<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO ______________ TO ______________
COMMISSION FILE NUMBER 333-05978
------------------------
EURAMAX INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
ENGLAND AND WALES 98-1066997
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
5445 TRIANGLE PARKWAY, SUITE 350, 30092
NORCROSS, GEORGIA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code 770-449-7066
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / No
As of November 3, 1998, Registrant had outstanding 1,000,000 Ordinary Shares and
34,000,000 Preference Shares. All of these shares were owned by affiliates.
Page 1 of 26
Exhibit Index located on page 25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
------------- -------------
<S> <C> <C>
Net sales.......................................................................... $ 155,715 $ 160,211
Costs and expenses:
Cost of goods sold............................................................... 128,858 131,728
Selling and general.............................................................. 13,010 12,526
Depreciation and amortization.................................................... 3,302 3,075
------------- -------------
145,170 147,329
------------- -------------
Earnings from operations......................................................... 10,545 12,882
Interest expense, net.............................................................. (5,913) (5,815)
Other income, net.................................................................. 518 745
------------- -------------
Earnings before income taxes and extraordinary item.............................. 5,150 7,812
Provision for income taxes......................................................... 2,396 2,913
------------- -------------
Earnings before extraordinary item............................................... 2,754 4,899
Extraordinary item-loss on debt refinancing, net of income tax of $1,088........... 1,758 --
------------- -------------
Net earnings....................................................................... 996 4,899
Dividends on redeemable preference shares.......................................... 1,318 1,514
------------- -------------
Net earnings (loss) available for ordinary shareholders............................ $ (322) $ 3,385
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
------------------ ------------------
<S> <C> <C>
Net sales..................................................................... $ 406,878 $ 463,734
Costs and expenses:
Cost of goods sold.......................................................... 329,959 381,717
Selling and general......................................................... 35,540 37,341
Depreciation and amortization............................................... 8,596 9,186
-------- --------
374,095 428,244
-------- --------
Earnings from operations.................................................. 32,783 35,490
Interest expense, net......................................................... (17,110) (17,949)
Other income, net............................................................. 333 613
-------- --------
Earnings before income taxes and extraordinary item....................... 16,006 18,154
Provision for income taxes.................................................... 6,119 7,298
-------- --------
Earnings before extraordinary item........................................ 9,887 10,856
Extraordinary item-loss on debt refinancing, net of income tax of $1,088...... 1,758 --
-------- --------
Net earnings.................................................................. 8,129 10,856
Dividends on redeemable preference shares..................................... 3,826 4,390
-------- --------
Net earnings available for ordinary shareholders.............................. $ 4,303 $ 6,466
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 26, SEPTEMBER 26,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 12,914 $ 16,280
Accounts receivable, net.......................................................... 78,085 93,352
Inventories....................................................................... 87,461 83,906
Other current assets.............................................................. 2,314 2,556
------------ -------------
Total current assets............................................................ 180,774 196,094
Property, plant and equipment, net.................................................. 113,187 117,022
Goodwill, net....................................................................... 76,910 76,853
Deferred income taxes............................................................... 11,004 10,985
Other assets........................................................................ 15,875 6,981
------------ -------------
$ 397,750 $ 407,935
------------ -------------
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdrafts................................................................... $ 11,470 $ 1,433
Accounts payable.................................................................. 42,575 58,127
Accrued expenses and other current liabilities.................................... 29,792 33,567
Current maturities of long-term debt.............................................. 3,924 6,266
------------ -------------
Total current liabilities....................................................... 87,761 99,393
Long-term debt, less current maturities............................................. 240,292 222,282
Other liabilities................................................................... 8,266 11,002
Deferred income taxes............................................................... 17,555 18,864
------------ -------------
Total liabilities............................................................... 353,874 351,541
------------ -------------
Redeemable preference shares........................................................ 40,382 44,772
------------ -------------
Ordinary shareholders' equity:
Ordinary shares................................................................... 1,000 1,000
Retained earnings................................................................. 4,420 10,886
Accumulated other comprehensive loss.............................................. (1,926) (264)
------------ -------------
Total ordinary shareholders' equity............................................. 3,494 11,622
------------ -------------
$ 397,750 $ 407,935
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
------------------ ------------------
<S> <C> <C>
Net cash provided by operating activities................................. $ 20,670 $ 23,165
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets............................................ 157 587
Adjustment of Fabricated Products purchase price........................ 3,487 --
Proceeds from dispositions of businesses................................ 12,764 --
Purchases of businesses................................................. (80,173) --
Capital expenditures.................................................... (5,634) (9,451)
-------- --------
Net cash used in investing activities................................. (69,399) (8,864)
-------- --------
Cash flows from financing activities:
Proceeds from sale of currency swap..................................... -- 7,580
Repayment of long-term debt............................................. (70,960) (33,371)
Proceeds from long-term debt............................................ 118,440 17,573
-------- --------
Net cash provided by (used in) financing activities................... 47,480 (8,218)
-------- --------
Effect of exchange rate changes on cash................................... (1,817) (2,717)
-------- --------
Net increase (decrease) in cash and equivalents........................... (3,066) 3,366
Cash and equivalents at beginning of period............................... 12,516 12,914
-------- --------
Cash and equivalents at end of period..................................... $ 9,450 $ 16,280
-------- --------
-------- --------
Non-cash financing activity:
Dividends on redeemable preference shares............................... $ 3,826 $ 4,390
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
For purposes of this report the "Company" refers to Euramax International plc
("Euramax") and Subsidiaries, collectively.
