-----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, GT2pw6NwUn7CoBvooVYm0rTy7aajC/h2kNXA8SGUaLyNtKTkimt9y8m+Ui8QqBZf Ta8jM4X7SPLStWYsYwwzqw== 0000950134-98-008853.txt : 19981116 0000950134-98-008853.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950134-98-008853 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98746797 BUSINESS ADDRESS: STREET 1: 2200 ROSS AVE STE 4100 E CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2142204600 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 SEPTEMBER 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 September 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 of (I.R.S. Employer 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 November 13, 1998: 6,852,024 Shares of Class B Common Stock, $.0025 par value outstanding at November 13, 1998: 1,550,000
2 ASSOCIATED MATERIALS INCORPORATED FORM 10-Q FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets................................................................................ 1 September 30, 1998 (Unaudited) and December 31, 1997 Statements of Operations (Unaudited).......................................................... 2 Quarter and nine months ended September 30, 1998 and 1997 Statements of Cash Flows (Unaudited).......................................................... 3 Nine months ended September 30, 1998 and 1997 Notes to Financial Statements (Unaudited)..................................................... 4 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................................. 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K........................................................... 13 SIGNATURES .................................................................................. 14
3 Part I. Financial Information Item 1. Financial Statements ASSOCIATED MATERIALS INCORPORATED BALANCE SHEETS (In Thousands, Except Share Data)
September 30, December 31, 1998 1997 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ...................................................... $ 9,233 $ 1,935 Accounts receivable, net ....................................................... 53,450 49,197 Inventories .................................................................... 63,745 56,621 Income taxes receivable ........................................................ -- 266 Other current assets ........................................................... 3,311 3,291 --------- --------- Total current assets ................................................................ 129,739 111,310 Property, plant and equipment, net .................................................. 58,386 53,855 Investment in Amercord Inc. ......................................................... 9,355 10,694 Other assets ........................................................................ 3,197 2,645 --------- --------- Total assets ........................................................................ $ 200,677 $ 178,504 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank overdrafts ................................................................ $ -- $ 4,769 Accounts payable ............................................................... 24,844 17,174 Accrued liabilities ............................................................ 26,542 25,862 Revolving line of credit ....................................................... -- 564 Income taxes payable ........................................................... 4,150 -- Current portion of long-term debt .............................................. 4,050 1,750 --------- --------- Total current liabilities ........................................................... 59,586 50,119 Deferred income taxes ............................................................... 1,404 1,951 Other liabilities ................................................................... 2,785 3,100 Long-term debt ...................................................................... 75,000 78,600 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value: Authorized shares - 100,000 at September 30, 1998 and December 31, 1997 Issued and outstanding shares - 0 at September 30, 1998 and December 31, 1997 ..................................................... -- -- Common stock, $.0025 par value: Authorized shares - 15,000,000 Issued and outstanding shares - 6,852,024 at September 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 September 30, 1998 and 2,700,000 at December 31, 1997 .................... 4 7 Less: Treasury stock, at cost - 41,396 shares at September 30, 1998 and December 31, 1997 ...................................................... (542) (542) Capital in excess of par ....................................................... 11,988 505 Retained earnings .............................................................. 50,435 44,752 --------- --------- Total stockholders' equity ..................................................... 61,902 44,734 --------- --------- Total liabilities and stockholders' equity .......................................... $ 200,677 $ 178,504 ========= =========
See accompanying notes. -1- 4 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Data)
Quarter Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net sales.............................................. $ 114,201 $ 111,127 $ 301,640 $ 297,919 Cost of sales.......................................... 77,671 78,511 208,691 212,306 ----------- ----------- ----------- ----------- 36,530 32,616 92,949 85,613 Selling, general and administrative expense............ 23,956 21,517 66,481 61,646 ----------- ----------- ----------- ----------- Income from operations................................. 12,574 11,099 26,468 23,967 Interest expense....................................... 1,802 2,228 5,982 7,501 ----------- ----------- ----------- ----------- Equity in loss of Amercord Inc......................... (645) (731) (1,839) (624) ----------- ----------- ----------- ----------- Income before income taxes and extraordinary item................................................ 10,127 8,140 18,647 15,842 Income tax expense..................................... 4,386 3,596 8,288 6,735 ----------- ----------- ----------- ----------- Income before extraordinary item....................... 5,741 4,544 10,359 9,107 Extraordinary loss from retirement of debt, net of income taxes..................................... (53) - (4,107) - ----------- ----------- ----------- ----------- Net income............................................. $ 5,688 $ 4,544 $ 6,252 $ 9,107 =========== =========== =========== =========== Earnings Per Common Share: Income before extraordinary item....................... $ 0.68 $ 0.60 $ 1.26 $ 1.20 Extraordinary loss from retirement of debt............. - - (0.50) - ----------- ----------- ----------- ----------- Net income per common share............................ $ 0.68 $ 0.60 $ 0.76 $ 1.20 =========== =========== =========== =========== Earnings Per Common Share - Assuming Dilution: Income before extraordinary item....................... $ 0.67 $ 0.58 $ 1.23 $ 1.17 Extraordinary loss from retirement of debt............. - - 0.49 - ----------- ----------- ----------- ----------- Net income per common share - assuming dilution............................................ $ 0.67 $ 0.58 $ 0.74 $ 1.17 =========== =========== =========== ===========
