periods of inclement
weather. Weather conditions in the first quarter of each calendar
year historically result in that quarter producing significantly less revenue
than in any other period of the year. As a result, we have
historically had lower profits or losses in the first quarter, and reduced
profits in the fourth quarter of each calendar year due to the
weather. Our results of operations for individual quarters in the
future may be impacted by adverse weather conditions.
Critical
Accounting Policies
Our
discussion and analysis of financial condition and results of operations are
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP. The preparation of our financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
liabilities. We base these estimates on our historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, and
these estimates form the basis for our judgments concerning the carrying values
of assets and liabilities that are not readily apparent from other sources. We
periodically evaluate these estimates and judgments based on available
information and experience. Actual results could differ from our estimates under
different assumptions and conditions. If actual results significantly differ
from our estimates, our financial condition and results of operations could be
materially impacted. For more information regarding our critical accounting
policies and estimates please refer to “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Critical Accounting
Policies” contained in our Annual Report on Form 10-K for the year
ended December 31, 2008 and Note 1 to our condensed consolidated financial
statements. There have been no material changes to the critical accounting
policies previously disclosed in that report.
Results
of Operations
The
following table summarizes net sales and operating earnings (loss) by segment
and is derived from the accompanying condensed consolidated statements of
operations included in this report.
(Amounts
in thousands)
Three
months ended
|
Nine
months ended
|
|||||||||||||||
October 3, 2009
|
September 27, 2008
|
October 3, 2009
|
September 27, 2008
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
Net
Sales
|
||||||||||||||||
Siding,
Fencing, and Stone
|
$ | 182,166 | $ | 216,446 | $ | 456,239 | $ | 572,756 | ||||||||
Windows
and Doors
|
111,303 | 126,379 | 280,557 | 367,722 | ||||||||||||
Operating
earnings (loss)
|
||||||||||||||||
Siding,
Fencing, and Stone
|
39,721 | 27,146 | 59,956 | 44,952 | ||||||||||||
Windows
and Doors
|
3,010 | (201,171 | ) | (21,671 | ) | (207,519 | ) | |||||||||
Unallocated
|
(3,751 | ) | (2,458 | ) | (10,288 | ) | (7,327 | ) | ||||||||
Foreign
currency gain (loss)
|
||||||||||||||||
Windows
and Doors
|
242 | (60 | ) | 84 | (555 | ) | ||||||||||
Interest
expense, net
|
||||||||||||||||
Siding,
Fencing, and Stone
|
20 | 43 | 148 | 72 | ||||||||||||
Windows
and Doors
|
(66 | ) | 26 | (134 | ) | (567 | ) | |||||||||
Unallocated
|
(32,531 | ) | (30,193 | ) | (99,323 | ) | (103,458 | ) | ||||||||
Income
tax provision (benefit)
|
||||||||||||||||
Unallocated
|
2,260 | (15,835 | ) | (12,096 | ) | (42,235 | ) | |||||||||
Net
income (loss)
|
$ | 4,385 | $ | (190,832 | ) | $ | (59,132 | ) | $ | (232,167 | ) |
35
The Company’s business is seasonal and the results of operations for the
periods presented are not necessarily indicative of the results for a full
fiscal year.
This
review of performance is organized by business segment, reflecting the way we
manage our business. Each business group leader is responsible for
operating results down to operating earnings. We use operating
earnings as a performance measure as it captures the income and expenses within
the management control of our business leaders. Corporate management
is responsible for making all financing decisions. Therefore, each
segment discussion focuses on the factors affecting operating earnings, while
interest expense and income taxes and certain other unallocated expenses are
separately discussed at the corporate level.
The
following tables set forth our results of operations based on the amounts and
the percentage relationship of the items listed to net sales for the periods
indicated. However, our results of operations set forth in the tables
below may not necessarily be representative of our future operating
results.
Siding,
Fencing and Stone Segment
For
the three months ended
|
||||||||||||||||
(dollars
in thousands)
|
October 3, 2009
|
September 27, 2008
|
||||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Statement of operations
data:
|
||||||||||||||||
Net
sales
|
$ | 182,166 | 100 | % | $ | 216,446 | 100 | % | ||||||||
Cost
of products sold
|
126,265 | 69.3 | % | 168,693 | 77.9 | % | ||||||||||
Gross
profit
|
55,901 | 30.7 | % | 47,753 | 22.1 | % | ||||||||||
SG&A
expense
|
14,051 | 7.7 | % | 18,470 | 8.5 | % | ||||||||||
Amortization
of intangible assets
|
2,129 | 1.2 | % | 2,137 | 1.0 | % | ||||||||||
Operating
earnings
|
$ | 39,721 | 21.8 | % | $ | 27,146 | 12.5 | % |
Net
Sales
Net sales
for the three months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $34.3 million, or 15.8%. The decrease in net sales was
driven by industry wide market declines resulting from lower single family
housing starts, which negatively impacted the new construction sector and
overall softness in repair and remodeling expenditures. These market
conditions negatively impacted demand for our products. According to
the U.S. Census Bureau, third quarter 2009 single family housing starts are
estimated to show a decline of approximately 15.5% from actual levels achieved
in the third quarter of 2008. Additionally, according to the National
Association of Home Builder’s (“NAHB”) October 2009 forecast, single family
housing starts are expected to decline in 2009 by 27.8% as compared to their
full year 2008 estimate. In addition to lower unit volume shipments,
selling prices were generally lower in the third quarter of 2009 as compared to
the third quarter of 2008 due to market pressure that resulted from lower raw
material and freight costs. The decrease in net sales that resulted
from industry wide market demand declines and lower selling prices were
partially offset by market share gains from sales to new customers and/or
expanded sales to existing customers from additional products or sales in new
geographical regions. As a result of our market share gains, we
outperformed the vinyl siding industry. Our unit shipments of vinyl siding for
the third quarter of 2009 decreased by only 5.6% as compared to the U.S. vinyl
siding industry, as summarized by the Vinyl Siding Institute, which reported a
19.9% unit shipment decline for the third quarter of 2009 compared to the third
quarter of 2008. Additionally, our sales for the third quarter of 2009 include
sales contributed by United Stone Veneer which was acquired in October
2008.