The Condensed Consolidated Financial Statements of the Company have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (the "SEC"). In the opinion of the management of the
Company, these statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein. All
adjustments are of a normal recurring nature unless otherwise disclosed.
Management believes that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows. These
condensed consolidated financial statements should be read in conjunction with
the year-end consolidated financial statements and accompanying notes included
in the Company's Annual Report on Form 10-K for the year ended December 26,
1997. Operating results for the period ended September 26, 1998, are not
necessarily indicative of future results that may be expected for the year
ending December 25, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
COMPREHENSIVE INCOME
Effective December 27, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No.
130 establishes standards for the reporting and display of comprehensive income
and its components in the financial statements. Prior periods have been
reclassified to reflect the adoption of this standard. The adoption of SFAS No.
130 has no material impact on the Company's consolidated results of operations,
financial position or cash flows. Comprehensive income equals net earnings plus
other comprehensive income. For the nine months ended September 26, 1998, and
September 27, 1997, comprehensive income was approximately $12,518 and $5,402,
respectively. Other comprehensive income refers to revenue, expenses, gains and
losses that are reflected in stockholders' equity but excluded from net
earnings. For the Company, the components of other comprehensive income are
principally foreign currency translation adjustments and minimum pension
liability adjustments. Other comprehensive income (loss), net of tax, was
approximately $1,662 and $(2,727) for the nine months ended September 26, 1998,
and September 27, 1997, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (December 31, 1999
for the Company). SFAS 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. For fair-value hedge
transactions in which the Company is hedging changes in an asset's, liability's,
or firm commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash-flow hedge transactions, in which the Company
is hedging the variability of cash flows related to a variable-rate asset,
liability, or a forecasted transaction, changes in the fair value of the
6
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
derivative instrument will be reported in other comprehensive income. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified as earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of all hedges will be recognized in current-period earnings.
Management is currently reviewing the provisions of SFAS No. 133 and does not
believe that the Company's financial statements will be materially impacted by
the adoption.
For information regarding other significant accounting policies, see Note 2 to
the Consolidated Financial Statements of the Company for the year ended December
26, 1997, set forth in the Company's Annual Report on Form 10-K.
3. INVENTORIES:
Inventories were comprised of:
<TABLE>
<CAPTION>
DECEMBER 26, SEPTEMBER 26,
1997 1998
------------ -------------
<S> <C> <C>
Raw materials................................................... $ 63,768 $ 59,526
Work in process................................................. 12,029 12,291
Finished products............................................... 11,664 12,089
------------ -------------
$ 87,461 $ 83,906
------------ -------------
------------ -------------
</TABLE>
4. EXTRAORDINARY ITEM:
On July 17, 1997, concurrent with the purchase of Fabral, formerly Gentek
Building Products, Inc., the Company amended and restated its Credit Agreement.
As a result of the amendment and restatement, The Company extinguished all of
its outstanding debt at July 17, 1997, under the previous Credit Agreement.
Included in such extinguishment is a loss of $1.8 million, net of income taxes
of $1.1 million, on the write-off of deferred financing fees related to the
previous Credit Agreement. Additional financing fees of $1.3 million were
deferred at July 17, 1997, in conjunction with the amended and restated Credit
Agreement.
5. LONG-TERM OBLIGATIONS:
In a series of transactions completed on August 7, 1998, the Company sold its
interest in a currency swap whereby the Company was to receive $50.0 million in
exchange for 85.1 million Dutch Guilders on October 1, 2003. Proceeds from the
sale approximated $7.6 million and were used to reduce long-term indebtedness.
The net gain on the sale was not material. Concurrent with the sale, the Company
entered into a new currency swap requiring the Company to exchange 75.0 million
Dutch Guilders for $37.5 million at maturity on October 1, 2003. Under the new
agreement, the Company pays the counterparty a fixed rate of interest of 9.865%
on the notional Dutch Guilders value in exchange for receiving interest of
11.25% on the notional U.S. dollar value.
On June 2, 1998, the Company entered into an interest rate swap agreement to
reduce the volatility associated with U.S. LIBOR interest rate fluctuations. The
agreement provides for the Company to swap
7
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
5. LONG-TERM OBLIGATIONS (CONTINUED):
floating U.S. LIBOR interest rates, on a notional amount of $75.0 million of
U.S. Dollar indebtedness, for a floating rate tied to a historically less
volatile index. The agreement, expiring June 2, 2003, also caps the highest rate
of interest to be paid by the Company on the notional amount at 9.5%. The net
cash amounts paid or received on the swap are accrued and recognized as an
adjustment to interest expense. At September 26, 1998, the Company was a
floating rate payor of 5.1989% and received a floating rate of 5.6250% on the
notional amount of $75.0 million.
