-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SCBNfY6lfZLtyzmvd3nh3ZhYfumc5tPWYwrAbEy/eou0S0NZTp80eLT8n5gykey6 nZcHr+l3050XHMU88NJJYg== 0001047469-98-009665.txt : 19980317 0001047469-98-009665.hdr.sgml : 19980317 ACCESSION NUMBER: 0001047469-98-009665 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EURAMAX INTERNATIONAL PLC CENTRAL INDEX KEY: 0001026743 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 981066997 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-05978 FILM NUMBER: 98564743 BUSINESS ADDRESS: STREET 1: 5335 TRIANGLE PARKWAY STREET 2: SUITE 550 CITY: NORCROSS STATE: GA ZIP: 30092 BUSINESS PHONE: 7704497066 MAIL ADDRESS: STREET 1: 5535 TRIANGLE PKWY CITY: NORCROSS STATE: GA ZIP: 30092 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ending December 26, 1997 / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 333-05978 ------------------------ EURAMAX INTERNATIONAL PLC (Exact name of registrant as specified in its charter) ENGLAND AND WALES 98-0166997 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5335 TRIANGLE PKWY SUITE 550, 30092 NORCROSS, GEORGIA (Zip Code) (address of principal executive offices) Registrant's telephone number, including area code: (770) 449-7066 ------------------------ Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED None None Securities registered pursuant to Section 12(g) of the Act: None * (Title of Class) ------------------------ *Certain notes issued by the Registrant are traded on the Luxembourg Stock Exchange. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. /X/ As of March 12, 1998, Registrant has outstanding 1,000,000 Ordinary Shares and 34,000,000 Preference Shares. All of these shares were owned by affiliates of the Company. Page 1 of 81 pages Exhibit Index located on page 67 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE REGARDING PRIVATE SECURITIES LITIGATION REFORM ACT: Statements contained in this Form 10-K that are not historical facts include forward looking statements that are subject to the safe harbor rules created by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-K which address activities, events or developments which Euramax International plc and subsidiaries (the "Company" or "Euramax") expect or anticipate will or may occur in the future, including statements regarding the Company's competitive position, the risks of acquisition of businesses, changes in business strategy or development plans, cyclical demand for the Company's products, the availability and price of aluminum and other raw materials, currency exchange rate fluctuations, the Company's ability to pass on price increases, the impact of environmental laws and regulations, the availability of financing, reliance on key management personnel, ability to manage growth, the Company's expectations regarding the adequacy of current financing arrangements, loss of customers, product demand and market growth, and other statements regarding future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ significantly and materially from past results and from the Company's expectations, including the risk factors discussed in this Form 10-K, Item 1, and Item 7, and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this Form 10-K are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized that they will have the expected consequences to or effects on the Company or its business or operations. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. 2 PART I ITEM 1. BUSINESS GENERAL Euramax International plc is a leading international producer of aluminum and steel products with facilities in the U.S., the U.K., The Netherlands and France. Euramax's products include painted sheet and coil, siding, roofing, raincarrying systems, windows, doors and various fabricated trim parts and components. The Company is a leading supplier to several niche markets. The Company believes that in 1997 it sold at least 58% and 70% of the aluminum sidewalls used by recreational vehicle ("RV") manufacturers in the U.S. and Europe, respectively. These estimates are based upon the Company's sales volume of aluminum sidewalls used by RV manufacturers as a percentage of management's estimate of total sales volume for such products. In the same year, the Company sold aluminum and steel gutters and downspouts to more than 35 of the largest 50 home center companies in the U.S. The Company believes that in 1997 it sold at least 85% of all metal Do-It-Yourself raincarrying products sold to U.S. home centers. The Company also believes that it sold at least 55% of the steel siding sold to producers of manufactured housing in the U.S. Net sales for 1997 in the U.S. and Europe were $354.4 million and $202.6 million, respectively. Euramax operates downstream of producers of aluminum coil, steel coil and aluminum ingot. These producers supply the Company with aluminum coil, steel coil and aluminum extrusions. The Company sold approximately 157 and 230 million pounds of aluminum and steel, respectively, in 1997. To a lesser extent, the Company also distributes and fabricates products manufactured from vinyl and fiberglass. The Company's products are sold primarily to manufacturers of RV's and manufactured housing, rural building contractors, distributors and home centers. Euramax is a national supplier in several of its key U.S. product lines and the only national supplier with in-house coil coating capabilities to supply steel siding to manufactured housing customers and aluminum sidewalls to RV manufacturers. This gives the Company certain advantages over regional suppliers who do not have in-house manufacturing capabilities or national distribution networks. In addition, extensive in-house manufacturing capabilities coupled with product offerings made from alternate raw materials enable Euramax to react to changing customer preferences. Euramax is a holding company formed by (i) ACP Holding Company ("ACP"), an affiliate of Citicorp Venture Capital, Ltd. and (ii) CVC European Equity Partners, L.P. ("CVCEEP") and CVC European Equity Partners (Jersey), L.P., (collectively with CVCEEP, "CVC Europe", and collectively with ACP, the "Investor Group") to acquire certain portions of the fabricated products operations of Alumax Inc. ("Alumax") pursuant to the Acquisition (defined below). See "The Transactions." The Company's operations are conducted through subsidiaries in the U.S. and Europe. THE TRANSACTIONS Pursuant to a purchase agreement (the "Acquisition Agreement") dated June 24, 1996 between the Company and Alumax, on September 25, 1996 (the "Closing Date"), the Company purchased, through its wholly-owned subsidiaries, all of the issued and outstanding capital stock of certain of Alumax's subsidiaries which operated a portion of Alumax's fabricated products business (the "Acquisition"). The purchase price of approximately $252.4 million, including acquisition expenses of $3.9 million and adjustments to give effect to certain items including cash acquired and working capital, was allocated to the assets and liabilities of the Company based upon their fair market value at the date of the Acquisition under the purchase method of accounting. In order to finance the purchase price, including the payment of deferred financing fees which were approximately $9.9 million, the Company and certain of its wholly-owned subsidiaries (i) incurred approximately $100.0 million of indebtedness under a credit agreement providing for $40.0 million in term 3 loans and a revolving credit facility of up to $85.0 million (the "Credit Agreement"), (ii) issued $135.0 million of subordinated notes and (iii) issued to the Investor Group, certain members of management of the Company (the "Management Investors") and an affiliate of Banque Paribas (the agent under the Credit Agreement), an aggregate of approximately $35.0 million in preference and ordinary shares (the "Equity Contribution"). On July 17, 1997, the Company's wholly owned subsidiary, Amerimax Fabricated Products, Inc. acquired all of the issued and outstanding capital stock of Gentek Holdings, Inc. and its subsidiary Gentek Building Products, Inc. (collectively "Gentek" or "Fabral") (the "Fabral Acquisition") for approximately $76.1 million. The purchase price was financed through additional borrowings under the Credit Agreement which was amended to, among other items, increase borrowings available for the Fabral Acquisition. At the Fabral Acquisition date, Gentek was comprised principally of Fabral, a division of Gentek headquartered in Lancaster, Pennsylvania. Fabral is a manufacturer and distributor of steel and aluminum roofing and wall paneling products specifically for the agricultural, commercial and industrial markets. BUSINESS STRATEGY The Company's strategy is to expand its leadership position as a producer of aluminum and steel products and to further diversify the products, customers and geographic regions in which it operates. To enhance the Company's operations and profitability, the Company expects to continue to pursue a strategy of identifying and acquiring businesses and assets that would enable it to offer complementary products or expand geographic coverage. During 1997, the Company completed two such acquisitions in the U.S., increasing revenues by approximately $76 million. The Company believes that its strategy of expanding market share, broadening the diversity of its businesses and continuing to provide customers with superior products through responsive, efficient and cost effective distribution systems will be an effective means of increasing profitability, while preserving cash flow. MARKET LEADERSHIP AND DIVERSITY OF BUSINESS The Company's position as a leading international downstream producer of aluminum and steel products has enabled it to benefit from diversification across economic and product cycles among different geographic regions and customer groups. This diversification has historically enabled Euramax to maintain stable margins even though demand for certain products may be affected by changes in general and regional economic conditions such as trends in disposable income. LEADERSHIP IN SEVERAL MARKETS: The Company's leadership in a variety of niche markets has enabled it to maintain consistent operating results. For example, the Company is a leading supplier of aluminum and steel sidewalls and siding to U.S. RV and manufactured housing producers. The Company believes that its 1997 sales of raincarrying systems represent a majority of such products sold to U.S. home centers. Similar leading positions are enjoyed by the Company's roll formed aluminum sheet and coil products sold to RV manufacturers in the U.S. and Europe. MANUFACTURING EXPERTISE AND DIVERSITY OF PRODUCTS: The Company's technological expertise and its ability to fabricate from alternative materials has allowed it to develop new products and applications and to respond to the changing product requirements of its customers. Over time, Euramax has increased its ability to offer products manufactured from steel, vinyl and fiberglass, allowing it to meet regional material preferences, to provide substitute products for end-users and to retain customers in the event of demand shifts between raw materials. GEOGRAPHIC DIVERSITY: The Company's sales span both the continental U.S. and Europe, with each representing approximately 63.6% and 36.4% of 1997 net sales, respectively. The Company has manufacturing or distribution facilities strategically located in the U.K., The Netherlands, France and all regions of 4 the continental U.S. The Company's geographic diversity of sales limits reliance on any single regional economy in the U.S. or national economy in Europe. CUSTOMER DIVERSITY. The Company is diversified by both size and type of customer. Of the Company's more than 5,000 customers, no single customer accounted for more than 5.9% of net sales in 1997. The top ten customers accounted for approximately 24.1% of 1997 net sales and represented five distinct end-use markets. These characteristics minimize the Company's reliance on individual customers or end-use markets. DISTRIBUTION CAPABILITY. The Company's manufacturing and distribution network consists of 33 strategically located facilities, of which 28 are located in all regions of the United States, and five are located in Europe. Euramax's network of facilities allows the Company to offer more comprehensive service than its regional competitors and to meet the increasing demands of its customers for short delivery lead times. MANUFACTURING PROCESSES The Company's manufacturing processes employ a variety of equipment and several types of facilities. Management believes that the Company's effective deployment of equipment enables it to manufacture standard and custom products efficiently and economically. The Company has the equipment necessary for manufacturing substantially all of its products in-house and is able to avoid most forms of outsourcing. This capability provides certain marketing and pricing advantages, including the ability to control delivery time and to develop new and customer specific products in an expeditious manner. The Company's manufacturing process generally begins with painting aluminum or steel coil through a process known as roll coating. Once coated, the aluminum or steel is further fabricated through selected processes which include tension leveling, embossing, slitting, rollforming, brake pressing, notching and bending. These processes complete the appropriate steps to fabricate a finished product. The Company's coating and fabrication capabilities are described in more detail as follows: COATING (PAINTING): Roll coating is the process of applying a variety of liquid coatings to bare aluminum or steel coil, providing a baked-on finish that is both protective and decorative. Over 125 million pounds of aluminum and over 100 million pounds of steel are roll coated by the Company at its eight roll coating operations annually. The Company has three such coating lines in the U.S. and five in Europe. The Company's roll coating facility in Roermond, The Netherlands is one of only three facilities in the world capable of coating coil up to 100 inches in width. The Roermond line services a variety of expanding markets in which wide coated aluminum is becoming increasingly important. Wide coils provide customers with the opportunity to produce products more economically by reducing labor costs and requiring fewer joints and seams in their manufacturing processes. The Company also employs powder coating on a line installed to paint aluminum and steel sheets in the U.K. This line is one of only a few in the world with the ability to paint customized and exotic finishes, allowing unique design possibilities on aluminum and steel sheets. These finishes include textures, patterns and decorative styling which have many different applications. The Company also coats aluminum extrusions on its two European powder spray coating lines, which are located in France and in the U.K. Anodizing is an electrochemical process which alters an aluminum surface through a controlled and accelerated oxidation process which, if desired, may also color the material. Anodizing provides a high quality architectural finish to aluminum extrusions which is demanded by certain customers. Anodizing is a key manufacturing process offered by the Company at two of its European facilities. FABRICATION: After coating, much of the Company's coil is processed through slitting operations which cut coils into more narrow widths. The cut coils may then undergo a variety of downstream production processes which further fabricate the aluminum and steel sheet to form the desired product. 5 Fabrication equipment includes rollformers, punch and brake presses and expanding machinery for a variety of applications. The Company also utilizes specialized equipment to inject and laminate foam to provide insulation and rigidity to metal panels. Production machinery also includes equipment to bend, notch and cut aluminum and vinyl extrusions required, together with glass, for the assembly of windows and doors. In 1995, the Company introduced laminated fiberglass products for use in the RV and transportation markets. The lamination process adheres fiberglass sheet to a wood or other solid substrate that provides rigidity. In March 1997, the Company acquired JTJ Laminating, Inc. to further enhance fiberglass lamination capabilities and laminated product offerings (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"). PRODUCTS AND CUSTOMERS The Company's products are sold to a diverse group of customers operating in a variety of industries. The Company's sales and marketing effort is organized on a decentralized basis to provide required services to its broad customer base in multiple geographic areas (see Note 13 to the Consolidated Financial Statements). Customers include: - Original Equipment Manufacturers (OEMs), including RV and commercial panel - Home Centers - Manufactured Housing Producers - Distributors - Rural Contractors - Home Improvement Contractors - Industrial and Architectural Roofing Contractors The table below lists the Company's key products, materials used, customers and end-users, and sales regions:
PRODUCTS MATERIALS CUSTOMERS AND END-USERS SALES REGIONS - ---------------------------------- ------------------- ------------------------------------- ----------------- Specialty Coated Coils (painted Aluminum, Steel OEMs, RV Manufacturers, Various Europe aluminum and steel coils) Building Panel Manufacturers Roofing & Siding Aluminum, Steel, OEMs, RV Manufacturers, Manufactured U.S., Europe Vinyl, Fiberglass Housing, Rural Contractors, Distributors, Home Improvement Contractors Raincarrying Systems (gutters, Aluminum, Steel, Home Centers, Manufactured Housing, U.S., Canada downspouts) Vinyl Rural Contractors, Home Improvement Contractors Soffit (roof overhangs), Fascia Aluminum, Steel Home Centers, Manufactured Housing, U.S. (trims), Flashing (roofing Rural Contractors, Home Improvement valley material) Contractors Entry Doors Aluminum, Steel, OEMs, RV Manufacturers, Distributors, Europe Fiberglass Home Improvement Contractors (US operation sold during 1997) Windows Aluminum, Vinyl OEMs, RV Manufacturers, Home U.S., Europe Improvement Contractors
6 ORIGINAL EQUIPMENT MANUFACTURERS ("OEMS") (49.6% OF 1997 AND 1996 NET SALES) The Company supplies OEMs such as RV and commercial panel manufacturers. The Company's principal OEM customers are described below. RECREATIONAL VEHICLE MANUFACTURERS. The Company is a leading supplier of various aluminum products to RV manufacturers in the U.S. and Europe. These products primarily consist of painted aluminum sheet and fabricated painted aluminum panels. The Company uses its decorative graphic coating lines to produce aluminum panels with decorative detailing in a variety of colors. The Company also supplies RV doors, windows and finished aluminum roofing panels. In addition, the Company began supplying laminated aluminum and fiberglass panels to RV manufacturers in 1995. The Company believes its decorative coating capabilities in the U.S. and in Europe provide a technological advantage not enjoyed by its competitors. These capabilities enable the Company to paint a stripe or other decorative pattern directly onto the aluminum sheet according to customer specifications. Competitors do not have these abilities; instead, they offer a decorative tape which must be applied to the aluminum sheet. The tape cannot be applied with the tight tolerances achieved by the Company's painting process, and does not offer the same graphics variety. In response to demand for laminated products in the U.S. markets, the Company recently opened a lamination line which can laminate, among other things, fiberglass and aluminum. COMMERCIAL PANEL MANUFACTURERS: The Company sells painted aluminum coil to customers who produce commercial building panels. These panels become part of a total package of commercial building wall panels and facades. The Company also produces a composite "sandwich" building panel comprised of two aluminum skins with a polystyrene core, which insulates and abates noise. The panels are used in both residential (e.g., room additions and patio enclosures) and commercial applications (e.g., service stations and school buildings), as well as in the construction of "cold rooms" used for the storage of perishable goods. OTHER MANUFACTURERS: The Company also uses its decorative and coil coating capabilities for products supplied to overhead door manufacturers and producers of refrigerated transport containers. Door manufacturers produce the overhead doors, adding the necessary hardware and accessory items to complete the product. Transport container manufacturers represent a growing market for the Company's products. HOME CENTERS (15.4% AND 17.5% OF 1997 AND 1996 NET SALES, RESPECTIVELY) The Company's home center customers supply the well-established Do-It-Yourself ("DIY") market in the U.S., Canada, the United Kingdom and The Netherlands. The Company sells building and construction products, such as residential rain gutter systems, roof flashing products, soffits, fascias, doors, screen door guards, shower, patio, steel roofing and siding, and residential doors. These products, which are designed for ease of installation by DIY consumers, are produced with aluminum, galvanized or painted steel, or occasionally with vinyl depending on regional preferences. Home centers include small hardware stores, large cooperative buying groups, lumberyards and major home center retailers. The Company believes that it is the leading supplier of DIY metal raincarrying systems in the U.S. Competitors are generally regional and thus do not have the advantages of a nationwide service and distribution network such as the Company's. In addition, the Company has invested in a product bar coding system which can be used by the sophisticated inventory scanning systems prevalent in home centers. The Company expects to exploit these strengths to introduce additional DIY products that could be sold through this distribution channel. 7 MANUFACTURED HOUSING (9.9% AND 8.3% OF 1997 AND 1996 NET SALES, RESPECTIVELY) The Company sells rollformed steel siding and trim parts to producers of manufactured housing in the U.S. These products are used for exterior walls and roofs. The Company is the only supplier of steel siding to the manufactured housing industry that has metal coating capabilities. In addition to the raw material cost benefit, the Company views itself as an innovator in the market for colors and decorative coating. The Company can also meet the demands of the industry's short lead time requirements and more easily supply national accounts with its large network of facilities. In addition to steel siding, the Company also fabricates and supplies a variety of steel and aluminum trim components for manufactured home exteriors. To a lesser degree, the Company also distributes vinyl siding to certain customers in the manufactured housing industry. DISTRIBUTORS (6.9% AND 11.1% OF 1997 AND 1996 NET SALES, RESPECTIVELY) The Company sells to distributors (and stockists--the European equivalent of distributors) which perform as service centers for the next tier of customers in both the U.S. and Europe. A distributor will typically purchase coil which is later broken down or fabricated prior to resale. Residential building products sold through distributors include a wide range of metal roof flashing materials, painted aluminum trim coil, rain gutter, fascia/soffit systems and drip edges. RURAL CONTRACTORS (11.6% AND 10.2% OF 1997 AND 1996 NET SALES, RESPECTIVELY) The Company supplies aluminum and steel roofing and siding products to rural contractors for use in agricultural and rural buildings such as sheds and animal confinement buildings. The Company sells its products to traditional rural contractors, including building supply dealers, building and agricultural cooperatives, and animal confinement integrators. Building suppliers and agricultural cooperatives typically purchase smaller quantities of product at multiple locations whereas contractors and integrators generally purchase large volumes for delivery to one site. The Fabral Acquisition increased substantially the Company's sales to rural contractors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." HOME IMPROVEMENT CONTRACTORS (4.4% AND 3.3% OF 1997 AND 1996 NET SALES, RESPECTIVELY) The Company sells a variety of products to home improvement contractors, the most significant of which are vinyl replacement windows. Other products sold to home improvement contractors include awnings, lattice systems, metal roofing, shower doors, patio and entrance doors, and insulated roofing panels. In the U.S., the Company offers a full complement of vinyl replacement windows. In the U.K., the Company produces patio, entrance, and shower doors, marketed primarily to home improvement contractors. The Company is also one of the largest suppliers of lattice and painted aluminum awnings to residential contractors in the western U.S. In addition, the Company manufactures painted aluminum and steel panels for residential roofing, which are distributed primarily in the Pacific Northwest. INDUSTRIAL AND ARCHITECTURAL (2.2% OF 1997 NET SALES) The Company sells various products to the industrial metal panel industry including standing seam panels, siding, soffits and fascias to the architectural and industrial contractor markets. These products are produced with galvanized steel, aluminum, copper and aluminum-zinc alloy steel. RAW MATERIALS The Company's products are principally manufactured from aluminum coils and extrusions and steel coils. During 1997, approximately 157 million pounds of aluminum products and approximately 230 million pounds of steel were sold. The proportion sold in 1997 by value is $306.5 million of aluminum and $157.0 8 million of steel. Steel weighs approximately three times as much as the same volume of aluminum. In addition, the Company sold $93.5 million of products manufactured from materials other than aluminum and steel in 1997. All the Company's raw material inputs are sourced from external suppliers. The Company purchases its steel and aluminum sheet requirements from several foreign and domestic aluminum and steel mills. Management believes there is sufficient supply in the marketplace to competitively source all of its requirements without reliance on any particular supplier. The Company's large volume of aluminum and steel purchases afford it competitive market pricing. The steel coil used by the Company, light gauge galvanized steel sheet, has a stable price history relative to aluminum and its price fluctuations have been generally passed on to the Company's customers. Aluminum raw material cost increases and decreases can temporarily affect the Company's margins. Supplier price increases, of normal frequency and amount, can be passed on to customers usually within two to four months. Conversely, as aluminum prices decline, corresponding price reductions are typically passed on to customers within the same time frame. The Company continually scrutinizes aluminum costs and adjusts its purchasing, inventory and sales programs accordingly. At certain times, the Company adopts a strategy of locking in margins on long-term, higher volume contracts by buying aluminum at a fixed price in an attempt to fix a margin on a specific customer order. At times, high aluminum prices have led customers to use alternative products, including steel, vinyl and fiberglass. The Company believes that its ability to supply certain products manufactured from these alternatives provides it with a competitive advantage over competitors who do not offer these choices. COMPETITION Recent consolidation in the Company's industry has changed the nature of competition in the U.S. Competition in the U.S. RV and manufactured housing market comes primarily from one subsidiary of a large publicly held U.S. building products company. Other competition in this market, and other U.S. markets, comes largely from privately and publicly held companies that are generally smaller than the Company. In Europe, competitors of the Company include three to four integrated companies in the specialty coil-coating business. Other smaller companies compete with the Company in the building and construction, RV and transportation markets in Europe, both on a regional basis and some on a pan-European basis. ENVIRONMENTAL, HEALTH AND SAFETY MATTERS The Company's manufacturing facilities are subject to a range of federal, state, local and foreign environmental and occupational health and safety laws, including those which relate to air emissions, wastewater discharges, the handling and disposal of solid and hazardous waste, and the remediation of contamination associated with the current and historic use of hazardous substances or materials (collectively, "Environmental Laws"). If a release of hazardous substances or materials occurs on or from the Company's properties or any offsite disposal location used by the Company, or if contamination from prior activities is discovered at any of the Company's properties, the Company may be held liable for the costs of remediation (including any response costs), natural resource damages and associated transaction costs. While the amount of such liability could be material, the Company devotes resources to ensuring that its current operations are conducted in a manner intended to reduce such risks. Based upon an environmental review conducted by outside consultants in connection with the Acquisition and assuming compliance by Alumax with its indemnification obligations under the Acquisition Agreement, the Company believes that it is currently in compliance with, and not subject to liability under, Environmental Laws except where such noncompliance or liability would not reasonably be expected to have a material adverse effect on the consolidated financial position or results of operations of 9 the Company and its subsidiaries taken as a whole. Pursuant to the terms of the Acquisition Agreement, Alumax has agreed to correct and to bear substantially all costs with respect to certain identified conditions of potential noncompliance and liability under Environmental Laws, none of which costs is currently believed to be material. Alumax's indemnification obligations under the Acquisition Agreement are not subject to an aggregate dollar limitation with respect to specifically identified environmental matters. However, with respect to all other environmental matters, Alumax's obligations are limited to $125.