-----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, SZ4/RrjtzCNisOWMqVqO8DlUheiIozfRKy3Zr6oc1Iu3GXJhE8Gn9/JbpNEIz/iv lTF4xHwCb2xudG7h/tlPeA== 0000950134-99-010103.txt : 19991117 0000950134-99-010103.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950134-99-010103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753203 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, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------------- FORM 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, 1999 ---------------------------------------- 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 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 15, 1999: 6,481,883 ----------- Shares of Class B Common Stock, $.0025 par value outstanding at November 15, 1999: 1,550,000 ----------- 2 ASSOCIATED MATERIALS INCORPORATED FORM 10-Q FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets......................................................... 1 September 30, 1999 (Unaudited) and December 31, 1998 Statements of Operations (Unaudited)................................... 2 Quarter and nine months ended September 30, 1999 and 1998 Statements of Cash Flows (Unaudited)................................... 3 Nine months ended September 30, 1999 and 1998 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
3 Part I. Financial Information Item 1. Financial Statements ASSOCIATED MATERIALS INCORPORATED BALANCE SHEETS (In Thousands, Except Share Data)
September 30, December 31, 1999 1998 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents......................................... $ 3,085 $ 14,964 Accounts receivable, net.......................................... 57,856 45,756 Inventories....................................................... 71,318 56,245 Other current assets.............................................. 3,304 3,572 ----------- ----------- Total current assets................................................. 135,563 120,537 Property, plant and equipment, net................................... 71,701 61,130 Investment in Amercord Inc........................................... 3,559 4,961 Other assets......................................................... 2,921 2,691 ----------- ----------- Total assets......................................................... $ 213,744 $ 189,319 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank overdrafts................................................... $ 3,204 $ - Accounts payable.................................................. 27,454 11,713 Accrued liabilities............................................... 21,232 25,417 Income taxes payable.............................................. 5,064 582 Current portion of long-term debt................................. - 3,600 ----------- ----------- Total current liabilities............................................ 56,954 41,312 Deferred income taxes................................................ 996 2,616 Other liabilities.................................................... 5,925 6,013 Long-term debt....................................................... 75,000 75,000 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value: Authorized shares - 100,000 at September 30, 1999 and December 31, 1998 Issued shares - 0 at September 30, 1999 and December 31, 1998........................................... - - Common stock, $.0025 par value: Authorized shares - 15,000,000 Issued shares - 6,987,279 at September 30, 1999 and 6,938,747 at December 31, 1998....................... 17 17 Common stock, Class B, $.0025 par value: Authorized and issued shares - 1,550,000 at September 30, 1999 and December 31, 1998................. 4 4 Less: Treasury stock, at cost - 505,396 shares at September 30, 1999 and 88,396 at December 31, 1998.......... (5,901) (1,048) Capital in excess of par....................................... 12,734 12,273 Retained earnings.............................................. 68,015 53,132 ----------- ----------- Total stockholders' equity..................................... 74,869 64,378 ----------- ----------- Total liabilities and stockholders' equity........................... $ 213,744 $ 189,319 =========== ===========
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, --------------------------- --------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales............................................... $ 128,388 $ 114,201 $ 331,893 $ 301,640 Cost of sales........................................... 88,920 77,671 228,437 208,691 ---------- ---------- ---------- ---------- 39,468 36,530 103,456 92,949 Selling, general and administrative expense............. 25,004 23,956 71,145 66,481 ---------- ---------- ---------- ---------- Income from operations.................................. 14,464 12,574 32,311 26,468 Interest expense........................................ 1,685 1,802 5,124 5,982 ---------- ---------- ---------- ---------- 12,779 10,772 27,187 20,486 Equity in loss of Amercord Inc.......................... (857) (645) (1,402) (1,839) ---------- ---------- ---------- ---------- Income before income taxes and extraordinary item................................... 11,922 10,127 25,785 18,647 Income tax expense ..................................... 