10-Q 1 d92188e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 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, 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 Incorporation of Organization) (I.R.S. Employer 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 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 November 13, 2001: 6,737,004 ASSOCIATED MATERIALS INCORPORATED FORM 10-Q FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets................................................................................ 1 September 30, 2001 (Unaudited) and December 31, 2000 Statements of Operations (Unaudited).......................................................... 2 Quarter and nine months ended September 30, 2001 and 2000 Statements of Cash Flows (Unaudited).......................................................... 3 Nine months ended September 30, 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............................... 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K......................................................... 12 SIGNATURES.......................................................................................... 13
Part I. Financial Information Item 1. Financial Statements ASSOCIATED MATERIALS INCORPORATED BALANCE SHEETS (Unaudited) (In Thousands, Except Share Data)
September 30, December 31, 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ................................... $ 13,224 $ 15,879 Short-term investment ....................................... -- 5,019 Accounts receivable, net .................................... 79,791 50,853 Inventories ................................................. 80,411 74,429 Income taxes receivable ..................................... -- 453 Other current assets ........................................ 3,972 4,213 ------------ ------------ Total current assets ........................................... 177,398 150,846 Property, plant and equipment, net ............................. 78,135 73,917 Investment in Amercord Inc. .................................... -- 2,393 Other assets ................................................... 4,098 3,985 ------------ ------------ Total assets ................................................... $ 259,631 $ 231,141 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................ $ 41,117 $ 19,273 Accrued liabilities ......................................... 30,316 29,509 Income taxes payable ........................................ 8,647 -- ------------ ------------ Total current liabilities ...................................... 80,080 48,782 Deferred income taxes .......................................... 5,585 3,927 Other liabilities .............................................. 5,136 5,442 Long-term debt ................................................. 75,000 75,000 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value: Authorized shares - 100,000 at September 30, 2001 and December 31, 2000 Issued shares - 0 at September 30, 2001 and December 31, 2000 ..................................... -- -- Common stock, $.0025 par value: Authorized shares - 15,000,000 Issued shares - 7,787,480 at September 30, 2001 and 7,164,024 at December 31, 2000 ................. 19 18 Common stock, Class B, $.0025 par value: Authorized and issued shares - 0 at September 30, 2001 and 1,550,000 at December 31, 2000 ................. -- 4 Less: Treasury stock, at cost - 1,078,476 shares at September 30, 2001 and 955,170 at December 31, 2000 ... (14,476) (12,425) Capital in excess of par ................................. 16,344 14,862 Retained earnings ........................................ 91,943 95,531 ------------ ------------ Total stockholders' equity ............................... 93,830 97,990 ------------ ------------ Total liabilities and stockholders' equity ..................... $ 259,631 $ 231,141 ============ ============
-1- ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Data)
Quarter Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Net sales............................................... $ 168,664 $ 134,811 $ 436,020 $ 372,611 Cost of sales........................................... 119,072 94,534 311,965 264,008 ---------- ---------- ---------- ---------- 49,592 40,277 124,055 108,603 Selling, general and administrative expense............. 30,450 27,122 88,849 78,423 ---------- ---------- ---------- ---------- Income from operations.................................. 19,142 13,155 35,206 30,180 Interest expense, net................................... 1,721 1,305 5,154 4,753 ---------- ---------- ---------- ---------- 17,421 11,850 30,052 25,427 Loss on the write-down of Amercord Inc.................. - - (2,393) - Gain on sale of UltraCraft.............................. - (336) - 8,012 ---------- ---------- ---------- ---------- Income before income taxes.............................. 17,421 11,514 27,659 33,439 Income tax expense ..................................... 6,707 5,547 10,649 13,987 ---------- ---------- ---------- ---------- Net income.............................................. $ 10,714 $ 5,967 $ 17,010 $ 19,452 ========== ========== ========== ========== Earnings Per Common Share - Basic: Net income per common share............................. $ 1.59 $ 0.74 $ 2.39 $ 2.42 ========== ========== ========== ========== Earnings Per Common Share - Assuming Dilution: Net income per common share............................. $ 1.52 $ 0.71 $ 2.29 $ 2.34 ========== ========== ========== ========== Dividends per common share.............................. $ 0.05 $ - $ 0.15 $ 0.10 =========== =========== ========== ==========
