-----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, GQslMX5JImczVGId/tVa6HCW8HIDWU0JdB4RzdoRGuwpE36fY6Lh1bBwIIsAUOoN x9Av2685r80E3XIVwrk0Mw== 0000950134-98-006838.txt : 19980814 0000950134-98-006838.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950134-98-006838 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASSOCIATED MATERIALS INC CENTRAL INDEX KEY: 0000802967 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 751872487 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24956 FILM NUMBER: 98685565 BUSINESS ADDRESS: STREET 1: 2200 ROSS AVE STE 4100 E CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147547188 MAIL ADDRESS: STREET 1: 2200 ROSS AVENUE STREET 2: SUITE 4100 EAST CITY: DALLAS STATE: TX ZIP: 75201 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1998 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------------- F0RM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 ---------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- ------------------ Commission file number: 0-24956 ASSOCIATED MATERIALS INCORPORATED - ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 75-1872487 - ------------------------------------------------------------------------------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation of Organization) Identification No.) 2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (214) 220-4600 ----------------------------- Not Applicable - ------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check X 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 [ ] Shares of Common Stock, $.0025 par value outstanding at August 7, 1998: 6,852,024. Shares of Class B Common Stock, $.0025 par value outstanding at August 7, 1998: 1,550,000 2 ASSOCIATED MATERIALS INCORPORATED FORM 10-Q FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets................................................................................ 1 June 30, 1998 (Unaudited) and December 31, 1997 Statements of Operations (Unaudited).......................................................... 2 Quarter and six months ended June 30, 1998 and 1997 Statements of Cash Flows (Unaudited).......................................................... 3 Six months ended June 30, 1998 and 1997 Notes to Financial Statements (Unaudited)..................................................... 4 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition....................................................................... 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K........................................................... 11 SIGNATURES .................................................................................. 12
3 Part I. Financial Information Item 1. Financial Statements ASSOCIATED MATERIALS INCORPORATED BALANCE SHEETS (In Thousands, Except Share Data)
June 30, December 31, 1998 1997 ---------- ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ............................................ $ 3,131 $ 1,935 Accounts receivable, net ............................................. 54,565 49,197 Inventories .......................................................... 63,239 56,621 Income taxes receivable .............................................. -- 266 Other current assets ................................................. 4,006 3,291 ---------- ---------- Total current assets ...................................................... 124,941 111,310 Property, plant and equipment, net ........................................ 56,973 53,855 Investment in Amercord Inc. ............................................... 9,500 10,694 Other assets .............................................................. 3,247 2,645 ---------- ---------- Total assets .............................................................. $ 194,661 $ 178,504 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank overdrafts ...................................................... $ 2,270 $ 4,769 Accounts payable ..................................................... 25,120 17,174 Accrued liabilities .................................................. 22,494 25,862 Revolving line of credit ............................................. -- 564 Income taxes payable ................................................. 2,537 -- Current portion of long-term debt .................................... 1,750 1,750 ---------- ---------- Total current liabilities ................................................. 54,171 50,119 Deferred income taxes ..................................................... 1,564 1,951 Other liabilities ......................................................... 2,862 3,100 Long-term debt ............................................................ 