For further detailed information regarding the Company's long-term obligations,
see Note 5 to the financial statements contained in the Company's 1997 Annual
Report on Form 10-K.
6. COMMITMENTS AND CONTINGENCIES:
The Company has entered into several non-cancelable long-term contracts for the
purchase of aluminum at market values. The aluminum contracts expire at various
times through 1999. Contracted amounts of aluminum are less than the Company's
anticipated requirements.
The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of business. Although occasional adverse decisions or
settlements may occur, it is the opinion of the Company's management, based upon
information available at this time, that the expected outcome of these matters,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the consolidated financial position or results of
operations of the Company and its subsidiaries taken as a whole.
The Company has been named as a defendant in lawsuits or as a potentially
responsible party in state and Federal administrative and judicial proceedings
seeking contribution for costs associated with the investigation, analysis,
correction and remediation of environmental conditions at various hazardous
waste disposal sites. The Company continues to monitor these actions and
proceedings and to vigorously defend both its own interests as well as the
interests of its affiliates. The Company's ultimate liability in connection with
present and future environmental claims will depend on many factors, including
its volumetric share of the waste at a given site, the remedial action required,
the total cost of remediation, and the financial viability and participation of
the other entities that also sent waste to the site. Once it becomes probable
that the Company will incur costs in connection with remediation of a site and
such costs can be reasonably estimated, the Company establishes or adjusts its
reserve for its projected share of these costs. Based upon current law and
information known to the Company concerning the size of the sites known to it,
anticipated costs, their years of operations and the number of other potentially
responsible parties, management believes that it has adequate reserves for the
Company's potential share of the estimated aggregate liability for the costs of
remedial actions and related costs and expenses. In addition, the Company
establishes reserves for remedial measures required from time to time at its own
facilities. Management believes that the reasonably probable outcomes of these
matters will not materially exceed established reserves and will not have a
material impact on the future financial position, net earnings or cash flows of
the Company. The Company's reserves, expenditures and expenses for all
environmental exposures were not significant for any of the dates or periods
presented.
In connection with the acquisition of the Company from Alumax Inc. on September
25, 1996, the Company was indemnified by Alumax for substantially all of its
costs, if any, related to environmental matters for occurrences arising prior to
the closing date of the acquisition during the period of time it was owned
8
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED):
directly or indirectly by Alumax. Such indemnification includes costs that may
ultimately be incurred to contribute to the remediation of certain specified
existing National Priorities List ("NPL") sites for which the Company had been
named a potentially responsible party under the federal Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") as of the
closing date of the Acquisition, as well as certain potential costs for sites
listed on state hazardous cleanup lists. With respect to all other environmental
matters, Alumax's obligations are limited to $125.0 million. However,
notwithstanding the indemnity, the Company does not believe that it has any
significant probable liability for environmental claims. Further, the Company
believes it to be unlikely that the Company would be required to bear
environmental costs in excess of its pro rata share of such costs as a
potentially responsible party under CERCLA.
9
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS:
On September 25, 1996, Euramax purchased the Company from Alumax Inc. The
acquisition was financed, in part, through Senior Subordinated Notes due 2006
(the "Notes"). The Notes are primary obligations of Euramax (the "Parent"). The
United Kingdom and Netherlands holding company subsidiaries of Euramax are
co-obligors under the Notes (the "Co-obligors"). The United States holding
company subsidiary of Euramax (the "Guarantor") has provided a full and
unconditional guarantee of the Notes. The following supplemental condensed
combined financial statements as of September 27, 1997 and September 26, 1998
reflect the financial position and results of operations of each of the Parent,
the Co-Obligors and Guarantor entities, and such combined information of the
Non-Guarantor Subsidiaries. The Co-obligors and the Guarantor are wholly-owned
subsidiaries of Euramax and are each jointly, severally, fully, and
unconditionally liable under the Notes. Separate complete financial statements
of each Co-obligor and of the Guarantor are not presented because management has
determined that they are not material to investors.