See accompanying notes. -2- 5 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended September 30, ----------------------- 1998 1997 -------- -------- OPERATING ACTIVITIES Net income ................................................................ $ 6,252 $ 9,107 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization ........................................ 5,374 4,741 Deferred income taxes ................................................ (547) 1,062 Equity in loss of Amercord Inc. ...................................... 1,839 624 Loss on sale of assets ............................................... 19 -- Extraordinary loss on retirement of debt, net of income taxes ........ 4,107 -- Changes in operating assets and liabilities: Accounts receivable, net .......................................... (4,253) (7,625) Inventories ....................................................... (7,124) (4,735) Income taxes receivable/payable ................................... 7,294 2,228 Bank overdrafts ................................................... (4,769) 324 Accounts payable and accrued liabilities .......................... 8,350 11,034 Other assets and liabilities ...................................... (721) (93) -------- -------- Net cash provided by operating activities ................................. 15,821 16,667 INVESTING ACTIVITIES Proceeds from sale of assets .............................................. 45 -- Additions to property, plant and equipment ................................ (9,712) (6,307) Investment in Amercord Inc. ............................................... (500) -- -------- -------- Net cash used in investing activities ..................................... (10,167) (6,307) -------- -------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt .................................. 75,000 -- Net proceeds from issuance of common stock ................................ 11,485 -- Net decrease in revolving line of credit .................................. (564) (8,089) Principal payments of long-term debt ...................................... (1,300) (1,300) Principal payments of 11 1/2% Senior Subordinated Notes ................... (75,000) -- Prepayment premium on early retirement of debt ............................ (4,899) -- Debt issuance costs ....................................................... (2,509) -- Dividends paid ............................................................ (569) (379) Treasury stock acquired ................................................... -- (542) Options exercised ......................................................... -- 161 -------- -------- Net cash provided by (used in) financing activities ....................... 1,644 (10,149) -------- -------- Net increase in cash ...................................................... 7,298 211 Cash at beginning of period ............................................... 1,935 2,384 -------- -------- Cash at end of period ..................................................... $ 9,233 $ 2,595 ======== ======== Supplemental information: Cash paid for interest .................................................... $ 8,857 $ 9,940 ======== ======== Net cash paid for income taxes ............................................ $ 2,966 $ 3,445 ======== ========
See accompanying notes. -3- 6 ASSOCIATED MATERIALS INCORPORATED NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The unaudited financial statements of Associated Materials Incorporated (the "Company") for the quarter and nine months ended September 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):
September 30, December 31, 1998 1997 ------------- ------------ Raw materials.......................................................... $ 18,482 $ 16,352 Work in process........................................................ 5,167 4,936 Finished goods and purchased stock..................................... 40,096 35,333 --------- ---------- $ 63,745 $ 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 Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Net sales .............................. $ 15,565 $ 17,377 $ 48,492 $ 57,559 Costs and expenses ..................... 17,270 19,327 53,270 58,376 -------- -------- -------- -------- Loss from operations ................... (1,705) (1,950) (4,778) (817) Interest expense ....................... 343 373 1,061 1,172 Income tax benefit ..................... (758) (860) (2,161) (740) -------- -------- -------- -------- Net loss ............................... $ (1,290) $ (1,463) $ (3,678) $ (1,249) ======== ======== ======== ======== Company's share of net loss ............ $ (645) $ (731) $ (1,839) $ (624) ======== ======== ======== ========
Amercord has retained McDonald & Company Securities, Inc. to serve as its financial advisor in connection with the possible sale of Amercord. The Company is also investigating other possibilities which would involve its continued investment in Amercord. There can be no assurance as to whether any sale of Amercord can be completed or the terms or timing thereof. -4- 7 Amercord is not in compliance with certain financial covenants under its existing bank credit agreement. Amercord has entered into a forbearance agreement pursuant to which the lender has agreed not to exercise certain rights under the credit agreement through December 31, 1998, subject to certain conditions. In connection with the forbearance agreement, Associated Materials and Ivaco, Inc. each made a $500,000 capital contribution to Amercord. In addition, Associated Materials has guaranteed up to $2,000,000 of borrowings under Amercord's credit agreement. 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 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"). On August 17, 1998, the Company redeemed the $2.1 million principal amount of 11 1/2% Notes that remained outstanding after the tender offer. As a result of this transaction, the Company incurred an extraordinary charge of approximately $53,000 net of income taxes of $37,000 resulting from the premium paid in connection with the redemption. 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. On October 27, 1998 the Company's Board of Directors approved a stock repurchase program of up to 800,000 shares of common stock in open market transactions depending on market, economic and other factors. -5- 8 NOTE 6 - EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per share:
Quarter Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------- 1998 1997 1998 1997 -------- --------- --------- --------- Numerator: Numerator for basic and diluted loss per common share - income before extraordinary item................... $ 5,741 $ 4,544 $ 10,359 $ 9,107 Denominator: Denominator for basic earnings per common share - weighted-average shares............................ 8,402 7,610 8,213 7,614 Effect of dilutive securities: Employee stock options....................................... 133 162 232 162 -------- --------- --------- --------- Denominator for diluted earnings per common share - adjusted weighted-average shares............................. 8,535 7,772 8,445 7,776 ======== ========= ========= ========= Basic earnings per common share................................ $ 0.68 $ 0.60 $ 1.26 $ 1.20 ======== ========= ========= ========= Diluted earnings per common share.............................. $ 0.67 $ 0.58 $ 1.23 $ 1.17 ======== ========= ========= =========