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-- Environmental Matters." EMPLOYEES As of December 26, 1997, the Company employed 2,149 people of which 821 were employed in Europe and 1,328 were employed in the United States. Of these 2,149 employees, 33% were salaried and 67% were hourly employees. Manufacturing employees at six of the Company's manufacturing facilities are covered by collective bargaining agreements. The Company and its subsidiaries are not party to any pending labor proceedings and believe that employee relations are satisfactory. RISK FACTORS SUBSTANTIAL LEVERAGE The Company incurred significant debt in connection with the Acquisition and the Fabral Acquisition. As of December 26, 1997, the Company had outstanding indebtedness of $244.2 million, $40.4 million of Preference Shares (as defined) and $3.5 million of ordinary shareholders' equity. For the year ended December 26, 1997, the Company's ratio of earnings to fixed charges was 1.70 to 1. The Company's leveraged financial position poses substantial consequences to holders of the subordinated notes, including the risks that: (i) a substantial portion of the Company's cash flow from operations is dedicated to the payment of interest on the subordinated notes and the payment of principal and interest under the Credit Agreement and other indebtedness; (ii) the Company's leveraged position may impede its ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes, including acquisitions; and (iii) the Company's highly leveraged financial position may make it more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. The Company believes that, based on its current level of operations, it will have sufficient capital to carry on its business and will be able to meet its scheduled debt service requirements. However, there can be no assurance that the future cash flow of the Company will be sufficient to meet the Company's obligations and commitments. In addition, the Credit Agreement contemplates that all borrowings thereunder will become due prior to 2004. If the Company is unable to generate sufficient cash flow from operations in the future to service its indebtedness and to meet its other commitments, the Company will be required to adopt one or more alternatives, such as refinancing or restructuring its indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. There can be no assurance that any of these actions could be effected on a timely basis or on satisfactory terms or that these actions would enable the Company to continue to satisfy its capital requirements. In addition, the terms of existing or future debt agreements, including the Credit Agreement and related indenture, may prohibit the Company from adopting any of these alternatives. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." CUSTOMERS IN CYCLICAL INDUSTRIES Demand for most of the Company's products is cyclical in nature and subject to changes in general economic conditions that affect market demand. Sales to the building and construction markets are driven by trends in commercial and residential construction, housing starts, residential repair and remodelings. Transportation sales are also cyclical in nature and typically follow the trends in the automotive, truck and 10 recreational vehicle manufacturing industries. Historically, lower demand has led to lower margins, lower production levels, or both. DEPENDENCE ON ALUMINUM The Company's primary raw material is aluminum coil. Because changes in aluminum prices are generally passed through to the Company's customers, increases or decreases in aluminum prices generally cause corresponding increases and decreases in reported net sales, causing fluctuations in reported revenues that are unrelated to the level of business activity. However, if the Company is unable to pass through aluminum price changes to its customers in the future, the Company could be materially adversely affected. Any major dislocation in the supply and/or price of aluminum could have a material adverse effect on the Company's business and financial condition. The Company is therefore subject to the short-term commodity risk of carrying aluminum in its inventory. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE The subordinated notes and a related guarantee (the "Guarantee") given by Amerimax Holdings, Inc., the U.S. holding company subsidiary of Euramax, are contractually subordinated to all Senior Debt including all obligations under the Credit Agreement. In the event of a circumstance in which the contractual subordination provisions apply, holders of the subordinated notes will not be entitled to receive, and will have an obligation to pay over to holders of Senior Debt, any payments they may receive in respect of such notes, including any payments received in respect of any Claims (as defined in the related indenture). At December 26, 1997, the aggregate amount of consolidated indebtedness and other liabilities which the notes are effectively subordinated to is approximately $218.9 million, of which approximately $109.2 million is outstanding under the Credit Agreement. The indebtedness under the Credit Agreement will become due prior to the time the principal obligations under the Notes become due. The issuers of the subordinated notes, which are the Company and two of its subsidiaries, Euramax European Holdings plc and Euramax European Holdings, B.V. (the "Issuer") and the guarantor, Amerimax Holdings, Inc. (the "Guarantor"), are holding companies and do not have any independent operations. Accordingly, the notes and the Guarantee are structurally subordinated to all existing and future indebtedness of the subsidiaries of the Issuers and the Guarantor, through which the Company's operations are conducted, including obligations under the Credit Agreement. Subject to certain limitations, the Indenture will permit the Issuers and their subsidiaries to incur additional indebtedness. See "The Transactions." The holders of any indebtedness of the Issuers' subsidiaries are entitled to payment of their indebtedness from the assets of such subsidiaries prior to the holders of any general unsecured obligations of the Issuers, including the Notes. In addition, substantially all of the assets of the Company and its subsidiaries are or may in the future be pledged to secure other indebtedness of the Company. RESTRICTIONS IMPOSED BY THE CREDIT AGREEMENT AND THE INDENTURE The Credit Agreement requires the Company to maintain specified financial ratios and meet certain financial tests, among other obligations, including a minimum interest coverage ratio, a minimum fixed charge coverage ratio, a maximum leverage ratio, a minimum EBITDA requirement and maximum amounts of capital expenditures. In addition, the Credit Agreement restricts, among other things, the Issuers' ability to incur additional indebtedness and make acquisitions. A failure to comply with the restrictions contained in the Credit Agreement could lead to an event of default thereunder which could result in an acceleration of such indebtedness. Such an acceleration would constitute an event of default under the Indenture relating to the Notes. In addition, the Indenture restricts, among other things, the Company's ability to incur additional indebtedness, sell assets, make certain payments and dividends or merge or consolidate. A failure to comply with the restrictions in the Indenture could result in an event of default under the Indenture. 11 ACQUISITION STRATEGY The Company has engaged in and continues to engage in evaluations of and discussions with potential acquisition candidates. Any such transaction(s) have been and may be in the future financed by the incurring of additional indebtedness which could be material. See "Risk Factors--Substantial Leverage." Any such transaction(s) would be subject to negotiations of definitive agreements, satisfactory financing arrangements (including compliance with the limitations on issuance of indebtedness in the Indenture and in the Credit Agreement) and applicable governmental approvals and consents. There can be no assurance that any additional acquisitions will be completed or that such acquired entities or assets will be successfully integrated into the Company's operations, or will be able to operate profitably. RISK OF CURRENCY EXCHANGE RATE FLUCTUATIONS AND INTERNATIONAL MANUFACTURING In 1997, approximately 36% of the Company's net sales were made outside the United States. The U.S. dollar value of the Company's sales varies with currency exchange rate fluctuations. Changes in currency exchange rates could have an adverse effect on the Company's results of operations and its ability to meet interest and principal obligations on the Notes. International manufacturing and sales are subject to risks including labor unrest, potentially high costs of terminating labor contracts, restrictions on transfers of funds, export duties and quotas, domestic and international customs and tariffs, unexpected changes in regulatory environments, difficulty in obtaining distribution and support, potentially adverse tax consequences and changes in effective tax rates. There can be no assurance that any of the foregoing factors will not have a material adverse effect on the Company's ability to increase or maintain its international sales or on the Company's results of operations. See "Business." IMPACT OF ENVIRONMENTAL REGULATION The Company's U.S. and European facilities are subject to the requirements of federal, state, local and foreign environmental and occupational health and safety laws and regulations. There can be no assurance that Euramax is at all times in compliance with all such requirements. Euramax has made and will continue to make capital expenditures to comply with environmental requirements. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from Euramax's properties or any offsite disposal location used by Euramax, or if contamination from prior activities is discovered at any of Euramax's properties, Euramax may be held liable for cleanup costs, natural resource damages and associated transaction costs. The amount of such liability could be material. Euramax has been named a party potentially responsible for the costs of investigating and remediating nine waste disposal sites, pursuant to the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1990. In addition, Euramax is currently engaged in environmental remediation or has reason to believe that remediation may be required at three properties currently operated by the Company. See "Business-- Environmental, Health and Safety Matters" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Environmental Matters." DEPENDENCE ON KEY PERSONNEL The Company is dependent on the continued services of its senior management team. Although the Company believes it could replace key employees in an orderly fashion should the need arise, the loss of such key personnel could have a material adverse effect on the Company. The Company does not maintain key-person insurance for any of its officers, employees or directors. See "Management--Directors and Key Officers." COMPETITION The markets in which the Company competes are highly competitive. In the United States, competition comes from both large and small publicly held and privately held companies. In Europe, competitors 12 of the Company include three to four integrated companies in the specialty coil coating business. Other smaller companies compete with the Company in the building and construction, RV and transportation markets in Europe, both on a regional basis and some on a pan-European basis. There can be no assurance that the Company will be able to compete effectively in each of its markets in the future. See "Business-- Competition." CONTROLLING SHAREHOLDERS The Investor Group owns 77.7% of the outstanding ordinary shares of the Company and collectively controls the affairs and policies of the Company. Circumstances may occur in which the interests of the Investor Group, as shareholders of the Company, could be in conflict with the interests of the holders of the Notes. In addition, the Investor Group may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to the holders of the Notes. See "Security Ownership." LIMITATIONS ON CHANGE OF CONTROL In the event of a Change of Control, the Issuers will be required to make an offer for cash to repurchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the repurchase date. A Change of Control will result in an event of default under the Credit Agreement and may result in a default under other indebtedness of the Company that may be incurred in the future. The Credit Agreement will prohibit the purchase of outstanding Notes prior to repayment of the borrowings under the Credit Agreement and any exercise by the holders of the Notes of their right to require the Company to repurchase the Notes will cause an event of default under the Credit Agreement. Finally, there can be no assurance that the Company will have the financial resources necessary to repurchase the Notes upon a Change of Control. RISK OF FRAUDULENT TRANSFER Amerimax, as Guarantor, has guaranteed the entire aggregate principal amount of the subordinated notes. Amerimax has issued an intercompany note (the "Intercompany Note") to the Company in the principal amount of approximately $70.6 million. Under applicable provisions of the U.S. Bankruptcy Code or comparable provisions of state fraudulent transfer or conveyance laws, if Amerimax, at the time it issued the Guarantee, (i) incurred such indebtedness with intent to hinder, delay or defraud creditors, or (ii)(a) received less than reasonably equivalent value or fair consideration for incurring such indebtedness and (b)(1) was insolvent at the time of incurrence, (2) was rendered insolvent by reason of such incurrence (and the application of the proceeds thereof), (3) was engaged or was about to engage in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital to carry on its businesses, or (4) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, then, in each case, a court of competent jurisdiction could void, in whole or in part, the Notes, or, in the alternative, subordinate the Guarantee to existing and future indebtedness of Amerimax. To the extent that the Guarantee and/or the Intercompany Note were determined to be a fraudulent conveyance or held unenforceable for any reason, the holders of the Notes would cease to have a claim, or would have a limited claim, in respect to Amerimax. In such event, the claims of the holders of the Notes would be subject to the prior payment of all liabilities of Amerimax. The measure of insolvency for purposes of the foregoing will vary depending upon the law applied in such case. Generally, however, Amerimax would be considered insolvent if the sum of its debts, including contingent liabilities, was greater than all of its assets at fair valuation or if the present fair saleable value of its assets was less than the amount that would be required to pay the probable liability on its existing debts, including contingent liabilities, as they become absolute and matured. Each of Euramax, Euramax U.K. and Euramax B.V. are severally liable for the entire aggregate principal amount of the Notes. To the extent that insolvency, bankruptcy or fraudulent transfer laws, or 13 their equivalents, in the jurisdictions of incorporation of Euramax, Euramax U.K. or Euramax B.V. have provisions similar to those described above and an administrator or a court of competent jurisdiction were to make a finding of insolvency or a similar holding, all or a portion of the claims with respect to that Issuer in respect of the Notes could be avoided or subordinated to other debts of such Issuer. In the event an administrator, a court, or other equivalent person were to avoid or subordinate the Notes, holders of the Notes would cease to have a claim in respect to such Issuer and would be solely creditors of the remaining Issuers and the Guarantor. Management believes that, for purposes of all such insolvency, bankruptcy and fraudulent transfer or conveyance laws, the Notes and the Guarantee were issued without the intent to hinder, delay or defraud creditors and for proper purposes and in good faith and that the Issuers and the Guarantor, after the issuance of the Notes and the Guarantee and the application of the proceeds thereof, will be solvent, will have sufficient capital for carrying on their respective business and will be able to pay their respective debts as they mature. There can be no assurance, however, that a court passing on such questions would agree with management's view. 14 ITEM 2. PROPERTIES The Company's principal business office and headquarters are located in Corby, England, with executive offices located in Norcross (Atlanta), Georgia. The principal facilities of the Company as of December 26, 1997 are listed below:
FACILITY FUNCTION SQUARE FEET - ----------------------------------------------- ----------------------------------------------------- ----------- U.S Anaheim, CA Manufacturing (Leased) 15,000 Bedford Park, IL Manufacturing (Leased) 70,000 Bloomsburg, PA Manufacturing (Leased) 96,000 Bristol, IN Manufacturing (Owned) 110,115 Bristol, IN Office (Leased) 3,454 Cedar City, UT Manufacturing (Leased) 38,000 Dallas, TX Office (Leased) 12,230 Elkhart, IN Manufacturing (Leased) 60,000 Elkhart, IN Manufacturing (Leased) 65,000 Grand Prairie, TX Manufacturing (Leased) 45,281 Gridley, IL Manufacturing (Owned) 93,200 Idabel, OK Manufacturing (Owned) 37,440 Jackson, GA Manufacturing (Owned) 69,450 Lancaster, PA Manufacturing (Owned) 220,000 Lancaster, PA Office and Manufacturing (Owned) 126,083 Loveland, CO Manufacturing (Leased) 51,362 Mansfield, TX Manufacturing (Owned) 55,280 Marshfield, Wl Manufacturing (Owned) 28,200 McPherson, KS Manufacturing (Owned) 35,000 Mesa, AZ Manufacturing (Leased) 30,200 Moulton, AL Manufacturing (Owned) 39,152 Norcross, GA Executive Offices (Leased) 3,627 Rathdrum, ID Manufacturing (Leased) 26,190 Reidsville, NC Manufacturing (Leased) 62,575 Romoland, CA Manufacturing (Owned) 65,500 Sacramento, CA Manufacturing (Leased) 40,800 Stayton, OR Manufacturing (Leased) 35,733 Tifton, GA Manufacturing (Leased) 55,600 Tucker, GA Manufacturing (Leased) 35,000 West Sacramento, CA Manufacturing (Leased) 70,000 West Helena, AR Manufacturing (Owned) 230,000 EUROPE Corby, England Office and Manufacturing (Owned) 171,000 Pudsey, England Manufacturing (Owned & Leased) 211,200 Andrezieux-Boutheon, France Manufacturing (Owned) 69,968 Montreuil-Bellay, France Manufacturing (Owned) 178,663 Roermond, The Netherlands Manufacturing (Owned) 208,216
Management believes that the Company's facilities, taken as a whole, have adequate productive capacity and sufficient manufacturing equipment to conduct business at levels meeting current demand. 15 ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are not currently parties to any pending legal proceedings other than such proceedings incident to its business. Management believes that such proceedings would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the consolidated financial position or results of operations of the Company and its subsidiaries taken as a whole. See further information provided in Item 1. "Business" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no items submitted for vote of Security Holders in the quarter ended December 26, 1997. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company has issued notes that were registered under the Securities Act of 1933 in March, 1997. There is no established public trading market for any class of common ("ordinary") or preferred ("preference") equity of the Company. As of December 26, 1997 there are 20 holders of record of the Company's ordinary shares. In connection with the Transactions, the Company issued the equivalent of 34,000,000 shares of redeemable preference shares. The preference shares accrue fixed, cumulative dividends of 14% per annum compounded quarterly. These preference shares are more fully described in Note 6 to the Financial Statements. During 1997, no securities were issued by the Company. ITEM 6. SELECTED HISTORICAL FINANCIAL DATA Set forth below are selected historical financial data of the Company as of the dates and for the periods presented. For purposes of this presentation, all predecessor financial data represents such data for the Company when it was a division of Alumax. The selected historical financial data as of and for each of the three years in the period ended December 31, 1995, and the nine months ended September 25, 1996, the three months ended December 27, 1996, and the year ended December 26, 1997, were derived from the audited Financial Statements of the Company. Due to required adjustments to record the Acquisition under the purchase method of accounting, the consolidated financial and other data for the period subsequent to the acquisition (the "Successor" periods) are not comparable to such data for the periods prior to the acquisition (the "Predecessor" periods). The combined results of operations for the year ended December 27, 1996 represent the mathematical addition of the historical amounts for the Predecessor period (January 1, 1996 through September 25, 1996) and the Successor period (September 26, 1996 through December 27, 1996) and are not indicative of the results that would actually have been obtained if the Acquisition had occurred on December 31, 1995. The information contained in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and accompanying notes thereto included herein. 16
PREDECESSOR SUCCESSOR ---------------------------------------------- ------------- COMBINED SUCCESSOR NINE THREE ------------- ------------- MONTHS MONTHS YEAR YEAR YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED THOUSANDS OF U.S. ------------------------------- SEPTEMBER 25, DECEMBER 27, DECEMBER 27, DECEMBER 26, DOLLARS 1993 1994 1995 1996 1996 1996 1997 --------- --------- --------- ------------- ------------- ------------- ------------- STATEMENT OF EARNINGS DATA: Net sales.............. $ 385,487 $ 446,572 $ 483,462 $ 363,308 $ 125,529 $ 488,837 $ 557,014(2) --------- --------- --------- ------------- ------------- ------------- ------------- Costs and expenses: Cost of goods sold............. 316,841 366,717 399,989 300,185 104,055 404,240 454,180 Selling and general.......... 35,336 42,424 41,351 33,286 10,950 44,236 49,239 Depreciation and amortization..... 7,645 7,672 7,980 6,995 2,591 9,586 11,663 --------- --------- --------- ------------- ------------- ------------- ------------- 359,822 416,813 449,320 340,466 117,596 458,062 515,082 --------- --------- --------- ------------- ------------- ------------- ------------- Earnings from operations....... 25,665 29,759 34,142 22,842 7,933 30,775 41,932 Interest expense....... (1,950) (1,155) (4,089) (930) (6,235) (7,165) (24,082) Interest income........ 800 900 1,100 308 48 356 544 Other income (expense)............ (348) (285) (96) (298) (235) (533) 1,107 --------- --------- --------- ------------- ------------- ------------- ------------- Earnings before income taxes..... 24,167 29,219 31,057 21,922 1,511 23,433 19,501 Provision for income taxes................ 8,708 12,038 11,399 8,342 505 8,847 7,947 --------- --------- --------- ------------- ------------- ------------- ------------- Earnings before extraordinary item... 15,459 17,181 19,658 13,580 1,006 14,586 11,554 Extraordinary item..... -- -- -- -- -- -- 1,758 --------- --------- --------- ------------- ------------- ------------- ------------- Net earnings....... 15,459 17,181 19,658 13,580 1,006 14,586 9,796 Dividends on redeemable preference shares.... -- -- -- -- 1,191 1,191 5,191 --------- --------- --------- ------------- ------------- ------------- ------------- Net earnings (loss) available for ordinary shareholders......... $ 15,459 $ 17,181 $ 19,658 $ 13,580 $ (185) $ 13,395 $ 4,605 --------- --------- --------- ------------- ------------- ------------- ------------- --------- --------- --------- ------------- ------------- ------------- ------------- OTHER DATA: Capital expenditures... $ 7,700 $ 9,595 $ 17,429 $ 11,518 $ 682 $ 12,200 $ 7,184 Ratio of earnings to fixed charges(1)..... 8.76x 13.04x 6.83x 12.63x 1.26x 3.78x 1.70x BALANCE SHEET DATA (END OF PERIOD) Working capital........ $ 102,707 $ 126,659 $ 127,380 $ 120,940 $ 97,619 $ 97,619 $ 93,013 Total assets........... 196,541 236,771 236,649 335,766 327,293 327,293 397,750 Total long-term debt, including current maturities........... -- -- -- 235,000 211,740 211,740 244,216 Redeemable preference shares............... -- -- -- 34,000 35,191 35,191 40,382 Total ordinary shareholders' equity............... 110,523 133,786 151,461 1,000 2,173 2,173 3,494