-2- ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended September 30, -------------------------------- 2001 2000 ---------- ---------- OPERATING ACTIVITIES Net income ................................................................. $ 17,010 $ 19,452 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................... 8,146 7,040 Deferred income taxes................................................. 1,658 2,593 Loss on the write-down of Amercord Inc................................ 2,393 - Loss on sale of assets................................................ 39 18 Gain on sale of UltraCraft............................................ - (8,012) Changes in operating assets and liabilities: Accounts receivable, net........................................... (28,938) (14,689) Inventories........................................................ (5,982) (10,023) Income taxes receivable/payable.................................... 8,927 4,398 Accounts payable and accrued liabilities........................... 22,651 11,555 Other assets and liabilities....................................... (210) (1,408) ---------- ---------- Net cash provided by operating activities................................... 25,694 10,924 INVESTING ACTIVITIES Proceeds from sale of short-term investment................................. 5,019 - Proceeds from sale of assets................................................ 114 64 Proceeds from sale of UltraCraft............................................ - 18,885 Additions to property, plant and equipment.................................. (12,312) (8,998) ---------- ---------- Net cash provided by (used by) investing activities......................... (7,179) 9,951 FINANCING ACTIVITIES Net proceeds from issuance of common stock.................................. 487 488 Repurchase of Class B shares................................................ (19,500) - Dividends paid.............................................................. (1,101) (801) Treasury stock acquired..................................................... (2,051) (924) Stock options............................................................... 995 557 ---------- ---------- Net cash used by financing activities....................................... (21,170) (680) Net increase (decrease) in cash............................................. (2,655) 20,195 Cash at beginning of period................................................. 15,879 3,432 ---------- ---------- Cash at end of period....................................................... $ 13,224 $ 23,627 ========== ========== Supplemental information: Cash paid for interest...................................................... $ 7,150 $ 7,147 ========== ========== Net cash paid for income taxes.............................................. $ 1,144 $ 7,628 ========== ==========
-3- ASSOCIATED MATERIALS INCORPORATED NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 (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, 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. 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, 2001 2000 ------------ ------------ Raw materials.................................................................. $ 22,698 $ 23,229 Work in process................................................................ 5,695 5,101 Finished goods and purchased stock............................................. 52,018 46,099 ---------- ---------- $ 80,411 $ 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 repurchased 12,900 shares under this program during the third quarter of 2001. For the nine months ended September 30, 2001, the Company repurchased 123,306 shares of its common stock at a cost of $2.1 million. At September 30, 2001, 1,037,080 shares have been repurchased since the program's inception. The Class B share repurchase described below was not a part of this stock repurchase program. 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, which has been reflected primarily as a reduction to retained earnings. 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 converted the remaining 550,000 shares of Class B Common Stock held by these entities into 550,000 shares of common stock pursuant to the terms of the Company's certificate of incorporation. The Company has retired all 1,550,000 previously authorized shares of Class B Common Stock. NOTE 4 - AMERCORD INC. The Company wrote off its $2.4 million investment in Amercord Inc. during the first quarter of 2001. Amercord's -4- operating results and financial position deteriorated during the first quarter 2001 and Amercord ceased operations in the second 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. NOTE 5 - EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Quarter Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Numerator: Numerator for basic and diluted earnings per common share - net income .......................... $ 10,714 $ 5,967 $17,010 $19,452 Denominator: Denominator for basic earnings per common share - weighted-average shares..................... 6,721 8,065 7,122 8,035 Effect of dilutive securities: Employee stock options.............................. 323 286 293 263 --------- --------- --------- --------- Denominator for diluted earnings per common share - adjusted weighted-average shares............ 7,044 8,351 7,415 8,298 Basic earnings per common share .......................... $ 1.59 $ 0.74 $ 2.39 $ 2.42 ========= ========= ========= ========= Diluted earnings per common share......................... $ 1.52 $ 0.71 $ 2.29 $ 2.34 ========= ========= ========= =========
For the nine months ended September 30, 2000 options to purchase 40,000 shares of common stock were excluded from the calculation of weighted average shares outstanding because the average exercise price of these shares was higher than the average market price of the common stock during the period. NOTE 6 - DIVIDENDS During the third quarter of 2001, the Company's Board of Directors declared a cash dividend of $0.05 per share. The Company presently intends to pay a regular quarterly cash dividend of $0.05 per share. However, the Company's ability to make restricted payments, such as dividend payments, is restricted by covenants in its existing bank credit agreement and the Indenture pursuant to which the Company's 9 1/4% Senior Subordinated Notes were issued. At September 30, 2001, the Company had the ability to make restricted payments of up to $11.0 million under the more restrictive provision of these agreements. NOTE 7 - RECLASSIFICATIONS Certain prior period amounts have been reclassified to conform with the current period presentation. -5- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Quarter Ended September 30, 2001 Compared to Quarter Ended September 30, 2000 The table below sets forth for the periods indicated certain items of the Company's financial statements by segment:
Quarter Ended September 30, --------------------------------------------------------------------- 2001 2000 ------------------------------- ------------------------------ Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales --------- --------------- --------- --------------- Total Company: Net sales - Alside (1).................... $150,942 89.5% $ 118,715 88.1% Net sales - AmerCable (1)................. 17,722 10.5 16,096 11.9 --------- ------- --------- ------- Total net sales........................ 168,664 100.0 134,811 100.0 Gross profit.............................. 49,592 29.4 40,277 29.9 Selling, general and administrative expense (2)............. 30,450 18.1 27,122 20.1 --------- ------- --------- ------- Income from operations.................... $ 19,142 11.3% $ 13,155 9.8% ========= ======= ========= ======= Alside: Net sales (1)............................. $ 150,942 100.0% $ 118,715 100.0% Gross profit.............................. 46,075 30.5 36,925 31.1 Selling, general and Administrative expense................. 27,565 18.3 24,405 20.6 --------- ------- --------- ------- Income from operations.................... $ 18,510 12.2% $ 12,520 10.5% ========= ======= ========= ======= AmerCable: Net sales (1)............................. $ 17,722 100.0% $ 16,096 100.0% Gross profit.............................. 3,517 19.8 3,352 20.8 Selling, general and Administrative expense................. 1,843 10.4 1,677 10.4 --------- ------- --------- ------- Income from operations.................... $ 1,674 9.4% $ 1,675 10.4% ========= ======= ========= =======
(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 $1,042,000 and $1,040,000 for the quarters ended September 30, 2001 and 2000, respectively. Overview The Company's net sales increased 25.1% to $168.7 million for the quarter ended September 30, 2001 compared to $134.8 million for the same period in 2000 due to higher sales volume at both the Company's Alside and AmerCable divisions. Income from operations increased 45.5% to $19.1 million for the third quarter 2001 compared to $13.2 million for the same period in 2000 due primarily to higher operating profits at Alside. The Company's net income was $10.7 million, or $1.52 per share, for the third quarter of 2001 compared to $6.0 million, or $0.71 per share, for the same period in 2000. During the third quarter 2000, the Company recorded $1.1 million of additional income tax expense due to an adjustment to a deferred tax asset and a $336,000 decrease ($207,000 after tax) in the gain on the sale of UltraCraft due to a purchase price adjustment. Exclusive of these items, the Company's 2000 net income and earnings per share were $7.3 million and $0.87, respectively. -6- ALSIDE. Alside's net sales increased 27.1% to $150.9 million for the quarter ended September 30, 2001 as compared to $118.7 million for the same period in 2000 due primarily to higher sales volume of vinyl siding and vinyl windows. Alside's unit sales of vinyl siding increased 14.7% for the third quarter 2001 compared to 9.5% for the vinyl siding industry as a whole. Unit sales of vinyl windows (exclusive of the Alpine window operations acquired in October 2000) increased 57.6%. Gross profit as a percentage of sales decreased to 30.5% for the 2001 period compared to 31.1% for the 2000 period due to changes in Alside's product mix to lower margin vinyl windows. Selling, general and administrative expense increased to $27.6 million in 2001 compared to $24.4 million for the 2000 period, but decreased as a percentage of sales from 20.6% to 18.3%. The increase in SG&A expense is due to higher personnel cost (including incentive compensation), an increase in the number of salaried personnel with the addition of the Alpine window facility and increased expenditures to open new Supply Centers and support growth at existing locations. Income from operations increased 47.8% to $18.5 million for the third quarter 2001 compared to $12.5 million for the 2000 period and increased as a percentage of sales to 12.2% for the 2001 period from 10.5% in the 2000 period. AMERCABLE. AmerCable's net sales increased to $17.7 million for the third quarter of 2001 as compared with $16.1 million for the same period in 2000 due primarily to higher sales volume of marine and mining cable products. As anticipated, sales of telecommunication power cable were soft during the third quarter 2001 due to reduced infrastructure expenditures by the telecommunications industry. The telecommunications cable market is anticipated to remain soft into 2002. Gross profit as a percentage of sales decreased to 19.8% for the 2001 period as compared to 20.8% for the 2000 period due to higher operating costs. Selling, general and administrative expense increased to $1.8 million for the 2001 period compared to $1.7 million for the same period in 2000 due to higher personnel costs. Income from operations remained consistent at $1.7 million for the third quarter 2001 as higher sales volume was offset by lower gross profits and higher selling, general and administrative expense. OTHER. Net interest expense increased $416,000 for the third quarter of 2001 compared with the same period in 2000 due primarily to a decrease in the Company's investment income as a result of lower cash and investment balances. The Company recorded interest income of $44,000 for the quarter ended September 30, 2001 as compared to $460,000 for the same period in 2000. -7- Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000. The table below sets forth for the periods indicated certain items of the Company's financial statements by segments.