79,850 78,600 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value: Authorized shares - 100,000 at June 30, 1998 and December 31, 1997 Issued and outstanding shares - 0 at June 30, 1998 and December 31, 1997 ........................................... -- -- Common stock, $.0025 par value: Authorized shares - 15,000,000 Issued and outstanding shares - 6,852,024 at June 30, 1998 and 4,893,504 at December 31, 1997 ............................. 17 12 Common stock, Class B, $.0025 par value: Authorized, issued and outstanding shares - 1,550,000 at June 30, 1998 and 2,700,000 at December 31, 1997 ............... 4 7 Less: Treasury stock, at cost - 41,396 shares at June 30, 1998 and December 31, 1997 ............................................ (542) (542) Capital in excess of par ............................................. 11,988 505 Retained earnings .................................................... 44,747 44,752 ---------- ---------- Total stockholders' equity ........................................... 56,214 44,734 ---------- ---------- Total liabilities and stockholders' equity ................................ $ 194,661 $ 178,504 ========== ==========
See accompanying notes. -1- 4 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Data)
Quarter Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net sales ........................................ $ 108,789 $ 107,676 $ 187,439 $ 186,792 Cost of sales .................................... 74,700 74,694 131,020 133,795 ---------- ---------- ---------- ---------- .................................................. 34,089 32,982 56,419 52,997 Selling, general and administrative expense ...... 22,051 20,827 42,525 40,129 ---------- ---------- ---------- ---------- Income from operations ........................... 12,038 12,155 13,894 12,868 Interest expense ................................. 1,897 2,640 4,180 5,273 ---------- ---------- ---------- ---------- . ................................................ 10,141 9,515 9,714 7,595 Equity in earnings (loss) of Amercord Inc. ....... (630) 105 (1,194) 107 ---------- ---------- ---------- ---------- Income before income taxes and extraordinary item .......................................... 9,511 9,620 8,520 7,702 Income tax expense ............................... 4,126 3,927 3,902 3,139 ---------- ---------- ---------- ---------- Income before extraordinary item ................. 5,385 5,693 4,618 4,563 Extraordinary loss from retirement of debt, net of income taxes ............................... -- -- 4,054 -- ---------- ---------- ---------- ---------- Net income ....................................... $ 5,385 $ 5,693 $ 564 $ 4,563 ========== ========== ========== ========== Earnings Per Common Share: Income before extraordinary item ................. $ 0.64 $ 0.75 $ 0.57 $ 0.60 Extraordinary loss from retirement of debt ....... -- -- (0.50) -- ---------- ---------- ---------- ---------- Net income per common share ...................... $ 0.64 $ 0.75 $ 0.07 $ 0.60 ========== ========== ========== ========== Earnings Per Common Share - Assuming Dilution: Income before extraordinary item ................. $ 0.63 $ 0.73 $ 0.56 $ 0.59 Extraordinary loss from retirement of debt ....... -- -- (0.49) -- ---------- ---------- ---------- ---------- Net income per common share - assuming dilution ...................................... $ 0.63 $ 0.73 $ 0.07 $ 0.59 ========== ========== ========== ==========
See accompanying notes. -2- 5 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Six Months Ended June 30, -------------------------- 1998 1997 ---------- ---------- OPERATING ACTIVITIES Net income ........................................................... $ 564 $ 4,563 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization ................................... 3,466 3,131 Deferred income taxes ........................................... (387) (463) Equity in (earnings) loss of Amercord Inc. ...................... 1,194 (107) Loss on sale of assets .......................................... 19 -- Extraordinary loss on retirement of debt, net of income taxes ... 4,054 -- Changes in operating assets and liabilities: Accounts receivable, net ..................................... (5,368) (7,491) Inventories .................................................. (6,618) (4,315) Income taxes receivable/payable .............................. 5,644 3,071 Bank overdrafts .............................................. (2,499) 1,010 Accounts payable and accrued liabilities ..................... 4,578 9,413 Other assets and liabilities ................................. (1,294) (553) ---------- ---------- Net cash provided by operating activities ............................ 3,353 8,259 INVESTING ACTIVITIES Proceeds from sale of assets ......................................... 