- ------------------------------ (1) Earnings used in computing the ratio of earnings to fixed charges consist of earnings before income taxes plus fixed charges. Fixed charges consist of interest expense, including amortization of debt issuance costs and the estimated interest component of rent expense. (2) Net sales for the year ended December 26, 1997 were increased by approximately $76 million from the Fabral and JTJ Laminating acquisitions. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the "Selected Historical Financial Data" and the Financial Statements of the Company and the accompanying notes thereto included elsewhere herein. Certain risk factors, among others, should be considered carefully in evaluating the Company and its business. These risk factors include the following: (i) Substantial Leverage, (ii) Customers in Cyclical Industries, (iii) Dependence on Aluminum, (iv) Subordination of Notes, (v) Restrictions imposed by the Credit Agreement and Indenture, (vi) Acquisition Strategy, (vii) Risk of Currency Exchange Rate Fluctuations and International Manufacturing, (viii) Impact of Environmental Regulation, (ix) Dependence on Key Personnel, (x) Competition, (xi) Controlling Shareholders, (xii) Limitations on Change of Control, and (xiii) Risk of Fraudulent Transfer (see "Business--Risk Factors"). GENERAL The Company is a leading international downstream producer of aluminum and steel products with facilities in the U.S., the U.K., The Netherlands and France. Euramax's products are produced primarily from light gauge aluminum and steel coil and include painted sheet and coil, siding, roofing, raincarrying systems, windows, doors and various trim parts and components. The Company's products are sold primarily to manufacturers of RV's and manufactured housing, rural building contractors, distributors and home centers. See "Business." The Company was formed in 1996 by the Investor Group to acquire certain portions of Alumax's fabricated products operations pursuant to the Acquisition. Approximately 55% of the Company's 1997 net sales were derived from sales of aluminum products. Unlike other raw materials used by the Company, the cost of aluminum is subject to a high degree of volatility caused by the relationship of world aluminum supply to world aluminum demand. Historically, prices at which the Company sells aluminum products tend to fluctuate with corresponding changes in the prices paid to suppliers for aluminum raw materials. Supplier price increases of normal amount and frequency can generally be passed to customers within two to four months. Accordingly, the Company's reported net sales of aluminum products may fluctuate with little or no change in the volume of aluminum shipments. STRATEGY The Company's strategy is to expand its leadership position as a producer of aluminum and steel products and to further broaden its current diversity of products, customers and geographic regions in which it operates. Since the Company's formation in 1996, Management has pursued a strategy of enhancing the Company's operations and profitability and positioning the Company for future growth. Under this strategy, during 1997, the Company sold two businesses which were not material to operations and which did not serve Management's business strategy. The Company expects to continue to pursue a strategy of identifying and acquiring businesses and assets that would enable it to offer complementary products or expand geographic coverage. During 1997, the Company completed two such acquisitions in the U.S., increasing annual revenues by approximately $76.4 million. While the Company's strategy includes identifying and acquiring businesses and assets that would enable it to offer complementary products or expand geographic coverage, there can be no assurance that additional acquisitions will be completed or that, if completed, such acquisitions would improve the overall profitability of the Company (see "Business--Risk Factors--Acquisition Strategy"). Additionally, there can be no assurance that the Company will experience similar general economic conditions or raw material price stability that contributed to improvements in operating results for the year ended December 26, 1997. Historically, the Company has not engaged in hedging activities intended to manage risks relating to movements in market prices of steel and aluminum raw materials. However, in connection with the Company's risk-management strategy, the Company has entered into currency swaps with major banking institutions to reduce the impact of exchange rate fluctuations with respect to debt payments made in foreign currency denominations (see Note 2 to Consolidated Financial Statements). 18 See Note 1 to the Consolidated Financial Statements included elsewhere herein for a description of the basis of presentation of financial information and the Company's relationship with Alumax, its former parent. Alumax operated in a decentralized manner; therefore, many corporate functions were performed directly by the Company. However, Alumax provided the Company with certain administrative services, including but not limited to tax compliance, treasury services, human resource administration, legal services, and investor relations. The financial statements included elsewhere herein, and other financial information set forth herein, have been presented on a combined basis for periods prior to the Acquisition (the "Predecessor periods"), giving effect to, among other items, corporate expenses which anticipated requirements as a stand-alone company. For purposes of the discussion below, the results of operations for the year ended December 27, 1996 represent the mathematical addition of the historical amounts for the Predecessor period (January 1, 1996 through September 25, 1996) and the Successor period (September 26, 1996 through December 27, 1996) and are not indicative of the results that would actually have been obtained if the Acquisition had occurred on December 31, 1995. Net earnings for the year ended December 26, 1997 totaled $9.8 million as compared to net earnings of $14.6 million and $19.7 million for the years ended December 27, 1996 and December 31, 1995, respectively. The 1997 results reflect significant growth in operating earnings due to raw material price stability, increases in shipments of specialty coated coil in Europe, the Fabral Acquisition, the JTJ Laminating acquisition, and favorable general economic conditions in both the U.S. and Europe. Improvements in operating earnings were offset by increased interest expense from debt incurred in connection with the Acquisition and from the debt incurred for the Fabral Acquisition. RESULTS OF OPERATIONS The following table sets forth the Company's Statement of Earnings Data expressed as a percentage of net sales:
DECEMBER 31, DECEMBER 27, DECEMBER 26, 1995 1996 1997 ------------ ------------ ------------ STATEMENT OF EARNINGS DATA: Net sales............................... 100.0% 100.0% 100.0% Costs and expenses: Cost of goods sold.................... 82.7 82.7 81.5 Selling and general................... 8.5 9.0 8.8 Depreciation and amortization......... 1.7 2.0 2.1 ----- ----- ----- Earnings from operations................ 7.1 6.3 7.6 Interest expense, net................... 0.7 1.4 4.2 Other (income) expense, net............. -- 0.1 (0.2) ----- ----- ----- Earnings before income taxes and extraordinary item.................. 6.4 4.8 3.6 Provision for income taxes.............. 2.3 1.8 1.4 ----- ----- ----- Earnings before extraordinary item.... 4.1 3.0 2.2 ----- ----- ----- Extraordinary item--loss on debt refinancing, net of income tax benefit of $1,088.............................. -- -- .3 ----- ----- ----- Net earnings............................ 4.1% 3.0% 1.9% ----- ----- ----- ----- ----- -----
19 YEAR ENDED DECEMBER 26, 1997 COMPARED TO THE YEAR ENDED DECEMBER 27, 1996. NET SALES. Net sales increased 13.9% to $557.0 million for the year ended December 26, 1997, from $488.8 million for the year ended December 27, 1996. Approximately $59.4 million of this increase is attributable to net sales of Fabral which was acquired by the Company on July 17, 1997 (see Notes to Consolidated Financial Statements). Increases in aluminum shipments to OEM markets in Europe, raincarrying systems in North America, and an increase in steel shipments to producers of manufactured homes combined to increase net sales in 1997 by approximately $32.4 million. In addition, net sales increased approximately $17.0 million for sales attributable to JTJ Laminating, Inc., acquired by the Company on March 28, 1997 (see Liquidity and Capital Resources). Net sales also increased approximately $4.2 million due to the strengthening of the British Pound Sterling compared to the U.S. Dollar. The increases were partially offset by (i) weakening of the Dutch Guilder and French Franc compared to the U.S. Dollar, which reduced net sales approximately $11.5 million and $3.8 million, respectively, (ii) $21.7 million decline in net sales attributable to divested subsidiaries (see Liquidity and Capital Resources), (iii) lower aluminum selling prices precipitated by an approximate 10% reduction in market prices for bare aluminum sheet and (iv) other individually insignificant occurrences. Net sales in the U.S. increased 17.7% to $354.4 million for the year ended December 26, 1997, from $301.0 million for the year ended December 27, 1996. Net sales in Europe increased 7.9% to $202.6 million for the year ended December 26, 1997, from $187.8 million for the year ended December 27, 1996. COST OF GOODS SOLD. Cost of goods sold, as a percentage of net sales, decreased 1.2% for the year ended December 26, 1997, from 82.7% in 1996 to 81.5% in 1997. This decrease is primarily attributable to (i) lower raw material prices, (ii) sales of a greater percentage of higher margin aluminum products, particularly in Europe, and (iii) an overall improvement in gross margin attributable to higher sales volume. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses as a percentage of net sales decreased by 0.2% for the year ended December 26, 1997, from 9.0% in 1996 to 8.8% in 1997. This decrease is primarily attributable to the Fabral Acquisition which increased net sales approximately $59.4 million for the year ended December 26, 1997, and which had lower selling and general expenses, as a percentage of net sales, than the Company prior to the acquisition. DEPRECIATION AND AMORTIZATION. Depreciation and amortization, as a percentage of net sales, increased 0.1% for the year ended December 26, 1997, from 2.0% in 1996 to 2.1% in 1997. This increase was primarily attributable to depreciation and amortization arising from the Transaction and from the Fabral Acquisition. EARNINGS FROM OPERATIONS. For reasons stated above, earnings from operations in the U.S. increased 58.0% from $12.2 million for the year ended December 27, 1996 to $19.2 million for the year ended December 26, 1997. Earnings from operations in Europe increased 22.0% from $18.6 million for the year ended December 27, 1996, to $22.7 million for the year ended December 26, 1997. INTEREST EXPENSE, NET. Net interest expense for the year ended December 26, 1997, increased substantially to $23.5 million from a level of $6.8 million for the year ended December 27, 1996. This increase was due primarily to a full year's interest as a result of acquisition borrowings. OTHER EXPENSES, NET. The Company enters into currency swaps with major banking institutions to reduce the impact of exchange rate fluctuations with respect to debt payments made in foreign currency denominations. Currency swaps involve exchanges of interest payments and principal amounts at maturity in differing currencies. Other expenses for the year ended December 26, 1997, included net transaction gains of approximately $631 and $382 on foreign exchange movements in the UK and the Netherlands, respectively. Remaining income (expense) was not significant for the years ended December 26, 1997 and December 27, 1996. 20 PROVISION FOR INCOME TAXES. The effective rate for the provision for income taxes increased from 37.8% to 40.7% for the years ended December 27, 1996, and December 26, 1997, respectively. This increase was due to higher earnings attributable to the U.S. operations and non-deductible amortization resulting from the Fabral acquisition. Earnings in the U.S. are subjected to slightly higher income tax rates than in the European countries and are also subject to state income taxes. EXTRAORDINARY ITEM. The results for the year ended December 26, 1997, included a loss of $1.8 million, net of taxes of $1.1 million, for the write-off of deferred financing costs in connection with the amendment and restatement of the Company's Credit Agreement to, among other items, provide available borrowings for the Fabral acquisition (see Extraordinary Item in Notes to Consolidated Financial Statements). YEAR ENDED DECEMBER 27, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 NET SALES. Net sales increased 1.1% to $488.8 million for the year ended December 27, 1996 from $483.5 million for the year ended December 31, 1995. This increase is primarily attributable to (i) an increase of approximately $13.3 million in net sales in the U.S. due to increased demand in the manufactured housing and home center markets and (ii) an increase in sales to the vehicular sector in Europe of approximately $4.2 million, partially offset by (iii) a decrease in demand in the U.K. industrial market of approximately $7.8 million, (iv) a weakening of the Company's key foreign currencies totaling approximately $4.9 million (particularly the Dutch Guilder) compared to the U.S. Dollar and (v) approximately $500,000 of other individually insignificant occurrences. Net sales in the U.S. increased 4.6% to $301.1 million in 1996 from $287.8 million in 1995. Net sales in Europe decreased 4.0% to $187.8 million in the year ended December 27, 1996 from $195.7 million in the year ended December 31, 1995. COST OF GOODS SOLD. Cost of goods sold, as a percentage of net sales, of 82.7% for the year ended December 27, 1996 approximated the 1995 cost of goods sold of 82.7%. The average cost of aluminum in 1996 was 18.6% lower than in 1995. Cost of goods sold for 1996 remained virtually unchanged from 1995. After consideration of non-recurring charges, cost of goods sold decreased from 82.7% to 82.1%. This decrease is attributable to non-recurring charges in 1995 which included $1.9 million paid to the parent company for the difference between intergroup transfer prices and prices paid locally, $900,000 to out-source painting costs while upgrading painting facilities and approximately $400,000 in plant closing costs. SELLING AND GENERAL. Selling and general expenses, as a percentage of net sales, increased to 9.0% in the year ended December 27, 1996 from 8.5% in 1995. This increase is attributable to increases of approximately $750,000 in advertising and commissions in 1996, increases in corporate charges during 1996 of $567,000, additional information system expenses incurred in 1996 of $388,000, reversal of provision for doubtful accounts during 1995 of $264,000, and other individually insignificant occurrences of approximately $916,000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by 20.1% in the year ended December 27, 1996 as compared to 1995. This increase of $1.6 million was due to (i) the Company's investment in a roll coating facility placed in service in the U.S. in 1996 and (ii) the increased amortization of goodwill and revalued assets in 1996 resulting from purchase accounting adjustments. EARNINGS FROM OPERATIONS. For reasons stated above, earnings from operations in the U.S. increased 3.6% to $11.6 million in 1996 from $11.2 million in 1995. Earnings from operations in Europe decreased 16.2% to $19.2 million in the year ended December 27, 1996 from $22.9 million in the same period in 1995. INTEREST EXPENSE, NET. Net interest expense in the year ended December 27, 1996 increased substantially to $6.8 million from a 1995 level of $3.0 million. This increase was due primarily to interest as a result of the Acquisition debt incurred. Net interest expense in 1995 consisted primarily of interest charged by Alumax for certain specific intercompany borrowings. 21 OTHER EXPENSES, NET. Other expense was not significant in either 1996 or 1995. PROVISION FOR INCOME TAXES. The effective rate of the provision for income taxes for the full year 1996 increased to 37.7% from 36.7% in 1995. The increase is due primarily to a higher portion of earnings taxed in the U.S. in 1996 compared to 1995. For the full year 1996, 37.8% of earnings from operations were attributable to the U.S. operations, excluding corporate costs, compared to only 32.8% in 1995. In contrast, earnings in Europe comprised 62.2% in the full year 1996, a decrease from the 67.2% which was reported for the full year 1995, again excluding any costs at the corporate level. Earnings in the U.S. are subject to higher income tax rates than in Europe and are also subject to state income taxes. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY. The Company's primary liquidity needs arise from debt service on indebtedness incurred in connection with the Acquisition, other acquisitions, and the funding of capital expenditures. As of December 26, 1997, the Company had outstanding indebtedness for borrowed money of $244.2 million, $40.4 million of Preference Shares and ordinary shareholders' equity of $3.5 million. Included in such indebtedness was approximately $109.2 million under the Credit Agreement, consisting of $63.8 million under the Term Loans and $45.4 million under the Revolving Credit Facility. The undrawn amount of the Revolving Credit Facility at December 26, 1997 was approximately $54.6 million, which was available for working capital and general corporate purposes, subject to borrowing base limitations. As of December 26, 1997, this amount was fully available. The Company's leveraged financial position requires that a substantial portion of the Company's cash flow from operations be used to pay interest on the Notes, principal and interest under the Credit Agreement and other indebtedness. Further, the Company's leveraged position may impede its ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes. In addition, the Company's leveraged position may make it more vulnerable to economic downturns and may limit its ability to withstand competitive pressures. The Company believes that cash generated from operations and, subject to borrowing base limitations, borrowings under the Credit Agreement will be adequate to meet its needs for the foreseeable future, although no assurance to that effect can be given. Principal and interest payments under the Credit Agreement and interest payments on the Notes represent significant liquidity requirements for the Company. With respect to the $63.8 million of Term Loans, the Company must make scheduled principal payments totaling $3.9 million in 1998, $7.8 million in 1999, $4.7 million in 2000, $7.0 million in 2001, $12.5 million in 2002, $15.9 million in 2003, and $12.0 million in 2004. The Term Loans and the Revolving Credit Facility will bear interest at floating rates. The Company's primary source of liquidity is funds generated from operations, which is supplemented by borrowings under the Credit Agreement. Operations provided cash of $28.8 million in the year ended December 26, 1997, compared to $48.6 million in the year ended December 27, 1996. Lower cash flow due to the interest expense on the acquisition debt was more than offset by working capital reductions, net of the effects of the Fabral acquisition. On March 28, 1997, the Company's wholly owned subsidiary, Amerimax Building Products, Inc., purchased all of the issued and outstanding capital stock of JTJ Laminating, Inc. ("JTJ") for approximately $2.1 million, along with assumption of outstanding indebtedness of $1.3 million. At the closing date, approximately $2.4 million was paid in cash, of which $1.3 million was to extinguish outstanding indebtedness of JTJ. The remaining purchase price of $1.0 million will be paid in various installments over the next ten years. On June 2, 1997, the Company sold the assets, along with certain accounts payable, related to its Johnson Door Products, Inc. subsidiary for approximately $9.1 million in cash. On June 27, 1997, the Company sold all of the issued and outstanding capital stock of Amerimax Specialty Products, Inc. for approximately $4.2 million, of which $3.7 million was in cash and $500,000 in a subordinated promissory 22 note payable in 60 monthly installments of principal and accrued interest, such interest accruing on the unpaid balance at an annual rate of 9.25%. On July 17, 1997, the Company's wholly owned subsidiary, Amerimax Fabricated Products, Inc., acquired all of the issued and outstanding capital stock of Gentek Holdings, Inc. and its subsidiary Gentek Building Products, Inc. (collectively "Gentek" or "Fabral") pursuant to a purchase agreement (the "Fabral Purchase Agreement"). On July 17, 1997, Gentek was comprised principally of Fabral, a division of Gentek headquartered in Lancaster, Pennsylvania. The purchase price, including approximately $2.5 million in acquisition related fees and expenses, was approximately $76.1 million in cash. The Fabral Acquisition was financed through borrowings of $38.0 million of senior secured revolving loans and $40.0 million of senior secured term loans. Such borrowings were available under the Credit Agreement which was amended and restated to increase the Revolving Credit Facility from $85.0 million to $100.0 million and to provide additional term loans of $40.0 million. For the above acquisitions, the purchase price was allocated to the assets and liabilities of the acquired companies based upon their estimated fair market value at the acquisition date under the purchase method of accounting. CAPITAL EXPENDITURES. The Company's capital expenditures were $7.2 million and $12.2 million in the years ended December 26, 1997 and December 27, 1996, respectively. Capital expenditures in 1997 include approximately $2.0 million for improvements to paintlines in Corby, England and Roermond, The Netherlands. Capital expenditures in 1996 include approximately $1.9 million for the construction of a fabrication plant in Helena, Arkansas. The balance of capital expenditures in both periods primarily relates to purchases and upgrades of fabricating equipment, transportation and material moving equipment, and information systems. WORKING CAPITAL MANAGEMENT. Working capital was $93.0 million as of December 26, 1997 compared to $97.6 million as of December 27, 1996. The Company believes that current levels of working capital represent a liquid source of funds available for future cash needs. The Company believes that further reductions in accounts receivable and inventory can be achieved upon completion of current information systems projects being undertaken in some of the Company's subsidiaries. The Company believes these systems will offer distinct advantages in monitoring credit, open receivables and inventory levels, while enabling centralized ordering and inventory management. However, there can be no assurance that such reductions will be achieved. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the application year in certain computer programs. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Management is in the process of evaluating the effect of the Year 2000 Issue on the Company. Based on preliminary findings, the total cost of addressing the Year 2000 Issue is not expected to have a material effect on the Company's business, financial condition or results of operations. However, Management is in the process of completing its assessment of the potential impact of the Year 2000 Issue on the Company and the potential exposure of the Company to related problems of its customers and suppliers. There can be no assurance that such exposures or the costs of remediating any problems associated therewith will not materially affect the Company's future business, financial condition or results of operations. 23 INFLATION AND FOREIGN CURRENCY TRANSLATION In recent years, inflation has not had a significant effect on the Company's results of operations or financial condition. The assets and liabilities of the Company's non-U.S. subsidiaries are translated into U.S. dollars at current exchange rates and revenues and expenses are translated at average exchange rates. Currency translations on export sales could be adversely affected in the future by the relationship of the U.S. Dollar with foreign currencies. EUROPEAN CURRENCY The 1992 treaty on European Union provides that, on or before January 1, 1999, and subject to the fulfillment of certain conditions, a new single European currency, to be named the "Euro," will become a currency in its own right, replacing some of the currencies of the fifteen member states of the European Union. The Company has begun coordinating the preparations for the Euro, particularly with respect to the Company's European subsidiaries. Preparations include the completion of an analysis to determine the cost of conversion, the economic impact on the Company, and a time schedule for the introduction of the Euro as a house currency for the appropriate subsidiaries. Preparation will also include coordination with customers, suppliers and financial institutions to ensure a smooth transition. The company expects to be able to transact business in the Euro beginning on January 1, 1999. RECENT ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, COMPREHENSIVE INCOME: FINANCIAL STATEMENT PRESENTATION. SFAS 130 provides standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This standard is effective for the Company's fiscal year beginning January 1, 1998. This standard requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with same prominence as other financial statements. Reclassifications of financial statements for earlier periods presented for comparative purposes is required. Management is currently reviewing the provisions of SFAS 130 and does not believe that the Company's financial statements will be materially impacted by the adoption. In 1997, the FASB issued SFAS No. 131, SEGMENT DISCLOSURES AND RELATED INFORMATION. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that these enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also presents standards for related disclosures about products and services, geographic areas, and major customers. This standard is effective beginning with the Company's 1998 annual financial statements, and prior period disclosures are required to be restated. This standard requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Management is currently reviewing the provisions of SFAS 131. In February, 1998, the FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURE ABOUT PENSIONS AND OTHER POST RETIREMENT BENEFITS. SFAS No. 132 standardized the disclosure requirements for pensions and other post retirement benefits to the extent practicable. This standard is effective beginning with the Company's 1998 annual financial statements, and prior period disclosures are required to be restated. Management is currently reviewing the provisions of SFAS 132 and does not believe that the Company's financial statements will be materially impacted by the adoption. 