Options to purchase 140,000 shares of common stock with a weighted average exercise price of $13.14 per share were outstanding during the quarter ended September 30, 1998 but were not included in the calculation of diluted earnings per share because the options' exercise price was greater than the average market price of the common stock during the period. Options to purchase 40,000 shares of common stock with an exercise price of $16.00 per share were outstanding for the nine months ended September 30, 1998 but were excluded from the diluted EPS calculation for the same reason as stated above. NOTE 7 - ACCOUNTING CHANGES In February 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which revised disclosure requirements for pension and other postretirement plans and standardized footnote disclosures. The Statement, which is effective for fiscal years beginning after December 15, 1997, does not change the measurement or recognition of benefit costs. In June 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for fiscal years beginning after June 15, 1999. The Company believes this statement will have no effect on the Company's financial position, results of operations or cash flows. -6- 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Quarter Ended September 30, 1998 Compared to Quarter Ended September 30, 1997 The table below sets forth for the periods indicated certain items of the Company's financial statements by segment:
Quarter Ended September 30, ------------------------------------------------------------------ 1998 1997 ------------------------------- ----------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales ---------- --------------- --------- --------------- Total Company: Net sales - Alside............................... $ 102,593 89.8% $ 98,483 88.6% Net sales - AmerCable............................ 11,608 10.2 12,644 11.4 ---------- ------- --------- ------- Total net sales................................ 114,201 100.0 111,127 100.0 Gross profit..................................... 36,530 32.0 32,616 29.3 Selling, general and administrative expense (1)..................... 23,956 21.0 21,517 19.4 ---------- ------- --------- ------- Income from operations........................... $ 12,574 11.0% $ 11,099 9.9% ========== ======= ========= ======= Alside: Net sales........................................ $ 102,593 100.0% $ 98,483 100.0% Gross profit..................................... 34,108 33.2 30,203 30.7 Selling, general and administrative expense......................... 22,010 21.4 19,646 20.0 ---------- ------- --------- ------- Income from operations........................... $ 12,098 11.8% $ 10,557 10.7% ========== ======= ========= ======= AmerCable: Net sales........................................ $ 11,608 100.0% $ 12,644 100.0% Gross profit..................................... 2,422 20.9 2,413 19.1 Selling, general and administrative expense......................... 1,206 10.4 1,126 8.9 ---------- ------- --------- ------- Income from operations........................... $ 1,216 10.5% $ 1,287 10.2% ========== ======= ========= =======
(1) Consolidated selling, general and administrative expenses include corporate expenses of $740,000 and $745,000 for the quarters ended September 30, 1998 and 1997, respectively. Overview General. The Company's net sales increased $3.1 million to $114.2 million for the quarter ended September 30, 1998 as compared to the same period in 1997 due to higher sales by the Company's Alside division. Income from operations increased $1.5 million or 13.3% for the third quarter of 1998 as compared to the same period in 1997 due to higher profits at the Company's Alside division. The Company's net income was $5.7 million, or $0.67 per share on 8.5 million weighted average shares for the third quarter of 1998 as compared to $4.5 million, or $0.58 per share on 7.8 million weighted average shares in the third quarter of 1997 due to higher income from operations and lower interest expense. The increase in weighted average shares was the result of an equity offering completed in March of 1998. An extraordinary loss of $53,000 net of income tax was incurred as a result of the redemption of the remaining $2.1 million of the $75 million 11 1/2% Senior Subordinated Notes due August 15, 2003. Alside. Net sales increased $4.1 million or 4.2% to $102.6 million for the third quarter of 1998 as compared to the same period in 1997 due primarily to increased sales volume of vinyl siding. Unit sales of vinyl -7- 10 siding increased 8.8% while unit sales of windows decreased 9.3% for the third quarter of 1998 as compared to the same period in 1997. Gross profit as a percentage of sales increased to 33.2% for the third quarter of 1998 as compared to 30.7% for the same period in 1997 due primarily to lower vinyl resin prices. Selling, general and administrative expense increased to $22.0 million or 12.0% for the third quarter of 1998 as compared to the same period in 1997 due primarily to higher personnel costs and a litigation claim. Income from operations increased 14.6% to $12.1 million for third quarter of 1998 as compared to $10.6 million for the same period in 1997 due to improved profitability which was partially offset by higher selling, general and administrative expense. AmerCable. AmerCable's net sales decreased 8.2% to $11.6 million for the third quarter ended September 30, 1998 as compared to the same period in 1997 due to lower copper prices. AmerCable's products are generally sold with copper as a pass-through component. Gross profit as a percentage of sales increased to 20.9% for the third quarter of 1998 as compared to 19.1% for the same period in 1997 due to improved product mix. Selling, general and administrative expense increased 7.1% to $1.2 million for the third quarter of 1998 as compared to 1997 due to higher personnel costs. Income from operations as a percentage of sales increased slightly to 10.5% for the 1998 period as compared to 10.2% for the 1997 period as higher profits were partially offset by higher selling, general and administrative expense. Amercord. The Company recorded a loss of $645,000 (or $0.07 per share) for its equity in the after-tax loss of Amercord for the quarter ended September 30, 1998 as compared to a loss of $731,000 for the same period in 1997. Amercord's net sales decreased $1.8 million to $15.6 million for the quarter ended September 30, 1998 due primarily to lower tire cord volume and lower sales prices for both tire bead and tire cord. Gross profit increased to $(1.1) million for the quarter ended September 30, 1998 as compared to $(1.4) million for the same period in 1997 due primarily to improved manufacturing efficiency which was partially offset by lower sales prices. Selling, general and administrative expense decreased from $581,000 for the quarter ended September 30, 1997 to $557,000 for the same period in 1998 due to lower research and development expenditures. Other. Net interest expense decreased $426,000 or 19.1% for the quarter ended September 30, 1998 as compared to the same period in 1997 due to a decrease in the Company's borrowings, the repurchase of the 11 1/2% Notes and the issuance of the 9 1/4% Notes. The Company recorded investment interest income of $66,000. -8- 11 Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30, 1997. The table below sets forth for the periods indicated certain items of the Company's financial statements by segments.