Nine Months Ended September 30, -------------------------------------------------------------------------- 2001 2000 ------------------------------------ ----------------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales ----------- --------------- ----------- --------------- Total Company: Net sales - Alside (1).................... $ 380,087 87.2% $ 324,991 87.2% Net sales - AmerCable (1)................. 55,933 12.8 47,620 12.8 ----------- ------- ----------- ------- Total net sales........................ 436,020 100.0 372,611 100.0 Gross profit.............................. 124,055 28.5 108,603 29.1 Selling, general and administrative expense (2)............. 88,849 20.4 78,423 21.0 ----------- ------- ----------- ------- Income from operations.................... $ 35,206 8.1% $ 30,180 8.1% =========== ======= =========== ======= Alside: Net sales (1)............................. $ 380,087 100.0% $ 324,991 100.0% Gross profit.............................. 113,139 29.8 99,468 30.6 Selling, general and Administrative expense................. 79,413 20.9 70,578 21.7 ----------- ------- ----------- ------- Income from operations.................... $ 33,726 8.9% $ 28,890 8.9% =========== ======= =========== ======= AmerCable: Net sales (1)............................. $ 55,933 100.0% $ 47,620 100.0% Gross profit.............................. 10,916 19.5 9,135 19.2 Selling, general and Administrative expense................. 5,448 9.7 4,760 10.0 ----------- ------- ----------- ------- Income from operations.................... $ 5,468 9.8% $ 4,375 9.2% =========== ======= =========== =======
(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 $3,988,000 and $3,085,000 for the nine-month periods ended September 30, 2001 and 2000, respectively. Overview The Company's net sales increased 17.0% to $436.0 million for the nine months ended September 30, 2001 as compared to $372.6 million for the same period in 2000 as sales increased at both Alside and AmerCable. Income from operations increased to $35.2 million for the 2001 period compared to $30.2 million for the 2000 period due to higher operating profits at both Alside and AmerCable. The Company's net income was $17.0 million, or $2.29 per share for the nine months ended September 30, 2001 compared to $19.5 million, or $2.34 per share for the 2000 period. The Company's 2001 results include the writedown of the Company's Amercord investment, while the 2000 results include an $8.0 million gain ($4.9 million after tax) on the sale of UltraCraft and $1.1 million in additional income tax expense recorded due to an adjustment to a deferred tax asset. Exclusive of these items net income was $18.5 million ($2.49 per share) and $15.6 million ($1.88 per share) for the nine months ended September 30, 2001 and 2000, respectively. ALSIDE. Alside's net sales for the nine months ended September 30, 2001 increased 17.0% to $380.1 million compared to $325.0 million for the same period in 2000 due to higher sales volume of both vinyl siding and vinyl windows. For the nine months ended September 30, 2001, unit sales of vinyl siding and vinyl windows (exclusive of the Alpine operations acquired in October 2000) increased 7.9% and 47.8%, respectively compared to the 2000 period. Gross profit as a percentage of sales decreased to 29.8% for the 2001 period compared to 30.6% for the 2000 period due to a shift in product mix to lower margin vinyl windows. Selling, general and administrative expense increased to $79.4 million for the 2001 period -8- compared to $70.6 million for the same period in 2000 due to higher personnel costs and increased Supply Center expenditures. Income from operations increased 16.7% to $33.7 million for the nine months ended September 30, 2001 compared to $28.9 million for the 2000 period. AMERCABLE. AmerCable's net sales increased 17.5% to $55.9 million for the nine months ended September 30, 2001 as compared to $47.6 million in the 2000 period due to higher sales across all product lines, particularly marine cable products. Gross profit as a percentage of sales increased to 19.5% for the 2001 period compared to 19.2% for the same period in 2000 due to favorable fixed cost absorption. Selling, general and administrative expenses increased to $5.4 million for the nine months ended 2001 due to higher personnel costs, but decreased as a percentage of sales. Income from operations increased to $5.5 million for the nine months ended 2001 as compared to $4.4 million for the same period in 2000 due to higher sales volume and slightly higher gross profit margins. OTHER. Net interest expense increased $401,000 or 8.4% for the nine months ended September 30, 2001 as compared to the same period in 2000. The increase was due to a decrease in the Company's investment income. The Company recorded interest income of $260,000 for the nine months ended September 30, 2001 as compared to $659,000 for the 2000 period. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001 the Company had cash and cash equivalents of $13.2 million and available borrowing capacity of approximately $47.9 million under its existing credit facility. Outstanding letters of credit secured by this credit facility totaled $2.1 million relating to various insurance letters of credit. Net cash provided by operations was $25.7 million in the nine months ended September 30, 2001 compared with $10.9 million in the same period in 2000. The increase in cash provided by operations for the 2001 period compared to the 2000 period was due primarily to higher accounts payable and accrued liabilities due to more aggressive cash management and higher profits which were partially offset by higher accounts receivable and inventory balances resulting from increased sales volume. The Company's accounts receivable, inventories and accounts payable at September 30, 2001 were significantly higher than the comparable year end balances primarily due to the seasonal nature of the Company's Alside business. The Company typically reports its highest sales volume in the third quarter, whereas fourth quarter sales are significantly lower due to much lower sales volume in the month of December. Although the accounts receivable balance increased 56.9% at September 30, 2001 compared to December 31, 2000, accounts receivable days outstanding were comparable at September 30, 2000 and 2001. Inventory balances have not increased proportionately with sales due to improved inventory management and the significant increase in vinyl window sales, which, due to their custom manufacture, have relatively small amounts of finished goods inventory. Accounts payable increased to $41.1 million at September 30, 2001 compared to $19.3 million due to the seasonal reasons discussed above as well as the timing of certain vendor payments. Capital expenditures totaled $12.3 million for the nine months ended September 30, 2001, compared with $9.0 million during the same period in 2000. Alside expenditures for the nine months ended September 30, 2001 were used primarily to increase window and fence capacity and for a new financial and ERP system which will be implemented over the next two years at a total cost of approximately $10.3 million. Expenditures for the new ERP system totaled $3.3 million for 2001 period. Expenditures at AmerCable were used primarily to expand manufacturing capacity. In connection with the recapitalization of Amercord in November 1999, the Company guaranteed a $3.0 million note secured by Amercord's real property. Amercord ceased operations in the second quarter of 2001. As of the date of this report, the lender has not requested the Company to make a payment under the guaranty. Should the guaranty 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 guaranty up to $1.5 million. Based on a third party appraisal of Amercord's real property, the Company believes that it is adequately secured under its guaranty of the $3.0 million Amercord note such that no losses are anticipated with respect to this guaranty. -9- 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. Following the purchase, Prudential and PCG converted the remaining 550,000 shares of Class B Common Stock held by these entities into 550,000 shares of common stock pursuant to the terms of the Company's certificate of incorporation. The Company has retired all 1,550,000 previously authorized shares of Class B Common Stock. During the third quarter of 2001, the Company's Board of Directors declared a cash dividend of $0.05 per share. The Company presently intends to pay a regular quarterly cash dividend of $0.05 per share. However, the Company's ability to make restricted payments, such as dividend payments, is restricted by covenants in its existing bank credit agreement and the Indenture pursuant to which the Company's 9 1/4% Senior Subordinated Notes were issued. At September 30, 2001, the Company had the ability to make restricted payments of up to $11.0 million under the more restrictive provision of these agreements. 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 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 changes. Alside has historically been able to pass on price increases to its customers. No assurances can be given that Alside will be able to pass on any price increases in the future. 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 and spending as a result of the events of September 11, 2001, 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. -10- 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'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. The Company has experienced no significant changes in market risk during the quarter or nine months ended September 30, 2001. -11- Part II. Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Reports on Form 8-K Associated Materials Incorporated did not file any Current Reports on Form 8-K during the quarter ended September 30, 2001. -12- 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, 2001 By: \s\ Robert L. Winspear --------------------------------- Robert L. Winspear Vice President and Chief Financial Officer Date: November 13, 2001 \s\ Robert L. Winspear --------------------------------- Robert L. Winspear Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -13-