24 ENVIRONMENTAL MATTERS The Company's U.S. and European manufacturing facilities are subject to a range of federal, state, local and foreign environmental laws and regulations ("Environmental Laws"), including those relating to air emissions, wastewater discharges, the handling and disposal of solid and hazardous waste, and the remediation of contamination associated with the current and historic use of hazardous substances or materials. If a release of hazardous substances or materials occurs on or from the Company's properties or any offsite disposal location used by the Company, or if contamination from prior activities is discovered at any of the Company's properties, the Company may be held liable for the costs of remediation including response costs, natural resource damage and associated transaction costs. While the amount of such liability could be material, the Company devotes resources to ensuring that its operations are conducted in a manner intended to reduce such risks. Based upon an environmental review conducted by outside consultants in connection with the Acquisition and assuming compliance by Alumax with its indemnification obligations under the Acquisition Agreement, the Company believes that it is currently in compliance with, and not subject to liability under, Environmental Laws except where such noncompliance or liability would not reasonably be expected to have a material adverse effect on the consolidated financial position or results of operations of the Company and its subsidiaries taken as a whole. Pursuant to the terms of the Acquisition Agreement, Alumax has agreed to correct and to bear substantially all costs with respect to certain identified conditions of potential noncompliance and liability under Environmental Laws, none of which costs is currently believed to be material. Alumax's indemnification obligations under the Acquisition Agreement are not subject to an aggregate dollar limitation with respect to specifically identified environmental matters. However, with respect to all other environmental matters, Alumax's obligations are limited to $125.0 million. Liability with respect to hazardous substance or material releases in the U.S. arises principally under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended "CERCLA" and similar state laws, which impose strict, and under certain circumstances, retroactive, joint and several liability upon statutorily defined classes of potentially responsible parties ("PRP's"). The Company has been identified as a PRP at nine National Priorities List ("NPL") sites under CERCLA, although two of these nine sites may relate to disposal by divisions of Alumax that have never been and are not now part of the Company. Pursuant to the terms of the Acquisition Agreement, Alumax has agreed to indemnify the Company for all of the costs associated with each of these nine NPL sites. In addition, Alumax has agreed to indemnify the Company for all of the costs associated with eleven additional sites listed on state hazardous site cleanup lists, with respect to which the Company has not received any notice of potential responsibility. The Company is currently engaged in environmental remediation or has reason to believe that remediation may be required at three properties currently operated by the Company. The Company's Mesa, Arizona facility is currently listed on the CERCLA list of sites under review by U.S. Environmental Protection Agency for inclusion on the NPL. In addition, the Mesa facility is located within a state-designated groundwater contamination area and the Company may consequently be identified as a PRP with respect to such contamination. Although the Company believes that it is unlikely that its Mesa facility itself will be designated as an independent NPL site, there can be no assurance that the costs associated with further investigation and any cleanup at the site and the Company's share of cleanup costs for the regional groundwater contamination cleanup will not be material. Alumax has agreed to indemnify the Company for all costs of required remediation including any required response costs at the Mesa facility that may be incurred by the Company in excess of $500,000 (when aggregated with all other environmental claims). At the Company's Montreuil-Bellay, France facility, the Company has been discharging wastewater potentially containing solvents to the ground at the site. In addition, a spill from the facility's anodizing line 25 may have resulted in contamination of soil and groundwater. Because no subsurface investigation has been conducted at the site, there can be no assurance that the costs associated with each of these issues will not be material. As with the Mesa, Arizona facility, however, Alumax has agreed to indemnify the Company for any costs of required remediation including any required response costs with respect to each of these issues that may be incurred by the Company in excess of $500,000 (when aggregated with all other environmental claims). At the Company's Corby, England facility, the Company has undertaken a remediation of chromium-contaminated groundwater onsite, which remediation may continue for a number of years. Although some upgrades to the groundwater treatment system may be required within the next year to complete the remediation, the costs associated with such an upgrade and with the completion of remediation at the site are not expected to be material. Alumax Inc. has agreed to indemnify the Company for all of the costs of required remediation at this site in excess of $500,000 (when aggregated with all other environmental claims). The Company has made and will continue to make capital expenditures to comply with Environmental Laws. The Company spent approximately $506,300 and $983,100 in 1997 and 1996, respectively, on environmental capital projects. These expenditures were primarily related to environmental controls associated with a paint line upgrade in Lancaster, Pennsylvania and a new coil coating facility in Helena, Arkansas. The Company estimates that its environmental capital expenditures will be approximately $500,000 in 1998. Certain risk factors, among others, should be considered carefully in evaluating the Company and its business. For additional detail, please refer to "Business--Risk Factors" contained in Part I, Item 1 of this Form 10-K. Also, see the note preceding Part I of "Business" for additional information regarding the Private Securities Litigation Reform Act. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Euramax International plc We have audited the accompanying consolidated balance sheets of Euramax International plc and Subsidiaries (the "Company") as of December 27, 1996 and December 26, 1997, and the related consolidated statements of earnings and cash flows for the year ended December 31, 1995, the nine months ended September 25, 1996, the three months ended December 27, 1996, and the year ended December 26, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Euramax International plc and Subsidiaries as of December 27, 1996, and December 26, 1997, and the results of their operations and cash flows for the year ended December 31, 1995, the nine months ended September 25, 1996, the three months ended December 27, 1996, and the year ended December 26, 1997, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Atlanta, Georgia February 27, 1998 27 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
PREDECESSOR SUCCESSOR ------------------------------ ----------------------------- FOR THE YEAR FOR THE NINE FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, 1995 1996 1996 1997 ------------- --------------- -------------- ------------- THOUSANDS OF U.S. DOLLARS Net sales........................................ $ 483,462 $ 363,308 $ 125,529 $ 557,014 Cost and expenses: Cost of goods sold............................. 399,989 300,185 104,055 454,180 Selling and general............................ 41,351 33,286 10,950 49,239 Depreciation and amortization.................. 7,980 6,995 2,591 11,663 ------------- --------------- -------------- ------------- Earnings from operations..................... 34,142 22,842 7,933 41,932 Interest expense, net............................ (2,989) (622) (6,187) (23,538) Other income (expense), net...................... (96) (298) (235) 1,107 ------------- --------------- -------------- ------------- Earnings before income taxes and extraordinary item......................... 31,057 21,922 1,511 19,501 Provision for income taxes....................... 11,399 8,342 505 7,947 ------------- --------------- -------------- ------------- Earnings before extraordinary item........... 19,658 13,580 1,006 11,554 Extraordinary item--loss on debt refinancing, net of income tax benefit of $1,088................. -- -- -- 1,758 ------------- --------------- -------------- ------------- Net earnings............................... 19,658 13,580 1,006 9,796 Dividends on redeemable preference shares........ -- -- (1,191) (5,191) ------------- --------------- -------------- ------------- Net earnings (loss) available for ordinary shareholders............................... $ 19,658 $ 13,580 $ (185) $ 4,605 ------------- --------------- -------------- ------------- ------------- --------------- -------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. 28 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
THOUSANDS OF U.S. DOLLARS DECEMBER 27, 1996 DECEMBER 26, 1997 ASSETS ----------------- ----------------- Current assets: Cash and cash equivalents................................................ $ 12,516 $ 12,914 Accounts receivable, less allowance for doubtful accounts (1996--$3,404; 1997--$3,494)........................................... 60,767 78,085 Inventories.............................................................. 87,235 87,461 Deferred income taxes.................................................... 1,483 611 Other current assets..................................................... 1,350 1,703 -------- -------- Total current assets................................................... 163,351 180,774 Property, plant and equipment, net......................................... 107,338 113,187 Goodwill, net of accumulated amortization (1996--$328; 1997--$2,416)....... 40,926 76,910 Deferred income taxes...................................................... -- 11,004 Other assets............................................................... 15,678 15,875 -------- -------- $ 327,293 $ 397,750 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdrafts.......................................................... $ -- $ 11,470 Accounts payable......................................................... 38,221 42,575 Accrued expenses......................................................... 19,298 22,366 Accrued interest payable................................................. 4,696 5,035 Income taxes payable..................................................... 1,517 1,417 Deferred income taxes payable............................................ -- 974 Current maturities of long-term debt..................................... 2,000 3,924 -------- -------- Total current liabilities.............................................. 65,732 87,761 Long-term debt, less current maturities.................................... 209,740 240,292 Other liabilities.......................................................... 4,722 8,266 Deferred income taxes...................................................... 9,735 17,555 -------- -------- Total liabilities...................................................... 289,929 353,874 -------- -------- Commitments and contingencies Redeemable preference shares: Preference shares--14% cumulative preferred, no par value; 33,925,000 shares authorized, issued and outstanding, plus cumulative dividends of $1,188 in 1996 and $6,368 in 1997...................................... 35,113 40,293 Sterling preference shares--14% cumulative preferred, no par value; 50,000 shares, at 1 British Pound Sterling, authorized, issued and outstanding, plus cumulative dividends of $3 in 1996 and $14 in 1997... 78 89 -------- -------- Total redeemable preference shares..................................... 35,191 40,382 -------- -------- Ordinary shareholders' equity: Ordinary shares--no par value; 911,520 shares authorized, issued and outstanding............................................................ 912 912 Non-voting shares--no par value; 88,420 shares authorized, issued and outstanding............................................................ 88 88 Sterling ordinary shares--no par value; 50,000 shares, at 1 British Pound Sterling, authorized; no shares issued and outstanding................. -- -- Retained earnings........................................................ (185) 4,420 Minimum pension liability................................................ -- (535) Foreign currency translation adjustment.................................. 1,358 (1,391) -------- -------- Total ordinary shareholders' equity.................................... 2,173 3,494 -------- -------- $ 327,293 $ 397,750 -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements. 29 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
COMMON STOCK AND MINIMUM THOUSANDS OF U.S. DOLLARS PAID-IN RETAINED PENSION TRANSLATION PREDECESSOR CAPITAL EARNINGS LIABILITY ADJUSTMENT TOTAL - ----------------------------------------------------- ----------- ---------- ----------- ----------- ---------- Balance, December 31, 1994........................... $ 41,450 $ 96,794 $ -- $ (4,458) $ 133,786 Net earnings for 1995.............................. -- 19,658 -- -- 19,658 Dividends declared/paid............................ -- (4,037) -- -- (4,037) Foreign currency adjustment........................ -- -- -- 2,054 2,054 ----------- ---------- ----- ----------- ---------- Balance, December 31, 1995........................... 41,450 112,415 -- (2,404) 151,461 Net earnings for the nine months ended September 25, 1996............................... -- 13,580 -- -- 13,580 Foreign currency adjustment........................ -- -- -- 3,142 3,142 ----------- ---------- ----- ----------- ---------- Balance, September 25, 1996.......................... $ 41,450 $ 125,995 $ -- $ 738 $ 168,183 ----------- ---------- ----- ----------- ---------- ----------- ---------- ----- ----------- ---------- SUCCESSOR - ----------------------------------------------------- Balance, September 25, 1996 (reflects the new basis of shares in connection with the acquisition)....................................... $ 1,000 $ -- $ -- $ -- $ 1,000 Net earnings for the three months ended December 27, 1996................................ -- 1,006 -- -- 1,006 Dividends accrued on redeemable preference shares................................ -- (1,191) -- -- (1,191) Foreign currency adjustment........................ -- -- -- 1,358 1,358 ----------- ---------- ----- ----------- ---------- Balance, December 27, 1996........................... 1,000 (185) -- 1,358 2,173 Net earnings for 1997.............................. -- 9,796 -- -- 9,796 Dividends accrued on redeemable preference shares................................ -- (5,191) -- -- (5,191) Minimum pension liability.......................... -- -- (535) -- (535) Foreign currency adjustment........................ -- -- -- (2,749) (2,749) ----------- ---------- ----- ----------- ---------- Balance, December 26, 1997........................... $ 1,000 $ 4,420 $ (535) $ (1,391) $ 3,494 ----------- ---------- ----- ----------- ---------- ----------- ---------- ----- ----------- ----------
The accompany notes are an integral part of these consolidated financial statements. 30 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------- --------------------------- PREDECESSOR SUCCESSOR --------------------------- --------------------------- FOR THE YEAR FOR THE NINE FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, THOUSANDS OF U.S. DOLLARS 1995 1996 1996 1997 ------------ ------------- ------------- ------------ Cash flows from operating activities: Net earnings........................................ $ 19,658 $ 13,580 $ 1,006 $ 9,796 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization..................... 7,980 6,995 2,591 11,663 Provision for doubtful accounts................... 388 827 221 1,858 (Gain) loss on sales of assets.................... 147 (168) (7) (2) Deferred income taxes............................. (526) (339) (761) (1,190) Loss on debt extinguishment....................... -- -- -- 2,846 Changes in operating assets and liabilities: Accounts receivable............................. (2,019) (9,176) 11,962 (5,809) Inventories..................................... (9,197) 4,438 7,001 14,097 Other current assets............................ 930 193 (130) 148 Accounts payable and other current liabilities.. (17,728) 5,852 4,427 (3,779) Income taxes payable............................ 6,074 (1,788) 1,378 4,220 Net change in other noncurrent assets and liabilities................................... 258 (173) 689 (5,071) ------------ ------------- ------------- ------------ Net cash provided by operating activities......... 5,965 20,241 28,377 28,777 ------------ ------------- ------------- ------------ Cash flows from investing activities: Purchase of Fabricated Products..................... -- -- (251,213) -- Adjustment of purchase price of Fabricated Products.......................................... -- -- -- 3,487 Proceeds from sale of assets........................ 177 233 92 289 Proceeds from dispositions of businesses............ -- -- -- 12,764 Purchases of businesses............................. -- -- -- (78,473) Capital expenditures................................ (17,429) (11,518) (682) (7,184) ------------ ------------- ------------- ------------ Net cash used in investing activities............. (17,252) (11,285) (251,803) (69,117) ------------ ------------- ------------- ------------ Cash flows from financing activities: Cash overdraft...................................... -- -- -- 11,470 Repayment of debt................................... -- -- (25,164) (39,291) Proceeds from long-term debt........................ -- -- 235,000 73,333 Proceeds from issuance of preference shares......... -- -- 34,000 -- Proceeds from issuance of ordinary shares........... -- -- 1,000 -- Deferred financing fees............................. -- -- (9,930) (1,268) Other............................................... -- -- (1,555) -- Dividends paid...................................... (4,037) -- -- -- Net change in due to former parent.................. (7,486) (20,973) -- -- ------------ ------------- ------------- ------------ Net cash provided by (used in) financing activities...................................... (11,523) (20,973) 233,351 44,244 ------------ ------------- ------------- ------------ Effect of exchange rate changes on cash............... 278 (677) 2,698 (3,506) ------------ ------------- ------------- ------------ Net increase (decrease) in cash and equivalents....... (22,532) (12,694) 12,623 398 Cash and equivalents at beginning of period........... 35,119 12,587 (107) 12,516 ------------ ------------- ------------- ------------ Cash and equivalents at end of period................. $ 12,587 $ (107) $ 12,516 $ 12,914 ------------ ------------- ------------- ------------ ------------ ------------- ------------- ------------
31 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------ ------------------------------ PREDECESSOR SUCCESSOR ------------------------------ ------------------------------ FOR THE YEAR FOR THE NINE FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, THOUSANDS OF U.S. DOLLARS 1995 1996 1996 1997 ------------- --------------- --------------- ------------- Noncash financing and investing activities: Dividends accrued on redeemable preference shares... $ -- $ -- $ 1,191 $ 5,191 Purchase of business financed in part with a note payable to seller................................. $ -- $ -- $ -- $ 800 Sale of business financed in part with a note receivable from purchaser......................... $ -- $ -- $ -- $ 500 Supplemental cash flow information: Income taxes paid, net.............................. $ 2,274 $ 2,871 $ 3 $ 3,165 Interest paid $ -- $ -- $ -- $ 22,306
The accompanying notes are an integral part of these consolidated financial statements. 32 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 1. ORGANIZATION, ACQUISITIONS AND DIVESTITURES: Euramax International plc, a corporation formed under the laws of England and Wales ("Euramax" or the "Company"), is the parent holding company of four first tier holding companies: Amerimax Holdings, Inc., a Delaware corporation ("Amerimax"); Euramax European Holdings plc, a corporation formed under the laws of England and Wales ("Euramax U.K."); Euramax European Holdings, B.V., a corporation formed under the laws of The Netherlands ("Euramax B.V."); and Euramax European Holdings, S.A., a corporation formed under the laws of France ("Euramax S.A."). The Company is a holding company organized by an investor group to acquire certain portions of the fabricated products operations of Alumax Inc. ("Alumax"). Pursuant to a purchase agreement between the Company and Alumax, on September 25, 1996, the Company purchased, through its wholly-owned subsidiaries, all of the issued and outstanding capital stock of the following Alumax subsidiaries which formerly operated certain portions of Alumax's fabricated products operations (the "Acquisition"): (i) Amerimax Fabricated Products, Inc. and its wholly owned subsidiaries, Amerimax Specialty Product, Inc., Amerimax Building Products, Inc., Amerimax Coated Products, Inc., Johnson Door Products, Inc., and Amerimax Home Products, Inc.; (ii) Euramax Holdings Limited and its wholly owned subsidiaries, Ellbee Limited and Euramax Coated Products Limited; (iii) Euramax Europe B.V. and its wholly owned subsidiary, Euramax Coated Products B.V.; and (iv) Euramax Industries S.A. and its wholly owned subsidiary Euramax Coated Products S.A. For purposes of identification and description, the acquired business is referred to as "Fabricated Products" or the "Predecessor" for the periods prior to the Acquisition, "Euramax" or the "Successor" for the period subsequent to the Acquisition, and the "Company" for both periods. The financial statements of the Predecessor include the combined accounts of the entities referred to as Fabricated Products. Such Predecessor financial statements have been prepared as if the Company's businesses had operated as an independent stand-alone entity for all periods presented. Certain obligations were originally recorded by Alumax on behalf of the Company such as post-retirement and post-employment benefit obligations, income taxes, legal and other corporate expenses. These obligations have been allocated to the Company's financial statements using several factors including revenues or number of employees or other reasonable methods. Corporate expenses of Alumax have been allocated to the Company on a basis management believes is reasonable and represents the expenses as if the Company were a stand alone operation. See Note 12 for a description of transactions with Alumax. The financial statements of the Successor include the consolidated accounts of the entities referred to as Euramax. All significant intercompany accounts and transactions have been eliminated. The purchase price for the Acquisition of approximately $252.4 million, including acquisition expenses of approximately $3.9 million and adjustments to give effect to certain items including cash acquired and working capital, was allocated to the assets and liabilities of the Company based upon their fair market value at the date of the Acquisition under the purchase method of accounting. Such purchase price reflects adjustments to record the results of a special audit to determine the change in the Fabricated Products working capital (as defined) from December 31, 1995 through September 25, 1996, and is not materially different than the amount initially recorded. Additionally, the allocation of the purchase price was, in certain instances, based on preliminary information and has been adjusted to reflect final asset and liability valuations. Such final valuations were not materially different than amounts initially recorded. The financing for the Acquisition was provided by: (a) $35.0 million of preference and ordinary share capital; (b) $135.0 million of Senior Subordinated Notes (the "Offering"); and (c) $100.0 million under a Credit Agreement aggregating $125.0 million. 33 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) The following unaudited pro forma data presents the results of operations for the twelve months ended December 27, 1996, as though the Acquisition and the Offering had been completed January 1, 1996, and assume that there are no other changes in the operations of the Company. Such pro forma information includes adjustments to interest expense; changes in depreciation of property, plant and equipment and amortization of goodwill relating to the allocation of the purchase price; and the income tax effect related to these items. The pro forma results are not necessarily indicative of the financial results that might have occurred had the Acquisition and the Offering actually taken place on the above- mentioned dates, or of the future results of operations:
YEAR ENDED DECEMBER 27, 1996 ----------------- Net sales.................................................................. $ 488,837 Earnings before income taxes............................................... 6,435 Net earnings............................................................... 3,877
On July 17, 1997, the Company's wholly owned subsidiary, Amerimax Fabricated Products, Inc., pursuant to the previously reported agreement (the "Fabral Purchase Agreement"), acquired all of the issued and outstanding capital stock of Gentek Holdings, Inc. and its subsidiary Gentek Building Products, Inc. (collectively "Gentek" or "Fabral") (the "Fabral Acquisition"). At the Fabral Acquisition date, Gentek was comprised principally of Fabral, a division of Gentek headquartered in Lancaster, Pennsylvania. Fabral is a manufacturer and distributor of steel and aluminum roofing and wall paneling products specifically for the agricultural, commercial and industrial markets. The following unaudited pro forma data present the results of operations for the years ended December 26, 1997 and December 27, 1996, respectively, as though the Fabral Acquisition had been completed on the first day of the fiscal year, and assume that there are no other changes in the operations of the Company. Such pro forma information includes adjustments to interest expense; changes in amortization of goodwill relating to the allocation of the purchase price; and the income tax effect related to these items. The pro forma results are not necessarily indicative of the financial results that might have occurred had the Fabral Transaction actually taken place on the first day of the fiscal year, or of the future results of operations.
