10-Q 1 d87187e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 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 March 31, 2001 ---------------------------------------- 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 of 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 May 10, 2001: 6,098,448 Shares of Class B Common Stock, $.0025 par value outstanding at May 10, 2001: 550,000 2 ASSOCIATED MATERIALS INCORPORATED FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets................................................................................ 1 March 31, 2001 (Unaudited) and December 31, 2000 Statements of Operations (Unaudited).......................................................... 2 Quarter ended March 31, 2001 and 2000 Statements of Cash Flows (Unaudited).......................................................... 3 Quarter ended March 31, 2001 and 2000 Notes to Financial Statements (Unaudited)..................................................... 4 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................................. 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K......................................................... 10 SIGNATURES.......................................................................................... 11
3 Part I. Financial Information Item 1. Financial Statements ASSOCIATED MATERIALS INCORPORATED BALANCE SHEETS (In Thousands, Except Share Data)
March 31, December 31, 2001 2000 ----------------- ---------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents......................................... $ 2,046 $ 15,879 Short-term investment............................................. - 5,019 Accounts receivable, net.......................................... 56,219 50,853 Inventories....................................................... 77,146 74,429 Income taxes receivable........................................... 2,151 453 Other current assets.............................................. 4,325 4,213 ----------- ----------- Total current assets................................................. 141,887 150,846 Property, plant and equipment, net................................... 78,020 73,917 Investment in Amercord Inc........................................... - 2,393 Other assets......................................................... 3,724 3,985 ----------- ----------- Total assets......................................................... $ 223,631 $ 231,141 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................. $ 31,009 $ 19,273 Accrued liabilities............................................... 15,544 29,509 ----------- ----------- Total current liabilities............................................ 46,553 48,782 Deferred income taxes................................................ 3,738 3,927 Other liabilities.................................................... 5,345 5,442 Long-term debt....................................................... 75,000 75,000 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value: Authorized shares - 100,000 at March 31, 2001 and December 31, 2000 Issued shares - 0 at March 31, 2001 and December 31, 2000........................................... - - Common stock, $.0025 par value: Authorized shares - 15,000,000 Issued shares - 7,164,024 at March 31, 2001 and at December 31, 2000................................. 18 18 Common stock, Class B, $.0025 par value: Authorized and issued shares - 1,550,000 at March 31, 2001 and December 31, 2000..................... 4 4 Less: Treasury stock, at cost - 1,065,576 shares at March 31, 2001 and 955,170 at December 31, 2000............. (14,228) (12,425) Capital in excess of par....................................... 15,450 14,862 Retained earnings.............................................. 91,751 95,531 ----------- ----------- Total stockholders' equity..................................... 92,995 97,990 ----------- ----------- Total liabilities and stockholders' equity........................... $ 223,631 $ 231,141 =========== ===========
See accompanying notes. -1- 4 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Data)
Quarter Ended March 31, --------------------------------- 2001 2000 ------------- ------------- Net sales.................................................................. $108,611 $103,419 Cost of sales.............................................................. 81,414 74,826 --------- --------- 27,197 28,593 Selling, general and administrative expense................................ 28,127 24,283 --------- --------- Income (loss) from operations.............................................. (930) 4,310 Interest expense........................................................... 1,579 1,724 --------- --------- (2,509) 2,586 Loss on the writedown of Amercord Inc...................................... (2,393) - --------- --------- Income (loss) before income taxes.......................................... (4,902) 2,586 Income tax expense (benefit)............................................... (1,887) 995 --------- --------- Net income (loss) ......................................................... $ (3,015) $ 1,591 ========= ========= Net income (loss) per common share - Basic................................. $ (0.39) $ 0.20 ======== ======== Net income (loss) per common share - Assuming Dilution..................... $ (0.39) $ 0.19 ======== ======== Dividends per common share................................................. $ 0.10 $ 0.10 ======== ========