Cost of Products
Sold
Cost of
products sold for the three months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $42.4 million, or 25.2%. The
decrease in cost of products sold was primarily due to lower sales as discussed
above and decreased raw material costs, primarily PVC resin and aluminum, as
well as lower freight costs driven by lower oil costs. The Company estimates
that market cost of pipe grade PVC resin and aluminum declined by approximately
12.5% and 34.0% respectively in the third quarter of 2009 as compared to the
third quarter of 2008. Gross profit percentage for the three months
ended October 3, 2009 increased from the same period in 2008 from 22.1% to
30.7%. The improvement in gross profit percentage resulted from
decreased raw material and freight cost discussed above, partially offset by
lower selling prices. In addition, our gross profit percentage improved as a
result of management’s initiatives to reduce fixed expenses which included the
consolidation of the majority of the production from the Company’s vinyl siding
plant in Kearney, Missouri, into its other three remaining vinyl siding plants
and the consolidation of our metal accessory production from our Valencia,
Pennsylvania facility into our Sidney, Ohio facility which occurred during the
later part of 2008 and early 2009. The improvement in gross profit that resulted
from management’s initiatives was partially offset by initial costs that were
incurred with new customers that resulted from the buy-back, or lift-out, of our
competitor’s product on the initial stocking orders with our new customers which
was approximately $2.9 million for the third quarter of 2009 as compared to
approximately $0.3 million for the same period in 2008.
36
Selling, general and
administrative expenses
SG&A
expenses for the three months ended October 3, 2009 decreased by approximately
$4.4 million, or 23.9%, from the same period in 2008. The decrease in
SG&A expense was due to lower administrative and other fixed expenses that
have been reduced in light of current market conditions. The Company incurred
restructuring and integration expense of approximately $0.6 million for the
third quarter of 2009 and approximately $0.8 million for the same period in
2008.
Amortization of intangible
assets
Amortization
expense for the three months ended October 3, 2009 was consistent with the same
period in 2008.
For
the nine months ended
|
||||||||||||||||
(dollars
in thousands)
|
October 3, 2009
|
September 27, 2008
|
||||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Statement of operations
data:
|
||||||||||||||||
Net
sales
|
$ | 456,239 | 100 | % | $ | 572,756 | 100 | % | ||||||||
Cost
of products sold
|
340,548 | 74.6 | % | 463,503 | 80.9 | % | ||||||||||
Gross
profit
|
115,691 | 25.4 | % | 109,253 | 19.1 | % | ||||||||||
SG&A
expense
|
49,342 | 10.8 | % | 57,890 | 10.1 | % | ||||||||||
Amortization
of intangible assets
|
6,393 | 1.4 | % | 6,411 | 1.1 | % | ||||||||||
Operating
earnings
|
$ | 59,956 | 13.1 | % | $ | 44,952 | 7.8 | % |
Net
Sales
Net sales
for the nine months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $116.5 million, or 20.3%. The decrease in
net sales was driven by industry wide market declines resulting from lower
single family housing starts, which negatively impacted the new construction
sector and overall softness in repair and remodeling
expenditures. These market conditions negatively impacted demand for
our products. According to the U.S. Census Bureau, single family
housing starts for the first nine months of 2009 are estimated to show a decline
of approximately 34.5% from actual levels achieved in the first nine months of
2008. Additionally, according to the National Association of Home
Builder’s (“NAHB”) October 2009 forecast, single family housing starts are
expected to decline in 2009 by 27.8% as compared to their full year 2008
estimate. In addition to lower unit volume shipments, selling prices
were generally lower in the first nine months of 2009 as compared to the first
nine months of 2008 due to market pressure that resulted from lower raw material
and freight costs. The decrease in net sales that resulted from
industry wide market demand declines and lower selling prices were partially
offset by market share gains from sales to new customers and/or expanded sales
to existing customers from additional products or sales in new geographical
regions. As a result of our market share gains, we outperformed the
vinyl siding industry. Our unit shipments of vinyl siding for the first nine
months of 2009 decreased by 16.0% as compared to the U.S. vinyl siding industry,
as summarized by the Vinyl Siding Institute, which reported a 26.1% unit
shipment decline for the nine months of 2009 as compared to the same period
in 2008. Additionally, our sales for the first nine months
of 2009 include sales contributed by United Stone Veneer which was acquired in
October 2008.
Cost of Products
Sold
Cost of
products sold for the nine months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $123.0 million, or 26.5%. The decrease
in cost of products sold was primarily due to lower sales as discussed above and
decreased raw material costs, primarily PVC resin and aluminum, as well as lower
freight costs driven by lower oil costs. The Company estimates that market cost
of pipe grade PVC resin and aluminum declined by approximately 13.2% and 44.8%
respectively in the first nine months of 2009 as compared to the first nine
months of 2008. Gross profit percentage for the nine months ended
October 3, 2009 increased from the same period in 2008 from 19.1% to
25.4%. The improvement in gross profit percentage resulted from
decreased raw material and freight cost discussed above, partially offset by
lower selling prices. In addition, our gross profit percentage
improved as a result of management’s initiatives to reduce fixed expenses which
included the closure of the vinyl siding plant in Denison, Texas, which ceased
production in February 2008 and the consolidation of the majority of the
production from the Company’s vinyl siding plant in Kearney, Missouri, into its
other three remaining vinyl siding plants and the consolidation of our metal
accessory production from our Valencia, Pennsylvania facility into our Sidney,
Ohio facility which occurred during the later part of 2008 and early 2009. The
improvement in gross profit that resulted from management’s initiatives was
partially offset by initial costs that were incurred with new customers that
resulted from the buy-back, or lift-out, of our competitor’s product on the
initial stocking orders with our new customers which was approximately $6.0
million for the first nine months of 2009 as compared to approximately $1.1
million for the same period in 2008.
37
Selling, general and
administrative expenses
SG&A
expenses for the nine months ended October 3, 2009 decreased by approximately
$8.5 million, or 14.8%, from the same period in 2008. The decrease in
SG&A expense was due to lower administrative and other fixed expenses that
have been reduced in light of current market conditions, as well as lower
restructuring and integration expense. The Company incurred restructuring and
integration expense of approximately $2.7 million in the first nine months of
2009 and approximately $6.1 million for the same period in 2008.
Amortization of intangible
assets
Amortization
expense for the nine months ended October 3, 2009 was consistent with the same
period in 2008.