Nine Months Ended September 30, ------------------------------------------------------------------ 1998 1997 ------------------------------- ----------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales ---------- --------------- --------- --------------- Total Company: Net sales - Alside............................... $ 261,947 86.8% $ 257,475 86.4% Net sales - AmerCable............................ 39,693 13.2 40,444 13.6 ----------- ------- ----------- ------- Total net sales................................ 301,640 100.0 297,919 100.0 Gross profit..................................... 92,949 30.8 85,613 28.7 Selling, general and administrative expense (1)..................... 66,481 22.0 61,646 20.7 ----------- ------- ----------- ------- Income from operations........................... $ 26,468 8.8% $ 23,967 8.0% =========== ======= =========== ======= Alside: Net sales........................................ $ 261,947 100.0% $ 257,475 100.0% Gross profit..................................... 84,591 32.3 78,914 30.6 Selling, general and administrative expense......................... 60,781 23.2 56,449 21.9 ----------- ------- ----------- ------- Income from operations........................... $ 23,810 9.1% $ 22,465 8.7% =========== ======= =========== ======= AmerCable: Net sales........................................ $ 39,693 100.0% $ 40,444 100.0% Gross profit .................................... 8,358 21.1 6,699 16.6 Selling, general and administrative expense......................... 3,756 9.5 3,295 8.2 ----------- ------- ----------- ------- Income from operations........................... $ 4,602 11.6% $ 3,404 8.4% =========== ======= =========== =======
(1) Consolidated selling, general and administrative expenses include corporate expenses of $1,944,000 and $1,902,000 for the nine month periods ended September 30, 1998 and 1997, respectively. Overview General. The Company's net sales increased $3.7 million to $301.6 million for the nine months ended September 30, 1998 as compared to the same period in 1997 due to higher sales by the Company's Alside division. Income from operations increased $2.5 million or 10.4% for the nine months ended September 30, 1998 as compared to the same period in 1997 due to higher profits at the Company's Alside and AmerCable divisions. The Company's income before extraordinary item was $10.4 million, or $1.23 per share on 8.4 million weighted average shares for the nine months ended September 30, 1998 as compared to $9.1 million, or $1.17 per share on 7.8 million weighted average shares in the same period in 1997 due to higher income from operations. The increase in weighted average shares was the result of an equity offering completed in March of 1998. An extraordinary loss of $4.1 million net of income tax was incurred as a result of the repurchase of the $75 million 11 1/2% Senior Subordinated Notes due August 15, 2003. Alside. Net sales increased $4.5 million to $261.9 million for the nine months ended September 30, 1998 as compared to the same period in 1997 due primarily to increased sales volume of vinyl siding. Unit sales of vinyl siding increased 6.1% while unit sales of windows decreased 10.5% for the nine months ended September 30, 1998 as compared to the same period in 1997. Gross profit as a percentage of sales increased to 32.3% for the 1998 period as compared to 30.6% for the 1997 period due primarily to lower vinyl resin prices. Selling, general and administrative expense increased 7.7% to $60.8 million for the 1998 period as compared to the same period in 1997 due primarily to higher personnel costs, higher advertising expenditures and higher lease expense. Income from operations increased to $23.8 million for the 1998 period as compared to $22.5 million for -9- 12 the same period in 1997 due to improved profitability which was partially offset by higher selling, general and administrative expense. AmerCable. AmerCable's net sales decreased 1.9% to $39.7 million for the nine months ended September 30, 1998 as compared to the same period in 1997 due primarily to lower copper prices. AmerCable's products are generally sold with copper as a pass-through component. Gross profit as a percentage of sales increased to 21.1% for the nine months ended September 30, 1998 as compared to 16.6% for the same period in 1997 due to improved product mix. Selling, general and administrative expense increased 14.0% to $3.8 million for the nine months ended September 30, 1998 as compared to 1997 due to higher personnel costs. Income from operations as a percentage of sales increased to 11.6% for the 1998 period as compared to 8.4% for the 1997 period as higher profits were partially offset by higher selling, general and administrative expense. Amercord. The Company recorded a loss of $1.8 million (or $0.22 per share) for its equity in the after-tax loss of Amercord for the nine months ended September 30, 1998 as compared to a loss of $624,000 for the same period in 1997. Amercord's net sales decreased $9.1 million to $48.5 million for the nine months ended September 30, 1998 due to lower sales volume and lower sales prices for both tire bead and tire cord. Gross profit decreased to $(2.9) million for the nine months ended September 30, 1998 as compared to $1.4 million for the same period in 1997 due almost exclusively to lower sales prices. Average per unit sales prices decreased approximately 7% for the nine months ended September 30, 1998. Selling, general and administrative expense decreased from $2.2 million for the nine months ended September 30, 1997 to $1.8 million for the same period in 1998 due to lower research and development expenditures. Other. Net interest expense decreased $1.5 million or 20.3% for the nine months ended September 30, 1998 as compared to the same period in 1997 due to a decrease in the Company's borrowings, the repurchase of the 11 1/2% Notes and the issuance of the 9 1/4% Notes. The Company recorded interest income of $169,000. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1998 the Company had cash and cash equivalents of $9.2 million and available borrowing capacity of approximately $41.9 million under its existing credit facility. Outstanding letters of credit totaled $8.1 million securing $4.1 million of taxable notes, $2.0 million of borrowings under Amercord's credit agreement and certain other obligations. Net cash provided by operations was $15.8 million in the nine months ended September 30, 1998 compared with $16.7 in the same period in 1997. The decrease in cash provided by operations in the 1998 period was due principally to lower net income for the period ended September 30, 1998 as compared to the 1997 period. Capital expenditures totaled $9.7 million for the nine months ended September 30, 1998, compared with $6.3 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 and blending capacity. The Company began 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 incurred 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. The Company redeemed the $2.1 million principal amount of 11 1/2% Notes that remained outstanding on August 17, 1998. -10- 