YEAR ENDED YEAR ENDED DECEMBER 27, DECEMBER 26, 1996 1997 ------------ ------------ Net sales........................................................ $ 596,023 $ 611,828 Earnings before extraordinary item............................... 4,148 11,639 Net earnings..................................................... 4,148 9,881
The purchase price, including estimated adjustments for changes in net tangible assets required by the Fabral Purchase Agreement and approximately $2.5 million in acquisition related fees and expenses, was approximately $76.1 million in cash. The purchase price has been allocated to the assets and liabilities of Fabral based upon their estimated fair market value at the acquisition date under the purchase method of accounting. The Fabral Acquisition was financed through borrowings ("Additional Borrowings") of approximately $38.0 million of senior secured revolving loans and $40.0 million of senior secured term loans. Such borrowings were available under the Credit Agreement which was amended and restated to increase the Revolving Credit Facility from $85.0 million to $100.0 million and to provide additional term loans of $40.0 million (see Note 5). 34 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) Certain Financial Statements and Exhibits for the Fabral Acquisition can be found in the Company's Current Report on Form 8-K, filed August 1, 1997 and Form 8-K/A, filed September 26, 1997. On March 28, 1997, the Company's wholly owned subsidiary, Amerimax Building Products, Inc., purchased all of the issued and outstanding capital stock of JTJ Laminating, Inc. ("JTJ") for approximately $2.1 million, along with assumption of outstanding indebtedness of $1.3 million. At the closing date, approximately $2.4 million was paid in cash, of which $1.3 million was to extinguish outstanding indebtedness of JTJ. The remaining purchase price of $1.0 million will be paid in various installments over the next ten years. On June 2, 1997, the Company sold the assets, along with certain accounts payable, related to its Johnson Door Products, Inc. subsidiary for approximately $9.1 million in cash. On June 27, 1997, the Company sold all of the issued and outstanding capital stock of Amerimax Specialty Products, Inc. for approximately $4.2 million, of which $3.7 million was in cash and $500,000 in a subordinated promissory note payable in 60 monthly installments of principal and accrued interest, such interest accruing on the unpaid balance at an annual rate of 9.25%. The pro forma effects of the three above noted transactions were not material to the Company's results of operations. The operations of Euramax are conducted through various indirect operating subsidiaries of Amerimax, Euramax U.K., Euramax B.V. and Euramax S.A. Euramax is a leading international downstream producer of aluminum and steel products with facilities in the U.S., the U.K., The Netherlands and France. Euramax's products include painted sheet and coil, siding, roofing, raincarrying systems, windows, doors and various fabricated trim parts and components. The Company's products are sold primarily to manufacturers of recreational vehicles and manufactured housing, rural building contractors, distributors and home centers. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company include the accounts of the Company and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. FISCAL YEAR In 1996, the Company began operating on a 52/53 week fiscal year ending on the last Friday in December. Previously, the Company operated on a calendar year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of certain assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 35 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) CASH AND EQUIVALENTS The Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Certain cash book overdrafts of the Company have been netted with positive cash book balances held with the same banking institutions. INVENTORIES Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost. Depreciation and amortization of property, plant and equipment is computed principally on the straight-line method over the estimated useful lives of the assets ranging from 5 to 10 years for equipment and 25 years for buildings. Gains or losses related to the disposition of property, plant and equipment are charged to other income or expense when incurred. GOODWILL The Company used the purchase method to account for the Fabricated Products and Fabral acquisitions (See Note 1). Goodwill is amortized on a straight-line basis over 30 years. The Company periodically reviews the amortization period to determine if events and circumstances warrant revised estimates of the useful lives. Also, at each balance sheet date, management assesses whether there has been a permanent impairment in the value of goodwill by comparing anticipated undiscounted future cash flows from operating activities with the carrying value of goodwill. The factors considered by management in the assessment include operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT In connection with the Company's risk-management strategy, the Company enters into currency swaps with major banking institutions to reduce the impact of exchange rate fluctuations with respect to debt payments made in foreign currency denominations. Currency swaps involve exchanges of interest payments in differing currencies, but provide for the exchange of principal amounts at maturity. The fair value of the currency swaps is derived from valuation models based upon recognized financial principals and estimates about relevant future market conditions (see Note 5). Amounts of interest to be paid or received are included in interest expense on an accrual basis, as they effectively limit the interest payment exposure of the Company's debt commitments. The amounts exchanged are based upon the notional amounts of the currency swaps, as well as on the other terms of the currency swaps, which relate to interest payments and exchange rates. Cash flows from the currency swaps are recognized in the statement of cash flows in the same category as that of the hedged item. The Company would be exposed to credit-related losses in the event of nonperformance by the counterparties that issued the currency swaps. The Company does not expect that counterparties to the currency swaps will fail to meet their obligations, given their high credit ratings. The Company generally 36 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) does not give or receive collateral on currency swaps due to its own credit rating and that of its counterparties. Deferral (hedge) accounting is applied only if the derivative reduces the risk of the underlying hedged item and is designated at inception as a hedge with respect to the hedged item. Additionally, changes in the fair value of the derivative are expected to be inversely correlated to the changes in the fair value of the hedged item. Derivatives are measured for effectiveness both at inception and on an ongoing basis. If a derivative instrument ceases to meet the criteria for deferral or settlement accounting, any subsequent gains and losses are currently recognized in income. Should a swap be terminated while the underlying debt remains outstanding, the gain or loss is adjusted to the basis of the underlying debt and amortized over its remaining life. The currency swaps have been designated as hedges, and are closely monitored to ensure that correlation with the underlying hedged items exists to such a degree that they substantially offset. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms except for the 11.25% Senior Subordinated Notes, which are measured at the quoted market rate (see Note 5). The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The fair value of these financial instruments approximates book value at December 26, 1997. The Company places its cash and cash equivalents with high credit quality institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit; however, the Company believes that its credit risk exposure is not significant due to the high credit quality of the institutions. The Company routinely assesses the financial strength of its customers. Also, due to the large number of customers and the widely dispersed geographic areas in which the Company's businesses operate, the Company believes that its trade accounts receivable credit risk exposure is not significant. REVENUE RECOGNITION The Company recognizes revenue when title passes to the customer. TRANSLATION OF FOREIGN CURRENCIES Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the weighted average rates of exchange prevailing during the year. Foreign currency gains and losses resulting from transactions are included in results of operations. The foreign currency transaction gains (losses) recorded in selling and general expenses for 1995 were $275.3, $74.2 for the nine months ended September 25, 1996, $159.0 for the three months ended December 27, 1996, and $(14.5) for the year ended December 26, 1997. RECENT ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, COMPREHENSIVE INCOME: FINANCIAL STATEMENT PRESENTATION. SFAS 130 provides standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This standard is effective 37 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) for the Company's fiscal year beginning January 1, 1998. This standard requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with same prominence as other financial statements. Reclassifications of financial statements for earlier periods presented for comparative purposes is required. Management is currently reviewing the provisions of SFAS 130 and does not believe that the Company's financial statements will be materially impacted by the adoption. In 1997, the FASB issued SFAS No. 131, SEGMENT DISCLOSURES AND RELATED INFORMATION. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that these enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also presents standards for related disclosures about products and services, geographic areas, and major customers. This standard is effective beginning with the Company's 1998 annual financial statements, and prior period disclosures are required to be restated. This standard requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Management is currently reviewing the provisions of SFAS 131. In February, 1998, the FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURE ABOUT PENSIONS AND OTHER POST RETIREMENT BENEFITS. SFAS No. 132 standardized the disclosure requirements for pensions and other post retirement benefits to the extent practicable. This standard is effective beginning with the Company's 1998 annual financial statements, and prior period disclosures are required to be restated. Management is currently reviewing the provisions of SFAS 132 and does not believe that the Company's financial statements will be materially impacted by the adoption. RECLASSIFICATIONS Certain reclassifications have been made to prior years' financial statements to conform with the 1997 presentation. 3. INVENTORIES: Inventories were comprised of:
DECEMBER 27, 1996 DECEMBER 26, 1997 ----------------- ----------------- Raw materials.......................................... $ 59,429 $ 63,768 Work in process........................................ 12,769 12,029 Finished products...................................... 15,037 11,664 ------- ------- $ 87,235 $ 87,461 ------- ------- ------- -------
38 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 4. PROPERTY, PLANT AND EQUIPMENT: Components of property, plant and equipment were as follows:
DECEMBER 27, DECEMBER 26, 1996 1997 ------------ ------------ Land and improvements............................................ $ 8,170 $ 6,369 Buildings........................................................ 29,873 36,714 Machinery and equipment.......................................... 69,042 85,393 ------------ ------------ 107,085 128,476 Less accumulated depreciation.................................... (2,167) (15,475) ------------ ------------ 104,918 113,001 Construction in progress......................................... 2,420 186 ------------ ------------ $ 107,338 $ 113,187 ------------ ------------ ------------ ------------
5. LONG-TERM OBLIGATIONS: Long-term obligations consisted of the following:
DECEMBER 27, DECEMBER 26, 1996 1997 ------------ ------------ Credit Agreement: Revolving Credit Facility...................................... $ 36,378 $ 45,401 Term Loans..................................................... 40,362 63,815 11.25% Senior Subordinated Notes due 2006........................ 135,000 135,000 ------------ ------------ 211,740 244,216 Less: current portion............................................ (2,000) (3,924) ------------ ------------ $ 209,740 $ 240,292 ------------ ------------ ------------ ------------
The Company has outstanding borrowings under a credit agreement (the "Credit Agreement") consisting of term loans (the "Term Loans") and a revolving credit facility (the "Revolving Credit Facility"), a portion of which is available for letters of credit and swing loans. The Term Loans consist of five facilities in the aggregate amount of $63.8 million. Two of the facilities, which aggregate to $11.2 million, consist of a Dutch Guilder facility and a Pound Sterling facility. The third facility is a U.S. Dollar facility in the amount of $13.4 million (the "Tranche B Facility"). The fourth facility is a U.S. Dollar facility in the amount of $19.3 million (the "Tranche A Facility"). The fifth facility is a U.S. Dollar facility in the amount of $19.9 million (the "Tranche C Facility"). Loans under the Revolving Credit Facility are made, at the election of the Company, in U.S. Dollars, Dutch Guilders and/or Pounds Sterling. All loans under the Term Loans and the Revolving Credit Facility are repaid in the currency in which the loan is made. Outstanding loans under the Revolving Credit Facility and the Term Loans, except the Tranche B Facility, must be repaid by June 2002; provided, however, that subject to the consent of the lender under the Revolving Credit Facility, the Company will have the option to extend the final maturity date on the Revolving Credit Facility to June 2004. Outstanding loans under the Tranche C Facility must be repaid by September 2003. Outstanding loans under the Tranche B Facility must be repaid by June 2004. Through December 26, 1997, at the option of the Company, the interest rate applicable to the loans under the Credit Agreement was based upon a Base Rate or a Eurocurrency Rate (both as defined), plus 39 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 5. LONG-TERM OBLIGATIONS: (CONTINUED) margins as follows: (a) Base Rate plus 1.75% in the case of the Revolving Credit Facility and all U.S. Dollar denominated Term Loans except the Tranche B Facility, or 2.25% in the case of the Tranche B Facility; or (b) Eurocurrency Rate for one, three or six months, plus 2.75% in the case of the Revolving Credit Facility and all Term Loans except the Tranche B Facility, or 3.25% in the case of the Tranche B Facility. At December 26, 1997, the interest rate on the Revolving Credit Facility was 8.761%, the interest rate on the Tranche B Facility was 9.0625%, and the interest rate on the other term loan facilities was 8.589%. In November, 1997, the Credit Agreement was amended to provide for variable rate margins, determined quarterly, based upon the Company's ratio of operating cash flow (EBITDA) to total debt. For periods after December 26, 1997, the maximum and minimum base rate margins are 1.75% and 1.00%, respectively. The maximum and minimum Eurocurrency rate margins are 2.75% and 1.25%, respectively. As of December 26, 1997, an undrawn amount of $54.6 million remained under the Revolving Credit Facility and was fully available. Debt decreased $1.6 million due to fluctuations in the foreign exchange rates since December 27, 1996. The Credit Agreement contains certain covenants and restrictions on actions by the Company and its subsidiaries. In addition, the Credit Agreement requires the Company to meet certain financial tests, including minimum fixed charge coverage ratio, minimum interest coverage ratio, maximum leverage ratio, minimum EBITDA (earnings before income taxes plus net interest expense and depreciation and amortization) requirements and maximum amounts of capital expenditures. As of December 26, 1997, the Company is in compliance with these covenants and restrictions. On September 25, 1996, the Company issued $135.0 million in 11.25% Senior Subordinated Notes due 2006 pursuant to a private offering. On March 10, 1997, the Company issued new 11.25% Senior Subordinated Notes due 2006 pursuant to an exchange offer whereby holders of the original notes received new notes which have been registered under the Securities Act of 1933, as amended, but are otherwise identical to the original notes. The original notes and the new notes are herein referred to as "the Notes". The Notes mature on October 1, 2003 and bear interest at the rate of 11.25% per annum from September 25, 1996 payable semiannually in arrears on April 1 and October 1 of each year, commencing on April 1, 1997. The Notes may be redeemed at the option of the Company, in whole or in part, at any time on or after October 1, 2001, under the conditions and at the redemption price as specified in the note indenture dated as of September 25, 1996, under which the Notes were issued. The Notes are unsecured obligations subordinated to all existing and future unsubordinated borrowings of the Company, including all of the obligations under the Credit Agreement, and will be effectively subordinated to all obligations of any subsidiaries of the Company. Future maturities of long-term obligations as of December 26, 1997 are as follows: 1998.............................................................. $ 3,924 1999.............................................................. 7,832 2000.............................................................. 4,699 2001.............................................................. 7,031 2002.............................................................. 12,527 Thereafter........................................................ 208,203 --------- $ 244,216 --------- ---------
40 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 5. LONG-TERM OBLIGATIONS: (CONTINUED) The Notes are guaranteed on a senior subordinated basis by Amerimax, and the borrowings under the Credit Agreement are guaranteed by the Company and all of its subsidiaries, other than Euramax S.A. and its subsidiaries. Substantially all assets of the Company are pledged as collateral against the borrowings under the Credit Agreement. In connection with the Notes, on December 27, 1996, the Company entered into two currency swap agreements with a major banking institution. The agreements provide for exchanges of interest payments in Dutch Guilders and Pound Sterling for U.S. Dollars on April 1, and October 1 of each year commencing April 1, 1997, and provide for exchanges of principal amounts at maturity on October 1, 2003. The currency swaps effectively convert the interest rate on $75.0 million of the Notes from 11.25% payable in U.S. Dollars to 10.36% payable in Dutch Guilders and 12.72% payable in Pound Sterling. Under the agreements, the Company is required to exchange 85.1 million Dutch Guilders for $50 million and 16.0 million Pounds Sterling for $25.0 million at maturity. At December 26, 1997, the fair value of the currency swap agreement was $7.7 million. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities except for the 11.25% Senior Subordinated Notes due 2006 which are measured at the quoted market rate. The fair value of the Company's 11.25% Senior Subordinated Notes due 2006 was $145.1 million at December 26, 1997. All other long-term debt approximates the carrying value at December 26, 1997. 6. REDEEMABLE PREFERENCE SHARES: In connection with the Acquisition described in Note 1, the Company issued the equivalent of 34,000,000 shares of redeemable preference shares as follows: 33,925,000 preference shares with a stated value of $1 per share, and 50,000 sterling preference shares with a stated value of 1 British Pound Sterling per share. The preference shares accrue fixed, cumulative dividends of 14% per annum compounded quarterly on March 31, June 30, September 30, and December 31 in each year, beginning on December 31, 1996, and are paid as declared by the Company's Board of Directors. The Company is prohibited from paying dividends on ordinary shares unless all required preferred dividends have been paid. In the event of liquidation, dissolution, winding-up or otherwise, the assets of the Company available for distribution among the shareholders shall be applied first to pay the preference shareholders before payment to the holders of any other class of shares. With the consent of 66.67% of the preference shareholders, the Company may, at any time, redeem all or multiples in the aggregate amount of $500,000 of the preference shares. Subject to certain provisions of the Credit Agreement, the holders of 66.67% of the preference shares are entitled to require redemption of some or all of the preference shares if any of the following events occur: i) the preference dividend due is not paid in full on a due date, whether or not the Company has enough profits available for distribution to pay it; or ii) when preference shares are due for redemption, the Company does not pay all the redemption money then payable to the preference shareholders, whether or not the Company has enough profits available for distribution or other requisite funds to pay the redemption money. Also subject to certain provisions of the Credit Agreement, the holders of 66.67% of the preference shares are entitled to require redemption of all of the preference shares in the event of the following: i) the sale of 66.67% or more of the ordinary shares; or ii) the listing of the Company's shares on an internationally recognized stock exchange. On any redemption date, the Company shall pay to the preference shareholders the 41 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 6. REDEEMABLE PREFERENCE SHARES: (CONTINUED) nominal amounts and premiums paid on the shares and a sum equal to any accrued and/or unpaid preference dividends. To the extent that any preference shares remain outstanding, the Company shall redeem the preference shares on December 31, 2007. Sterling preference shares may not be redeemed as doing so would put the Company in breach of the Company's Act of 1985. 7. NON-VOTING ORDINARY SHARES: Holders of a majority of the outstanding non-voting ordinary shares held by certain investors, as described in the Company's Articles of Association, shall be entitled at any time to convert any or all of their non-voting ordinary shares into the same number of ordinary shares of an equivalent value. Historical earnings per share have not been presented because they would not be meaningful. For predecessor periods, the common stock of the Company, as presented in common stock and paid-in capital, consists of the common stock of the combined predecessor entities. 42 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 8. INCOME TAXES: For Predecessor periods, the Company did not have a formal tax sharing agreement with Alumax and Alumax paid the allocable share of U.S. Federal and state taxes on behalf of the Company. U.S. current and deferred Federal and state taxes were classified within due to former parent. The non-U.S. entities calculated their income taxes on a stand-alone basis and the related amounts were included in taxes payable and deferred income taxes. For such periods, the income tax provision (benefit) was based on amounts the Company would have paid on a combined basis as if separate returns were filed. The provisions for income taxes are comprised of the following:
PREDECESSOR SUCCESSOR --------------------------- ---------------------------- NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, 1995 1996 1996 1997 ------------ ------------- ------------- ------------- Current: U.S. Federal.................... $ 2,400 $ 2,944 $ 503 $ -- Non-U.S......................... 8,347 4,833 669 4,683 State........................... 801 1,148 94 -- ------------ ------ ------ ------ 11,548 8,925 1,266 4,683 ------------ ------ ------ ------ Deferred: U.S. Federal.................... 309 (254) (739) 2,520 Non-U.S......................... (523) (272) 63 443 State........................... 65 (57) (85) 301 ------------ ------ ------ ------ (149) (583) (761) 3,264 ------------ ------ ------ ------ $ 11,399 $ 8,342 $ 505 $ 7,947 ------------ ------ ------ ------ ------------ ------ ------ ------
The results for the year ended December 26, 1997, included a loss of $1.8 million, net of taxes of $1.1 million, for the write-off of deferred financing costs in connection with the amendment and restatement of the Company's Credit Agreement to, among other items, provide available borrowings for the Fabral acquisition (see Extraordinary Item in Notes to Consolidated Financial Statements). The U.S. and non-U.S. components of earnings before income taxes and extraordinary item are as follows:
PREDECESSOR SUCCESSOR --------------------------- --------------------------- NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, 1995 1996 1996 1997 ------------ ------------- ------------- ------------ U.S............................... $ 8,758 $ 8,833 $ (583) $ 5,316 Non-U.S........................... 22,299 13,089 2,094 14,185 ------------ ------------- ------ ------------ $ 31,057 $ 21,922 $ 1,511 $ 19,501 ------------ ------------- ------ ------------ ------------ ------------- ------ ------------
43 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 8. INCOME TAXES: (CONTINUED) Reconciliation of the differences between income taxes computed at U.S. Federal statutory tax rates and the Company's income tax provision follows:
PREDECESSOR SUCCESSOR --------------------------- ------------------------------ NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, 1995 1996 1996 1997 ------------ ------------- --------------- ------------- Tax at U.S. Federal statutory rate.......... $ 10,870 $ 7,673 $ 529 $ 6,826 State income taxes, net of U.S. Federal income tax benefit......................... 569 669 (24) 302 Non-U.S. taxes, net......................... 17 -- -- 117 Permanent differences (goodwill amortization, depreciation on asset step-up)................................... -- -- -- 1,028 Other, net.................................. (57) -- -- (326) ------------ ------ ----- ------ $ 11,399 $ 8,342 $ 505 $ 7,947 ------------ ------ ----- ------ ------------ ------ ----- ------
At December 27, 1996 and December 26, 1997, deferred income taxes are separately stated in the balance sheet. The combined tax-effected temporary differences are as follows:
ASSET (LIABILITY) -------------------------- DECEMBER 27, DECEMBER 26, 1996 1997 ------------ ------------ Accrued expenses........................................................... $ 1,677 $ (614) Allowances for doubtful accounts........................................... 675 -- Book versus tax basis of inventory......................................... (869) 13 Other...................................................................... -- 238 ------------ ------------ Current, net............................................................. 1,483 (363) ------------ ------------ Book versus tax basis of depreciable assets................................ (9,906) (17,715) Net operating losses....................................................... -- 12,055 Other...................................................................... 171 (891) ------------ ------------ Noncurrent, net.......................................................... (9,735) (6,551) ------------ ------------ Total, net............................................................... $ (8,252) $ (6,914) ------------ ------------ ------------ ------------
The earnings of non-United Kingdom subsidiaries are considered to be permanently invested. Any tax amounts owed as a result of the recovery of taxable temporary differences attributable to such investments would not be material. Amerimax Holdings, Inc. has a U.S. operating tax loss carryforward of $927 which is available to offset future taxable income and taxes. This tax carryforward expires in 2011. In addition, Fabral has U.S. operating tax loss carryforwards of approximately $30 million which are available to offset future taxable income and taxes. The tax carryforward benefits begin to expire in 2010. Internal Revenue Service code section 382 imposes an annual limitation of approximately $4 million for the Fabral net operating loss and can only be offset with Fabral taxable income. The Company believes that this limitation will not effect the ability to utilize the net operating losses prior to expiration. 44 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 9. EMPLOYEE RETIREMENT PLANS: U.S. PLANS: DEFINED BENEFIT: Prior to the Acquisition, substantially all U.S. employees of the Company were covered by defined benefit pension plans administered by Alumax. The costs of these plans were allocated to the Company based on base salary expenses and were generally non-contributory. The Company's allocated share of the projected benefit obligation of the plans at December 31, 1995 was $18,372. The Company was charged $1,236 and $1,009 by Alumax in 1995, and Predecessor 1996, respectively, for its allocated share of net periodic pension costs of these Plans. As a result of the Acquisition, all obligations for benefits under the plans as of the Acquisition date were retained by Alumax. Subsequent to the Acquisition, the Company established a new non-contributory defined benefit pension plan covering substantially all U.S. hourly employees. The new plan contains terms and provisions similar to the predecessor plans. As of December 27, 1996, the Company's obligations under the new plan were not significant. Net periodic pension cost for the hourly plan for the year ended December 26, 1997, include the following components:
YEAR ENDED DECEMBER 26, 1997 --------------- Service cost-benefits earned during the period.................................. $ 237 Interest cost on projected benefit obligations.................................. 5 Net amortization and deferral................................................... 4 Pension expense due to divestitures............................................. 84 ----- Net periodic pension cost..................................................... $ 330 ----- -----
The following table sets forth the funded status of the U.S. hourly plan and amounts recognized in the Company's balance sheet as of December 26, 1997, for its pension plan.
DECEMBER 26, 1997 ------------- Actuarial present value of benefit obligations: Vested benefit obligation..................................................... $ 58 ----- ----- Accumulated benefit obligation................................................ $ (315) ----- ----- Projected benefit obligation.................................................. $ (315) Plan net assets at fair value................................................... 1 ----- Plan net assets less than projected benefit obligation.......................... (314) Unrecognized net loss........................................................... 62 Unrecognized prior service cost................................................. 45 Unrecognized transition amounts................................................. -- ----- Accrued pension cost before recognition of minimum liability adjustment......... (207) Minimum liability adjustment.................................................... (107) ----- Accrued pension cost............................................................ $ (314) ----- -----
45 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 9. EMPLOYEE RETIREMENT PLANS: (CONTINUED) Key economic assumptions used in the above calculations for the U.S. plan were as follows:
1997 --------- Settlement discount rate.............................................................. 7.0% Rate of compensation increases........................................................ N/A Expected long-term rate of return..................................................... 8.0%
DEFINED CONTRIBUTION: Prior to the Acquisition, the majority of the U.S. employees of the Company were eligible to participate in a defined contribution retirement plan sponsored by Alumax. The plan allowed the employees to contribute a percentage of their pre-tax and/or after-tax income in accordance with specified guidelines. Alumax matched a certain percentage of employee contributions up to certain limits. The Company's expense related to the plan was $413.5 and $310.5 for 1995 and Predecessor 1996, respectively. Subsequent to the Acquisition, the Company established two new defined contribution retirement and savings plans, which also allow the employees to contribute a percentage of their pretax and/or after-tax income in accordance with specified guidelines. As before, the Company matches a certain percentage of employee contributions up to certain limits. Further, the plan provides for discretionary contributions by the Company based on years of service and age. The Company's expense related to the new plan was not significant in 1996. The Company's expense for the year ended December 26, 1997 was approximately $1,064. INTERNATIONAL PLANS: In addition to the above, the employees of Euramax Coated Products Limited and Ellbee Limited participate in a single employer pension plan (the "U.K. Plan"). Net periodic pension cost for the U.K. Plan includes the following components:
PREDECESSOR SUCCESSOR ----------------------------- ------------------------------ NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, 1995 1996 1996 1997 ------------ --------------- --------------- ------------- Service cost-benefits earned during the period................ $ 527 $ 407 $ 144 $ 671 Interest cost on projected benefit obligations...................... 642 511 205 794 Actual return on assets........... (1,248) (462) (48) (847) Net amortization and deferral..... 798 (10) (144) (42) Pension expense for early retirement package............... -- -- -- 173 ------------ ----- ----- ----- Net periodic pension cost..... $ 719 $ 446 $ 157 $ 749 ------------ ----- ----- ----- ------------ ----- ----- -----
46 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 9. EMPLOYEE RETIREMENT PLANS: (CONTINUED) The following table sets forth the funded status of the U.K. Plan and amounts recognized in the Company's balance sheets for its pension plans:
DECEMBER 27, DECEMBER 26, 1996 1997 ------------ ------------ Actuarial present value of benefit obligations: Vested benefit obligation...................................... $ 8,414 $ 10,762 ------------ ------------ ------------ ------------ Accumulated benefit obligation................................. $ 9,033 $ 11,524 ------------ ------------ ------------ ------------ Projected benefit obligation................................... $ 9,894 $ 12,354 Plan net assets at fair value.................................... 8,977 10,462 ------------ ------------ Plan net assets less than projected benefit obligation........... (917) (1,892) Unrecognized net loss............................................ 215 1,257 Unrecognized prior service cost.................................. -- -- Unrecognized transition amounts.................................. -- -- ------------ ------------ Accrued pension cost before recognition of minimum liability adjustment...................................................... (702) (635) Minimum liability adjustment..................................... -- (428) ------------ ------------ Accrued pension cost............................................. $ (702) $ (1,063) ------------ ------------ ------------ ------------
U.K. Plan assets consist of approximately 78 percent equities, 11 percent fixed income and 11 percent cash and cash equivalents at December 26, 1997. Key economic assumptions used in the above calculations for the foreign plan were as follows:
1995 1996 1997 --------- --------- --------- Settlement discount rate......................................... 8.5% 8.25% 7.25% Rate of compensation increases................................... 6.5% 5.75% 4.75% Expected long-term rate of return................................ 9.0% 8.25% 9.75%
10. PREDECESSOR POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS: Prior to the Acquisition, the Company participated in a plan for certain health care and life insurance benefits for retired employees administered by Alumax. Under the plan, a majority of the Company's domestic employees were eligible for such benefits if they were to reach normal or, in certain cases, early retirement age while working for the Company. Costs related to this unfunded plan charged by Alumax were $100.0 for the year ended December 31, 1995. Also prior to the Acquisition, the Company provided specified postemployment benefits to certain former or inactive employees. Substantially all domestic employees were eligible to receive these benefits, which were either self-insured or provided through insurance carriers. All obligations for benefits under such plans were retained by Alumax after the Acquisition and the Company no longer provides postretirement or postemployment benefits. 47 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 11. COMMITMENTS AND CONTINGENCIES: Minimum commitments under long-term noncancelable operating leases, principally for operating and office facilities, totaled $18,409 at December 26, 1997. Lease commitments for future periods are as follows: 1998........................................................ $ 4,465 1999........................................................ 3,708 2000........................................................ 2,594 2001........................................................ 2,164 2002........................................................ 1,580 Thereafter.................................................. 3,898
Rent expense amounted to $4,684 for the year ended December 26, 1997, $1,097 for the three months ended December 27, 1996, $2,894 for the nine months ended September 25, 1996, and $3,760 for the year ended December 31, 1995. The Company has entered into several noncancelable long-term contracts for the purchase of aluminum at market values. The aluminum contracts expire in various years through 1999. Contracted amounts of aluminum are less than the Company's anticipated requirements. The Company and its subsidiaries are not currently parties to any pending legal proceedings other than such proceedings incident to its business. Management believes that such proceedings would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the consolidated financial position or results of operations of the Company and its subsidiaries taken as a whole. The Company has been named as a defendant in lawsuits or as a potentially responsible party in state and Federal administrative and judicial proceedings seeking contribution for costs associated with the investigation, analysis, correction and remediation of environmental conditions at various hazardous waste disposal sites. The Company continues to monitor these actions and proceedings and to vigorously defend both its own interests as well as the interests of its affiliates. The Company's ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation, and the financial viability and participation of the other entities that also sent waste to the site. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes or adjusts its reserve for its projected share of these costs. Based upon current law and information known to the Company concerning the size of the sites known to it, anticipated costs, their years of operations and the number of other potentially responsible parties, Management believes that it has adequate reserves for the Company's potential share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses. In addition, the Company establishes reserves for remedial measures required from time to time at its own facilities. Management believes that the reasonably probable outcomes of these matters will not materially exceed established reserves and will not have a material impact on the future financial position, net earnings or cash flows of the Company. The Company's reserves, expenditures and expenses for all environmental exposures were not significant for any of the dates or periods presented. In connection with the Acquisition referred to in Note 1, the Company was indemnified by Alumax for substantially all of its costs, if any, related to environmental matters for occurrences arising prior to the closing date of the Acquisition during the period of time it was owned directly or indirectly by Alumax. 48 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 11. COMMITMENTS AND CONTINGENCIES: (CONTINUED) Such indemnification includes costs that may ultimately be incurred to contribute to the remediation of certain specified existing National Priorities List (NPL) sites for which the Company had been named a potentially responsible party under the federal Comprehensive Environmental Response, Compensation, and Liability Information System (CERCLA) as of the closing date of the Acquisition, as well as certain potential costs for sites listed on state hazardous cleanup lists. With respect to all other environmental matters, Alumax's obligations are limited to $125.0 million. However, notwithstanding the indemnity, the Company does not believe that it has any significant probable liability for environmental claims. Further, the Company believes it to be unlikely that the Company would be required to bear environmental costs in excess of its pro rata share of such costs as a potentially responsible party under CERCLA. 12. TRANSACTIONS WITH FORMER PARENT: For the predecessor period, the Company participated in Alumax's centralized cash management system. Under this system, cash received from the Company's operations was transferred to Alumax's centralized cash accounts and cash disbursements were funded from the centralized cash accounts. Transactions between the Company and Alumax were generally at the market value of the products and services involved. Such transactions consisted primarily of purchases of raw materials, which totaled $27,569.7 and $1,450.1 for the years ended December 31, 1995 and the nine month predecessor period ended September 25, 1996, respectively. 49 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 13. OPERATIONS AND GEOGRAPHIC DATA: The Company operates 37 plants and service centers throughout the United States. Products produced and marketed by these operations include rain carrying systems, roofing and roofing accessories, siding, vinyl windows and numerous recreational vehicle components. The Company serves the recreational vehicle, manufactured housing, home center, home improvement, residential construction, agricultural and utility building markets in the United States. The Company also operates a group of five companies in Western Europe which focuses on coil coating and fabricating aluminum and steel. Other products include steel and aluminum entry doors, recreational vehicle components, composite panels, vehicle components such as seat rails and sunroof frames, and windows for modular construction. These European companies, which serve the recreational vehicle, home center, home improvement, residential construction, and various original equipment manufacturer markets, operate two plants in the United Kingdom, two in France and one in the Netherlands.