45 -- Additions to property, plant and equipment, net ...................... (6,486) (4,609) ---------- ---------- Net cash used in investing activities ................................ (6,441) (4,609) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt ......................... 75,000 -- Net proceeds from issuance of common stock ........................... 11,485 -- Net increase (decrease) in revolving line of credit .................. (564) (1,803) Principal payments of long-term debt ................................. (850) (850) Principal payments of 11 1/2% Senior Subordinated Notes .............. (72,900) -- Prepayment premium on early retirement of debt ....................... (4,809) -- Debt issuance costs .................................................. (2,509) -- Dividends paid ....................................................... (569) (379) Treasury stock acquired .............................................. -- (204) Options exercised .................................................... -- 58 ---------- ---------- Net cash provided by (used in) financing activities .................. 4,284 (3,178) ---------- ---------- Net increase in cash ................................................. 1,196 472 Cash at beginning of period .......................................... 1,935 2,384 ---------- ---------- Cash at end of period ................................................ $ 3,131 $ 2,856 ========== ========== Supplemental information: Cash paid for interest ............................................... $ 5,176 $ 5,262 ========== ========== Net cash paid for income taxes ....................................... $ 1,293 $ 1,050 ========== ==========
See accompanying notes. -3- 6 ASSOCIATED MATERIALS INCORPORATED NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The unaudited financial statements of Associated Materials Incorporated (the "Company") for the quarter and six months ended June 30, 1998 have been prepared in accordance with generally accepted accounting principles for interim financial reporting, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year. NOTE 2 - INVENTORIES Inventories are valued at the lower of cost (first in, first out) or market. Inventories consist of the following (in thousands):
June 30, December 31, 1998 1997 ---------- ---------- Raw materials ............................... $ 18,251 $ 16,352 Work in process ............................. 5,005 4,936 Finished goods and purchased stock .......... 39,983 35,333 ---------- ---------- $ 63,239 $ 56,621 ========== ==========
NOTE 3 - INVESTMENT IN AMERCORD INC. ("AMERCORD") The Company's investment in Amercord, a 50% owned affiliate, is accounted for using the equity method. Condensed statements of operations for Amercord are presented below (in thousands):
Quarter Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net sales .............................. $ 16,280 $ 18,566 $ 32,927 $ 40,182 Costs and expenses ..................... 17,915 17,861 36,000 39,049 ---------- ---------- ---------- ---------- Income (loss) from operations .......... (1,635) 705 (3,073) 1,133 Interest expense ....................... 366 376 718 799 Income tax expense (benefit) ........... (740) 120 (1,403) 120 ---------- ---------- ---------- ---------- Net income (loss) ...................... $ (1,261) $ 209 $ (2,388) $ 214 ========== ========== ========== ========== Company's share of net income (loss) ... $ (630) $ 105 $ (1,194) $ 107 ========== ========== ========== ==========
NOTE 4 - LONG-TERM DEBT In March 1998, the Company purchased $72.9 million of its outstanding 11 1/2% Senior Subordinated Notes due August 15, 2003 ("11 1/2% Notes") through a tender offer and consent solicitation. As a result of this transaction, the -4- 7 Company incurred an extraordinary charge of approximately $4.1 million net of income taxes of $2.8 million resulting from the premium paid in connection with the purchase of the 11 1/2% Notes and the write off of debt issuance costs associated with such 11 1/2% Notes. Simultaneously with the consummation of the tender offer, the Company issued $75 million of 9 1/4% Senior Subordinated Notes due March 1, 2008 (the "9 1/4% Notes") with interest payable semi-annually on March 1 and September 1 commencing September 1, 1998. The 9 1/4% Notes are senior subordinated unsecured obligations of the Company and are subordinated in right of payment to all existing and future "Senior Indebtedness" of the Company (as that term is defined in the indenture pursuant to which the 9 1/4% Notes were issued (the "9 1/4% Note Indenture")). The 9 1/4% Notes are redeemable at the Company's option, in whole or in part, at any time on or after March 1, 2003, at redemption prices set forth in the 9 1/4% Note Indenture. The 9 1/4% Note Indenture