13 Amercord has retained McDonald & Company Securities, Inc. to serve as its financial advisor in connection with the possible sale of Amercord. The Company is also investigating other possibilities which would involve its continued investment in Amercord. There can be no assurance as to whether any sale of Amercord can be completed or the terms or timing thereof. Amercord is not in compliance with certain financial covenants under its existing bank credit agreement. Amercord has entered into a forbearance agreement pursuant to which the lender has agreed not to exercise certain rights under the credit agreement through December 31, 1998, subject to certain conditions. In connection with the forbearance agreement, Associated Materials and Ivaco, Inc. each made a $500,000 capital contribution to Amercord. In addition, Associated Materials has guaranteed up to $2,000,000 of borrowings under Amercord's credit agreement. Effective October 1, 1998 the Company established an Employee Stock Purchase Plan ("ESPP"). Employees participating in the ESPP can purchase shares at a 15% discount through payroll deductions of up to 25% of their eligible compensation. The Company registered 250,000 shares of common stock with the SEC in September 1998 for issuance pursuant to the ESPP. On October 27, 1998 the Company's Board of Directors approved a stock repurchase program of up to 800,000 shares of common stock in open market transactions depending on market, economic and other factors. 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, provide sufficient capital for presently anticipated capital expenditures and fund its share repurchase program. However, there can be no assurances that the cash so generated by the Company will be sufficient for such purposes. YEAR 2000 Historically, computer programs have used a two-digit format rather than a four-digit format to refer to the year. After the year 1999, these computer programs will not recognize the year correctly which may cause the computer application to fail or to process data incorrectly. State of Readiness. The Company began its Year 2000 program in 1997 in order to ensure all systems were Year 2000 compliant. The Company's Alside division divided its Year 2000 information technology ("IT") project as follows: mainframe, AS 400 systems, manufacturing systems and PC systems. Alside has reviewed its mainframe and AS 400 systems and believes all date fields have been corrected. All mission critical programs within its mainframe have been tested and are believed to be Year 2000 compliant. The mission critical programs include the general ledger, accounts payable, billing/receivable and payroll. Alside estimates that updates to its manufacturing systems are approximately 50% complete with final completion scheduled for early 1999. Alside is currently assessing the status of its PC systems. The Company's AmerCable division believes its IT systems are Year 2000 compliant. Alside and AmerCable are currently assessing and updating their non-IT systems. The Company's Alside and AmerCable divisions are currently contacting significant customers and suppliers to assess Year 2000 compliance and readiness. The responses are being evaluated to determine the possible risks that may affect the Company's operations. Costs. To date the Company's costs to address Year 2000 issues have not been material. The Company's Alside division designs the majority of its application systems in-house. The process of reviewing the in-house systems and converting date sensitive fields was done by Alside's computer programmers as part of routine system maintenance. Alside has retained an independent consultant to assist with Year 2000 compliance for its manufacturing systems. Alside presently estimates its manufacturing system update will cost approximately $250,000. The Company's AmerCable division installed a new information system in 1996 that is Year 2000 compliant. AmerCable's system acquisition was not accelerated due to Year 2000 and is therefore not considered as part of the Year 2000 expenditures. Company Risks and Contingency Plan. The Company believes that its most significant remaining Year 2000 risk is associated with its customers and suppliers. Once the Company completes its customer and supplier -11- 14 readiness evaluation it will be better able to formulate a contingency plan. The Company believes its customers will not be significantly impacted by the Year 2000 due to the nature of the home improvement business. 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, the effects of the Year 2000 on the Company and its suppliers and customers 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. -12- 15 Part II Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.1 - Associated Materials Incorporated Employee Stock Purchase Plan. 27 - Financial Data Schedule. (b) Reports on Form 8-K The Company filed a current report on Form 8-K dated September 21, 1998, under Item 5 - Other Events. The report related to the announcement of the Company's possible sale of its Amercord affiliate and changes made to Amercord's existing credit agreement. -13- 16 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: November 13, 1998 By: /s/ Robert L. Winspear ----------------------------- Robert L. Winspear Vice President and Chief Financial Officer Date: November 13, 1998 By: /s/ Robert L. Winspear ----------------------------- Robert L. Winspear Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -14- 17 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 10.1 Associated Materials Incorporated Employee Stock Purchase Plan 27 Financial Data Schedule
EX-10.1 2 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.1 ASSOCIATED MATERIALS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN I. PURPOSE OF THE PLAN This Employee Stock Purchase Plan is intended to promote the interests of Associated Materials Incorporated by providing eligible employees with the opportunity to acquire a proprietary interest in the Company through participation in a payroll-deduction based employee stock purchase plan designed to qualify under Section 423 of the Code. Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix. II. ADMINISTRATION OF THE PLAN A. The Plan Administrator shall administer the Plan and shall have full authority and discretion to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary, and to take any action it may deem necessary in order to comply with the requirements of Section 423 of the Code. Decisions of the Plan Administrator and the Board shall be final and binding on all parties having an interest in the Plan. The Plan Administrator shall have full authority and discretion to retain and engage such third party firms (including, without limitation, brokerage and record keeping firms) as it shall from time to time deem advisable or appropriate. B. The Board shall have the full authority and discretion to designate Corporate Affiliates as Participating Companies from time to time and to terminate any such designation; to decide any questions relating to the administration of the Plan that are referred to the Board by the Plan Administrator; and to amend the Plan as provided in Section X. III. STOCK SUBJECT TO PLAN A. The stock purchasable under the Plan shall be shares of authorized but unissued Common Stock or shares of Common Stock held in the Company's treasury. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 250,000 shares. B. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Company's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and class of securities issuable under the Plan, (ii) the maximum number and class of securities purchasable per Participant on any one Purchase Date and (iii) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder. 2 IV. PURCHASE PERIODS Shares of Common Stock shall be offered for purchase under the Plan through a series of successive Purchase Periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated. V. ELIGIBILITY A. Each individual who is an Eligible Employee on the Effective Date shall be eligible to participate in the Plan on the first day of any Purchase Period under the Plan, provided such individual remains an Eligible Employee on such day. Eligibility to participate in the Plan shall be limited to Eligible Employees employed by the Company or by a Corporate Affiliate that is a U.S. subsidiary of the Company. B. Each individual who becomes an Eligible Employee after the Effective Date shall be eligible to participate in the Plan on the first day of any Purchase Period commencing thereafter, provided such individual remains an Eligible Employee on such day. C. To participate in the Plan for a particular Purchase Period, an Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator and file such forms with the Plan Administrator (or its designee) before the first day of such Purchase Period. An Eligible Employee's enrollment in the Plan for a Purchase Period will remain in effect for all subsequent Purchase Periods until modified or terminated by the Eligible Employee or until he or she no longer qualifies as an Eligible Employee. VI. PAYROLL DEDUCTIONS; SHORTFALL CONTRIBUTIONS A. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock under the Plan may be (i) any whole multiple of one percent (1%) of the Eligible Compensation paid to the Participant during each Purchase Period or (ii) any whole dollar amount of the Eligible Compensation paid to the Participant during each Purchase Period, provided that the Participant's payroll deduction for any Purchase Period shall not exceed a maximum of twenty-five percent (25%) of such Eligible Compensation. The deduction rate so authorized shall continue in effect for the entire Purchase Period. The Participant may not increase his or her rate of payroll deduction during a Purchase Period. However, the Participant may, at any time prior to the tenth (10th) Business Day immediately preceding the Purchase Date for the Purchase Period, reduce his or her rate of payroll deduction to any whole percentage or whole dollar amount or to zero, such reduction to become effective prospectively as soon as administratively feasible after filing the appropriate form with the Plan Administrator. The Participant may not, however, effect more than one (1) such reduction per Purchase Period. If a Participant reduces his or her payroll deductions to zero, the Participant's previous payroll deductions for the Purchase Period will still be applied to the purchase of shares of Common Stock on the Purchase Date, unless the Participant elects to terminate his or her purchase rights for the Purchase Period in accordance with Section VII.E. 2 3 B. Payroll deductions shall begin on the first pay day of each Purchase Period and shall (unless sooner terminated) continue through the pay day ending on or immediately prior to the last day of the Purchase Period. The amounts so collected shall be credited to the Participant's Account under the Plan. Payroll deduction amounts need not be held in any segregated account or trust fund and may be commingled with the general assets of the Company and used for general corporate purposes. C. Payroll deductions shall automatically cease upon the termination of the Participant's purchase right in accordance with the provisions of the Plan. D. A Participant whose net pay after all deductions therefrom on any given pay day is not sufficient to fund the payroll deduction authorized by the Participant for a Purchase Period shall be permitted to fund any such shortfall by contributing the amount thereof to the Plan in cash, by personal check or in any other form permitted from time to time by the Plan Administrator ("Shortfall Contributions"). Shortfall Contributions must be contributed to the Plan before the tenth (10th) Business Day immediately preceding the Purchase Date for the Purchase Period. All references in this Plan to payroll deductions also shall be deemed to refer to and include Shortfall Contributions, except where the context clearly requires otherwise. E. No interest shall accrue on the payroll deductions of a Participant in the Plan. VII. PURCHASE RIGHTS A. A Participant shall be granted a separate purchase right on the first day of each Purchase Period in which he or she participates. The purchase right shall provide the Participant with the right to purchase shares of Common Stock on the Purchase Date upon the terms set forth below. Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of Section 424(d) of the Code) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Corporate Affiliate. B. Each purchase right shall be automatically exercised on the Purchase Date, and shares of Common Stock shall accordingly be purchased on such date on behalf of each Participant participating in the related Purchase Period (other than any Participant whose payroll deductions have previously been refunded in accordance with paragraph E below). The purchase shall be effected by applying the Participant's Account balance as of the last day of the Purchase Period to the purchase of shares of Common Stock (subject to the limitation on the maximum number of shares purchasable per Participant) at the Purchase Price in effect for that Purchase Period. 