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 27, 1997
------------------------------------------------------------------------------------------------------
CO-OBLIGORS AND GUARANTOR SUBSIDIARIES
------------------------------------------------------------
EURAMAX AMERIMAX EURAMAX EURAMAX
INTERNATIONAL HOLDINGS, EUROPEAN EUROPEAN NON-
PLC INC. HOLDINGS PLC HOLDINGS,B.V. GUARANTOR CONSOLIDATED
(PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS
--------------- ------------- ------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales................. $ -- $ -- $ -- $ -- $ 155,715 $ -- $ 155,715
Cost and expenses:
Cost of goods sold...... -- -- -- -- 128,858 -- 128,858
Selling and general..... -- -- -- -- 13,010 -- 13,010
Depreciation and
amortization.......... -- -- -- -- 3,302 -- 3,302
------ ------------- ------------- ------------- ----------- ------------- ------------
Earnings from
operations.......... -- -- -- -- 10,545 -- 10,545
Equity in earnings of
subsidiaries............ 996 2,561 (3,551) 4,339 -- (4,345) --
Interest income (expense),
net..................... -- (553) 1,925 1,251 (8,536) -- (5,913)
Other income (expense),
net..................... -- -- 784 (5,298) 5,032 -- 518
------ ------------- ------------- ------------- ----------- ------------- ------------
Earnings (loss) before
income taxes and
extraordinary
item................ 996 2,008 (842) 292 7,041 (4,345) 5,150
Provision (benefit) for
income taxes............ -- (215) 883 (866) 2,594 -- 2,396
------ ------------- ------------- ------------- ----------- ------------- ------------
Earnings (loss) before
extraordinary
item................ 996 2,223 (1,725) 1,158 4,447 (4,345) 2,754
Extraordinary item-loss on
debt refinancing, net of
income taxes of
$1,088.................. -- -- -- -- 1,758 -- 1,758
------ ------------- ------------- ------------- ----------- ------------- ------------
Net earnings (loss)....... 996 2,223 (1,725) 1,158 2,689 (4,345) 996
Dividends on redeemable
preference shares....... 1,318 -- -- -- -- -- 1,318
------ ------------- ------------- ------------- ----------- ------------- ------------
Net earnings (loss)
available for ordinary
shareholders............ $ (322) $ 2,223 $ (1,725) $ 1,158 $ 2,689 $ (4,345) $ (322)
------ ------------- ------------- ------------- ----------- ------------- ------------
------ ------------- ------------- ------------- ----------- ------------- ------------
</TABLE>
10
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
-------------------------------------------------------------------------------------------------------
CO-OBLIGORS AND GUARANTOR SUBSIDIARIES
--------------------------------------------------------------
EURAMAX
EURAMAX AMERIMAX EURAMAX EUROPEAN
INTERNATIONAL HOLDINGS, EUROPEAN HOLDINGS, NON-
PLC INC. HOLDINGS PLC B.V. GUARANTOR CONSOLIDATED
(PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS
--------------- ------------- --------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ -- $ -- $ -- $ -- $ 406,878 $ -- $ 406,878
Cost and expenses:
Cost of goods sold..... -- -- -- -- 329,959 -- 329,959
Selling and general.... -- -- -- -- 35,540 -- 35,540
Depreciation and
amortization......... -- -- -- -- 8,596 -- 8,596
------ ------------- ----- ------------- ----------- ------------ ------------
Earnings from
operations......... -- -- -- -- 32,783 -- 32,783
Equity in earnings of
subsidiaries........... 8,129 6,555 (351) 9,318 -- (23,651) --
Interest income
(expense), net......... -- (6,809) 231 55 (10,587) -- (17,110)
Other income (expense),
net.................... -- -- 784 (5,298) 4,847 -- 333
------ ------------- ----- ------------- ----------- ------------ ------------
Earnings (loss)
before income taxes
and extraordinary
item............... 8,129 (254) 664 4,075 27,043 (23,651) 16,006
Provision (benefit) for
income taxes........... -- (2,649) 290 (1,285) 9,763 -- 6,119
------ ------------- ----- ------------- ----------- ------------ ------------
Earnings before
extraordinary
item............... 8,129 2,395 374 5,360 17,280 (23,651) 9,887
Extraordinary item-loss
on debt refinancing,
net of income taxes of
$1,088................. -- -- -- -- 1,758 -- 1,758
------ ------------- ----- ------------- ----------- ------------ ------------
Net earnings............. 8,129 2,395 374 5,360 15,522 (23,651) 8,129
Dividends on redeemable
preference shares...... 3,826 -- -- -- -- -- 3,826
------ ------------- ----- ------------- ----------- ------------ ------------
Net earnings available
for ordinary
shareholders........... $ 4,303 $ 2,395 $ 374 $ 5,360 $ 15,522 $ (23,651) $ 4,303
------ ------------- ----- ------------- ----------- ------------ ------------
------ ------------- ----- ------------- ----------- ------------ ------------
</TABLE>
11
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED):
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 26, 1998
-----------------------------------------------------------------------------------------------------------
CO-OBLIGORS AND GUARANTOR SUBSIDIARIES
--------------------------------------------------------------
EURAMAX EURAMAX EURAMAX
INTERNATIONAL AMERIMAX EUROPEAN EUROPEAN
PLC HOLDINGS, INC. HOLDINGS PLC HOLDINGS,B.V. NON-GUARANTOR CONSOLIDATED
(PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS
--------------- --------------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............. $ -- $ -- $ -- $ -- $ 160,211 $ -- $ 160,211
Cost and expenses:
Cost of goods
sold.............. -- -- -- -- 131,728 -- 131,728
Selling and
general........... -- -- -- -- 12,526 -- 12,526
Depreciation and
amortization...... -- -- -- -- 3,075 -- 3,075