4,590 4,386 10,057 8,288 ---------- ---------- ---------- ---------- Income before extraordinary item........................ 7,332 5,741 15,728 10,359 Extraordinary loss from retirement of debt, net of income taxes...................................... - (53) - (4,107) ---------- ---------- ---------- ---------- Net income.............................................. $ 7,332 $ 5,688 $ 15,728 $ 6,252 ========== ========== ========== ========== Earnings Per Common Share - Basic: Income before extraordinary item........................ $ 0.91 $ 0.68 $ 1.93 $ 1.26 Extraordinary loss from retirement of debt.............. - - - (0.50) ---------- ---------- ---------- ---------- Net income per common share............................. $ 0.91 $ 0.68 $ 1.93 $ 0.76 ========== ========== ========== ========== Earnings Per Common Share - Assuming Dilution: Income before extraordinary item........................ $ 0.88 $ 0.67 $ 1.88 $ 1.23 Extraordinary loss from retirement of debt.............. - - - (0.49) ---------- ---------- ---------- ---------- Net income per common share............................. $ 0.88 $ 0.67 $ 1.88 $ 0.74 ========== ========== ========== ==========
See accompanying notes. -2- 5 ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended September 30, -------------------------------- 1999 1998 ---------- ---------- OPERATING ACTIVITIES Net income ................................................................. $ 15,728 $ 6,252 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................... 6,226 5,374 Deferred income taxes................................................. (1,620) (547) Loss in earnings of Amercord Inc...................................... 1,402 1,839 Loss on sale of assets................................................ 30 19 Extraordinary loss on retirement of debt.............................. - 4,107 Changes in operating assets and liabilities: Accounts receivable, net........................................... (12,100) (4,253) Inventories........................................................ (15,073) (7,124) Income taxes receivable/payable.................................... 4,482 7,294 Bank overdrafts.................................................... 3,204 (4,769) Accounts payable and accrued liabilities........................... 11,556 8,350 Other assets and liabilities....................................... (254) (721) ---------- ---------- Net cash provided by operating activities................................... 13,581 15,821 INVESTING ACTIVITIES Proceeds from sale of assets................................................ 38 45 Additions to property, plant and equipment.................................. (16,661) (9,712) Investment in Amercord Inc.................................................. - (500) ---------- ---------- Net cash used by investing activities....................................... (16,623) (10,167) FINANCING ACTIVITIES Net proceeds from issuance of long-term debt................................ - 75,000 Net proceeds from issuance of common stock.................................. 431 11,485 Net decrease in revolving line of credit.................................... - (564) Principal payments of long-term debt........................................ (3,600) (1,300) Principal payments on 11 1/2% Senior Subordinated Notes..................... - (75,000) Prepayment premium of early retirement of debt.............................. - (4,899) Debt issuance cost.......................................................... - (2,509) Dividends paid.............................................................. (845) (569) Treasury stock acquired..................................................... (4,853) - Options exercised........................................................... 30 - ---------- ---------- Net cash provided by (used by) financing activities......................... (8,837) 1,644 Net increase (decrease) in cash............................................. (11,879) 7,298 Cash at beginning of period................................................. 14,964 1,935 ---------- ---------- Cash at end of period....................................................... $ 3,085 $ 9,233 ========== ========== Supplemental information: Cash paid for interest...................................................... $ 7,075 $ 8,857 ========== ========== Net cash paid for income taxes.............................................. $ 8,951 $ 2,966 ========== ==========
See accompanying notes. -3- 6 ASSOCIATED MATERIALS INCORPORATED NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (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, 1999 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, 1998 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, 1999 1998 ------------- ------------ Raw materials.................................................................. $ 21,098 $ 16,422 Work in process................................................................ 5,723 4,728 Finished goods and purchased stock............................................. 44,497 35,095 ---------- ---------- $ 71,318 $ 56,245 ========== ==========