3 4 C. The number of shares of Common Stock purchasable by a Participant on each Purchase Date shall be the number of whole and fractional shares obtained by dividing the Participant's Account balance on the last day of the Purchase Period by the Purchase Price in effect for that Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date shall not exceed 3,000 shares. D. Any portion of the Participant's Account balance that is not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable by the Participant on the Purchase Date shall be refunded as soon as administratively feasible. E. The following provisions shall govern the termination of outstanding purchase rights: (i) A Participant may, at any time prior to the tenth (10th) Business Day immediately preceding the Purchase Date for the Purchase Period, terminate his or her outstanding purchase right by filing the appropriate form with the Plan Administrator (or its designee), and no further payroll deductions shall be collected from or made by the Participant with respect to such terminated purchase right. The Participant's entire Account balance as of the effective date of such termination shall be refunded as soon as administratively feasible. (ii) The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the Purchase Period for which the terminated purchase right was granted. In order to resume participation in any subsequent Purchase Period, such individual must re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) before the first day of the new Purchase Period. (iii) Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in employment status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate, and the Participant's entire Account balance shall be refunded as soon as administratively feasible. However, should the Participant cease to remain in active service by reason of an approved unpaid leave of absence, then the Participant shall have the right, exercisable up until the tenth (10th) Business Day immediately preceding the Purchase Date for the Purchase Period in which such leave commences, to withdraw his or her entire Account balance. If a Participant on such an unpaid leave does not exercise this right, such Participant's Account balance shall be held for the purchase of shares at the next Purchase Date. In no event, however, shall any further payroll deductions be collected on the Participant's behalf during any such unpaid leave. Upon the return to active service of any Participant previously on unpaid leave, his or her payroll deductions under the Plan shall automatically resume at the rate in effect at the time the leave began, unless the Participant elected to withdraw his or her Account balance for the Purchase Period in which the leave commenced. (iv) Notwithstanding any other provision of the Plan to the contrary, a Participant's purchase rights with respect to a Purchase Period shall 4 5 terminate, and his or her Account balance shall be refunded as soon as administratively feasible, if the Participant's employment with the Participating Companies terminates for any reason on or before the Purchase Date for such Purchase Period. F. Each outstanding purchase right shall automatically be exercised, immediately prior to the date any Corporate Transaction is consummated, by applying the Participant's Account balance to the purchase of whole and fractional shares of Common Stock at a purchase price per share equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the first day of the Purchase Period in which such Corporate Transaction occurs or (ii) the Fair Market Value per share of Common Stock immediately prior to the date such Corporate Transaction is consummated. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase. The Company shall use reasonable efforts to provide prior written notice of the occurrence of any Corporate Transaction, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the Corporate Transaction. G. Should the total number of shares of Common Stock which are to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the Account balance of each Participant, to the extent in excess of the aggregate Purchase Price payable for the Common Stock pro-rated to such individual, shall be refunded as soon as administratively feasible. H. The purchase right shall be exercisable only by the Participant and shall not be assignable or transferable by the Participant. I. A Participant shall have no stockholder rights with respect to the shares subject to his or her outstanding purchase right until the shares are purchased on the Participant's behalf in accordance with the provisions of the Plan and the Participant has become the owner of the purchased shares. VIII. ACCRUAL LIMITATIONS A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such rights, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or any Corporate Affiliate, would otherwise permit such Participant to purchase more than Twenty-Five Thousand Dollars ($25,000) worth of stock of the Company and of any Corporate Affiliate (determined on the basis of the Fair Market Value of such stock on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding, subject to the following: 5 6 (i) The right to acquire Common Stock under each outstanding purchase right shall accrue on the Purchase Date in effect for the Purchase Period for which such right is granted. (ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one (1) or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of the Fair Market Value per share on the date or dates of grant) for each calendar year such rights were at any time outstanding. B. If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Purchase Period, then the Participant's Account balance with respect to such purchase right shall be refunded as soon as administratively feasible. C. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be controlling. IX. EFFECTIVE DATE AND TERM OF THE PLAN A. The Plan was adopted by the Board on August 26, 1998 and shall become effective on the Effective Date, provided no purchase rights granted under the Plan shall be exercised, and no shares of Common Stock shall be issued hereunder, until the Company shall have complied with all applicable requirements of the 1933 Act (including the registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation other than approval of the Plan by the Company's stockholders. In the event stockholder approval of the Plan by majority vote of the shares represented in person or by proxy at a meeting of the stockholders of the Company at which a quorum is present is not obtained, or such compliance is not effected, within twelve (12) months after the date on which the Plan is adopted by the Board, the Plan shall terminate and have no further force or effect, and the Participants' Account balances shall be distributed as soon as administratively feasible. B. Unless sooner terminated by the Board, the Plan shall terminate upon the earliest to occur of (i) the last Business Day in December 2008, (ii) the date on which all shares available for issuance under the Plan shall have been sold to Participants pursuant to purchase rights exercised under the Plan or (iii) the date on which all purchase rights are exercised in connection with a Corporate Transaction. Following such termination, no further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected under the Plan. 6 7 X. AMENDMENT OF THE PLAN A. The Plan may be amended from time to time by the Board or any duly authorized committee thereof, and all purchase rights outstanding at the effective date of any such amendment will be subject to such amendment. In the event any law, or any rule or regulation issued or promulgated by the Internal Revenue Service, the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., any stock exchange upon which the Common Stock is listed for trading, or any other governmental or quasi-governmental agency having jurisdiction over the Company, the Common Stock or the Plan, requires the Plan to be amended, or in the event any of the rules under Section 16 of the 1934 Act are amended or supplemented (e.g., by addition of alternative rules), in either event to