Windows
and Doors Segment
For
the three months ended
|
||||||||||||||||
(dollars
in thousands)
|
October 3, 2009
|
September 27, 2008
|
||||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Statement
of operations data:
|
||||||||||||||||
Net
sales
|
$ | 111,303 | 100 | % | $ | 126,379 | 100 | % | ||||||||
Cost
of products sold
|
89,826 | 80.7 | % | 108,744 | 86.0 | % | ||||||||||
Gross
profit
|
21,477 | 19.3 | % | 17,635 | 14.0 | % | ||||||||||
Goodwill
impairment
|
- | 200,000 | 158.3 | % | ||||||||||||
SG&A
expense
|
15,689 | 14.1 | % | 16,030 | 12.7 | % | ||||||||||
Amortization
of intangible assets
|
2,778 | 2.5 | % | 2,776 | 2.2 | % | ||||||||||
Operating
earnings (loss)
|
$ | 3,010 | 2.7 | % | $ | (201,171 | ) | -159.2 | % | |||||||
Currency
transaction gain (loss)
|
$ | 242 | 0.2 | % | $ | (60 | ) | 0.0 | % |
Net
Sales
Net sales
for the three months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $15.1 million, or 11.9%. The decrease in net
sales was due to lower demand for our window and door products due to lower
sales of our new construction window and door products which were negatively
impacted by market wide decreased demand that resulted from reductions in single
family housing starts in the U.S. as previously discussed. In
addition, sales of our window and door products in western Canada were
negatively impacted by market wide decreased demand that resulted from
reductions in housing starts in Alberta, Canada which were estimated to be down
6.9% in the third quarter of 2009 as compared to the same period in 2008
according to the Canadian Mortgage and Housing Corporation
(“CMHC”). The decrease in net sales that resulted from industry wide
market demand declines in both the U.S. and western Canadian markets were
partially offset by market share gains from sales to new customers and/or
expanded sales to existing customers from additional products or sales in new
geographical regions. Our unit shipments of windows and doors in the
U.S. were down 8.6% for the third quarter of 2009 as compared to the same period
in 2008, while according to the U.S. Census Bureau, third quarter 2009 single
family housing starts are estimated to show a decline of approximately 15.5%
from actual levels achieved in the third quarter of 2008. Our unit
shipments of windows and doors in western Canada were down 1.6% for the third
quarter of 2009 as compared to the same period in 2008, while according to the
CMHC, third quarter 2009 single family housing starts in Alberta, Canada are
estimated to show a decline of approximately 6.9% from actual levels achieved in
the third quarter of 2008.
38
Cost of Products
Sold
Cost of
products sold for the three months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $18.9 million, or 17.4%. The
decrease in cost of products sold was primarily due to lower sales as discussed
above and decreased raw material costs, primarily PVC resin and aluminum, as
well as lower freight costs driven by lower oil costs as previously discussed
above. Gross profit percentage for the three months ended October 3, 2009
increased from the same period in 2008 from 14.0% to 19.3%. The
improvement in gross profit percentage resulted from decreased raw material and
freight cost discussed above, partially offset by lower selling
prices. In addition, our gross profit percentage improved as a result
of management’s initiatives to reduce fixed expenses which included the closure
of our Hammonton, New Jersey, Phoenix, Arizona and Tupelo, Mississippi window
plants during the first six months of 2009 and our realignment of production
within our three west coast window plants, including the consolidation of window
lineal production during 2009. The improvement in gross profit that
resulted from management’s initiatives was partially offset by initial costs
that were incurred with new customers that resulted from the buy-back, or
lift-out, of our competitor’s product on the initial stocking orders with our
new customers which was approximately $0.4 million for the third quarter of 2009
as compared to approximately $0.1 million for the same period in
2008.
Goodwill
Impairment
As a
result of the depressed residential housing and remodeling markets, the Company
conducted an interim goodwill impairment test during the third quarter of 2008
and recorded an estimated $200.0 million impairment charge to operating
earnings. This non-cash charge did not affect the Company’s cash
position, liquidity, debt covenants, or have any impact on
operations. See “Note 3 – Goodwill Impairment” to the condensed
consolidated financial statements, for a detailed discussion on the 2008
goodwill impairment charge. The Company will continue to evaluate
goodwill during future periods and further declines in the residential housing
and remodeling markets could result in additional goodwill
impairments.
Selling, general and
administrative expenses
SG&A
expenses for the three months ended October 3, 2009 decreased by approximately
$0.3 million, or 2.1%, from the same period in 2008. The decrease in SG&A
expense was due to lower administrative and other fixed expenses that have been
reduced in light of current market conditions. The Company incurred
restructuring and integration expense of approximately $0.4 million for the
third quarter of 2009 and approximately $0.3 million for the same period in
2008.
Amortization of intangible
assets
Amortization
expense for the three months ended October 3, 2009 was consistent with the same
period in 2008.
For
the nine months ended
|
||||||||||||||||
(dollars
in thousands)
|
October 3, 2009
|
September 27, 2008
|
||||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Statement of operations
data:
|
||||||||||||||||
Net
sales
|
$ | 280,557 | 100 | % | $ | 367,722 | 100 | % | ||||||||
Cost
of products sold
|
243,065 | 86.6 | % | 312,741 | 85.0 | % | ||||||||||
Gross
profit
|
37,492 | 13.4 | % | 54,981 | 15.0 | % | ||||||||||
Goodwill
impairment
|
- | 200,000 | 54.4 | % | ||||||||||||
SG&A
expense
|
50,834 | 18.1 | % | 54,172 | 14.7 | % | ||||||||||
Amortization
of intangible assets
|
8,329 | 3.0 | % | 8,328 | 2.3 | % | ||||||||||
Operating
loss
|
$ | (21,671 | ) | -7.7 | % | $ | (207,519 | ) | -56.4 | % | ||||||
Currency
transaction gain (loss)
|
$ | 84 | 0.0 | % | $ | (555 | ) | -0.2 | % |
Net
Sales
Net sales
for the nine months ended October 3, 2009 decreased compared to the same period
in 2008 by approximately $87.2 million, or 23.7%. The decrease in net sales was
due to lower demand for our window and door products due to lower sales of our
new construction window and door products which were negatively impacted by
market wide decreased demand that resulted from reductions in single family
housing starts in the U.S. as previously discussed. In addition,
sales of our window and door products in western Canada were negatively impacted
by market wide decreased demand that resulted from reductions in single family
housing starts in Alberta, Canada which were estimated to be down 46.6% in the
first nine months of 2009 as compared to the same period in 2008 according to
the CMHC. The decrease in net sales that resulted from industry wide market
demand declines in both the U.S. and western Canadian markets were partially
offset by market share gains from sales to new customers and/or expanded sales
to existing customers from additional products or sales in new geographical
regions. Our unit shipments of windows and doors in the U.S. were
down 18.7% for the first nine months of 2009 as compared to the same period in
2008, while according to the U.S. Census Bureau, single family housing starts
for the first nine months of 2009 are estimated to show a decline of
approximately 34.5% from actual levels achieved in the first nine months of
2008. Our unit shipments of windows and doors in western Canada were
down 20.0% for the first nine months of 2009 as compared to the same period in
2008, while according to the CMHC, single family housing starts in Alberta,
Canada for the first nine months of 2009 are estimated to show a decline of
approximately 46.6% from actual levels achieved in the first nine months of
2008.