See accompanying notes. -2- 5 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Quarter Ended March 31, -------------------------------- 2001 2000 ------------ ------------ OPERATING ACTIVITIES Net income (loss) ............................................................ $ (3,015) $ 1,591 Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization........................................... 2,661 2,370 Deferred income taxes................................................... (189) 33 Loss on the writedown of Amercord Inc................................... 2,393 - Loss on sale of assets.................................................. 50 5 Changes in operating assets and liabilities: Accounts receivable, net............................................. (5,366) (1,280) Inventories.......................................................... (2,717) (8,005) Income taxes receivable/payable...................................... (1,698) 832 Bank overdrafts...................................................... - 5,592 Accounts payable and accrued liabilities............................. (2,229) (3,774) Other assets and liabilities......................................... (17) (1,592) --------- --------- Net cash used by operating activities......................................... (10,127) (4,228) INVESTING ACTIVITIES Proceeds from sale of short-term investment................................... 5,019 - Proceeds from sale of assets.................................................. 20 31 Additions to property, plant and equipment.................................... (6,765) (3,794) --------- --------- Net cash used by investing activities......................................... (1,726) (3,763) FINANCING ACTIVITIES Net increase in revolving line of credit...................................... - 7,671 Dividends paid................................................................ (765) (801) Treasury stock acquired....................................................... (1,803) - Stock options, other.......................................................... 588 - --------- --------- Net cash (used by) provided by financing activities........................... (1,980) 6,870 Net decrease in cash.......................................................... (13,833) (1,121) Cash at beginning of period................................................... 15,879 3,432 --------- --------- Cash at end of period......................................................... $ 2,046 $ 2,311 ========= ========= Supplemental information: Cash paid for interest........................................................ $ 3,502 $ 3,545 ========= ========= Net cash paid for income taxes................................................ $ 257 $ 580 ========= =========
See accompanying notes. -3- 6 ASSOCIATED MATERIALS INCORPORATED NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2001 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The unaudited financial statements of Associated Materials Incorporated (the "Company") for the quarter ended March 31, 2001 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, 2000 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. The Company's Alside division manufactures and distributes building products. Because most of Alside's building products are intended for exterior use, Alside's sales and operating profits tend to be lower during periods of inclement weather. Weather conditions in the first quarter of each calendar year historically result in that quarter producing significantly less sales revenue than in any other period of the 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):
March 31, December 31, 2001 2000 ----------------- ------------------ Raw materials.................................................................. $ 23,973 $ 23,229 Work in process................................................................ 6,051 5,101 Finished goods and purchased stock............................................. 47,122 46,099 ---------- ---------- $ 77,146 $ 74,429 ========== ==========
NOTE 3 - STOCKHOLDERS' EQUITY Under its stock repurchase program, the Company is authorized to purchase up to 1.6 million shares of common stock in open market transactions. The Company purchased 110,406 shares of its common stock at a cost of $1.8 million during the first quarter of 2001. At March 31, 2001, the Company had repurchased 1,024,180 shares of common stock under this program at a cost of $13.7 million. The share repurchase described in Note 7 below was not part of this stock repurchase program. NOTE 4 - AMERCORD INC. The Company wrote off its $2.4 million investment in Amercord Inc. during the first quarter of 2001. Amercord's operating results and financial position deteriorated during the first quarter 2001. The Company believes that it will not recover its investment in Amercord without a restructuring of Amercord. The Company's investment in Amercord consists of a $1.5 million subordinated note and 9.9% of Amercord's common stock. -4- 7 NOTE 5 - EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per share:
Quarter Ended March 31, ---------------------------------------- 2001 2000 ----------------- ------------------ Numerator: Numerator for basic and diluted earnings per common Share - earnings (loss).................................................. $ (3,015) $ 1,591 Denominator: Denominator for basic earnings per common share - Weighted-average shares.................................................. 7,677 8,019 Effect of dilutive securities: Employee stock options................................................... - 219 ---------- ---------- Denominator for diluted earnings per common share - Adjusted weighted-average shares......................................... 7,677 8,238 Basic earnings (loss) per common share......................................... $ (0.39) $ 0.20 ========== ========== Diluted earnings (loss) per common share....................................... $ (0.39) $ 0.19 ========== ==========
In accordance with Statement of Financial Accounting Standard No. 128, approximately 268,000 potential common shares were excluded from the calculation of weighted average shares outstanding for the quarter ended March 31, 2001. Due to the loss incurred in that quarter, inclusion of these shares would have been antidilutive. Options to purchase 90,000 shares of common stock were excluded from the calculation of weighted average shares outstanding for the quarter ended March 31, 2000, because the average exercise price of these shares was higher than the average market price of the common stock during the period. NOTE 6 - RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform with the current period presentation. NOTE 7 - SUBSEQUENT EVENT On April 29, 2001, the Company repurchased 1,000,000 shares of its class B common stock from The Prudential Insurance Company of America ("Prudential") and its wholly owned subsidiary, PCG Finance Company II, LLC ("PCG") at $19.50 per share, or $19.5 million in the aggregate. The share purchase was financed through available cash and borrowings under the Company's $50,000,000 credit facility. Following the purchase, Prudential and PCG will continue to own, in the aggregate, 550,000 shares of class B common stock. -5- 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000 The table below sets forth for the periods indicated certain items of the Company's financial statements by segment:
Quarter Ended March 31, -------------------------------------------------------------------------- 2001 2000 ------------------------------------ ----------------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales --------------- ------------------ -------------- ----------------- Total Company: Net sales - Alside (1).................... $ 89,939 82.8% $ 87,141 84.3% Net sales - AmerCable (1)................. 18,672 17.2 16,278 15.7 --------- ------- --------- ------- Total net sales........................ 108,611 100.0 103,419 100.0 Gross profit.............................. 27,197 25.0 28,593 27.7 Selling, general and administrative expense (2)............. 28,127 25.9 24,283 23.5 --------- ------- --------- ------- Income (loss) from operations............. $ (930) (.9)% $ 4,310 4.2% ========= ======= ========= ======= Alside: Net sales (1)............................. $ 89,939 100.0% $ 87,141 100.0% Gross profit.............................. 23,718 26.4 25,498 29.3 Selling, general and Administrative expense................. 24,875 27.7 21,749 25.0 --------- ------- --------- ------- Income (loss) from operations............. $ (1,157) (1.3)% $ 3,749 4.3% ========= ======= ========= ======= AmerCable: Net sales (1)............................. $ 18,672 100.0% $ 16,278 100.0% Gross profit.............................. 3,479 18.7 3,095 19.1 Selling, general and Administrative expense................. 1,876 10.1 1,571 9.7 --------- ------- --------- ------- Income from operations.................... $ 1,603 8.6% $ 1,524 9.4% ========= ======= ========= =======
(1) Certain prior period amounts have been reclassified to conform with the current period presentation. (2) Consolidated selling, general and administrative expenses include corporate expenses of $1.4 million and $963,000 for the quarter ended March 31, 2001 and 2000, respectively. Overview The Company's net sales increased 5.0% to $108.6 million for the quarter ended March 31, 2001 as compared to $103.4 million for the same period in 2000 due to higher sales at the Company's Alside and AmerCable divisions. Income from operations decreased to a loss of $930,000 for the 2001 period as compared to income of $4.3 million for the same period in 2000. Income from operations was adversely impacted by several factors, including the sale of the Company's UltraCraft cabinet operations in June 2000 (which increased first quarter 2000 income by approximately $1.0 million), approximately $847,000 in losses from the Alpine window operation acquired in October 2000, additional selling, general and administrative expense associated with the opening of eight additional Alside Supply Centers and an $850,000 one-time insurance gain recorded in 2000. -6- 9 The Company's net loss for the quarter ended March 31, 2001 was $3.0 million, or $(0.39) per share, as compared to income of $1.6 million, or $0.19 per share, for the same period in 2000 due to lower income from operations as discussed above and the writedown of the Company's investment in Amercord Inc. Exclusive of the Amercord writedown, the Company's net loss was $0.20 per share. Seasonality/Weather The Company's results of operations are primarily affected by its Alside division, which accounted for more than 87% of the Company's annual net sales in each of the last three years. Because most of Alside's building products are intended for exterior use, Alside's sales and operating profits tend to be lower during periods of inclement weather. Weather conditions in the first quarter of each calendar year historically result in that quarter producing significantly less sales revenue than in any other period of the year. In general, weather conditions during the first quarter of 2001 were poor, being marked by colder temperatures and higher precipitation as compared to the first quarter of 2000. ALSIDE. Alside's net sales increased 3.2% to $89.9 million for the quarter ended March 31, 2001 as compared to $87.1 million for the same period in 2000 as higher vinyl window sales were partially offset by lower vinyl siding and vinyl fence sales. Unit sales of vinyl siding decreased 2.8% for the 2001 period while the Company estimates that the vinyl siding industry as a whole was down 19% for the same period. Unit sales of vinyl windows increased 32.8% for the first quarter of 2001 as compared to 2000. The 32.8% increase in volume did not include the incremental window sales from the acquisition of Alpine window operation in October 2000. Gross profit decreased to $23.7 million for 2001 as compared to $25.5 million for the same period in 2000. Selling, general and administrative expense increased to $24.9 million for 2001 as compared to $21.7 million for the same period in 2000 due primarily to the addition of eight new Supply Centers and the one-time insurance gain of $850,000 recorded in 2000. Alside's loss from operations was $1.2 million for the first quarter 2001 as compared to income of $3.7 million for the 2000 period due to higher selling, general and administrative expense and the adverse impact of the sale of Alside's cabinet operation in June 2000, which increased 2000 income from operations by $1.0 million, as well as a loss of approximately $847,000 from Alpine's operations in 2001. AMERCABLE. AmerCable's net sales increased 14.7% to $18.7 million for the quarter ended March 31, 2001 as compared to $16.3 million for the same period in 2000 due to higher sales across all product lines, primarily higher sales volume of industrial and mining cables. Gross profit increased 12.4% to $3.5 million for the 2001 period but decreased as a percentage of sales as higher fixed cost absorption was more than offset by changes in product mix to lower margin products. Selling, general and administrative expense increased to $1.9 million for 2001 as compared to $1.6 million for 2000 due to higher personnel costs and higher marketing expenditures. Income from operations increased 5.2% to $1.6 million for the 2001 period due to improved fixed cost absorption which was partially offset by product mix and higher selling, general and administrative expense. OTHER. Net interest expense decreased 8.4% to $1.6 million for the first quarter of 2001 compared with $1.7 million for the same period in 2000 due to a decrease in the Company's average short-term borrowings. The Company recorded interest income of $176,000 for the quarter ended March 31, 2001 as compared to $97,000 for the same period in 2000. The Company wrote off its $2.4 million investment in Amercord Inc. during the first quarter of 2001 due to the deterioration of Amercord's operating results and financial position during the quarter. The Company believes that it will not recover its investment in Amercord without a restructuring of Amercord. The Company's investment in Amercord consists of a $1.5 million subordinated note and 9.9% of Amercord's common stock. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001 the Company had cash and cash equivalents of $2.0 million and available borrowing capacity of approximately $47.9 million under its existing credit facility. Outstanding letters of credit totaled $2.1 million securing various insurance letters of credit. -7- 10 Net cash used by operations was $10.1 million in the quarter ended March 31, 2001 compared with $4.2 million in the same period in 2000. The increase in cash used by operations for the 2001 period was due primarily to lower operating profits and higher accounts receivable balances due partially to higher sales. Capital expenditures totaled $6.8 million for the quarter ended March 31, 2001, compared with $3.8 million during the same period in 2000. Alside's expenditures in the 2001 period were incurred primarily to increase fence and window capacity and for a new financial and ERP system which will be implemented over a two-year period at an estimated cost of $10.3 million. Capital expenditures on the new ERP system were $2.1 million for the first quarter of 2001. AmerCable's expenditures were incurred primarily to expand manufacturing capacity. The Company has guaranteed a $3.0 million note secured by Amercord's real property. Should the guarantee be exercised by Amercord's lender, the Company and Ivaco, Inc. have the option to assume the loan. Ivaco, Inc. has indemnified the Company for 50% of any loss under the guarantee. The Company believes that it is adequately secured under its guarantee of the $3.0 million Amercord note such that no losses are anticipated with respect to this guarantee. On April 29, 2001, the Company repurchased 1,000,000 shares of its class B common stock from Prudential Insurance Company of America and its wholly owned subsidiary, PCG Finance Company II, LLC, at $19.50 per share, or $19.5 million in the aggregate. The share purchase was financed through available cash and borrowings under the Company's $50,000,000 credit facility. 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 stock repurchase program. However, there can be no assurances that the cash so generated by the Company will be sufficient for these purposes. EFFECTS OF INFLATION The Company believes that the effects of inflation have not been material to its operating results for each of the past three years. Alside's principal raw material, vinyl resin, has been subject to rapid price changes, including in 1999 and 2000. Alside has historically been able to pass on price increases to its customers. The results of operations for individual quarters can and have been negatively impacted by a delay between the time of vinyl resin price increases and price increases in Alside's products. However, over longer periods of time, the impact of the price increases in vinyl resin has historically not been material. No assurances can be given that Alside will be able to pass on any price increases in the future. Alside does not presently expect any significant change in the price of vinyl resin for 2001. CERTAIN FORWARD-LOOKING STATEMENTS This report contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs of, and estimates and assumptions made by and information currently available to, the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "intend," and similar words, as they relate to the Company or the Company's management, identify forward-looking statements. These statements reflect the current views of the Company's management regarding 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, weather conditions, pricing pressures, shifts in market demand and general economic conditions. These statements are subject to certain risks and uncertainties. Certain factors that might cause a difference are discussed in more detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Should one or more of these risks or uncertainties occur, or should management's assumptions or estimates prove incorrect, actual results and events may vary materially from those discussed in the forward-looking statements. -8- 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is subject to commodity price risk, interest rate risk and foreign currency exchange rate risk. The Company has experienced no significant changes in market risk during the first quarter of 2001. The Company's market risk is described in more detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. -9- 12 Part II Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.1 - Stock Disposition Agreement, dated April 29, 2001, among Associated Materials Incorporated, The Prudential Insurance Company of America and PCG Finance Company II, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated April 29, 2001). (b) Reports on Form 8-K No Current Reports on Form 8-K were filed by the Company during the quarter ended March 31, 2001. -10- 13 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: May 10, 2001 By: \s\ Robert L. Winspear ---------------------------- Robert L. Winspear Vice President and Chief Financial Officer Date: May 10, 2001 \s\ Robert L. Winspear ----------------------------- Robert L. Winspear Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -11- 14 INDEX TO EXHIBITS
Exhibit Number Description ------ ----------- 10.1 Stock Disposition Agreement, dated April 29, 2001, among Associated Materials Incorporated, The Prudential Insurance Company of America and PCG Finance Company II, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, dated April 29, 2001).
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