PREDECESSOR SUCCESSOR --------------------------- --------------------------- NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 25, DECEMBER 27, DECEMBER 26, 1995 1996 1996 1997 ------------ ------------- ------------- ------------ Geographic data: Net sales: United States..................................... $ 287,772 $ 225,536 $ 75,539 $ 354,451 Europe and other international.................... 195,690 137,772 49,990 202,563 ------------ ------------- ------------- ------------ $ 483,462 $ 363,308 $ 125,529 $ 557,014 ------------ ------------- ------------- ------------ ------------ ------------- ------------- ------------ Earnings from operations: United States..................................... $ 11,195 $ 10,015 $ 2,170 $ 19,249 Europe and other international.................... 22,947 12,827 5,763 22,683 ------------ ------------- ------------- ------------ $ 34,142 $ 22,842 $ 7,933 $ 41,932 ------------ ------------- ------------- ------------ ------------ ------------- ------------- ------------ Identifiable assets: United States..................................... $ 192,935 $ 204,064 Europe and other international.................... 134,358 193,686 ------------- ------------ $ 327,293 $ 397,750 ------------- ------------ ------------- ------------
50 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: As described in Note 1, on September 25, 1996, Euramax purchased the Company from Alumax Inc. As further described in Note 5, the Acquisition was financed, in part, through Senior Subordinated Notes due 2006 (the "Notes"). The Notes are primary obligations of Euramax (the "Parent"). The United Kingdom and Netherlands holding company subsidiaries of Euramax are co-obligors under the Notes (the "Co-obligors"). The United States holding company subsidiary of Euramax has provided a full and unconditional guarantee of the Notes (the "Guarantor"). The following supplemental condensed combining financial statements for the periods prior to the Acquisition, (the "Predecessor" periods) reflect the combined results of operations and cash flows of the entities that are the Parent, the Co-obligors and the Guarantor (collectively, the "Anticipated Parent, Co-obligors and Guarantor"), and such combined information of the non-guarantor entities, consisting principally of the operating companies acquired (collectively, the "Non-guarantor Subsidiaries"). The following supplemental condensed combining financial statements as of December 26, 1997, December 27, 1996, and for the three month period then ended, and for the year ended December 26, 1997 (the "Successor" periods) reflect the financial position, results of operations, and cash flows of each of the Parent, the Co-Obligors and Guarantor entities, and such combined information of the Non-Guarantor Subsidiaries. The Co-obligors and the Guarantor are wholly-owned subsidiaries of Euramax and are each jointly, severally, fully, and unconditionally liable under the Notes. Separate complete financial statements of each Co-obligor and of the Guarantor are not presented because management has determined that they are not material to investors. For periods prior to the Acquisition, there were no significant intercompany balances or transactions between the Anticipated Parent, Co-obligors and Guarantor entities combined and the Non-guarantor Subsidiaries.
PREDECESSOR --------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1995 --------------------------------------------- ANTICIPATED PARENT, CO-OBLIGORS NON-GUARANTOR COMBINED AND GUARANTOR SUBSIDIARIES TOTALS ----------------- -------------- ---------- Net sales..................................... $ -- $ 483,462 $ 483,462 Cost and expenses: Cost of goods sold.......................... -- 399,989 399,989 Selling and general......................... -- 41,351 41,351 Depreciation and amortization............... -- 7,980 7,980 ----- -------------- ---------- Earnings from operations.................. -- 34,142 34,142 Interest income (expense), net................ -- (2,989) (2,989) Other expense, net............................ -- (96) (96) ----- -------------- ---------- Earnings before income taxes.............. -- 31,057 31,057 Provision for income taxes.................... -- 11,399 11,399 ----- -------------- ---------- Net earnings.................................. $ -- $ 19,658 $ 19,658 ----- -------------- ---------- ----- -------------- ----------
Note: Separate columns for the Anticipated Parent, the Co-obligors and the Guarantor are not presented as there were no amounts for such entities for the periods shown. 51 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
PREDECESSOR --------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 25, 1996 --------------------------------------------- ANTICIPATED PARENT, CO-OBLIGORS NON-GUARANTOR COMBINED AND GUARANTOR SUBSIDIARIES TOTALS ----------------- -------------- ---------- Net sales..................................... $ -- $ 363,308 $ 363,308 Cost and expenses: Cost of goods sold.......................... -- 300,185 300,185 Selling and general......................... -- 33,286 33,286 Depreciation and amortization............... -- 6,995 6,995 ----- -------------- ---------- Earnings from operations.................. -- 22,842 22,842 Interest income (expense), net................ -- (622) (622) Other expense, net............................ -- (298) (298) ----- -------------- ---------- Earnings before income taxes.............. -- 21,922 21,922 Provision for income taxes.................... -- 8,342 8,342 ----- -------------- ---------- Net earnings.................................. $ -- $ 13,580 $ 13,580 ----- -------------- ---------- ----- -------------- ----------
Note: Separate columns for the Anticipated Parent, the Co-obligors and the Guarantor are not presented as there were no amounts for such entities for the periods shown. 52 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
SUCCESSOR FOR THE THREE MONTHS ENDED DECEMBER 27, 1996 ------------------------------------------------------------------------------------------------------- CO-OBLIGORS AND GUARANTOR SUBSIDIARIES ---------------------------------------------------------- EURAMAX AMERIMAX EURAMAX EURAMAX INTERNATIONAL HOLDINGS, EUROPEAN EUROPEAN NON- PLC INC. HOLDINGS PLC HOLDINGS, B.V GUARANTOR CONSOLIDATED (PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTAL ------------- ----------- ------------ ------------- ------------ ------------ ------------ Net sales................. $ -- $ -- $ -- $ -- $125,529 $ -- $125,529 Cost and Expenses: Cost of goods sold...... -- -- -- -- 104,055 -- 104,055 Selling and general..... 80 -- -- -- 10,870 -- 10,950 Depreciation and amortization.......... -- -- -- -- 2,591 -- 2,591 ------------- ----------- ----- ------ ------------ ------------ ------------ Earnings from operations............ (80) -- -- -- 8,013 -- 7,933 Equity in earnings of subsidiaries............. 1,058 1,543 958 1,448 -- (5,007) -- Interest expense, net..... -- (3,361) (726) (938) (1,162) -- (6,187) Other expense, net........ -- -- -- -- (235) -- (235) ------------- ----------- ----- ------ ------------ ------------ ------------ Earnings before income taxes................. 978 (1,818) 232 510 6,616 (5,007) 1,511 Provision for income taxes.................... (28) (1,215) (254) (328) 2,330 -- 505 ------------- ----------- ----- ------ ------------ ------------ ------------ Net earnings.............. 1,006 (603) 486 838 4,286 (5,007) 1,006 Dividends on redeemable preference shares........ (1,191) -- -- -- -- -- (1,191) ------------- ----------- ----- ------ ------------ ------------ ------------ Net earnings available for ordinary shareholders.... $ (185) $ (603) $ 486 $ 838 $ 4,286 $(5,007) $ (185) ------------- ----------- ----- ------ ------------ ------------ ------------ ------------- ----------- ----- ------ ------------ ------------ ------------
53 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
SUCCESSOR FOR THE YEAR ENDED DECEMBER 26, 1997 --------------------------------------------------------------------------------------------------- CO-OBLIGORS AND GUARANTOR SUBSIDIARIES ---------------------------------------------------------- EURAMAX AMERIMAX EURAMAX EURAMAX INTERNATIONAL HOLDINGS, EUROPEAN EUROPEAN NON- PLC INC. HOLDINGS PLC HOLDINGS, B.V GUARANTOR CONSOLIDATED (PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTAL ------------- ------------- ------------- ------------- ----------- ------------ ------------ Net sales.................... $ -- $ -- $ -- $ -- $ 557,014 $ -- $ 557,014 Cost and Expenses: Cost of goods sold......... -- -- -- -- 454,180 -- 454,180 Selling and general........ -- -- -- -- 49,239 -- 49,239 Depreciation and amortization............. -- -- -- -- 11,663 -- 11,663 ------------- ------------- ------ ------------- ----------- ------------ ------------ Earnings from operations... -- -- -- -- 41,932 -- 41,932 Equity in earnings (losses) of subsidiaries............. 9,796 7,416 (959) 7,974 -- (24,227) -- Interest income (expense), net......................... -- (7,266) 52 1,366 (17,690) -- (23,538) Other income (expense), net......................... -- -- 1,951 (5,020) 4,176 -- 1,107 ------------- ------------- ------ ------------- ----------- ------------ ------------ Earnings before income taxes and extraordinary item..................... 9,796 150 1,044 4,320 28,418 (24,227) 19,501 Provision for income taxes... -- (2,834) (249) (1,200) 12,230 -- 7,947 ------------- ------------- ------ ------------- ----------- ------------ ------------ Earnings before extraordinary item........................ 9,796 2,984 1,293 5,520 16,188 (24,227) 11,554 Extraordinary item--loss on debt refinancing, net of income tax benefit of $1,088...................... -- -- -- -- 1,758 -- 1,758 ------------- ------------- ------ ------------- ----------- ------------ ------------ Net earnings................. 9,796 2,984 1,293 5,520 14,430 (24,227) 9,796 Dividends on redeemable preference shares........... (5,191) -- -- -- -- -- (5,191) ------------- ------------- ------ ------------- ----------- ------------ ------------ Net earnings available for ordinary shareholders....... $ 4,605 $ 2,984 $ 1,293 $ 5,520 $ 14,430 $ (24,227) $ 4,605 ------------- ------------- ------ ------------- ----------- ------------ ------------ ------------- ------------- ------ ------------- ----------- ------------ ------------
54 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
SUCCESSOR AS OF DECEMBER 27, 1996 ------------------------------------------------------------------------------------------------- CO-OBLIGORS AND GUARANTOR SUBSIDIARIES -------------------------------------------------------- EURAMAX EURAMAX AMERIMAX EURAMAX EUROPEAN INTERNATIONAL HOLDINGS, EUROPEAN HOLDINGS, NON- PLC INC. HOLDINGS PLC B.V. GUARANTOR CONSOLIDATED (PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS ------------- ----------- ------------- ------------- ----------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents...... $ 124 $ -- $ -- $ -- $ 12,392 $ -- $ 12,516 Accounts receivable, net....... -- -- -- -- 60,767 -- 60,767 Inventories.................... -- -- -- -- 87,235 -- 87,235 Deferred income taxes.......... -- -- -- -- 1,483 -- 1,483 Other current assets........... -- -- -- -- 1,350 -- 1,350 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total current assets......... 124 -- -- -- 163,227 -- 163,351 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Property, plant and equipment, net............................. -- -- -- -- 107,338 -- 107,338 Amounts due from parent/affiliates............... 74,765 -- -- 3,358 14,630 (92,753) -- Goodwill......................... -- -- -- -- 40,926 -- 40,926 Investment in consolidated subsidiaries.................... 37,416 142,743 33,205 37,026 -- (250,390) -- Other assets..................... 7,561 3,476 853 1,102 2,686 -- 15,678 ------------- ----------- ------------- ------------- ----------- ------------ ------------ $ 119,866 $ 146,219 $ 34,058 $ 41,486 $ 328,807 $ (343,143) $ 327,293 ------------- ----------- ------------- ------------- ----------- ------------ ------------ ------------- ----------- ------------- ------------- ----------- ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............... $ -- $ -- $ -- $ -- $ 38,221 $ -- $ 38,221 Accrued expenses............... -- -- -- -- 19,298 -- 19,298 Accrued interest payable....... 2,330 500 695 898 273 -- 4,696 Income taxes payable........... (28) (1,210) (254) (328) 3,337 -- 1,517 Current maturities of long-term debt......................... -- -- -- -- 2,000 -- 2,000 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total current liabilities.... 2,302 (710) 441 570 63,129 -- 65,732 Long-term debt, less current maturities...................... 80,200 25,000 23,900 30,900 49,740 -- 209,740 Amounts due to parent/affiliates............... -- 105,532 884 -- (13,661) (92,755) -- Other liabilities................ -- -- -- -- 4,722 -- 4,722 Deferred income taxes............ -- -- -- -- 9,735 -- 9,735 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total liabilities............ 82,502 129,822 25,225 31,470 113,665 (92,755) 289,929 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Redeemable preference shares..... 35,191 -- -- -- -- -- 35,191 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Ordinary shareholders' equity: Ordinary shares................ 1,000 -- 78 23 75 (176) 1,000 Paid-in capital................ -- 17,000 6,922 9,077 209,425 (242,424) -- Retained earnings (deficit).... (185) (603) 486 838 4,284 (5,005) (185) Cumulative foreign translation adjustment................... 1,358 -- 1,347 78 1,358 (2,783) 1,358 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total ordinary shareholders' equity..................... 2,173 16,397 8,833 10,016 215,142 (250,388) 2,173 ------------- ----------- ------------- ------------- ----------- ------------ ------------ $ 119,866 $ 146,219 $ 34,058 $ 41,486 $ 328,807 $ (343,143) $ 327,293 ------------- ----------- ------------- ------------- ----------- ------------ ------------ ------------- ----------- ------------- ------------- ----------- ------------ ------------
55 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U. S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
SUCCESSOR AS OF DECEMBER 26, 1997 ------------------------------------------------------------------------------------------------- CO-OBLIGORS AND GUARANTOR SUBSIDIARIES -------------------------------------------------------- EURAMAX EURAMAX AMERIMAX EURAMAX EUROPEAN INTERNATIONAL HOLDINGS, EUROPEAN HOLDINGS, NON- PLC INC. HOLDINGS PLC B.V. GUARANTOR CONSOLIDATED (PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS ------------- ----------- ------------- ------------- ----------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents...... $ -- $ -- $ -- $ -- $ 12,914 $ -- $ 12,914 Accounts receivable, net....... -- -- -- -- 78,085 -- 78,085 Inventories.................... -- -- -- -- 87,461 -- 87,461 Deferred income taxes.......... -- -- -- -- 611 -- 611 Other current assets........... -- -- -- -- 1,703 -- 1,703 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total current assets......... -- -- -- -- 180,774 -- 180,774 Property, plant and equipment, net............................. -- -- -- -- 113,187 -- 113,187 Amounts due from parent/affiliates............... 70,492 69,139 40,002 42,591 -- (222,224) -- Goodwill......................... -- -- -- -- 76,910 -- 76,910 Investment in consolidated subsidiaries.................... 43,929 25,857 (213) 13,516 -- (83,089) -- Deferred income tax asset........ -- 448 -- 2,138 8,418 -- 11,004 Other assets..................... 2,070 -- 856 934 12,015 -- 15,875 ------------- ----------- ------------- ------------- ----------- ------------ ------------ $ 116,491 $ 95,444 $ 40,645 $ 59,179 $ 391,304 $ (305,313) $ 397,750 ------------- ----------- ------------- ------------- ----------- ------------ ------------ ------------- ----------- ------------- ------------- ----------- ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft................. $ -- $ -- $ -- $ -- $ 11,470 $ -- $ 11,470 Accounts payable............... -- -- -- -- 42,575 -- 42,575 Accrued expenses............... -- -- -- -- 22,366 -- 22,366 Accrued interest payable....... -- 1,986 917 743 1,389 -- 5,035 Income taxes payable........... 2,010 (3,595) (507) 7,626 (4,117) -- 1,417 Deferred income taxes payable...................... -- -- -- -- 974 -- 974 Current maturities of long- term debt......................... -- -- -- -- 3,924 -- 3,924 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total current liabilities.... 2,010 (1,609) 410 8,369 78,581 -- 87,761 Long-term debt, less current maturities...................... 70,605 -- 27,179 37,216 105,292 -- 240,292 Amounts due to parent/affiliates............... -- 77,779 3,954 -- 140,491 (222,224) -- Other liabilities................ -- -- -- -- 8,266 -- 8,266 Deferred income taxes............ -- -- -- -- 17,555 -- 17,555 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total liabilities............ 72,615 76,170 31,543 45,585 350,185 (222,224) 353,874 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Redeemable preference shares..... 40,382 -- -- -- -- -- 40,382 ------------- ----------- ------------- ------------- ----------- ------------ ------------ Ordinary shareholders' equity: Ordinary shares................ 1,000 -- 78 23 4,970 (5,071) 1,000 Paid-in capital................ -- 17,000 6,922 9,077 89,458 (122,457) -- Retained earnings (deficit).... 4,420 2,381 1,779 6,358 18,714 (29,232) 4,420 Dividends declared............. -- -- -- -- (70,600) 70,600 -- Minimum pension liability...... (535) (107) (428) -- (535) 1,070 (535) Cumulative foreign translation adjustment................... (1,391) -- 751 (1,864) (888) 2,001 (1,391) ------------- ----------- ------------- ------------- ----------- ------------ ------------ Total ordinary shareholders' equity..................... 3,494 19,274 9,102 13,594 41,119 (83,089) 3,494 ------------- ----------- ------------- ------------- ----------- ------------ ------------ $ 116,491 $ 95,444 $ 40,645 $ 59,179 $ 391,304 $ (305,313) $ 397,750 ------------- ----------- ------------- ------------- ----------- ------------ ------------ ------------- ----------- ------------- ------------- ----------- ------------ ------------
56 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
PREDECESSOR ------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1995 ------------------------------------------- ANTICIPATED PARENT, CO-OBLIGORS NON-GUARANTOR COMBINED AND GUARANTOR SUBSIDIARIES TOTALS --------------- -------------- ---------- Cash flows from operating activities: Net earnings........................................................ $ -- $ 19,658 $ 19,658 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization..................................... -- 7,980 7,980 Provision for doubtful accounts................................... -- 388 388 Gain on sales of assets........................................... -- 147 147 Deferred income taxes............................................. -- (526) (526) Changes in operating assets and liabilities....................... -- (21,682) (21,682) ----- -------------- ---------- Net cash provided by operating activities....................... -- 5,965 5,965 ----- -------------- ---------- Cash flows from investing activities: Proceeds from sales of assets..................................... -- 177 177 Capital expenditures.............................................. -- (17,429) (17,429) ----- -------------- ---------- Net cash used in investing activities........................... -- (17,252) (17,252) ----- -------------- ---------- Cash flows from financing activities: Net change in due to former parent................................ -- (7,486) (7,486) Dividends paid.................................................... -- (4,037) (4,037) ----- -------------- ---------- Net cash used in financing activities........................... -- (11,523) (11,523) ----- -------------- ---------- Effect of exchange rate changes on cash............................... -- 278 278 ----- -------------- ---------- Net increase in cash and equivalents.................................. -- (22,532) (22,532) Cash and equivalents at beginning of year............................. -- 35,119 35,119 ----- -------------- ---------- Cash and equivalents at end of year................................... $ -- $ 12,587 $ 12,587 ----- -------------- ---------- ----- -------------- ----------
Note: Separate columns for the Anticipated Parent, the Co-obligors and the Guarantor are not presented as there were no amounts for such entities for the periods shown. 57 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
PREDECESSOR ------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 25, 1996 ------------------------------------------- ANTICIPATED PARENT, CO-OBLIGORS NON-GUARANTOR COMBINED AND GUARANTOR SUBSIDIARIES TOTALS --------------- -------------- ---------- Cash flows from operating activities: Net earnings........................................................ $ -- $ 13,580 $ 13,580 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization..................................... -- 6,995 6,995 Provision for doubtful accounts................................... -- 827 827 Gain on sales of assets........................................... -- (168) (168) Deferred income taxes............................................. -- (339) (339) Changes in operating assets and liabilities....................... -- (654) (654) ----- -------------- ---------- Net cash provided by operating activities....................... -- 20,241 20,241 ----- -------------- ---------- Cash flows from investing activities: Proceeds from sales of assets..................................... -- 233 233 Capital expenditures.............................................. -- (11,518) (11,518) ----- -------------- ---------- Net cash used in investing activities........................... -- (11,285) (11,285) ----- -------------- ---------- Cash flows from financing activities: Net change in due to former parent................................ -- (20,973) (20,973) ----- -------------- ---------- Net cash used in financing activities........................... -- (20,973) (20,973) ----- -------------- ---------- Effect of exchange rate changes on cash............................... -- (677) (677) ----- -------------- ---------- Net decrease in cash and equivalents.................................. -- (12,694) (12,694) Cash and equivalents at beginning of year............................. -- 12,587 12,587 ----- -------------- ---------- Cash and equivalents at end of year................................... $ -- $ (107) $ (107) ----- -------------- ---------- ----- -------------- ----------
Note: Separate columns for the Anticipated Parent, the Co-obligors and the Guarantor are not presented as there were no amounts for such entities for the periods shown. 58 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
-------------------------------------------------------------------------------------------------------- SUCCESSOR FOR THE THREE MONTHS ENDED DECEMBER 27, 1996 -------------------------------------------------------------------------------------------------------- CO-OBLIGORS AND GUARANTOR SUBSIDIARIES ---------------------------------------------------------- EURAMAX AMERIMAX EURAMAX EURAMAX INTERNATIONAL HOLDINGS, EUROPEAN EUROPEAN PLC INC. HOLDINGS PLC HOLDINGS, B.V NON-GUARANTOR CONSOLIDATED (PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTAL ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash flows from operating activities: Net earnings........... $ 1,006 $ (603) $ 486 $ 838 $ 4,286 $ (5,007) $ 1,006 Reconciliation of net earnings to net cash provided by (used in) operating activities: Depreciation and amortization....... -- -- -- -- 2,591 -- 2,591 Provision for doubtful accounts........... -- -- -- -- 221 -- 221 Gain on sales of assets............. -- -- -- -- (7) -- (7) Deferred income taxes.............. -- -- -- -- (761) -- (761) Equity in earnings of subsidiaries....... (1,058) (1,543) (958) (1,448) -- 5,007 -- Changes in operating assets and liabilities........ (1,216) 2,266 717 927 22,633 -- 25,327 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net cash provided by (used in) operating activities....... (1,268) 120 245 317 28,963 -- 28,377 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash flows from investing activities: Purchase of Fabricated Products............. (35,000) (141,200) (30,900) (35,500) (41,713) 33,100 (251,213) Proceeds from sale of assets............... -- -- -- -- 92 -- 92 Capital expenditures... -- -- -- -- (682) -- (682) ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net cash used in investing activities....... (35,000) (141,200) (30,900) (35,500) (42,303) 33,100 (251,803) ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash flows from financing activities: Proceeds from long-term debt................. 80,200 44,000 23,900 30,900 56,000 -- 235,000 Proceeds from issuance of preference shares............... 34,000 -- -- -- -- -- 34,000 Proceeds from issuance of ordinary shares... 1,000 17,000 7,000 9,100 -- (33,100) 1,000 Deferred financing fees................. (2,935) (3,659) (875) (1,131) (1,330) -- (9,930) Repayment of debt...... -- (19,000) -- -- (6,164) -- (25,164) Other.................. -- -- -- -- (1,555) -- (1,555) Due to/from parent or affiliate............ (75,873) 102,739 630 (3,686) (23,810) -- -- ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net cash provided by financing activities....... 36,392 141,080 30,655 35,183 23,141 (33,100) 233,351 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Effect of exchange rate changes on cash...... -- -- -- -- 2,698 -- 2,698 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net increase in cash and equivalents...... 124 -- -- -- 12,499 -- 12,623 Cash and equivalents at beginning of period............... -- -- -- -- (107) -- (107) ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash and equivalents at end of period........... $ 124 $ -- $ -- $ -- $ 12,392 $ -- $ 12,516 ------------- ----------- ------------ ------------- ------------- ------------ ------------ ------------- ----------- ------------ ------------- ------------- ------------ ------------ Noncash investing and financing activities: Dividends accrued on preference shares....... $ 1,191 $ -- $ -- $ -- $ -- $ -- $ 1,191 Supplemental cash flow information: Foreign income taxes paid, net............ $ -- $ -- $ -- $ -- $ 3 $ -- $ 3