includes certain covenants that limit the Company's ability to incur additional indebtedness, pay dividends and make other restrictive payments, consummate certain transactions and other matters similar to those which existed under the indenture pursuant to which the 11 1/2% Notes were issued (the "11 1/2% Note Indenture"). NOTE 5 - STOCKHOLDERS' EQUITY In March 1998, the Company completed an initial public offering ("IPO") of 2,448,120 shares of common stock at an offering price to the public of $16.00 per share. In the IPO, 808,520 shares were sold by the Company and 1,639,600 shares were sold by certain of the Company's stockholders. The offering resulted in an increase in stockholder's equity of $11.5 million. In connection with the IPO, 1,150,000 shares of Class B common stock were converted into 1,150,000 shares of common stock. NOTE 6 - EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per share:
Quarter Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Numerator: Numerator for basic and diluted loss per common share - income before extraordinary item .......... $ 5,385 $ 5,693 $ 4,618 $ 4,563 Denominator: Denominator for basic earnings per common share - weighted-average shares ................... 8,402 7,594 8,117 7,594 Effect of dilutive securities: Employee stock options .............................. 158 191 158 191 -------- -------- -------- -------- Denominator for diluted earnings per common share - adjusted weighted-average shares .................... 8,560 7,785 8,275 7,785 ======== ======== ======== ======== Basic earnings per common share ....................... $ 0.64 $ 0.75 $ 0.57 $ 0.60 ======== ======== ======== ======== Diluted earnings per common share ..................... $ 0.63 $ 0.73 $ 0.56 $ .059 ======== ======== ======== ========
-5- 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997 The table below sets forth for the periods indicated certain items of the Company's financial statements by segment:
Quarter Ended June 30, ----------------------------------------------------------------------- 1998 1997 ---------------------------------- ---------------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales ---------- -------------------- --------- --------------------- Total Company: Net sales - Alside............................... $ 94,961 87.3% $ 94,165 87.5% Net sales - AmerCable............................ 13,828 12.7 13,511 12.5 ---------- ------- --------- ------- Total net sales................................ 108,789 100.0 107,676 100.0 Gross profit..................................... 34,089 31.3 32,982 30.6 Selling, general and administrative expense (1)..................... 22,051 20.2 20,827 19.3 ---------- ------- --------- ------- Income from operations........................... $ 12,038 11.1% $ 12,155 11.3% ========== ======= ========= ======= Alside: Net sales........................................ $ 94,961 100.0% $ 94,165 100.0% Gross profit..................................... 31,140 32.8 30,835 32.7 Selling, general and administrative expense......................... 20,129 21.2 19,058 20.2 ---------- ------- --------- ------- Income from operations........................... $ 11,011 11.6% $ 11,777 12.5% ========== ======= ========= ======= AmerCable: Net sales........................................ $ 13,828 100.0% $ 13,511 100.0% Gross profit..................................... 2,949 21.3 2,147 15.9 Selling, general and administrative expense......................... 1,325 9.6 1,123 8.3 ---------- ------- --------- ------- Income from operations........................... $ 1,624 11.7% $ 1,024 7.6% ========== ======= ========= =======
(1) Consolidated selling, general and administrative expenses include corporate expenses of $597,000 and $646,000 for the quarters ended June 30, 1998 and 1997, respectively. Overview General. The Company's sales increased 1.0% to $108.8 million for the second quarter of 1998 as compared to the same period in 1997 due to flat sales at the Company's Alside and AmerCable divisions. Income from operations decreased by $117,000 to $12.0 million as higher profits from AmerCable were offset by lower profits from Alside. The Company's income before extraordinary item was $5.4 million, or $.63 per share on 8.6 million weighted average shares for the second quarter of 1998 as compared to $5.7 million or $.73 per share on 7.8 million weighted average shares in the second quarter of 1997 due to higher income tax expense and a decrease in equity of the earnings of the Company's affiliate, Amercord. The increase in weighted average shares was the result of an equity offering completed in March of 1998. Alside. Alside's net sales increased 1% to $95.0 million for the quarter ended June 30, 1998 as compared to the 1997 period