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, -------------------------- -------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales.............................................. $ 9,232 $ 15,565 $ 36,464 $ 48,492 Costs and expenses..................................... 11,613 17,270 39,890 53,270 ---------- ---------- ---------- ---------- Loss from operations................................... (2,381) (1,705) (3,426) (4,778) Interest expense....................................... 343 343 1,027 1,061 Income tax benefit..................................... (1,010) (758) (1,650) (2,161) ---------- ---------- ---------- ---------- Net loss............................................... $ (1,714) $ (1,290) $ (2,803) $ (3,678) ========== ========== ========== ========== Company's share of net loss............................ $ (857) $ (645) $ (1,402) $ (1,839) ========== ========== ========== ==========
Amercord is not in compliance with certain financial covenants under its existing bank credit agreement. Amercord has extended its forbearance agreement with its lender to November 26, 1999 subject to certain conditions. In connection with this forbearance agreement, the Company has guaranteed borrowings of up to $4,000,000 under Amercord's credit agreement. The Company is currently in the later stages of negotiating the sale of its Amercord affiliate. The sale is expected to close in the fourth quarter of 1999 and is not expected to materially impact the results of that quarter; however, there can be no assurance that the sale of Amercord can be completed or the timing thereof. NOTE 4 - STOCKHOLDERS' EQUITY In October 1998 the Company's Board of Directors approved a stock repurchase program. Under its stock repurchase program, the Company is authorized to purchase up to 800,000 shares of common stock in open market transactions. At September 30, 1999, 464,000 shares have been purchased under the program at a cost of $5,359,000. -4- 7 During the quarter ended September 30, 1999, the Company purchased 65,000 shares of its common stock at a cost of $926,000. For the nine months ended September 30, 1999, the Company has purchased 417,000 shares of its common stock at a cost of $4,853,000. NOTE 5 - 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, ------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Numerator: Numerator for basic and diluted earnings per common share - earnings before extraordinary item............................... $ 7,332 $ 5,741 $ 15,728 $ 10,359 Denominator: Denominator for basic earnings per common - share weighted-average shares...................... 8,056 8,402 8,163 8,213 Effect of dilutive securities: Employee stock options.............................. 245 133 205 232 --------- --------- --------- --------- Denominator for diluted earnings per common share - adjusted weighted-average shares............ 8,301 8,535 8,368 8,445 Basic earnings per common share before extraordinary item..................................... $ 0.91 $ 0.68 $ 1.93 $ 1.26 ========= ========= ========= ========= Diluted earnings per common share before extraordinary item..................................... $ 0.88 $ 0.67 $ 1.88 $ 1.23 ========= ========= ========= =========
For the quarter and nine months ended September 30, 1999, 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 - AMENDMENT OF REVOLVING CREDIT AGREEMENT The Company amended its existing $50 million bank credit facility that expired on May 31, 1999 to extend the term of the credit facility through May 2002. The Company's amended bank credit agreement has improved pricing terms based upon the Company's financial performance and released the lender's security interest in the Company's equipment. -5- 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998 The table below sets forth for the periods indicated certain items of the Company's financial statements by segment:
Quarter Ended September 30, --------------------------------------------------------------------- 1999 1998 ------------------------------- -------------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales --------- --------------- ----------- --------------- Total Company: Net sales - Alside........................ $ 117,466 91.5% $ 102,593 89.8% Net sales - AmerCable..................... 10,922 8.5 11,608 10.2 --------- ------- ---------- ------ Total net sales........................ 128,388 100.0 114,201 100.0 Gross profit.............................. 39,468 30.7 36,530 32.0 Selling, general and administrative expense (1)............. 25,004 19.5 23,956 21.0 --------- ------- ---------- ------ Income from operations.................... $ 14,464 11.3% $ 12,574 11.0% ========= ======= ========== ====== Alside: Net sales................................. $ 117,466 100.0% $ 102,593 100.0% Gross profit.............................. 37,404 31.8 34,108 33.2 Selling, general and administrative expense................. 22,745 19.3 22,010 21.4 --------- ------- ---------- ------ Income from operations.................... $ 14,659 12.5% $ 12,098 11.8% ========= ======= ========== ====== AmerCable: Net sales................................. $ 10,922 100.0% $ 11,608 100.0% Gross profit.............................. 2,064 18.9 2,422 20.9 Selling, general and administrative expense................. 1,299 11.9 1,206 10.4 --------- ------- ---------- ------ Income from operations.................... $ 765 7.0% $ 1,216 10.5% ========= ======= ========== ======