39
Cost of Products
Sold
Cost of
products sold for the nine months ended October 3, 2009 decreased compared to
the same period in 2008 by approximately $69.7 million, or 22.3%. The decrease
in cost of products sold was primarily due to lower sales as discussed above and
decreased raw material costs, primarily PVC resin and aluminum, as well as lower
freight costs driven by lower oil costs as previously discussed above. Gross
profit percentage for the nine months ended October 3, 2009 declined from the
same period in 2008 from 15.0% to 13.4%. The decrease in gross profit
percentage resulted from lower sales as fixed manufacturing costs were not
reduced in direct proportion to lower sales. In response to lower market demand,
the Company closed its Hammonton, New Jersey, Phoenix, Arizona and Tupelo,
Mississippi window plants during the first nine months of 2009 and realigned
production within its three west coast window plants, including the
consolidation of window lineal production during 2009. The closure of
the three window plants and realignment of window lineal production were
intended to lower operating costs and improve gross profit performance which has
been demonstrated in the improvement in our third quarter 2009 gross profit
percentage as compared to the same period in 2008. Also impacting our
gross profit results for the nine months ended October 3, 2009 were the initial
costs that were incurred with new customers that resulted from the buy-back, or
lift-out, of our competitor’s product on the initial stocking orders with our
new customers which was approximately $0.8 million for the third quarter of 2009
as compared to approximately $0.4 million for the same period in
2008.
Goodwill
Impairment
As a
result of the depressed residential housing and remodeling markets, the Company
conducted an interim goodwill impairment test during the third quarter of 2008
and recorded an estimated $200.0 million impairment charge to operating
earnings. This non-cash charge did not affect the Company’s cash
position, liquidity, debt covenants, or have any impact on
operations. See “Note 3 – Goodwill Impairment” to the condensed
consolidated financial statements, for a detailed discussion on the 2008
goodwill impairment charge. The Company will continue to evaluate
goodwill during future periods and further declines in the residential housing
and remodeling markets could result in additional goodwill
impairments.
Selling, general and
administrative expenses
SG&A
expenses for the nine months ended October 3, 2009 decreased by approximately
$3.3 million, or 6.2%, from the same period in 2008. The decrease in SG&A
expense was due to lower administrative and other fixed expenses that have been
reduced in light of current market conditions. These SG&A expense
reductions were partially offset by higher restructuring and integration
expenses that were incurred of approximately $5.8 million in the first nine
months of 2009 and approximately $2.8 million for the same period in
2008.
Amortization of intangible
assets
Amortization
expense for the nine months ended October 3, 2009 was consistent with the same
period in 2008.
40
Unallocated
Operating Earnings, Interest, and Provision (Benefit) for Income
Taxes
For
the three months ended
|
||||||||
(dollars
in thousands)
|
October 3, 2009
|
September 27, 2008
|
||||||
(unaudited)
|
(unaudited)
|
|||||||
Statement of operations
data:
|
||||||||
Operating
loss
|
$ | (3,751 | ) | $ | (2,458 | ) | ||
Interest
expense
|
(32,543 | ) | (30,278 | ) | ||||
Interest
income
|
12 | 85 | ||||||
Provision
(benefit) for income taxes
|
$ | 2,260 | $ | (15,835 | ) |
Operating
loss
Unallocated
losses include items which are not directly attributed to or allocated to either
of our reporting segments. Such items include legal costs, corporate
payroll, and unallocated finance and accounting expenses. The
unallocated operating loss for the three months ended October 3, 2009 increased
by approximately $1.3 million over the same period in 2008. The
increase was driven by the expansion of the corporate office and centralization
of back office functions from the operating units to the corporate
office. The operating loss for the three months ended October 3, 2009
includes approximately $9,000 of intangible asset amortization
expense.
Interest
expense
Interest
expense for the three months ended October 3, 2009 increased by approximately
$2.3 million over the same period in 2008. The increase was primarily
due to interest on increased borrowings under the ABL Facility in 2009 as
compared to 2008.
Income
taxes
The
income tax expense for the three months ended October 3, 2009 increased by
approximately $18.1 million over the same period in 2008 due to the Company’s
favorable operating performance during the three months ended October 3, 2009 in
which the Company generated pre-tax income of approximately $6.6 million
compared to a $206.7 million pre-tax loss generated in the three months ended
September 27, 2008 which included a goodwill impairment charge of approximately
$200.0 million.
During the quarter ended October 3, 2009, the Company increased its
valuation allowance by approximately $9.2 million.
As of
October 3, 2009, the Company’s estimated effective income tax rate for the full
year was approximately 17.8% which varied from the statutory rate primarily due
to state tax expense, an increase in the valuation allowance, and the tax
benefit associated with cancellation of debt income. As of October 3,
2009, a full valuation allowance has been provided against certain deferred tax
assets as it is presently deemed more likely than not that the benefit of such
net tax assets will not be utilized. Due to recent cumulative losses
accumulated by the Company, management did not rely upon projections of future
taxable income in assessing the recoverability of deferred tax
assets. At December 31, 2008, the Company was in a net deferred tax
liability position and had sufficient taxable income from reversing taxable
temporary differences to realize the federal deferred tax assets. The
Company scheduled out the reversing temporary differences associated with their
deferred tax assets and deferred tax liabilities to conclude that a full
valuation allowance was not necessary at December 31, 2008. The
Company currently has book goodwill of approximately $13.4 million that is not
amortized and results in a deferred tax liability of approximately $2.2
million at October 3, 2009. Therefore, the reversal of deferred tax
liabilities related to this goodwill is not considered a source of future
taxable income in assessing the realization of its deferred tax
assets. The Company continues to evaluate the realizability of its
net deferred tax assets and its estimates are subject to change.
41
Affiliates
of our controlling stockholder have purchased approximately $234.7
million of the Senior Subordinated Notes as of October 3,
2009. The Company determined that approximately $115.1 million would
be considered cancellation of indebtedness (“COD”) income as the acquiring party
was deemed a related party for tax purposes. In connection with this
transaction, the Company was able to reduce certain tax attributes
including net operating losses ("NOLs") and tax basis in assets in lieu of
recognizing approximately $19.3 million of COD income during the three months
ended October 3, 2009.
On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”). Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010. The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years. The Company does not believe it will have any federal cash
income tax expense associated with the COD income.
During
the quarter ended September 27, 2008, the Company’s effective tax rate was 37.8%
which was consistent with the Company’s expectations for the full 2008 fiscal
year.
For
the nine months ended
|
||||||||
(dollars
in thousands)
|
October 3,
2009
|
September 27, 2008
|
||||||
(unaudited)
|
(unaudited)
|
|||||||
Statement of operations
data:
|
||||||||
Operating
loss
|
$ | (10,288 | ) | $ | (7,327 | ) | ||
Interest
expense
|
(99,353 | ) | (103,790 | ) | ||||
Interest
income
|
30 | 332 | ||||||
Benefit
for income taxes
|
$ | (12,096 | ) | $ | (42,235 | ) |
Operating
loss
Unallocated
losses include items which are not directly attributed to or allocated to either
of our reporting segments. Such items include legal costs, corporate
payroll, and unallocated finance and accounting expenses. The
unallocated operating loss for the nine months ended October 3, 2009 increased
by approximately $3.0 million over the same period in 2008. The
increase was driven by the expansion of the corporate office and centralization
of back office functions from the operating units to the corporate
office. The operating loss for the nine months ended October 3, 2009
includes approximately $12,000 of intangible asset amortization
expense.