59 EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA) 14. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS: (CONTINUED)
-------------------------------------------------------------------------------------------------------- SUCCESSOR FOR THE YEAR ENDED DECEMBER 26, 1997 -------------------------------------------------------------------------------------------------------- CO-OBLIGORS AND GUARANTOR SUBSIDIARIES ---------------------------------------------------------- EURAMAX AMERIMAX EURAMAX EURAMAX INTERNATIONAL HOLDINGS, EUROPEAN EUROPEAN PLC INC. HOLDINGS PLC HOLDINGS, B.V NON-GUARANTOR CONSOLIDATED (PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTAL ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash flows from operating activities: Net earnings........... $ 9,796 $ 2,984 $ 1,293 $ 5,520 $ 14,430 $(24,227) $ 9,796 Reconciliation of net earnings to cash provided by (used in) operating activities: Depreciation and amortization....... -- -- -- -- 11,663 -- 11,663 Provision for doubtful accounts........... -- -- -- -- 1,858 -- 1,858 (Gain) loss on sales of assets.......... -- -- -- -- (2) -- (2) Deferred income taxes.............. -- (448) -- (2,138) 1,396 -- (1,190) Loss on debt extinguishment..... -- -- -- -- 2,846 -- 2,846 Equity in (earnings) losses of subsidiaries....... (9,796) (7,416) 959 (7,974) -- 24,227 -- Changes in operating assets and liabilities........ (1,806) 2,576 171 8,115 (5,250) -- 3,806 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net cash provided by (used in) operating activities....... (1,806) (2,304) 2,423 3,523 26,941 -- 28,777 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash flows from investing activities: Adjustment of purchase of Fabricated Products............. 3,487 -- -- -- -- -- 3,487 Proceeds from sale of assets............... -- -- -- -- 289 -- 289 Proceeds from disposition of businesses........... -- -- -- -- 12,764 -- 12,764 Purchases of businesses........... -- -- -- -- (78,473) -- (78,473) Capital expenditures... -- -- -- -- (7,184) -- (7,184) ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net cash provided by (used in) investing activities....... 3,487 -- -- -- (72,604) -- (69,117) ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash flows from financing activities: Cash overdraft......... -- -- -- -- 11,470 -- 11,470 Repayment of debt...... -- (25,000) -- -- (14,291) -- (39,291) Proceeds from long-term debt................. -- -- -- -- 73,333 -- 73,333 Deferred financing fees................. -- -- -- -- (1,268) -- (1,268) Due to/from parent or affiliate............ (1,809) 27,304 (4,100) (2,415) (18,980) -- -- ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net cash provided by (used in) financing activities....... (1,809) 2,304 (4,100) (2,415) 50,264 -- 44,244 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Effect of exchange rate changes on cash...... 4 -- 1,677 (1,108) (4,079) -- (3,506) ------------- ----------- ------------ ------------- ------------- ------------ ------------ Net increase in cash and equivalents...... (124) -- -- -- 522 -- 398 Cash and equivalents at beginning of period............... 124 -- -- -- 12,392 -- 12,516 ------------- ----------- ------------ ------------- ------------- ------------ ------------ Cash and equivalents at end of period........ $ -- $ -- $ -- $ -- $ 12,914 $ -- $ 12,914 ------------- ----------- ------------ ------------- ------------- ------------ ------------ ------------- ----------- ------------ ------------- ------------- ------------ ------------ Noncash financing and investing activities: Dividends accrued on preference shares.... $ 5,191 $ -- $ -- $ -- $ -- $ -- $ 5,191 Purchase of business financed in part with a note payable to seller............... $ -- $ -- $ -- $ -- $ 800 $ -- $ 800 Sale of business financed in part with a note receivable from purchaser....... $ -- $ -- $ -- $ -- $ 500 $ -- $ 500 Supplemental cash flow information: Income taxes paid, net.................. $ -- $ -- $ -- $ -- $ 3,165 $ -- $ 3,165 Interest paid.......... $ -- $ -- $ -- $ -- $ 22,306 $ -- $ 22,306
60 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT The following sets forth certain information with respect to the persons who are members of the Board of Directors and key officers of the Company and its subsidiaries.
NAME AGE POSITION - --------------------------------------- --- ------------------------------------------------------------------- J. David Smith......................... 48 Chief Executive Officer, President and Director Frank T. Geist......................... 52 Executive Vice President R. Scott Vansant....................... 36 Vice President, Finance and Administration, Secretary Mitchell B. Lewis...................... 35 Group Vice President--Amerimax Building Products, Inc. and Fabral, Inc. Neil E. Bashore........................ 48 President, General Manager--Amerimax Home Products, Inc. Jo Cuypers............................. 57 Managing Director--Euramax Coated Products B.V. Roger A. Walters....................... 56 Managing Director--Euramax Coated Products Limited David C. Pugh.......................... 48 Managing Director--Ellbee Ltd. Gerard D. Papazian..................... 44 President, General Manager--Fabral, Inc. Joseph M. Silvestri.................... 36 Director Richard M. Cashin...................... 44 Director William Ty Comfort..................... 31 Director Rolly van Rappard...................... 36 Director Paul E. Drack.......................... 70 Director Stuart M. Wallis....................... 52 Director, Non-executive Chairman
J. DAVID SMITH has been President of AFP, Amerimax Fabricated Products, since 1990 and was appointed a Vice President of Alumax in 1994. Mr. Smith became a director of the Company in September 1996. Mr. Smith's career in the fabricated products industry spans twenty-five years, starting with various operational responsibilities with Howmet Aluminum Corp. ("Howmet Aluminum"). In 1983, Mr. Smith joined Alumax as General Manager of the Building Specialties Division and became President of Alumax Home and Specialty Products Group in 1988. FRANK T. GEIST has been Group Vice President of AFP since 1993. Prior to 1993, Mr. Geist served as Vice President, General Manager of Amerimax Home Products, Inc. Mr. Geist's career in the fabricated products industry began twenty-five years ago with various operational responsibilities with Howmet Aluminum. R. SCOTT VANSANT joined Alumax in 1991. From 1995 to 1996, Mr. Vansant served as Director of Internal Audit for Alumax. Mr. Vansant also served in various operational positions with Alumax Building Products, Inc., including serving as Controller of the division from 1993 to 1995. Prior to 1991, Mr. Vansant worked as a Certified Public Accountant for Ernst & Young L.L.P. MITCHELL B. LEWIS has been Group Vice President of Amerimax Building Products, Inc. and Fabral, Inc. since 1997. Prior to being appointed Group Vice President, he was General Manager of Amerimax Building Products, Inc. from 1993 to 1996 and Assistant General Manager of Amerimax Building Products, Inc. from 1991 to 1993. Prior to 1991, Mr. Lewis served as corporate counsel with Alumax. Prior to joining Alumax, Mr. Lewis practiced law, specializing in mergers and acquisitions. 61 NEIL E. BASHORE was General Manager of Amerimax Home Products, Inc. from 1993 to 1996, at which time he became President and General Manager. From 1981 to 1993, Mr. Bashore served as Manufacturing Manager of Amerimax Home Products, Inc. and has served in other management positions with the Company since 1975. JO CUYPERS has been Managing Director of Euramax Coated Products B.V. since 1979. From 1970 to 1979, Mr. Cuypers served in various management positions with Euramax Coated Products B.V. Prior to joining Euramax Coated Products B.V., Mr. Cuypers held several positions with other companies in related industries, thus bringing his total experience to nearly forty years. ROGER A. WALTERS has been Managing Director of Euramax Coated Products Ltd. since 1983. Prior to 1983, Mr. Walters held various technical and managerial positions with Alcan, Inc. Mr. Walters has served on various trade associations and is currently the Chairman of the Statistics Group for the European Coil Coaters Association. DAVID C. PUGH has been Managing Director of Euramax Ellbee Ltd. since 1996. Prior to the Acquisition, Mr. Pugh held several positions with Alumax, including Sales Director and Production Director of Euramax Ellbee Ltd. GERARD D. PAPAZIAN has been President of Fabral, Inc. since November 1991. Prior to that he was a Vice President-Sales and Marketing for Alcan Building Products in Canada and a member of the Executive Management team for six years. JOSEPH M. SILVESTRI has been a director of the Company since its inception. Mr. Silvestri has been employed by Citicorp Venture Capital, Ltd. since 1990 and has been a Vice President since 1995. Mr. Silvestri is a director of International Media Group, Polyfibron Technologies, Frozen Specialties, Glenoit Mills and Triumph Group. RICHARD M. CASHIN became a director of the Company upon consummation of the Transactions. Mr. Cashin has been employed by Citicorp Venture Capital, Ltd. since 1980 and has been a Managing Director since 1991. Mr. Cashin is a director of Levitz Furniture Incorporated, Lifestyle Furnishings International, and Titan Wheel International Inc. WILLIAM TY COMFORT became a director of the Company upon consummation of the Transactions. Mr. Comfort has been employed by CVC Capital Partners, Ltd. since 1995. Mr. Comfort is currently an Assistant Director. ROLLY VAN RAPPARD became a director of the Company upon consummation of the Transactions. Mr. van Rappard has been employed by CVC Capital Partners B.V. since 1988 and has been a Managing Director since 1993. Mr. van Rappard is currently a director of, among other companies, Saybolt International B.V., Docdata B.V. and Hoogenbosch Retail Group B.V. PAUL E. DRACK became a director of the Company in December 1996. Mr. Drack retired from AMAX Inc. in December 1993 after serving as President and Chief Operating Officer from 1991. From 1985 to 1991, Mr. Drack was employed in various positions with Alumax Inc. serving as President and Chief Executive Officer from 1986. STUART M. WALLIS became a Director of the Company in February, 1997. Mr. Wallis served as Chief Executive for Fisons plc from 1994 to 1995. From 1989 to 1995, Mr. Wallis served as Chief Executive in Europe for Bowater plc. 62 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the aggregate compensation earned by Company's executive officers who earned $100,000 or more during the years ended December 26, 1997, and December 27, 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) - ---------------------------------------------------------------- --------- ---------- ---------- ----------------- J. David Smith, Chief Executive Officer, President and Director...................................................... 1997 $ 234,913 $ 171,581 $ 6,463 1996 174,855 93,840 6,696 Frank T. Geist, Executive Vice President........................ 1997 177,017 106,836 7,000 1996 137,436 65,563 5,756 Mitchell B. Lewis, Group Vice President......................... 1997 146,636 75,999 4,881 R. Scott Vansant, Vice President, Finance and Administration.... 1997 126,502 74,462 3,979
- ------------------------ (1) Other compensation consists of the Company's matching contributions to 401(k) plans, as well as the contributions made by the Company to the defined contribution plan. The Company has not granted any options or stock appreciation rights. The Company has no long-term incentive plans. RETIREMENT PLANS See Note 9 to the Financial Statements for a description of the Company's retirement plans. Additionally, the Company has adopted an unfunded supplemental executive retirement plan (the "SERP") for Mr. Smith and Mr. Geist which is designed to supplement benefits payable under other plans of the Company. The annual benefit, payable in the form of a life annuity, is $110,000 for Mr. Smith and $45,000 for Mr. Geist upon retirement at age 65. Annual benefits payable under the SERP are reduced for participants retiring before age 65. A participant's benefits under the SERP are not vested until the earlier of the date the executive attains age 55, dies, becomes totally and permanently disabled, or the occurrence of a change-in-control. If the employment of Mr. Smith or Mr. Geist with the Company terminates, for any reason, before his benefits have vested, Messrs. Smith and Geist will not be entitled to any benefits under the SERP. COMPENSATION OF DIRECTORS Directors who are not executive officers of the Company are entitled to an annual fee of $15,000. Directors are reimbursed for out-of-pocket expenses incurred in connection with attending meetings. EMPLOYMENT AGREEMENTS Mr. Smith is party to an employment agreement with the Company which expires on September 25, 1998. The agreement provides for a minimum annual salary of $250,000 and bonuses based on the achievement of certain operating income and return on asset targets established by the Board of Directors of the Company in consultation with Mr. Smith. Subject to certain exceptions, in the event Mr. Smith is terminated by the Company (other than for cause), Mr. Smith will be entitled to receive his annual salary for a period of twenty-four months following the date of such termination. 63 Mr. Geist is party to an employment agreement with the Company which expires on September 25, 1998. The agreement provides for a minimum annual salary of $182,000 and bonuses based on the achievement of certain operating income and return on asset targets established by the Board of Directors of the Company in consultation with Mr. Geist. Subject to certain exceptions, in the event Mr. Geist is terminated by the Company (other than for cause), Mr. Geist will be entitled to receive his annual salary for a period of twenty-four months following the date of such termination. Each of the Employment Agreements also require the Company to maintain benefits for Mr. Smith and Geist equal to: (i) basic and supplemental life insurance in total equal to 4 1/2 times base pay, (ii) accidental death and dismemberment insurance equal to 4 1/2 times base pay, and (iii) long-term disability insurance equal to 2/3 base pay plus target bonus. MANAGEMENT EQUITY PARTICIPATION In connection with the Acquisition, in order to provide financial incentives for certain of its employees, the Company provided for certain rights with respect to the Ordinary Shares and the Preference Shares purchased by the Management Investors. On the Closing Date, the Management Investors purchased an aggregate of approximately $1 million of Ordinary Shares and Preference Shares. The Ordinary Shares and Preference Shares of the Management Investors are subject to certain call provisions exercisable by the Company and/or the Investor Group in the event of the termination of a Management Investor's employment with the Company and its subsidiaries. DESCRIPTION OF PREFERENCE SHARES As part of the Transactions, the Company issued 34,000,000 Preference Shares for a purchase price of $34.0 million (the "Liquidation Value") to the Investor Group, the Management Investors and an affiliate of Paribas. Dividends accrue on the Preference Shares at a rate of 14% per annum and accumulate and compound on a quarterly basis. Upon the Closing Date, the Company had outstanding 1,000,000 Ordinary Shares and 34,000,000 Preference Shares. The Preference Shares rank prior to the Ordinary Shares upon liquidation and in respect of dividends and redemption. The vote of 66 2/3% of the holders of the Preference Shares, voting as a separate class, is required to (i) cause the Company to direct its subsidiaries to make distributions to the Company sufficient to enable the Company to pay dividends on the Preference Shares and (ii) cause the redemption of the Preference Shares upon the occurrence of certain events. Except as described in the foregoing and as otherwise required by law, the Preference Shares are not entitled to vote. The Preference Shares are subject to mandatory redemption on December 31, 2007. Upon redemption, a holder of Preference Shares is entitled to receive for each Preference Share redeemed its per share Liquidation Value plus accrued and unpaid dividends. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth certain information regarding the beneficial ownership of the Ordinary Shares and the Preference Shares as of May 1, 1997 by (i) each person who is known to the Company to be the beneficial owner of more than 5% of either class, (ii) each director, (iii) each named executive officer of the Company, and (iv) all executive officers and directors of the Company as a group. Except as set forth 64 below, the stockholders listed below have sole voting and investment power with respect to all shares shown as beneficially owned by them.
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NAME AND ADDRESS OF BENEFICIAL OWNER ORDINARY SHARES ORDINARY SHARES PREFERENCE SHARES PREFERENCE SHARES - ---------------------------------------- --------------- --------------- ----------------- ----------------- ACP (1) 391,080 39.1% 14,813,920 43.6% 6099 Riverside Drive, Suite 201 Dublin, Ohio 43017 CVC Europe 386,280 38.6% 14,778,720 43.5% P.O. Box 87 18 Grenville Street St. Helier, Jersey JE4 8PX, Channel Islands Banque Paribas 85,840 8.6% 3,284,160 9.7% 787 7th Avenue New York, NY 10019 J. David Smith 22,800 2.3% 167,200 * 5731 Mt. Repose Lane Norcross, GA 30092 Frank T. Geist 14,400 1.4% 105,600 * 6005 State Bridge Rd., #517 Duluth GA 30136 R. Scott Vansant 7,200 * 52,800 * 150 Brightmore Way Alpharetta, GA 30005 Mitchell B. Lewis 16,800 1.7% 123,200 * 4112 BlackPool Plano, TX 75093 Joseph M. Silvestri (2) 0 * 0 * Richard M. Cashin (2) 0 * 0 * William Ty Comfort 0 * 0 * Rolly van Rappard (2) 0 * 0 * Paul E. Drack 1,600 * 48,400 * Stuart M. Wallis 20,000 2.0% 230,000 * Executive Officers and Directors as a 117,600 11.8% 982,400 2.9% Group (15 persons)
- ------------------------ * Less than 1% (1) ACP is an affiliate of Citicorp Venture Capital, Ltd. (2) Does not include 396,000 ordinary shares and 14,904,000 Preference Shares held by CVC Europe. Messrs. Silvestri, Cashin and van Rappard are officers of affiliates of CVC Europe. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SHAREHOLDERS AGREEMENT AND ARTICLES OF ASSOCIATION On the Closing Date, the Company, the Investor Group, the Management Investors and an affiliate of Paribas entered into a shareholders agreement (the "Shareholders Agreement") which contains certain 65 agreements among such parties with respect to the equity interests and corporate governance of the Company. The Board of Directors of the Company is comprised of seven members. ACP and CVC Europe each have the right to appoint two directors. J. David Smith is to be re-appointed a director for as long as he is Chief Executive Officer of the Company. Pursuant to the Shareholders Agreement and the Articles of Association of the Company, the disposition of Ordinary Shares and Preference Shares is restricted. The Shareholders Agreement and the Articles of Association also contain certain participation rights, approval rights and rights of first refusal exercisable by ACP and CVC Europe in the event of certain sales or proposed sales of equity interests by the other. REGISTRATION RIGHTS AGREEMENT On the Closing Date of the Acquistion, September 25, 1996, the Company entered into a registration rights agreement (the "Registration Agreement") with certain of the Company's existing shareholders. Pursuant to the terms of the Registration Agreement, such shareholders have the right to require the Company, at the Company's sole cost and expense and subject to certain limitations, to register under the Securities Act or list on any internationally recognized stock exchange all or part of the Ordinary Shares held by such shareholders (the "Registrable Securities"). All such shareholders will be entitled to participate in all registrations by the Company or other shareholders, subject to certain limitations. In connection with all such registrations, the Company has agreed to indemnify all holders of Registrable Securities against certain liabilities, including liabilities under the Securities Act and other applicable state or foreign securities laws. Registrations pursuant to the Registration Agreement will be made, if applicable, on the appropriate registration form and may be underwritten registrations. 66 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of Euramax International plc and its subsidiaries are included in Part II, Item 8. Report of Independent Accountants Consolidated Balance Sheets at December 26, 1997 and December 27, 1996 Consolidated Statements of Earnings for the year ended December 26, 1997, the three months ended December 27, 1996 (successor periods), the nine months ended September 25, 1996, and the year ended December 31, 1995 (predecessor periods). Consolidated Statements of Changes in Equity for the year ended December 26, 1997, the three months ended December 27, 1996 (successor periods), the nine months ended September 25, 1996, and the year ended December 31, 1995 (predecessor periods). Consolidated Statements of Cash Flows for the year ended December 26, 1997, the three months ended December 27, 1996 (successor periods), the nine months ended September 25, 1996, and the year ended December 31, 1995 (predecessor periods). Notes to consolidated financial statements (a)(2) Financial Statement Schedule Report of Independent Accountants Schedule II--Valuation Account (b) The Company filed no reports on Form 8-K during the three months ended December 26, 1997. (c) Exhibits: 2.1 Purchase Agreement dated as of April 28, 1997, among the Company and Genstar Capital Corporation ("GCC"), Ontario Teachers' Pension Plan Board and the Management Stockholders of Gentek Holdings, Inc. ("Holdings") as sellers GCC as sellers' representative; Holdings and Gentek Building Products, Inc. ("GBPI"). (Incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed August 1, 1997). 3.1* Articles of Association of Euramax International plc 3.2* Memorandum and Articles of Association of Euramax European Holdings plc 3.3* Articles of Association of Euramax International B.V. 3.4* Articles of Incorporation of Amerimax Holdings, Inc. 3.5* Bylaws of Amerimax Holdings, Inc. 4.3* Indenture, dated as of September 25, 1996, by and among Euramax International plc, Euramax European Holdings plc, Euramax European Holdings B.V., Amerimax Holdings, Inc. and the Chase Manhattan Bank, as Trustee. 4.4* Deposit Agreement, dated as of September 25, 1996, by and among Euramax International plc, Euramax European Holdings plc, Euramax European Holdings B.V., and The Chase Manhattan Bank, as book-entry depositary 4.5* Registration Rights Agreement, dated as of September 25, 1996, by and among Euramax International plc, Euramax European Holdings plc, Euramax European Holdings B.V., Amerimax Holdings, Inc. and J.P. Morgan Securities Inc. and Goldman Sachs & Co.