as higher sales of vinyl siding products were partially offset by a decrease in sales of vinyl windows. Unit sales of vinyl siding increased by 4.9% in 1998 while average selling prices were flat for the quarter ended June 30, 1998 as compared to the 1997 period. Unit sales of windows decreased 11.2% for the quarter -6- 9 ended June 30, 1998 as compared to the same period in 1997. Gross profit as a percentage of net sales remained consistent for the 1998 and 1997 quarters. Selling, general and administrative expense increased 5.6% to $20.1 million for the quarter ended June 30, 1998 due primarily to higher personnel costs, higher advertising expenditures and higher lease expense as well as the opening of 3 additional Supply Centers. Income from operations decreased $766,000 or 6.5% to $11.0 million for the quarter ended June 30, 1998 as compared to $11.8 million for the same period in 1997 due primarily to higher selling, general and administrative expenses. AmerCable. Net sales increased slightly to $13.8 million for the quarter ended June 30, 1998 as higher sales volume was offset by lower copper prices. AmerCable's sales for the quarter ended June 30, 1998 would have increased by 9.7% had copper prices remained at 1997 levels. AmerCable's products are generally priced with copper as a pass through component. Gross profit as a percentage of sales increased to 21.3% for the quarter ended June 30, 1998 as compared to 15.9% for the same period in 1997 principally due to improved product mix. Selling, general and administrative expenses increased 18.0% to $1.3 million due primarily to higher personnel costs including incentive compensation. AmerCable's income from operations increased by 58.6% to $1.6 million in the quarter ended June 30, 1998 due to the higher gross profits discussed above. Amercord. The Company recorded a loss of $630,000 for its equity in the after-tax loss of Amercord for the quarter ended June 30, 1998 as compared to income of $105,000 during the same period in 1997. Amercord's net sales decreased 12.3% to $16.3 million for the quarter ended June 30, 1998 due primarily to lower sales prices for both tire cord and tire bead. Gross profit decreased to $(1.0) million for the quarter ended June 30, 1998 as compared to $1.7 million for the same period in 1997 due primarily to a decrease in average unit sales prices for tire cord and tire bead. Selling, general and administrative expense decreased from $967,000 for the quarter ended June 30, 1997 to $631,000 for the same period in 1998 due to lower research and development expenditures. Other. Net interest expense decreased $743,000 or 28.1% for the quarter ended June 30, 1998 as compared to the same period in 1997 due to a decrease in the Company's borrowing, the repurchase of $72.9 million of 11 1/2% Notes and the issuance of the 9 1/4% Notes. The Company recorded interest income of $97,000 related to an income tax refund. -7- 10 Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997. The table below sets forth for the periods indicated certain items of the Company's financial statements by segments.
Six Months Ended June 30, ---------------------------------------------------------------------- 1998 1997 --------------------------------- --------------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales ----------- ------------------- ----------- ------------------- Total Company: Net sales - Alside............................... $ 159,354 85.0% $ 158,992 85.1% Net sales - AmerCable............................ 28,085 15.0 27,800 14.9 ----------- ------- ----------- ------- Total net sales................................ 187,439 100.0 186,792 100.0 Gross profit..................................... 56,419 30.1 52,997 28.4 Selling, general and administrative expense (1)..................... 42,525 22.7 40,129 21.5 ----------- ------- ----------- ------- Income from operations........................... $ 13,894 7.4% $ 12,868 6.9% =========== ======= =========== ======= Alside: Net sales........................................ $ 159,354 100.0% $ 158,992 100.0% Gross profit..................................... 50,483 31.6 48,711 30.6 Selling, general and administrative expense......................... 38,771 24.3 36,803 23.1 ----------- ------- ----------- ------- Income from operations........................... $ 11,712 7.3% $ 11,908 7.5% =========== ======= =========== ======= AmerCable: Net sales........................................ $ 28,085 100.0% $ 27,800 100.0% Gross profit..................................... 5,936 21.1 4,286 15.4 Selling, general and administrative expense......................... 2,550 9.1 2,169 7.8 ----------- ------- ----------- ------- Income from operations........................... $ 3,386 12.0% $ 2,117 7.6% =========== ======= =========== =======