Interest
expense
Interest
expense for the nine months ended October 3, 2009 decreased by approximately
$4.4 million over the same period in 2008. The decrease was primarily
due to approximately $27.6 million of interest costs incurred in the second
quarter of 2008 related to the issuance of new debt (approximately $14.0 million
of deferred financing costs associated with previous debt, approximately $6.8
million for a prepayment premium and approximately $6.8 million of bank
amendment fees that were subsequently retired). This decrease was
partially offset by interest of approximately $63.1 million on the Senior
Secured Notes in the nine months of 2009 as compared to approximately $25.4
million interest paid in the first nine months of 2008 after the issuance on
June 9, 2008 and the approximately $20.6 million of interest in 2008 on the
Company’s previous term loan which was repaid on June 9, 2008. Also
offsetting the decrease is approximately $2.5 million of interest charges
related to the debt modification which occurred during 2009, and approximately
$3.6 million due to interest paid on increased borrowings under the ABL Facility
and higher amortization of deferred financing in 2009 as compared to 2008.
42
Income
taxes
The
income tax benefit for the nine months ended October 3, 2009 decreased by
approximately $30.1 million over the same period in 2008 due to the Company’s
favorable operating performance during the nine months ended October 3, 2009 in
which the Company generated a lower pre-tax loss of $71.2 million compared to a
pre-tax loss of $274.4 million generated in the nine months ended September 27,
2008 which included a goodwill impairment charge of approximately $200.0 million
and a write off of deferred financing costs of $27.6 million. During
the nine months ended October 3, 2009, the Company increased its valuation
allowance by approximately $26.4 million. As of October 3, 2009, the
Company’s estimated effective income tax rate for the full year was
approximately 17.8% which varied from the statutory rate primarily due to state
tax expense, an increase in the valuation allowance, and the tax benefit
associated with cancellation of debt income. As of October 3, 2009, a
valuation allowance has been provided against certain deferred tax assets as it
is presently deemed more likely than not that the benefit of such net tax assets
will not be utilized. Due to recent cumulative losses accumulated by
the Company, management did not rely upon projections of future taxable income
in assessing the recoverability of deferred tax assets. At December
31, 2008, the Company was in a net deferred tax liability position and had
sufficient taxable income from reversing taxable temporary differences to
realize the federal deferred tax assets. The Company scheduled out
the reversing temporary differences associated with their deferred tax assets
and deferred tax liabilities to conclude that a full valuation allowance was not
necessary at December 31, 2008. The Company currently has book
goodwill of approximately $13.4 million that is not amortized and results in a
deferred tax liability of approximately $2.2 million at October 3,
2009. Therefore, the reversal of deferred tax liabilities related to
this goodwill is not considered a source of future taxable income in assessing
the realization of its deferred tax assets. The Company continues to
evaluate the realizability of its net deferred tax assets and its estimates are
subject to change.
Affiliates
of our controlling stockholder have purchased approximately $234.7 million of
the Senior Subordinated Notes as of October 3, 2009. The Company
determined that approximately $115.1 million would be considered COD income as
the acquiring party was deemed a related party for tax purposes. In
connection with this transaction, the Company was able to reduce certain
tax attributes including NOLs and tax basis in assets in lieu of recognizing
approximately $115.1 million of COD income during the nine months ended
October 3, 2009.
On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment
Act of 2009 (the “Act”). Among its provisions, the Act permits
certain taxpayers to elect to defer the taxation of COD income arising from
certain repurchases, exchanges or modifications of their outstanding debt that
occur during 2009 and 2010. The COD income can be deferred for five
years and then included in taxable income ratably over the next five
years. The Company does not believe it will have any federal cash
income tax expense associated with the COD income.
During
the nine months ended October 3, 2009, the Company also filed an amended federal
income tax return for the year ended December 31, 2005 in order to adjust its
net operating loss limitations. The Company recorded the resulting
income tax benefit as an income tax receivable of approximately $4.1 million as
of October 3, 2009, which has been recorded in prepaid expenses and other
current assets in the accompanying condensed consolidated balance sheets as of
October 3, 2009.
Liquidity
and Capital Resources
During
the nine months ended October 3, 2009, cash and cash equivalents decreased
approximately $18.5 million to $39.8 million as of October 3, 2009, reflecting
the challenging economic conditions currently affecting the housing industry and
our seasonal working capital needs. Cash and cash equivalents
increased approximately $20.3 million during the third quarter of 2009
reflecting the Company’s financial performance.
Our
business is seasonal because inclement weather during the winter months reduces
the level of building and remodeling activity in both the home repair and
remodeling and new home construction sectors, especially in the Northeast and
Midwest regions of the United States and Western Canada. As a result,
our liquidity typically increases during the second and third quarters as our
borrowing base increases under the ABL facility reaching a peak early in the
fourth quarter, and decreases late in the fourth quarter and throughout the
first quarter.
43
Our
primary cash needs are for working capital, capital expenditures and debt
service. As of October 3, 2009, our annual interest charges for debt
service to related and nonrelated parties, including the ABL facility, are
estimated to be approximately $118.2 million. We do not have any
scheduled debt maturities in 2009 or 2010. The specific debt
instruments and their corresponding terms and due dates are described in the
following sections. Our capital expenditures are estimated to be
approximately 1.4% to 1.6% of net sales on an annual basis. As of
October 3, 2009, our purchase commitments for inventory are approximately $0.8
million. We finance these cash requirements through internally
generated cash flow and funds borrowed under Ply Gem Industries’ ABL
Facility.
The
Company’s specific cash flow movement for the nine months ended October 3, 2009
is summarized below:
Cash used in operating
activities
Net cash
used in operating activities for the nine months ended October 3, 2009 was
approximately $17.1 million. Net cash used in operating activities
for the nine months ended September 27, 2008 was approximately $54.0
million. The decrease in cash used in operating activities for 2009
as compared to 2008 was primarily driven by positive working capital
changes. Working capital favorability resulted predominantly from
lower inventory pricing due to lower commodity costs for PVC resin and
aluminum. Therefore, cash expended for inventory purchases during the
nine months ended October 3, 2009 was less than the comparable period from the
previous year.