------ ------ ------ ------------- -------------- ------------- ------------
Earnings from
operations...... -- -- -- -- 12,882 -- 12,882
Equity in earnings of
subsidiaries........ 4,899 3,759 (490) (147) -- (8,021) --
Interest expense,
net................. -- (456) (199) (145) (5,015) -- (5,815)
Other income
(expense), net...... -- -- 622 2,891 (2,768) -- 745
------ ------ ------ ------------- -------------- ------------- ------------
Earnings (loss)
before income
taxes........... 4,899 3,303 (67) 2,599 5,099 (8,021) 7,812
Provision (benefit)
for income taxes.... -- (212) 71 1,077 1,977 -- 2,913
------ ------ ------ ------------- -------------- ------------- ------------
Net earnings (loss)... 4,899 3,515 (138) 1,522 3,122 (8,021) 4,899
Dividends on
redeemable
preference shares... 1,514 -- -- -- -- -- 1,514
------ ------ ------ ------------- -------------- ------------- ------------
Net earnings (loss)
available for
ordinary
shareholders........ $ 3,385 $ 3,515 $ (138) $ 1,522 $ 3,122 $ (8,021) $ 3,385
------ ------ ------ ------------- -------------- ------------- ------------
------ ------ ------ ------------- -------------- ------------- ------------
</TABLE>
12
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1998
-----------------------------------------------------------------------------------------------------
CO-OBLIGORS AND GUARANTOR SUBSIDIARIES
------------------------------------------------------------
EURAMAX AMERIMAX EURAMAX EURAMAX
INTERNATIONAL HOLDINGS, EUROPEAN EUROPEAN NON-
PLC INC. HOLDINGS PLC HOLDINGS, B.V. GUARANTOR CONSOLIDATED
(PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ -- $ -- $ -- $ -- $ 463,734 $ -- $ 463,734
Cost and expenses:
Cost of goods sold..... -- -- -- -- 381,717 -- 381,717
Selling and general.... 128 -- -- -- 37,213 -- 37,341
Depreciation and
amortization......... -- -- -- -- 9,186 -- 9,186
------------- ------------- ------ ------ ----------- ------------ ------------
Earnings (loss) from
operations......... (128) -- -- -- 35,618 -- 35,490
Equity in earnings of
subsidiaries........... 11,023 4,216 2,013 4,656 -- (21,908) --
Interest expense, net.... -- (1,369) (628) (374) (15,578) -- (17,949)
Other income (expense),
net.................... -- -- 349 2,138 (1,874) -- 613
------------- ------------- ------ ------ ----------- ------------ ------------
Earnings before
income taxes....... 10,895 2,847 1,734 6,420 18,166 (21,908) 18,154
Provision (benefit) for
income taxes........... 39 (619) (91) 688 7,281 -- 7,298
------------- ------------- ------ ------ ----------- ------------ ------------
Net earnings............. 10,856 3,466 1,825 5,732 10,885 (21,908) 10,856
Dividends on redeemable
preference shares...... 4,390 -- -- -- -- -- 4,390
------------- ------------- ------ ------ ----------- ------------ ------------
Net earnings available
for ordinary
shareholders........... $ 6,466 $ 3,466 $ 1,825 $ 5,732 $ 10,885 $ (21,908) $ 6,466
------------- ------------- ------ ------ ----------- ------------ ------------
------------- ------------- ------ ------ ----------- ------------ ------------
</TABLE>
13
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED):
<TABLE>
<CAPTION>
DECEMBER 26, 1997
------------------------------------------------------------------------------------------------------
CO-OBLIGORS AND GUARANTOR SUBSIDIARIES
----------------------------------------------------------
EURAMAX
EURAMAX AMERIMAX EURAMAX EUROPEAN
INTERNATIONAL HOLDINGS, EUROPEAN HOLDINGS,
PLC INC. HOLDINGS PLC B.V. NON-GUARANTOR CONSOLIDATED
(PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS
------------- ------------- ------------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ -- $ -- $ -- $ 12,914 $ -- $ 12,914
Accounts receivable,
net................... -- -- -- -- 78,085 -- 78,085
Inventories............. -- -- -- -- 87,461 -- 87,461
Other current assets.... -- -- -- -- 2,314 -- 2,314
------------- ------------- ------------- ------------- -------------- ------------ ------------
Total current
assets.............. -- -- -- -- 180,774 -- 180,774
Property, plant and
equipment, net.......... -- -- -- -- 113,187 -- 113,187
Amounts due from parent/
affiliates.............. 70,492 69,139 40,002 42,591 -- (222,224) --
Goodwill, net............. -- -- -- -- 76,910 -- 76,910
Investment in consolidated
subsidiaries............ 43,929 25,857 (213) 13,516 -- (83,089) --
Deferred income taxes..... -- 448 -- 2,138 8,418 -- 11,004
Other assets.............. 2,070 -- 856 934 12,015 -- 15,875
------------- ------------- ------------- ------------- -------------- ------------ ------------
$ 116,491 $ 95,444 $ 40,645 $ 59,179 $ 391,304 $ (305,313) $ 397,750
------------- ------------- ------------- ------------- -------------- ------------ ------------
------------- ------------- ------------- ------------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdrafts......... $ -- $ -- $ -- $ -- $ 11,470 $ -- $ 11,470
Accounts payable........ -- -- -- -- 42,575 -- 42,575
Accrued expenses and
other current
liabilities........... 2,010 (1,609) 410 8,369 20,612 -- 29,792
Current maturities of
long-term debt........ -- -- -- -- 3,924 -- 3,924
------------- ------------- ------------- ------------- -------------- ------------ ------------
Total current
liabilities......... 2,010 (1,609) 410 8,369 78,581 -- 87,761
Long-term debt, less
current maturities...... 70,605 -- 27,179 37,216 105,292 -- 240,292
Amounts due to parent/
affiliates.............. -- 77,779 3,954 -- 140,491 (222,224) --
Other liabilities......... -- -- -- -- 8,266 -- 8,266
Deferred income taxes..... -- -- -- -- 17,555 -- 17,555
------------- ------------- ------------- ------------- -------------- ------------ ------------