(1) Consolidated selling, general and administrative expenses include corporate expenses of $960,000 and $740,000 for the quarters ended September 30, 1999 and 1998, respectively. Overview The Company's net sales increased to $128.4 million or 12.4% for the third quarter of 1999 as compared to the 1998 period due to higher sales at the Company's Alside division. Income from operations increased 15.0% to $14.5 million for the third quarter of 1999 due to higher profits at its Alside division. The Company's income before extraordinary item was $7.3 million or $0.88 per share for the third quarter of 1999 as compared to $5.7 million or $0.67 per share for the same period in 1998 due to higher income from operations, lower interest expense and improved tax rates. ALSIDE. Alside's net sales increased 14.5% to $117.5 million for the quarter ended September 30, 1999 as compared to $102.6 million for the same period in 1998 due primarily to higher sales volume. Unit sales of vinyl siding increased 15.1% for the third quarter of 1999 as compared to the 1998 period. Unit sales of vinyl windows increased 11.6% for the third quarter of 1999 as compared to 1998. Gross profit as a percentage of net sales decreased for the quarter ended 1999 due primarily to lower margins on vinyl siding and windows. Margins on vinyl -6- 9 products were adversely affected by an increase in vinyl resin prices. Alside recovered the cost of vinyl resin price increases by increasing the average sales price for vinyl siding products, but was not able to recover any incremental margin on the sales price increases. Income from operations increased $2.6 million to $14.7 million for the third quarter of 1999 as compared to the same period in 1998. Selling, general and administrative expense increased to $22.7 million but decreased as a percentage of net sales. AMERCABLE. AmerCable's net sales decreased 5.9% to $10.9 million for the third quarter of 1999 as compared with $11.6 million for the same period in 1998 due primarily to lower sales to AmerCable's offshore drilling industry customers due to decreased demand resulting from lower commodity prices. Gross profit as a percentage of sales decreased to 18.9% for the 1999 period as compared to 20.9% for the 1998 period due to lower fixed cost absorption resulting from lower production volumes. Income from operations was $765,000 for the quarter ended September 30, 1999 as compared to $1.2 million for the same period in 1998. Selling, general and administrative expenses increased 7.7% to $1.3 million for the third quarter of 1999 due to higher personnel costs and higher advertising expenditures. AMERCORD. The Company recorded a loss of $857,000 reflecting its share of the after-tax loss of Amercord for the quarter ended September 30, 1999 as compared with a loss of $645,000 during the same period in 1998. Amercord's gross profit decreased $440,000 to $(1.5) million for the quarter ended September 30, 1999 as compared to $(1.1) million for the same period in 1998 due to lower sales volume and lower manufacturing efficiencies resulting from the loss of a major customer. Amercord expects to resume sales to this customer in 2000. Selling, general and administrative expenses increased to $894,000 in the 1999 period from $557,000 for the 1998 period due primarily to costs associated with a voluntary severance program. OTHER. Net interest expense decreased $117,000 or 6.5% for the third quarter of 1999 compared with the same period in 1998 due primarily to the repayment of the Company's taxable notes in April 1999. The Company recorded interest income of $76,000 for the quarter ended September 30, 1999. The Company's effective tax rate has decreased due to lower state taxes. -7- 10 Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998. The table below sets forth for the periods indicated certain items of the Company's financial statements by segments.
Nine Months Ended September 30, ----------------------------------------------------------------------- 1999 1998 --------------------------------- -------------------------------- Percentage of Percentage of Amount Total Net Sales Amount Total Net Sales ----------- --------------- ----------- --------------- Total Company: Net sales - Alside........................ $ 300,730 90.6% $ 261,947 86.8% Net sales - AmerCable..................... 31,163 9.4 39,693 13.2 ----------- ------- ----------- ------ Total net sales........................ 331,893 100.0 301,640 100.0 Gross profit.............................. 103,456 31.2 92,949 30.8 Selling, general and administrative expense (1)............. 71,145 21.4 66,481 22.0 ----------- ------- ----------- ------ Income from operations.................... $ 32,311 9.7% $ 26,468 8.8% =========== ======= =========== ====== Alside: Net sales................................. $ 300,730 100.0% $ 261,947 100.0% Gross profit.............................. 98,206 32.7 84,591 32.3 Selling, general and administrative expense................. 64,866 21.6 60,781 23.2 ----------- ------- ----------- ------ Income from operations.................... $ 33,340 11.1% $ 23,810 9.1% =========== ======= =========== ====== AmerCable: Net sales................................. $ 31,163 100.0% $ 39,693 100.0% Gross profit.............................. 5,250 16.8 8,358 21.1 Selling, general and administrative expense................. 3,491 11.2 3,756 9.5 ----------- ------- ----------- ------ Income from operations.................... $ 1,759 5.6% $ 4,602 11.6% =========== ======= =========== ======