Cash provided by (used in)
investing activities
Net cash
used in investing activities for the nine months ended October 3, 2009 was
approximately $5.6 million. Net cash used in investing activities for
the nine months ended September 27, 2008 was approximately $4.8
million. The cash used in investing activities for the nine months
ended October 3, 2009 was primarily used for capital
expenditures. The cash used in investing activities for the nine
months ended September 27, 2008 was predominantly from capital expenditures of
$13.5 million, partially offset by the sale of assets of approximately $8.8
million. The decrease in capital expenditures during 2009 reflects
the difficult economic environment and management’s ability to effectively
manage expenditures during these economic conditions.
Cash provided by financing
activities
Net cash
provided by financing activities for the nine months ended October 3, 2009 was
approximately $3.8 million, primarily from revolver borrowings of $5.0 million
offset by debt issuance costs of approximately $1.2 million. Net cash provided
by financing activities for the nine months ended September 27, 2008 was
approximately $19.1 million and consisted of approximately $15.6 million of
proceeds from long-term debt, and a $30.0 million cash equity contribution that
the Company received from CI Capital Partners LLC partially offset by
approximately $26.0 million of debt issuance costs and approximately $0.5
million of repurchased net equity.
The
Company’s specific debt instruments and terms are described below:
On June
9, 2008, Ply Gem Industries issued $700.0 million of its Senior Secured Notes,
which are fully and unconditionally guaranteed on a joint and several basis by
Ply Gem Holdings and all of the domestic subsidiaries of Ply Gem
Industries. Ply Gem Industries used the proceeds to repay all of the
outstanding indebtedness under the existing senior secured credit facility of
approximately $691.2 million. The Senior Secured Notes will mature on
June 15, 2013 and bear interest at the rate of 11.75% per
annum. Interest is payable semi-annually on June 15 and December 15
of each year. On October 23, 2009, Ply Gem Industries issued an
additional $25.0 million of its Senior Secured Notes in a private placement
transaction. The net proceeds will be utilized for general corporate
purposes.
The
Senior Secured Notes and the related guarantees are secured on a first-priority
lien basis by substantially all of the assets (other than the assets securing
our obligations under our ABL Facility on a first-lien basis, which consist
primarily of accounts receivable and inventory) of Ply Gem Industries and the
Guarantors and on a second-priority lien basis by the assets that secure the ABL
Facility on a first-lien basis.
44
Senior Secured Asset-Based
Revolving Credit Facility due 2013
Concurrently
with the closing of the issuance of the Senior Secured Notes on June 9,
2008, the Company and its subsidiaries entered into the ABL Facility, which
initially provided for revolving credit financing of up to $135.0 million, and
was subsequently increased to $150.0 million as of August 14, 2008, subject to
borrowing base availability, with a maturity of five years (June 2013),
including sub-facilities for letters of credit, swingline loans and borrowings
in Canadian dollars and United States dollars by CWD. On July
16, 2009, the Company amended the ABL Facility increasing the available
commitments to $175.0 million, and on October 9, 2009, the Company amended the
ABL Facility to, among other things, allow for the issuance of the additional
$25.0 million Senior Secured Notes.
The ABL
Facility will mature on October 15, 2011 if Ply Gem Industries’ Senior
Subordinated Notes are not refinanced by such date. We may need to
refinance, extend the maturity or otherwise amend the ABL
facility. Our ability to refinance the ABL facility and/or Senior
Subordinated Notes is dependent, among other things, on business conditions and
our financial performance. In addition, the ABL Facility provided
that the revolving commitments may be further increased to $200.0 million,
subject to certain terms and conditions.
All
obligations under the ABL Facility are fully and unconditionally guaranteed by
substantially all of Ply Gem Industries’ existing and future, direct and
indirect, wholly-owned domestic subsidiaries, and in any event by all
subsidiaries that guarantee the notes. All obligations under the ABL Facility,
and the guarantees of those obligations, are secured, subject to certain
exceptions, by substantially all of the assets of the Company, Ply Gem
Industries and the guarantors, including a first-priority security interest in
personal property consisting of accounts receivable, inventory, cash, deposit
accounts, and certain related assets and proceeds of the foregoing and a
second-priority security interest in, and mortgages on, substantially all of Ply
Gem Industries’ material owned real property and equipment and all assets that
secure the notes on a first-priority basis.
The
obligations of CWD, which is a borrower under the Canadian sub-facility under
the ABL Facility, will be secured by a first-priority security interest in
substantially all of the assets of such Canadian subsidiary and by Ply Gem
Industries’ and the guarantors’ assets on the same basis as borrowings by Ply
Gem Industries are secured under the ABL Facility, plus additional mortgages in
Canada, and a pledge by Ply Gem Industries of the remaining 35% of the equity
interests of CWD pledged only to secure the Canadian sub-facility.
As of
October 3, 2009, Ply Gem Industries had approximately $102.9 million of
contractual availability and approximately $76.5 million of borrowing base
availability under the ABL Facility, reflecting $65.0 million of borrowings
outstanding and approximately $7.1 million of letters of credit.
The
interest rates applicable to loans under the ABL Facility are, at the Company’s
option, equal to a base rate plus an applicable interest margin, or an adjusted
LIBOR rate plus an applicable interest margin, as defined in the ABL Facility
credit agreement. As of October 3, 2009, the Company’s interest rate
on the ABL Facility was approximately 6.0%. The ABL Facility contains
a requirement to maintain a fixed charge coverage ratio of 1.1:1.0 if the
Company’s borrowings exceed certain levels.
In July
2009, the Company amended the ABL Facility increasing the available commitments
by $25.0 million from $150.0 million to $175.0 million, and changed both the
availability threshold for certain cash dominion events and compliance with the
fixed charge and other covenants from 15% of revolving credit commitments to 15%
of the lower of the revolving credit commitments or the borrowing base but not
less than $20.0 million. The Company must maintain excess availability of at
least $20.0 million to avoid being subject to the fixed charge coverage
ratio. As a condition to this availability increase, the applicable
margins payable on the loans were increased and made subject to certain
minimums. In October 2009, the Company amended the ABL Facility to
allow for the issuance of the additional $25.0 million Senior Secured Notes and
to permit certain refinancing transactions with respect to the Senior
Subordinated Notes. The October 2009 amendment also permits Ply Gem
Industries to issue equity securities to Ply Gem Holdings, its
parent. The October 2009 amendment does not affect the $175.0 million
availability amount or the applicable interest rate margins under the ABL
Facility.