Total liabilities..... 72,615 76,170 31,543 45,585 350,185 (222,224) 353,874
------------- ------------- ------------- ------------- -------------- ------------ ------------
Redeemable preference
shares.................. 40,382 -- -- -- -- -- 40,382
------------- ------------- ------------- ------------- -------------- ------------ ------------
Ordinary shareholders'
equity:
Ordinary shares......... 1,000 -- 78 23 4,970 (5,071) 1,000
Paid-in capital......... -- 17,000 6,922 9,077 89,458 (122,457) --
Retained earnings....... 4,420 2,381 1,779 6,358 18,714 (29,232) 4,420
Dividends declared...... -- -- -- -- (70,600) 70,600 --
Accumulated other
comprehensive income/
(loss)................ (1,926) (107) 323 (1,864) (1,423) 3,071 (1,926)
------------- ------------- ------------- ------------- -------------- ------------ ------------
Total ordinary
shareholders'
equity.............. 3,494 19,274 9,102 13,594 41,119 (83,089) 3,494
------------- ------------- ------------- ------------- -------------- ------------ ------------
$ 116,491 $ 95,444 $ 40,645 $ 59,179 $ 391,304 $ (305,313) $ 397,750
------------- ------------- ------------- ------------- -------------- ------------ ------------
------------- ------------- ------------- ------------- -------------- ------------ ------------
</TABLE>
14
<PAGE>
EURAMAX INTERNATIONAL PLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
7. SUPPLEMENTAL CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED):
<TABLE>
<CAPTION>
SEPTEMBER 26, 1998
-------------------------------------------------------------------------------------------------
CO-OBLIGORS AND GUARANTOR SUBSIDIARIES
--------------------------------------------------------
EURAMAX
EURAMAX AMERIMAX EURAMAX EUROPEAN
INTERNATIONAL HOLDINGS, EUROPEAN HOLDINGS, NON-
PLC INC. HOLDINGS PLC B.V. GUARANTOR CONSOLIDATED
(PARENT) (GUARANTOR) (CO-OBLIGOR) (CO-OBLIGOR) SUBSIDIARIES ELIMINATIONS TOTALS
------------- ----------- ------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ -- $ -- $ -- $ -- $ 16,280 $ -- $ 16,280
Accounts receivable,
net.................... -- -- -- -- 93,352 -- 93,352
Inventories.............. -- -- -- -- 83,906 -- 83,906
Other current assets..... -- -- -- -- 2,556 -- 2,556
------------- ----------- ------------- ------------- ----------- ------------ ------------
Total current assets... -- -- -- -- 196,094 -- 196,094
Property, plant and
equipment, net........... -- -- -- -- 117,022 -- 117,022
Amounts due from parent/
affiliates............... 73,138 74,571 43,452 45,721 22,671 (259,553) --
Goodwill, net.............. -- -- -- -- 76,853 -- 76,853
Investment in consolidated
subsidiaries............. 56,614 30,073 1,865 19,408 -- (107,960) --
Deferred income taxes...... -- 448 -- 2,257 8,280 -- 10,985
Other assets............... 1,893 -- 792 901 3,395 -- 6,981
------------- ----------- ------------- ------------- ----------- ------------ ------------
$ 131,645 $ 105,092 $ 46,109 $ 68,287 $ 424,315 $ (367,513) $ 407,935
------------- ----------- ------------- ------------- ----------- ------------ ------------
------------- ----------- ------------- ------------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdrafts.......... $ -- $ -- $ -- $ -- $ 1,433 $ -- $ 1,433
Accounts payable......... -- -- -- -- 58,127 -- 58,127
Accrued expenses and
other current
liabilities............ 2,103 (242) 1,239 8,518 21,949 -- 33,567
Current maturities of
long-term debt......... -- -- -- -- 6,266 -- 6,266
------------- ----------- ------------- ------------- ----------- ------------ ------------
Total current
liabilities.......... 2,103 (242) 1,239 8,518 87,775 -- 99,393
Long-term debt, less
current maturities....... 70,605 -- 27,179 37,216 87,282 -- 222,282
Amounts due to parent/
affiliates............... 2,543 82,594 6,624 1,979 165,813 (259,553) --
Other liabilities.......... -- -- -- -- 11,002 -- 11,002
Deferred income taxes...... -- -- -- -- 18,864 -- 18,864
------------- ----------- ------------- ------------- ----------- ------------ ------------
Total liabilities...... 75,251 82,352 35,042 47,713 370,736 (259,553) 351,541
------------- ----------- ------------- ------------- ----------- ------------ ------------
Redeemable preference
shares................... 44,772 -- -- -- -- -- 44,772
------------- ----------- ------------- ------------- ----------- ------------ ------------
Ordinary shareholders'
equity:
Ordinary shares.......... 1,000 -- 78 23 4,970 (5,071) 1,000
Paid-in capital.......... -- 17,000 6,922 9,077 89,458 (122,457) --
Retained earnings
(deficit).............. 10,886 5,847 3,604 12,090 (41,001) 19,460 10,886
Accumulated other
comprehensive income/
(loss)................. (264) (107) 463 (616) 152 108 (264)
------------- ----------- ------------- ------------- ----------- ------------ ------------
Total ordinary
shareholders'
equity............... 11,622 22,740 11,067 20,574 53,579 (107,960) 11,622
------------- ----------- ------------- ------------- ----------- ------------ ------------
$ 131,645 $ 105,092 $ 46,109 $ 68,287 $ 424,315 $ (367,513) $ 407,935
------------- ----------- ------------- ------------- ----------- ------------ ------------
------------- ----------- ------------- ------------- ----------- ------------ ------------
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
The following discussion should be read in conjunction with the condensed
consolidated financial statements included elsewhere in this document, as well
as the year-end consolidated financial statements and management's discussion
and analysis included in the Company's annual report on Form 10-K for the year
ended December 26, 1997.