67 4.6* Purchase Agreement dated as of September 18, 1996, by and among Euramax International Ltd., Euramax European Holdings Ltd., Euramax European Holdings B.V., Amerimax Holdings, Inc. and J.P. Morgan Securities Inc. and Goldman Sachs & Co. 10.1* Purchase Agreement, dated as of June 24, 1996, by and between Euramax International Ltd. and Alumax Inc. 10.2* Executive Employment Agreement, dated as of September 25, 1996, by and between J. David Smith and Euramax International plc 10.3* Executive Employment Agreement, dated as of September 25, 1996, by and between Frank T. Geist and Euramax International plc 10.5* Domestic Security Agreement, dated as of September 25, 1996, by Amerimax Holdings, Inc. in favor of Banque Paribas, as agent 10.6* Domestic Security Agreement, dated as of September 25, 1996, by Amerimax Fabricated Products, Inc. in favor of Banque Paribas, as agent 10.7* Domestic Security Agreement, dated as of September 25, 1996, by Amerimax Home Products, Inc. in favor of Banque Paribas, as agent 10.8* Domestic Security Agreement, dated as of September 25, 1996, by Amerimax Building Products, Inc. in favor of Banque Paribas, as agent 10.9* Domestic Security Agreement, dated as of September 25, 1996, by Amerimax Coated Products, Inc. in favor of Banque Paribas, as agent 10.10* Domestic Security Agreement, dated as of September 25, 1996, by Johnson Door Products, Inc. in favor of Banque Paribas, as agent 10.11* Domestic Security Agreement, dated as of September 25, 1996, by Amerimax Specialty Products, Inc. in favor of Banque Paribas, as agent 10.12* Domestic Subsidiary Guaranty, dated as of September 25, 1996, by each of Amerimax Home Products, Inc., Amerimax Specialty Products, Inc., Amerimax Building Products, Inc., Amerimax Coated Products and Johnson Door Products, Inc. in favor of the Guarantied Parties referred to therein 10.13* U.S. Holdings Guaranty, dated as of September 25, 1996, by Amerimax Holdings, Inc. in favor of the Guaranteed Parties referred to therein 10.14* U.S. Holdings Pledge Agreement, dated as of September 25, 1996, by Amerimax Holdings, Inc., to Banque Paribas, as Agent 10.15* U.S. Operating Co. Guaranty, dated as of September 25, 1996, by Amerimax Fabricated Products, Inc. in favor of the Guarantied Parties referred to therein 10.16* U.S. Operating Co. Pledge Agreement dated as of September 25, 1996, by Amerimax Fabricated Products, Inc. to Banque Paribas, as Agent 10.17* Euramax Assignment Agreement, dated as of September 25, 1996, by Euramax International plc in favor of Banque Paribas, as Agent 10.18* Euramax Pledge Agreement, dated as of September 25, 1996, by Euramax International plc to Banque Paribas, as Agent 10.19* Building Products Pledge Agreement, dated as of September 25, 1996, by Amerimax Building Products, Inc. to Banque Paribas, as Agent 10.20* Dutch Holdings Guaranty, dated as of September 25, 1996, by Euramax European Holdings B.V. in favor of the Guarantied Parties referred to therein 10.21* Dutch Company Guaranty, dated as of September 25, 1996, by Euramax Netherlands B.V., in favor of the Guarantied Parties referred to therein 10.22* Dutch Operating Co. Guaranty, dated as of September 25, 1996, by Euramax Europe B.V., in favor of the Guarantied Parties referred to therein 10.23* Dutch Subsidiary Guaranty, dated as of September 25, 1996, by Euramax Coated Products B.V., in favor of the Guarantied Parties referred to therein
68 10.24 Amended and Restated Credit Agreement, dated as of July 16, 1997, by and among Amerimax Fabricated Products, Euramax Holdings Limited, Euramax Europe B.V, Euramax Netherlands B.V., as Borrowers; Euramax International plc, Amerimax Holdings, Inc., Euramax European Holdings plc, Euramax European Holdings B.V., Euramax Europe Limited and certain of their operating subsidiaries, as other Loan Parties; Banque Paribas, as Agent, as a Lender and as the Issuer; and the other lenders named therein. (Incorporated by Reference to Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended June 28, 1997). 10.25 Amendment to Credit Agreement, dated as of December 18, 1997, by and among Amerimax Fabricated Products, Euramax Holdings Limited, Euramax Europe B.V., Euramax Netherlands B.V., as Borrowers; Euramax International plc, Amerimax Holdings, Inc., Euramax European Holdings plc, Euramax European Holdings B.V., Euramax Europe Limited and certain of their operating subsidiaries, as other Loan Parties; Banque Paribas, as Agent, as a Lender and as the Issuer; and the other lenders named therein. 21.1 Subsidiaries of Euramax International plc 27 Financial Data Schedule
- ------------------------ * Incorporated by reference to the Exhibit with the same number in the Registrant's Registration Statement on Form S-4 (333-05978) which became effective on February 7, 1997 69 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, Euramax International plc has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Euramax International plc By: /s/ J. DAVID SMITH ----------------------------------------- J. David Smith CHIEF EXECUTIVE OFFICER AND PRESIDENT
Dated: March 12, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Euramax International plc and in the capacities and on the dated indicated. SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- By: /s/ J. DAVID SMITH - ------------------------------ Chief Executive Officer, March 12, 1998 J. David Smith President and Director V.P. Finance and By: /s/ R. SCOTT VANSANT Administration and - ------------------------------ Secretary (Principal March 12, 1998 R. Scott Vansant Financial and Accounting Officer) By: /s/ RICHARD M. CASHIN - ------------------------------ Director March 12, 1998 Richard M. Cashin By: /s/ JOSEPH M. SILVESTRI - ------------------------------ Director March 12, 1998 Joseph M. Silvestri By: /s/ WILLIAM TY COMFORT - ------------------------------ Director March 12, 1998 William Ty Comfort By: /s/ ROLLY VAN RAPPARD - ------------------------------ Director March 12, 1998 Rolly Van Rappard By: /s/ PAUL E. DRACK - ------------------------------ Director March 12, 1998 Paul E. Drack By: /s/ STUART M. WALLIS - ------------------------------ Director March 12, 1998 Stuart M. Wallis 70 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Euramax International plc In connection with our audit of the consolidated financial statements of Euramax International plc and Subsidiaries as of December 27, 1996 and December 26, 1997, and the related consolidated statements of earnings and cash flows for the year ended December 31, 1995, the nine months ended September 25, 1996, the three months ended December 27, 1996, and the year ended December 26, 1997, which financial statements are included in the Form 10-K, we have also audited the financial statement schedule listed in Item 14(a)(2) herein. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Atlanta Georgia February 27, 1998 71 EURAMAX INTERNATIONAL PLC VALUATION AND QUALIFYING ACCOUNTS THOUSANDS OF U.S. DOLLARS
CHARGED TO CHARGED TO OTHER BALANCE AT COSTS AND ACCOUNTS- DEDUCTIONS- DESCRIPTION CLASSIFICATION BEGINNING EXPENSES DESCRIBE(1) DESCRIBE(2) BALANCE AT END - ----------------------------------------- ------------ ---------- ---------- ---------- ----------- -------------- FOR THE YEAR ENDED DECEMBER 26, 1997 Allowance for doubtful accounts A/R, net ($3,404) ($1,489) $94 $1,305 ($3,494) FOR THE 3 MONTHS ENDED DECEMBER 27, 1996 Allowance for doubtful accounts A/R, net ($3,062) ($221) ($143) $22 ($3,404) FOR THE 9 MONTHS ENDED SEPTEMBER 25, 1996 Allowance for doubtful accounts A/R, net ($2,582) ($827) ($44) $391 ($3,062)
Note: (1) Changes due to foreign currency translation adjustment. (2) Write-off of bad debts, net of recoveries. Also included in this amount are adjustments for divestitures and the acquisition of Fabral in 1997. 72 EXHIBIT 10.25 AMENDMENT (this "Amendment"), dated as of December 18, 1997 (this "Amendment") among Euramax International plc, a company existing under the laws of England and Wales ("Euramax"), the other Loan Parties referred to below, the Lenders and Issuer referred to below and Banque Paribas, as agent for said Lenders and Issuer (in such capacity, the "Agent"), to the Amended and Restated Credit Agreement, dated as of July 16, 1997 (said Agreement, as the same may be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement", and the terms defined therein being used herein as therein defined), among Euramax, the other Loan Parties party thereto, the financial institutions party thereto (the "Lenders"), the Issuer party thereto (the "Issuer") and the Agent. W I T N E S E T H : WHEREAS, the Loan Parties have requested that the Lenders, the Issuer and the Agent agree to amend the Credit Agreement to provide for a reduction in the interest payable on the Loans and fees payable in respect of Letters of Credit, in each case based upon a ratio of Indebtedness to EBITDA, all as more fully set forth below; and WHEREAS, the Lenders, the Issuer and the Agent are willing to agree to such amendments as set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 73 Section 1. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is, subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: 1.1. AMENDMENTS TO SECTION 1.1. (a) Section 1.1 thereof is amended by adding thereto, in appropriate alphabetical order, the following new defined terms: "`LEVEL I RATE PERIOD' means, with respect to any Loan, each period (a) commencing on the last day of any Fiscal Quarter (i) as at the end of which the Ratio of Total Debt to EBITDA for the four Fiscal Quarters ended on such day exceeds 5.00 to 1.00, as reflected in a Ratio Notice with respect to such four Fiscal Quarters, or (ii) with respect to which four Fiscal Quarters period no Ratio Notice shall have been timely delivered, and (b) ending on the last day of the next succeeding Fiscal Quarter." "`LEVEL II RATE PERIOD' means, with respect to any Loan, each period commencing on the last day of a Fiscal Quarter as at the end of which the Ratio of Total Debt to EBITDA for the four Fiscal Quarters ended on such day does not exceed 5.00 to 1.00 but is in excess of 4.50 to 1.00, as reflected in a Ratio Notice with respect to such four Fiscal Quarters, and ending on the last day of the next succeeding Fiscal Quarter." "`LEVEL III RATE PERIOD' means, with respect to any Loan, each period commencing on the last day of a Fiscal Quarter as at the end of which the Ratio of Total Debt to EBITDA for the four Fiscal Quarters ended on such day does not exceed 4.50 to 1.00 but is in excess of 4.00 to 1.00, as reflected in a Ratio Notice with respect to such four Fiscal Quarters, and ending on the last day of the next succeeding Fiscal Quarter." "`LEVEL IV RATE PERIOD' means, with respect to any Loan, each period commencing on the last day of a Fiscal Quarter as at the end of which the Ratio of Total Debt to EBITDA for the four Fiscal Quarters ended on such day does not exceed 4.00 to 1.00 but is in excess of 3.50 to 1.00, as reflected in a Ratio Notice with respect to such four Fiscal Quarters, and ending on the last day of the next succeeding Fiscal Quarter." "`LEVEL V RATE PERIOD' means, with respect to any Loan, each period commencing on the last day of a Fiscal Quarter as at the end of which the ratio of Total Debt to EBITDA for the four Fiscal Quarters ended on such day is equal to or less than 3.50 to 1.00, as reflected in a Ratio Notice with respect to such four Fiscal Quarters, and ending on the last day of the next succeeding Fiscal Quarter." "`RATIO NOTICE' means a written notice, delivered by Euramax to the Agent, the Issuer and each Lender within 45 days after the last day of any Fiscal Quarter, pursuant to which the Chief Financial Officer of Euramax shall have certified the Ratio of Total Debt to EBITDA for the period consisting of the four consecutive Fiscal Quarters ended on such last day." "`RATIO OF TOTAL DEBT TO EBITDA' means the ratio of (a) the sum of (i) Senior Indebtedness of Euramax and its Subsidiaries PLUS (ii) any amounts outstanding under the Senior Subordinated Notes issued by Euramax and its Subsidiaries to (b) EBITDA of Euramax and its Subsidiaries." (b) Section 1.1 thereof is further amended by deleting the definitions therein of "APPLICABLE BASE RATE MARGIN" and "APPLICABLE EUROCURRENCY RATE MARGIN" and substituting therefor, respectively, the following definitions: "`APPLICABLE BASE RATE MARGIN' means: (a) in the case of all Loans other than the U.S. Dollar Term B Loans and the U.S. Dollar Term C Loans, (i) 1.25% at all times during each Level I Rate Period, (ii) 1.00% at all times during each Level II Rate Period, (iii) 0.75% at all times during each Level III Rate Period, (iv) 0.50% at all times during each Level IV Rate Period and 74 (v) 0.25% at all times during each Level V Rate Period; and (b) in the case of the U.S. Dollar Term B Loans and the U.S. Dollar Term C Loans, (i) 1.75% at all times during each Level I Rate Period, (ii) 1.50% at all times during each Level II Rate Period, (iii) 1.25% at all times during each Level III Rate Period and (iv) 1.00% at all times during each Level IV Rate Period and each Level V Rate Period." "`APPLICABLE EUROCURRENCY RATE MARGIN' means: (a) in the case of all Loans other than the U.S. Dollar Term B Loans and the U.S. Dollar Term C Loans, (i) 2.25% at all times during each Level I Rate Period, (ii) 2.00% at all times during each Level II Rate Period and (iii) 1.75% at all times during each Level III Rate Period, (iv) 1.50% at all times during each Level IV Rate Period and (v) 1.25% at all times during each Level V Rate Period; and (b) in the case of the U.S. Dollar Term B Loans and the U.S. Dollar Term C Loans, (i) 2.75% at all times during each Level I Rate Period, (ii) 2.50% at all times during each Level II Rate Period, (iii) 2.25% at all times during each Level III Rate Period, and (iv) 2.00% at all times during each Level IV Rate Period and each Level V Rate Period." (c) Section 1.1 thereof is further amended by deleting the number "10" in subsection (e) of the proviso of the definition of "INTEREST PERIOD" therein and substituting therefor the number "12". 1.2. AMENDMENTS TO SECTION 2.19(m). Section 2.19(m) thereof is amended by deleting from clause (ii) thereof the words "a fee equal to 2.75% per annum of" and substituting therefor the words "an annual fee equal to the Applicable Eurocurrency Rate Margin then in effect for the Loans other than the U.S. Dollar Term B Loans and the U.S. Dollar Term C Loans multiplied by". Section 2. EFFECTIVENESS. This Amendment shall become effective as of the date first set forth above if and only if the Agent shall have executed a counterpart hereof and shall have received counterparts hereof executed by each Lender, the Issuer and each Loan Party. Section 3. REPRESENTATIONS AND WARRANTIES. Each of the Loan Parties represents and warrants as to itself and each of its Subsidiaries as follows: (a) The execution, delivery and performance of this Amendment has been duly authorized by all necessary corporate action, and this Amendment and the Credit Agreement as amended hereby, and the transactions contemplated hereby and thereby, do not and will not (i) require any consent or approval of the stockholders of any Loan Party or any of its Subsidiaries or any third party, other than any consents or approvals that have already been obtained and which remain in full force and effect, (ii) violate any Requirement of Law, (iii) result in a breach of or constitute a default under any Contractual Obligation to which any Loan Party or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or (iv) result in, or require, the creation or imposition of any Lien of any nature upon or with respect to any of the properties now owned or hereafter acquired by any Loan Party or any of its Subsidiaries (other than pursuant to the Loan Documents). (b) All authorizations, consents, approvals of, licenses of, or filings or registrations with, any court or Governmental Authority, required in connection with the execution, delivery and performance by each Loan Party of this Amendment and of the Credit Agreement as amended hereby, and the consummation by each Loan Party of the transactions contemplated hereby and thereby, have been obtained, given, filed or taken and are in full force and effect. 75 (c) This Amendment has been duly executed and delivered by each Loan Party, and this Amendment and the Credit Agreement as amended hereby each constitute the legal, valid and binding obligations of the Loan Parties, enforceable against the Loan Parties in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or law). (d) There shall exist no judgment, order, injunction or other restraint prohibiting or imposing materially adverse conditions upon the execution, delivery and performance of this Amendment or the Credit Agreement as amended hereby, or upon the consummation of the transactions contemplated hereby or thereby. (e) None of the transactions contemplated by this Amendment or the Credit Agreement as amended hereby will have or could have a Material Adverse Effect, and the execution, delivery and performance of this Amendment will not and could not adversely affect the Liens of any Collateral Document. (f) No provision of any Related Document or any other Contractual Obligation of any Loan Party would prohibit, restrict or impose any conditions on this Amendment or the Credit Agreement as amended hereby, and no consent under any Related Document or other Contractual Obligation is required for the execution, delivery or performance of this Amendment or the Credit Agreement as amended hereby. (g) Each of the representations and warranties contained in each Loan Document are true and correct on and as of the date hereof and on and as of the Effective Date, in each case after giving effect to the amendments and waivers contemplated hereby, and no Default or Event of Default has occurred or is continuing. Section 4. COSTS AND EXPENSES. Euramax and U.S. Operating Co. jointly and severally agree, and each other Loan Party agrees to the extent allocable to it, to pay (a) all costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment, including the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto, and (b) all costs and expenses otherwise required to be paid under Section 10.4 of the Credit Agreement. Section 5. MISCELLANEOUS. (a) Upon the effectiveness of this Amendment each reference in the Credit Agreement to "this Agreement," "hereunder," "herein," or words of like import, and each reference in any Loan Document to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby. (b) Except as specifically amended or waived hereby, the Credit Agreement shall remain in full force and effect and each is hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of the Lenders, the Issuer or the Agent under any Loan Document, nor constitute a waiver of any provision of any Loan Document. (d) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. (e) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 76 (f) EACH OF THE LOAN PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AMENDMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, ANY LENDER, THE ISSUER OR ANY LOAN PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS, THE ISSUER AND THE AGENT ENTERING INTO THIS AMENDMENT. 77 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. EURAMAX INTERNATIONAL PLC By:____________________________ Title: EURAMAX EUROPEAN HOLDINGS PLC By:____________________________ Title: EURAMAX EUROPEAN HOLDINGS, B.V. By:____________________________ Title: EURAMAX EUROPE LIMITED By:____________________________ Title: EURAMAX NETHERLANDS B.V. By:____________________________ Title: EURAMAX HOLDINGS LIMITED By:____________________________ Title: EURAMAX EUROPE B.V. By:____________________________ Title: ELLBEE LIMITED By:____________________________ Title: EURAMAX COATED PRODUCTS LIMITED By:____________________________ Title: 78 EURAMAX COATED PRODUCTS B.V. By:________________________________ Title: AMERIMAX HOLDINGS, INC. AMERIMAX FABRICATED PRODUCTS, INC. AMERIMAX BUILDING PRODUCTS, INC. AMERIMAX COATED PRODUCTS, INC. AMERIMAX RICHMOND COMPANY AMERIMAX HOME PRODUCTS, INC. AMERIMAX LAMINATED PRODUCTS, INC. By:________________________________ Title: FABRAL HOLDINGS, INC. (formerly, Gentek Holdings, Inc.) FABRAL, INC. (formerly, Gentek Building Products, Inc.) By:________________________________ Title: BANQUE PARIBAS, as Agent, as a Lender and as the Issuer By:________________________________ Title: By:________________________________ Title: BANKBOSTON, N.A., as a Lender By:________________________________ Title: 79 BHF-BANK AKTIENGESELLSCHAFT, as a Lender By:________________________________ Title: By:________________________________ Title: CREDITANSTALT BANKVEREIN, as a Lender By:________________________________ Title: FLEET NATIONAL BANK, as a Lender By:________________________________ Title: LASALLE NATIONAL BANK, as a Lender By:________________________________ Title: WACHOVIA BANK, N.A., as a Lender By:________________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By:________________________________ Title: PPM AMERICA, INC., as attorney in fact, on behalf of Jackson National Life Insurance Company, as a Lender By:________________________________ Title: 80 DE NATIONALE INVESTERINGS BANK N.V., as a Lender By:_______________________________ Title: By:_______________________________ Title: PARIBAS CAPITAL FUNDING LLC, as a Lender By:_______________________________ Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC., as a Lender By:_______________________________ Title: DEBT STRATEGIES FUND, INC., as a Lender By:_______________________________ Title: 81 EX-21.1 2 EXHIBIT 21.1 SUBSIDIARIES OF EURAMAX EXHIBIT 21.1 SUBSIDIARIES OF EURAMAX INTERNATIONAL PLC
COMPANY BENEFICIAL OWNER - ------- ---------------- Amerimax Holdings, Inc. Euramax International plc Amerimax Fabricated Products, Inc. Amerimax Holdings, Inc. Amerimax Home Products, Inc. Amerimax Holdings, Inc. Amerimax Building Products, Inc. Amerimax Holdings, Inc. Amerimax Coated Products, Inc. Amerimax Building Products, Inc. Amerimax Laminated Products, Inc. Amerimax Building Products, Inc. Fabral Holdings, Inc. Amerimax Fabricated Products, Inc. Fabral, Inc. Fabral Holdings, Inc. Euramax European Holdings plc Euramax International plc Euramax Europe Limited Euramax European Holdings plc Euramax Holdings Limited Euramax Europe Limited Euramax Coated Products Limited Euramax Holdings Limited Ellbee Limited Euramax Holdings Limited Euramax European Holdings B.V. Euramax International plc Euramax Netherlands B.V. Euramax European Holdings B.V. Euramax Europe B.V. Euramax Netherlands B.V. Euramax Coated Products B.V. Euramax Europe B.V. Euramax European Holdings S.A. Euramax International plc/ Euramax European Holdings B.V. Euramax Industries S.A. Euramax European Holdings S.A. Euramax Coated Products S.A. Euramax Industries S.A.
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-26-1997 DEC-28-1996 DEC-26-1997 12,914 0 81,579 3,494 87,461 180,774 128,662 15,475 397,750 87,761 135,000 40,382 0 1,000 2,494 397,750 557,014 557,014 454,180 454,180 58,306 1,489 23,538 19,501 7,947 11,554 0 1,758 0 9,796 0 0
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