The
Company’s previous senior facilities with a syndicate of financial institutions
and institutional lenders provided for senior secured financing of up to
approximately $762.1 million. These credit facilities imposed certain
restrictions on Ply Gem Industries, including a requirement to maintain a
minimum Leverage Ratio of EBITDA (adjusted for certain items as allowed) to Net
Debt (as defined in the credit facility). In April 2008, the Company
revised its 2008 forecast in response to market wide increases in raw material
prices and fuel costs, as well as continued declines in both the residential new
construction and repair/remodeling markets. Under the
revised forecast,
the Company did not expect to be able to comply with the required Leverage Ratio
required for fiscal quarters in 2008 following March 29, 2008. The
failure to comply with this covenant would have caused an event of
default. On May 23, 2008, the Company entered into an amendment of
the fifth amended and restated credit agreement which consisted of changes to
certain debt covenant ratios. The amendment also increased the
interest rate on the term loan and extended the maturity of the revolving credit
facility from February 12, 2009 to August 12, 2010. On May 23, 2008,
Ply Gem received from CI Capital Partners LLC a $30.0 million cash equity
contribution as a condition to the credit facility amendment. The
outstanding indebtedness under the credit facility was subsequently paid off on
June 9, 2008 with the proceeds from the Senior Secured Notes
offering.
45
9% Senior Subordinated Notes
due 2012
Concurrently
with the acquisition of Ply Gem Industries on February 12, 2004, Ply Gem
Industries issued $225.0 million aggregate principal amount of its Senior
Subordinated Notes, which are guaranteed by Ply Gem Holdings and the domestic
subsidiaries of Ply Gem Industries. Subsequently, in August of 2004
in connection with the MW acquisition, Ply Gem Industries issued an additional
$135.0 million of Senior Subordinated Notes, which are guaranteed by Ply Gem
Holdings and the domestic subsidiaries of Ply Gem Industries, including MWM
Holding and its subsidiaries. The Senior Subordinated Notes will
mature on February 15, 2012 and bear interest at a rate of 9.0% per
annum. Interest is paid semi-annually on February 15 and August 15 of
each year.
On March
24, 2009, after receipt of the requisite consents, Ply Gem Industries entered
into a Fifth Supplemental Indenture (the “Fifth Supplemental Indenture”) among
Ply Gem Industries, the Company, the other guarantors party thereto and U.S.
Bank National Association, as trustee, containing the amendments to the
indenture governing Ply Gem Industries' Senior Subordinated
Notes. The Fifth Supplemental Indenture eliminated substantially all
of the restrictive covenants of the indenture governing the Senior Subordinated
Notes, including, among other things, the limitation on indebtedness, the change
of control put provisions, the limitation on restricted payments, the limitation
on liens, the limitation on asset sales, the limitation on transactions with
affiliates, the limitation on dividends and other restrictions affecting
restricted subsidiaries, the limitation on layering indebtedness and the
limitation on the issuance or sale of equity interests in restricted
subsidiaries. The Fifth Supplemental Indenture also eliminated
certain events of default in the indenture governing the Senior Subordinated
Notes. The amendments contained in the Fifth Supplemental Indenture
became operative upon completion of the purchase of a specified amount of the
Senior Subordinated Notes by certain affiliates of our controlling
stockholders.
As of October 3, 2009, certain
affilitates of the Company's controlling stockholder had acquired approximately
$234.7 million of the outstanding Senior Subordinated Notes. Subsequent to
October 3, 2009, these affiliates had acquired an additional $46.7 million of
the outstanding Senior Subordinated Notes bringing the total owned by related
parties to approximately $281.4 million including an unamortized premium of
approximately $0.1 million. In the
future, the Company and its affiliates may consider conducting exchange or
tender offers for its indebtedness or purchasing or otherwise acquiring its
indebtedness.
Liquidity
requirements
We intend
to fund our ongoing capital and working capital requirements, including our
internal growth, through a combination of cash flows from operations and, if
necessary, from borrowings under our ABL Facility. We believe that we
will continue to meet our liquidity requirements over the next 12 months.
We
believe that our operating units are positive cash flow generating units and
will continue to sustain their operations without any significant liquidity
concerns. The performance of these operating units is significantly
impacted by the performance of the housing industry, specifically single family
housing starts and the repair and remodeling markets. Any unforeseen
or unanticipated downturn in these markets could have a negative impact on the
Company’s liquidity position.
In order
to meet these liquidity requirements as well as other anticipated liquidity
needs in the normal course of business, as of October 3, 2009 we had cash and
cash equivalents of approximately $39.8 million, $102.9 million of contractual
availability under the ABL Facility and approximately $76.5 million of borrowing
base availability. Management currently anticipates that these
amounts, as well as expected cash flows from our operations and proceeds from
any debt financing should be sufficient to meet ongoing operational cash flow
needs, capital expenditures, debt service obligations, and other fees payable
under other contractual obligations for the foreseeable future.
46
Off
Balance Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Contractual
Obligations
In
addition to the items listed in the Contractual Obligations table presented in
the Company’s Annual Report on Form 10-K, the Company has a potential obligation
related to certain tax issues of approximately $10.1 million, including interest
of approximately $1.4 million. The timing of the potential tax
payments is unknown.
Inflation
/ Seasonality
Our
performance is dependent to a significant extent upon the levels of home repair
and remodeling and new home construction spending, all of which are affected by
such factors as interest rates, inflation, consumer confidence and
unemployment.
The
demand for our products is seasonal, particularly in the Northeast and Midwest
regions of the United States and Western Canada where inclement weather during
the winter months usually reduces the level of building and remodeling activity
in both the home repair and remodeling and new home construction
sectors. Our sales are usually lower during the first and fourth
quarters. Since a portion of our manufacturing overhead and operating
expenses are relatively fixed throughout the year, operating income and net
earnings tend to be lower in quarters with lower sales levels. In
addition, the demand for cash to fund our working capital is greater from late
in the fourth quarter through the first quarter.
Recent
Accounting Pronouncements
See “Note
1 – Summary of Significant Accounting Policies” to the condensed consolidated
financial statements, regarding the impact of certain recent accounting
pronouncements on our condensed consolidated financial statements.
Special
Note Regarding Forward-Looking Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual
events or results may differ materially.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. All written and oral forward-looking statements made in
connection with this Quarterly Report on Form 10-Q that are attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the
"Risk Factors" set forth in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 and the “Risk Factors” and other cautionary statements
included herein. We are under no duty to update any of the
forward-looking statements after the date of this Quarterly Report on Form 10-Q
to conform such statements to actual results or to changes in our
expectations.
There can
be no assurance that other factors will not affect the accuracy of these
forward-looking statements or that our actual results will not differ materially
from the results anticipated in such forward-looking statements. While it is
impossible to identify all such factors, factors which could cause actual
results to differ materially from those estimated by us include, but are not
limited to, those factors or conditions described under "Risk factors," and the
following:
·
|
our
high degree of leverage and significant debt service
obligations;
|
·
|
restrictions
under the indentures governing the Senior Secured Notes and
restrictions under our ABL
Facility;
|
·
|
the
competitive nature of our industry;
|
·
|
changes
in interest rates, and general economic, home repair and remodeling and
new home construction market
conditions;
|
·
|
changes
in the price and availability of raw materials;
and
|
·
|
changes
in our relationships with our significant
customers.
|
Other factors that could cause actual
results to differ from those implied by the forward-looking statements contained
in this Quarterly Report include those set forth in our Annual Report on Form
10-K for the fiscal year ended December 31, 2008. We undertake no
obligation to update the forward-looking statements in this
report.