(1) Consolidated selling, general and administrative expenses include corporate expenses of $1,204,000 and $1,157,000 for the six-month periods ended June 30, 1998 and 1997, respectively. Overview The Company's net sales were flat at $187.4 million for the six months ended June 30, 1998 as compared to $186.8 million of the same period in 1997. Income from operations increased by $1.0 million or 8.0% to $13.9 million for the six months ended June 30, 1998 due to increased profitability at the Company's AmerCable division. The Company's income before extraordinary item increased slightly to $4.6 million ($0.56 per share) for the six months ended June 30, 1998 as compared to $4.6 million ($0.59 per share) for the same period in 1997 as higher income from operations was offset by lower earnings from the Company's Amercord affiliate. The weighted average number of shares increased to 8.3 million for the six months ended June 30, 1998 as compared to 7.8 million for the same period 1997 as a result of the Company's equity offering completed in March 1998. An extraordinary loss of $4.1 million net of income tax was incurred as a result of the repurchase of $72.9 million of the $75 million of 11 1/2% Senior Subordinated Notes due August 15, 2003. Alside. Alside's net sales for the six months ended June 30, 1998 increased slightly to $159.4 million as compared to $159.0 million for the same period in 1997. Alside's higher sales of vinyl siding products were offset by lower sales of vinyl windows. Unit sales of vinyl windows for the six months ended June 30, 1998 decreased 11.2% while vinyl siding unit sales increased 4.4% as compared to the same period in 1997. Gross profit as a percentage of net sales increased to 31.6% for the six months ended June 30, 1998 as compared to 30.6% for the same period in 1997 due to lower raw material costs, primarily vinyl resin. Selling, general and administrative expense increased 5.3% to $38.8 million for the six months ended June 30, 1998 due primarily to higher personnel costs, higher advertising expenditures and higher lease expense as well as the opening of additional Supply -8- 11 Centers. Income from operations decreased 1.6% to $11.7 million for the six months ended June 30, 1998 as compared to $11.9 million for the same period in 1997 as improved gross profits were more than offset by increased selling, general and administrative expenses. AmerCable. AmerCable's net sales increased slightly to $28.1 million for the six months ended June 30, 1998 as compared to $27.8 million in the 1997 period as higher sales volume was partially offset by lower copper prices. Had copper prices remained at 1997 levels, AmerCable's sales for the six months ended June 30, 1998 would have increased by 8.1%. Gross profit increased $1.7 million or 38.5% for the six months ended June 30, 1998 as compared to the 1997 period principally due to a more favorable product mix. Selling, general and administrative expenses increased to $2.6 million due primarily to higher personnel costs. Income from operations increased to $3.4 million for the six months ended 1998 as compared to $2.1 million for the same period in 1997 due to the factors discussed above. Amercord. The Company recorded a loss of $1.2 million for its equity in the after-tax loss of Amercord for the six months ended June 30, 1998 as compared to income of $107,000 during the same period in 1997. Amercord's net sales decreased 18.1% to $32.9 million for the six months ended June 30, 1998 due to lower tire cord sales volume and lower unit sales prices for both tire cord and tire bead. Gross profit decreased to $(1.8) million for the six months ended June 30, 1998 as compared to $2.8 million for the same period in 1997 primarily due to the lower average selling prices for tire cord and tire bead. Selling, general and administrative expense decreased to $1.2 million for the six months ended June 30, 1998 from $1.6 million for the same period in 1997. Other. Net interest expense decreased $1.1 million or 20.7% for the six months ended June 30, 1998 as compared to the same period in 1997 due to a decrease in the Company's borrowing, the repurchase of $72.9 million of 11 1/2% Notes and the issuance of the 9 1/4% Notes. The Company recorded interest income of $97,000 related to an income tax refund. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1998 the Company had cash and cash equivalents of $3.1 million and available borrowing capacity of approximately $43.4 million under its existing credit facility. Outstanding letters of credit totaled $6.6 million securing $4.5 million of taxable notes and certain other obligations. Net cash provided by operations was $3.4 million in the six months ended June 30, 1998 compared with $8.3 in the same period in 1997. The decrease in cash provided by operations in the 1998 period was due principally to lower payables for the period ended June 30, 1998 as compared to the 1997 period. Capital expenditures totaled $6.5 million for the six months ended June 30, 1998, compared with $4.6 million during the same period in 1997. Expenditures in the 1998 period were primarily used to increase window welding and assembly capacity and increase vinyl siding extrusion capacity. The Company expects to begin construction on its new vinyl siding facility in August 1998 with the anticipation that the facility will be operational by April 1999. Due to the delay in the commencement of construction, a portion of the capital expenditures planned for 1998 will be realized in early 1999. In March 1998, the Company completed a tender offer and consent solicitation with respect to its 11 1/2% Notes. In the tender offer, the Company purchased $72.9 million of the $75.0 million 11 1/2% Notes. Simultaneously with the consummation of the tender offer, the Company issued $75 million of 9 1/4% Notes. Concurrently with these transactions, the Company completed an initial public offering of 2,448,120 shares of common stock of which 808,520 shares were sold by the Company. The remaining 1,639,600 shares were sold by certain of the Company's stockholders including the holder of the Class B common stock who converted 1,150,000 shares of Class B common stock into common stock on a one-to-one basis in connection with the offering. Net proceeds to the Company, after underwriting discounts and offering expenses, from the common stock and 9 1/4% Note offerings were $11.5 million and $72.4 million, respectively. -9- 12 The Company has given notice to redeem the $2.1 million principal amount of 11 1/2% Notes that remain outstanding on August 17, 1998. The applicable redemption price on such date is 104.313% of the outstanding principal amount of the 11 1/2% Notes. The Company believes the future cash flows from operations and its borrowing capacity under its existing credit agreement will be sufficient to satisfy its obligations to pay principal and interest on its outstanding debt, maintain current operations and provide sufficient capital for presently anticipated capital expenditures. However, there can be no assurances that the cash so generated by the Company will be sufficient for such purposes. EFFECTS OF INFLATION The Company believes that the effects of inflation on its operations have not been material during the past two years. Inflation could adversely affect the Company if inflation results in significantly higher interest rates or substantial weakness in economic conditions. Alside's principal raw material, vinyl resin, has been subject to rapid price increments. Alside has historically been able to pass on price increases to its customers. No assurances can be given that Alside will continue to be able to pass on any price increases. CERTAIN FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) relating to the Company that are based on the beliefs of the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such statements reflect the current views of the Company with respect to the operations and results of operations of the Company as well as its customers and suppliers, including as a result of the availability of consumer credit, interest rates, employment trends, changes in levels of consumer confidence, changes in consumer preferences, national and regional trends in new housing starts, raw material costs, pricing pressures, shifts in market demand, and general economic conditions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. -10- 13 Part II Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 27 Financial Data Schedule. (b) Reports on Form 8-K During the quarter ended June 30, 1998, Associated Materials Incorporated filed no Current Reports on Form 8-K. -11- 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASSOCIATED MATERIALS INCORPORATED --------------------------------- (Registrant) Date: August 13, 1998 By: \s\ Robert L. Winspear ------------------------------------- Robert L. Winspear, Vice President, Vice President and Chief Financial Officer Date: August 13, 1998 \s\ Robert L. Winspear ------------------------------------- Robert L. Winspear, Vice President, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -12- 15 INDEX TO EXHIBITS
Exhibit Number Description ------ ----------- 27 Financial Data Schedule
-13- EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JUN-30-1998 3,131 0 61,129 6,564 63,239 124,941 56,973 0 194,661 54,171 77,100 0 0 21 56,193 194,661 108,789 0 74,700 0 22,051 0 1,897 9,511 4,126 0 0 0 0 5,385 0.64 0.63
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