The Company is an international producer of value-added aluminum, steel, vinyl
and fiberglass fabricated products. Euramax's core products include specialty
coated coils, aluminum recreational vehicle sidewalls, farm and agricultural
panels, roofing accessories, metal and vinyl raincarrying systems, soffit and
fascia systems, recreational vehicle doors, and vinyl replacement windows. The
Company's customers include original equipment manufacturers ("OEM"), including
recreational vehicle manufacturers and producers of manufactured homes; home
centers; distributors; farm/agricultural contractors; industrial and
architectural contractors; and home improvement contractors.
The Company's operations are geographically diverse. It operates 26 plants in
the United States, which represent approximately 65% of total sales, and five
facilities in Western Europe, which represent approximately 35% of total sales.
Although sales are higher in the United States, margins tend to be higher in
Europe owing to a mix that is more heavily weighted toward aluminum products and
unique product capabilities.
A significant portion of the Company's sales are generated in niche markets
where the Company has a dominant market share, including aluminum recreational
vehicle sidewalls, metal raincarrying products, and steel siding. Further, the
Company's acquisition of Fabral in 1997 has significantly increased its share of
the agricultural roofing and siding market. Throughout 1998, demand for
specialty coated coil in Europe and fabricated products supplied to the
recreational vehicle market has remained strong. Although many of the Company's
customers are located in seasonal industries, the seasonality in the United
States markets tends to compliment the seasonality in Europe, providing the
Company with relatively consistent earnings throughout the year.
Approximately one-half of the Company's net sales are derived from sales of
aluminum products. Unlike other raw materials used by the Company, the cost of
aluminum is subject to a high degree of volatility caused by the relationship of
world aluminum supply to world aluminum demand. However, as a fabricator,
Euramax is less exposed to fluctuations in aluminum prices. Historically, prices
at which the Company sells aluminum products tend to fluctuate with
corresponding changes in the prices paid to suppliers for aluminum raw
materials. Supplier price increases, of normal amount and frequency, can
generally be passed to customers within two to four months. Accordingly, the
Company's reported net sales of aluminum products may fluctuate with little or
no change in the volume of aluminum shipments.
The Company's strategy is to expand its leadership position as a producer of
aluminum, steel, vinyl and fiberglass products and to broaden its current
diversity of products, customers and geographic regions in which it operates.
Since the Company's formation in 1996, Management has pursued a strategy of
enhancing the Company's operations and profitability and positioning the Company
for future growth. Under this strategy, during 1997, the Company sold two
businesses that did not serve Management's strategy and acquired two businesses
to enable it to offer complementary products and expand its geographic coverage.
The Company expects to continue to pursue a strategy of identifying and
acquiring businesses and assets that will allow it to expand its leadership
position in its current markets, as well as allow it to broaden its diversity of
products, customers and geographic regions in which it operates.