47
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
Rate Risk
Our
principal interest rate exposure relates to the loans outstanding under our ABL
Facility, which provided for borrowings of up to $175.0 million as of October 3,
2009, bearing interest at a variable rate, based on an adjusted LIBOR rate plus
an applicable interest margin or the base rate plus an applicable interest
margin. Assuming the ABL Facility is fully drawn as of October 3,
2009, each quarter point increase or decrease in the interest rate would change
our interest expense by approximately $0.4 million per year. In the
future, we may enter into interest rate swaps, involving exchange of floating
for fixed rate interest payments, to reduce our exposure to interest rate
volatility.
Foreign
Currency Risk
Our
results of operations are affected by fluctuations in the value of the U.S.
dollar as compared to the value of the Canadian dollar. For the three
and nine month periods ended October 3, 2009, the net impact of foreign currency
changes to the Company’s results of operations was a gain of $0.2 million and
$0.1 million, respectively. The impact of foreign currency changes
related to translation resulted in a decrease in stockholder’s (deficit) of
approximately $3.4 million for the nine months ended October 3,
2009. The revenue or expense reported by us as a result of currency
fluctuations will be greater in times of U.S. dollar devaluation and less in
times of U.S. dollar appreciation. We generally do not enter into derivative
financial instruments to manage foreign currency exposure. At October
3, 2009, we did not have any outstanding foreign currency hedging
contracts.
Commodity
pricing risk
We are
subject to significant market risk with respect to the pricing of our principal
raw materials, which include PVC resin, aluminum, and wood. If prices
of these raw materials were to increase dramatically, we may not be able to pass
such increases on to our customers and, as a result, gross margins could decline
significantly. We manage the exposure to commodity pricing risk by
continuing to diversify our product mix, strategic buying programs and vendor
partnering.
Inflation
|
We do not
believe that inflation has had a material effect on our business, financial
condition or results of operations. Our lease payments related to our
sale/leaseback agreement include an annual increase based on the Consumer Price
Index, which could expose us to potential higher costs in years with high
inflation.
Consumer
and Commercial Credit
As
general economic conditions in the United States have deteriorated significantly
over the past year, the availability of consumer and commercial credit has
tightened. As such, the Company has increased its focus on the credit
worthiness of our customers. These procedures are necessary to ensure
that our allowance for doubtful accounts is adequate and that we are performing
proper due diligence prior to initiating sales. We will continue to
monitor these statistics over the next year to ensure that issues, if any, are
identified in a timely manner to reduce risk and minimize the Company's bad debt
exposure. If general economic conditions continue to worsen,
additional reserves may be necessary.
48
Item
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management maintains disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), that are designed to ensure that information required to
be disclosed in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding the required disclosure.
Our
management is responsible for establishing and maintaining our disclosure
controls and procedures. Our Chief Executive Officer and Chief Financial Officer
participated with our management in evaluating the effectiveness of our
disclosure controls and procedures as of October 3, 2009.
As of
October 3, 2009, we did not maintain timely and effective controls to ensure the
accuracy of the provision for income taxes. Specifically, the requisite level of
skills and resources in accounting for income taxes was inadequate and the
Company’s procedures for preparing, analyzing, reconciling, and reviewing its
income tax provision and income tax balance sheet accounts did not provide
effective internal control. This control deficiency could result in a material
misstatement of our annual or interim consolidated financial statements that
would not be prevented or detected. Accordingly, management has determined that
this control deficiency constitutes a material weakness. A material
weakness is a deficiency, or combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
In light
of the material weakness described above, we have performed additional analysis
and other post-closing procedures to ensure that our financial statements were
prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the financial statements included in this report
fairly present, in all material respects, our financial condition, results of
operations and cash flows for the periods presented.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on Form 10-Q that
have materially affected, or are likely to materially effect, our internal
control over financial reporting.
Management’s
Remediation Initiatives
As a
result of the material weakness, we continue to evaluate and make changes to
improve our internal control over financial reporting, including but not limited
to, the hiring of additional personnel having sufficient knowledge and
experience in tax to strengthen the controls around the tax provision or the
engagement of outside tax specialists to assist us with the preparation and
review of the income tax provision, as well as enhancing the review process
associated with the preparation of the income tax provision.
Management
has not yet implemented all of the measures described above and/or tested them.
We continue to evaluate our internal control over financial reporting and may
modify these measures or implement additional measures in the
future.
Subsequent
to October 3, 2009, we have increased the staffing levels within our tax
department in an effort to remediate the material weakness by December 31,
2009.
49
PART
II - OTHER INFORMATION
Item
1A. RISK FACTORS
Other than as set forth below,
there have been no material changes to the Risk Factors as set forth in our
Annual Report on Form 10-K.
Increases
in fuel costs could cause our cost of products sold to increase and net income
to decrease.
Increases
in fuel costs can negatively impact our cost to deliver our products to our
customers and thus increase our cost of products sold. If we are
unable to increase the selling price of our products to our customers to cover
any increases in fuel costs, net income may be adversely affected.
Item
6. EXHIBITS
(a) Exhibits
Exhibit
No. Description of
Exhibits
* 4.1
|
Second
Amendment dated as of October 9, 2009, to the Credit Agreement dated as of
June 9, 2008 and amended and restated as of July 16, 2009, among Ply Gem
Holdings, Inc., Ply Gem Industries, Inc., CWD Windows and Doors, Inc., the
other borrowers named therein, each lender from time to time party
thereto, Credit Suisse, Cayman Islands Branch, as Administrative Agent,
U.S. Swing Line Lender and U.S. L/C Issuer, General Electric Capital
Corporation, as Collateral Agent, Credit Suisse, Toronto Branch, as
Canadian Swing Line Lender and Canadian L/C Issuer, and the other agents
party thereto.
|
* 31.1
|
Certification
by President and Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934
|
* 31.2
|
Certification
by Vice President and Chief Financial Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934
|
* Filed
herewith.
50
SIGNATURES
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 HOLDINGS, INC.
(Registrant)
Date: November
13, 2009
By
|
/s/
Gary E. Robinette
|
|
Name:
|
Gary
E. Robinette
|
|
Title:
|
President
and Chief Executive Officer
|
Date: November
13, 2009
By
|
/s/
Shawn K. Poe
|
|
Name:
|
Shawn
K. Poe
|
|
Title:
|
Vice
President, Chief Financial Officer, Treasurer and
Secretary
|
51