(1) Consolidated selling, general and administrative expenses include corporate expenses of $2,788,000 and $1,944,000 for the nine-month periods ended September 30, 1999 and 1998, respectively. Overview The Company's net sales increased to $331.9 million up 10.0% for the nine months ended September 30, 1999 as compared to $301.6 million for the same period in 1998 due to strong sales at the Company's Alside division. Income from operations increased by $5.8 million or 22.1% to $32.3 million for the nine months ended September 30, 1999 due to increased profitability at the Company's Alside division. The Company's income before extraordinary item increased to $15.7 million ($1.88 per share) for the nine months ended September 30, 1999 as compared to $10.4 million ($1.23 per share) for the same period in 1998 due to higher income from operations, lower interest expense and smaller losses from the Company's Amercord affiliate. ALSIDE. Alside's net sales for the nine months ended September 30, 1999 increased 14.8% to $300.7 million as compared to $261.9 million for the same period in 1998 due to higher sales volume across all product lines. For the nine months ended September 30, 1999, unit sales of vinyl siding and vinyl windows increased 17.2% and 11.0%, respectively as compared to the same period in 1998. Gross profit as a percentage of net sales increased to 32.7% for the nine months ended September 30, 1999 as compared to 32.3% for the same period in 1998. Selling, general and administrative expense increased to $64.9 million for the nine months ended September 30, 1999 due to higher personnel costs and incentive compensation. Income from operations increased 40.0% to $33.3 million for the nine months ended September 30, 1999 as compared to $23.8 million for the same period in 1998 due to improved gross profits that were partially offset by increased selling, general and administrative expenses. -8- 11 AMERCABLE. AmerCable's net sales decreased to $31.2 million for the nine months ended September 30, 1999 as compared to $39.7 million in the 1998 period due primarily to lower sales to AmerCable's mining and offshore drilling industry customers due to decreased demand resulting from lower commodity prices. Gross profit decreased $3.1 million or 37.2% to $5.3 million for the nine months ended September 30, 1999 as compared to the 1998 period principally due to unfavorable fixed cost absorption resulting from lower production volume and reduced sales volume. Selling, general and administrative expenses decreased 7.1% to $3.5 million due to lower personnel costs, primarily incentive compensation. Income from operations decreased $2.8 million to $1.8 million for the nine months ended 1999 as compared to $4.6 million for the same period in 1998. AMERCORD. The Company recorded a loss of $1.4 million for its equity in the after-tax loss of Amercord for the nine months ended September 30, 1999 as compared to a loss of $1.8 million during the same period in 1998. Amercord's gross profit increased $1.7 million to $(1.2) million for the nine months ended September 30, 1999 as compared to $(2.9) million for the same period in 1998 due primarily to increased manufacturing efficiencies. Selling, general and administrative expenses increased to $2.3 million in 1999 from $1.8 million in 1998. OTHER. Net interest expense decreased $858,000 or 14.3% for the nine months ended September 30, 1999 as compared to the same period in 1998. The decrease was due primarily to the repurchase and redemption of $75.0 million of 11 1/2% senior subordinated notes and the issuance of the 9 1/4% senior subordinated notes and the repayment of the Company's taxable notes. The Company recorded interest income of $217,000 for the nine months ended September 30, 1999. The Company's effective tax rate has decreased due to lower state taxes. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1999 the Company had cash and cash equivalents of $3.1 million and available borrowing capacity of approximately $44.4 million under its existing credit facility. Outstanding letters of credit totaled $5.6 million securing $1.6 million of various insurance letters of credit and $4.0 million securing a letter of credit to guarantee borrowings of up to $4.0 million of Amercord's credit facility. The Company amended its existing $50 million bank credit facility that expired on May 31, 1999 to extend the term of the credit facility through May 2002. The Company's amended bank credit agreement has improved pricing terms based upon the Company's financial performance and released the lender's security interest in the Company's equipment. Net cash provided by operations was $13.6 million in the nine months ended September 30, 1999 compared with $15.8 million in the same period in 1998. The decrease in cash provided by operations for the 1999 period as compared to the 1998 period was due primarily to higher sales that resulted in increased accounts receivable and inventories. Capital expenditures totaled $16.7 million for the nine months ended September 30, 1999, compared with $9.7 million during the same period in 1998. Expenditures in the 1999 period were used primarily in the