require or permit the Company to add, remove or lessen any restrictions on or with respect to purchase rights under the Plan, the Board reserves the right to amend the Plan to the extent of any such requirement, amendment or supplement, and all purchase rights then outstanding will be subject to such amendment. B. The Plan may be terminated at any time by action of the Board; provided, however, that the termination of the Plan shall not adversely affect the terms of any outstanding purchase rights. C. Notwithstanding the foregoing, the Board may not, without the approval of the Company's stockholders, increase the number of shares of Common Stock issuable under the Plan, except to the extent permitted under Section III.B. D. With respect to any Participating Corporation which employs Eligible Employees who reside outside of the United States, and notwithstanding anything herein to the contrary, the Board may in its sole discretion amend the terms of the Plan, or any purchase right granted under the Plan, in order to comply with the requirements of local law, and may, where appropriate, establish one or more sub-plans to reflect such amended provisions applicable to such Eligible Employees. XI. GENERAL PROVISIONS A. All costs and expenses incurred in the administration of the Plan shall be paid by the Company. B. Nothing in the Plan shall confer upon any Participant any right to continue in the employ of the Company or any Corporate Affiliate for any period of specific duration, or interfere with or otherwise restrict in any way the rights of the Company (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such Participant's employment at any time for any reason, with or without cause. 7 8 APPENDIX The following definitions shall be in effect under the Plan: A. Account shall mean the account established by the Plan Administrator to record a Participant's payroll deductions as of any given date. B. Board shall mean the Company's Board of Directors. C. Business Day shall mean a day on which the New York Stock Exchange is open for trading. D. Code shall mean the Internal Revenue Code of 1986, as amended. E. Common Stock shall mean the Company's common stock, par value $.0025 per share. F. Company shall mean Associated Materials Incorporated, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of Associated Materials Incorporated which shall by appropriate action adopt the Plan. G. Corporate Affiliate shall mean any parent or subsidiary corporation of the Company (as determined in accordance with Section 424 of the Code), whether now existing or subsequently established. H. Corporate Transaction shall mean either of the following stockholder-approved transactions to which the Company is a party: (i) a merger, consolidation or reorganization of the Company into or with another corporation or legal person as a result of which securities possessing less than fifty percent (50%) of the total combined voting power of the then-outstanding voting securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of the voting securities of the Company immediately prior to such transaction, or (ii) a sale or other transfer of all or substantially all of the assets of the Company to another corporation or other legal person as a result of which securities possessing less than fifty percent (50%) of the total combined voting power of the then-outstanding voting securities of such corporation or person immediately after such sale or transfer are held in the aggregate by the holders of the voting securities of the Company immediately prior to such sale or transfer. I. Effective Date shall mean October 1, 1998. 9 J. Eligible Compensation means the following items of remuneration paid to a Participant by one or more Participating Companies during each Purchase Period: base salary, overtime pay, commissions and cash incentive compensation, computed before giving effect to the Participant's salary reduction elections under Section 125 or Section 401(k) of the Code or the Participant's deferral elections under any nonqualified deferred compensation plan of the Company or any Corporate Affiliate. K. Eligible Employee shall mean an Employee who is employed by a Participating Company on a basis under which he or she is regularly expected to render at least twenty (20) hours of service per week for more than five (5) months per calendar year for earnings considered wages. Notwithstanding the foregoing, a person who is an independent contractor performing services for a Participating Company shall not be eligible to participate in the Plan. L. Employee shall mean an individual who is a common law employee of the Company or any Corporate Affiliate. M. Fair Market Value per share of Common Stock on any relevant date shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock or the NASDAQ, as such price is officially quoted in the composite tape of transactions on such exchange or NASDAQ. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. N. 1933 Act shall mean the Securities Act of 1933, as amended. O. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. P. Participant shall mean any Eligible Employee of a Participating Company who is actively participating in the Plan. Q. Participating Company shall mean the Company, each Corporate Affiliate that is a direct or indirect domestic subsidiary of the Company and each other Corporate Affiliate that is authorized from time to time by the Board to extend the benefits of the Plan to its Eligible Employees. For purposes of the foregoing, the term "subsidiary" has the meaning set forth in Section 424(f) of the Code. R. Plan shall mean the Company's Employee Stock Purchase Plan, as set forth in this document. S. Plan Administrator shall mean the person or persons appointed by the Board from time to time as the plan administrator of the Plan. T. Purchase Date shall mean the last Business Day of each Purchase Period or, with respect to a Corporate Transaction, the date specified for the purchase in Section VII.F. A-2 10 U. Purchase Period shall mean a period of six (6) months extending from January 1 to June 30 and from July 1 to December 31 of each year; provided, however, that the first Purchase Period shall begin on October 1, 1998, and shall end on December 31, 1998. V. Purchase Price shall mean the purchase price per share at which Common Stock will be purchased on the Participant's behalf on each Purchase Date and shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the first day of the Purchase Period in which the Purchase Date occurs or (ii) the Fair Market Value per share of Common Stock on that Purchase Date. W. Service shall mean the performance of services to the Company or any Corporate Affiliate by a person in the capacity of an Employee. X. Shortfall Contributions shall have the meaning ascribed to such term in Section VI.D. of the Plan. A-3 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 SEP-30-1998 9,233 0 60,665 7,215 63,745 129,739 58,386 0 200,677 59,586 75,000 0 0 21 61,881 200,677 114,201 0 77,671 0 23,956 0 1,802 10,127 4,386 0 0 53 0 5,688 0.68 0.67
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