construction of the Company's new vinyl siding manufacturing plant as well as to increase production flexibility and capacity at AmerCable. Capital expenditures on the new vinyl siding manufacturing plant were $9.4 million in 1999. Operations began at the Company's new vinyl siding facility in July of 1999. During the nine months ended September 30, 1999, the Company purchased 417,000 shares of its common stock at a cost of $4.9 million. These purchases were made under its previously announced share repurchase program pursuant to which the Company is authorized to purchase up to a total of 800,000 shares of common stock from time to time in open market transactions. The Company's ability to repurchase shares of its common stock is subject to the terms of the indenture pursuant to which its 9 1/4% senior subordinated notes were issued. Amercord is not in compliance with certain financial covenants under its existing bank credit agreement. Amercord has extended its forbearance agreement with its lender to November 26, 1999 subject to certain conditions. In connection with this forbearance agreement, the Company has guaranteed borrowings of up to $4,000,000 under Amercord's credit agreement. The Company is currently in the later stages of negotiating the sale of its Amercord affiliate. The sale is expected to close in the fourth quarter of 1999 and is not expected to materially impact the results of that quarter; however, there can be no assurance that the sale of Amercord can be completed or the timing thereof. The Company believes the future cash flows from operations and its borrowing capacity under its existing or new 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. -9- 12 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. Updates to Alside's manufacturing systems were completed in the first quarter of 1999. Testing of its manufacturing systems was completed in the second quarter of 1999. Alside has established a task force consisting of representatives from Information Services, distribution and each of the manufacturing facilities to review the status of its PC systems. Alside identified the system updates necessary to ensure its PC systems are Year 2000 compliant. Alside anticipates completion of its PC systems update by November 1999. The Company's AmerCable division believes its IT systems are Year 2000 compliant. Alside and AmerCable have completed the update of their non-IT systems. The Company has contacted significant suppliers to assess Year 2000 compliance and readiness. The majority of the questionnaires sent to suppliers have been returned. Based upon the responses received, it appears the Company's suppliers are aware of the Year 2000 issue and are taking the necessary steps to ensure Year 2000 compliance. 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 retained an independent consultant to assist with Year 2000 compliance for its manufacturing systems and created a PC systems task force to identify and address certain hardware and software systems. Alside has spent approximately $250,000 to date and estimates it will spend an additional $100,000 to complete its Year 2000 program. 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 suppliers. The Company completed its evaluation of its suppliers and believes its major suppliers are Year 2000 compliant based upon their responses to the Company's Year 2000 questionnaire. Based upon supplier readiness, availability of raw materials from a variety of suppliers and guaranteed delivery contracts with vinyl resin suppliers, the Company does not anticipate any material production delays due to raw material unavailability. 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 changes. Vinyl resin prices have increased in 1999 and exceeded 1998 prices in the third quarter of 1999. The Company believes vinyl resin prices will continue to increase in the fourth quarter of 1999. 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. -10- 13 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, pricing pressures, shifts in market demand, Year 2000 issues 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, 1998. 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. 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 quarter or nine months ended September 30, 1999. 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, 1998. -11- 14 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 27 - Financial Data Schedule. (b) Reports on Form 8-K During the quarter ended September 30, 1999, Associated Materials Incorporated filed no Current Reports on Form 8-K. -12- 15 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 15, 1999 By: /s/ Robert L. Winspear -------------------------------------------- Robert L. Winspear Vice President and Chief Financial Officer Date: November 15, 1999 /s/ Robert L. Winspear -------------------------------------------- Robert L. Winspear Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -13- 16 INDEX TO EXHIBITS
Exhibit Number Description - ------- ----------- 27 Financial Data Schedule.
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 3,085 0 64,100 6,244 71,318 135,563 71,701 0 213,744 56,954 75,000 0 0 21 74,848 213,744 331,893 0 228,437 0 71,145 0 5,124 25,785 10,057 0 0 0 0 15,728 1.93 1.88
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