16
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 26, 1998 AS COMPARED TO QUARTER ENDED SEPTEMBER 27, 1997
The following table sets forth the Company's Statements of Earnings Data
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------
<S> <C> <C>
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
--------------- ---------------
STATEMENTS OF EARNINGS DATA:
Net sales....................................................... 100.0% 100.0%
Costs and expenses:
Cost of goods sold............................................ 82.8 82.2
Selling and general........................................... 8.4 7.8
Depreciation and amortization................................. 2.1 1.9
----- -----
Earnings from operations...................................... 6.7 8.1
Interest expense, net........................................... (3.8) (3.6)
Other income, net............................................... 0.3 0.5
----- -----
Earnings before income taxes and extraordinary item........... 3.2 5.0
Provision for income taxes...................................... 1.5 1.8
----- -----
Earnings before extraordinary item............................ 1.7 3.2
Extraordinary item-loss on debt refinancing, net of income
taxes......................................................... 1.1 --
----- -----
Net earnings.................................................... 0.6% 3.2%
----- -----
----- -----
</TABLE>
NET SALES. Net sales increased 2.9% to $160.2 million for the quarter ended
September 26, 1998, from $155.7 million for the quarter ended September 27,
1997. Approximately $5.0 million of this increase is attributable to net sales
of Fabral, formerly Gentek Building Products, Inc., which was acquired by the
Company on July 17, 1997. In addition, net sales increased by (i) $263,000,
$572,000 and $213,000 due to strengthening of the Pound Sterling, Dutch Guilder
and French Franc, respectively, compared to the U.S. Dollar, and (ii)
approximately $1.2 million due to increased demand in laminated products in
North America. These increases were partially offset by a $3.2 million decline
in shipments attributable to aluminum product shipments to OEM markets in Europe
and products shipped to home center customers and distributors in North America.
Net sales in the U.S. increased 1.1% to $111.7 million for the quarter ended
September 26, 1998, from $110.4 million for the quarter ended September 27,
1997. Net sales in Europe increased 7.2% to $48.5 million for the quarter ended
September 26, 1998, from $45.3 million for the quarter ended September 27, 1997.
COST OF GOODS SOLD. Cost of goods sold, as a percentage of net sales, decreased
0.6% for the three months ended September 26, 1998, from 82.8% in 1997 to 82.2%
in 1998. This decrease is primarily attributable to increased demand on higher
margin laminated and aluminum products in the North America, coupled with lower
raw material costs.
SELLING AND GENERAL. Selling and general expenses, as a percentage of net
sales, decreased 0.6% for the quarter ended September 26, 1998, from 8.4% in
1997 to 7.8% in 1998. This decrease is primarily attributable to Fabral, which
had lower selling and general expenses, as a percentage of net sales, than the
Company prior to the Fabral acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization, for the quarter
ended September 26, 1998, approximated expenses for the quarter ended September
27, 1997.
17
<PAGE>
EARNINGS FROM OPERATIONS. For reasons stated above, earnings from operations in
the U.S. increased to $8.4 million in the third quarter of 1998 from $7.8
million in the third quarter of 1997. Earnings from operations in Europe
increased to $4.5 million for the three months ended September 26, 1998, from
$2.7 million for the three months ended September 27, 1997.
INTEREST EXPENSE, NET. Net interest expense in the three months ended September
26, 1998, decreased 1.7% from $5.9 million for the three months ended September
27, 1997, to $5.8 million for the three months ended September 26, 1998.
OTHER EXPENSES, NET. Other expenses were not significant for the quarters ended
September 26, 1998 and September 27, 1997.
PROVISION FOR INCOME TAXES. The effective rate for the provision for income
taxes decreased from 46.5% to 37.3% for the three months ended September 27,
1997, and September 26, 1998, respectively. The higher rate in 1997 was
primarily due to an increase in non-deductible goodwill amortization related to
the finalization of the September 25, 1996 acquisition price and allocation (see
"Organization, Acquisitions and Divestitures" in Notes to Consolidated Financial
Statements included in the Company's report on Form 10-K for the year ended
December 26, 1997).
EXTRAORDINARY ITEM. The quarter ended September 27, 1997, included a loss of
approximately $1.8 million, net of income taxes of $1.1 million, for the
write-off of deferred financing costs in connection with the extinguishment of
debt related to the amendment and restatement of the Company's Credit Agreement
to, among other items, provide available borrowings for the Fabral acquisition
(see Extraordinary Item in Notes to Condensed Consolidated Financial
Statements).
NINE MONTHS ENDED SEPTEMBER 26, 1998 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
27, 1997
The following table sets forth the Company's Statements of Earnings Data
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
<S> <C> <C>
SEPTEMBER 27, SEPTEMBER 26,
1997 1998
--------------- ---------------
STATEMENTS OF EARNINGS DATA:
Net sales....................................................... 100.0% 100.0%
Costs and expenses:
Cost of goods sold............................................ 81.1 82.3
Selling and general........................................... 8.7 8.1
Depreciation and amortization................................. 2.1 2.0
----- -----
Earnings from operations...................................... 8.1 7.6
Interest expense, net........................................... (4.2) (3.9)
Other income, net............................................... 0.1 0.1
----- -----
Earnings before income taxes and extraordinary item........... 4.0 3.8
Provision for income taxes...................................... 1.5 1.6
----- -----
Earnings before extraordinary item............................ 2.5 2.2
Extraordinary item-loss on debt refinancing, net of income
taxes......................................................... 0.4 --
----- -----
Net earnings.................................................... 2.1% 2.2%
----- -----
----- -----
</TABLE>
NET SALES. Net sales increased 14% to $463.7 million for the nine months ended
September 26, 1998, from $406.9 million for the nine months ended September 27,
1997. Approximately $52.9 million of this increase is attributable to net sales
of Fabral, formerly Gentek Building Products, Inc., which was acquired by the
18
<PAGE>
Company on July 17, 1997. Increases in shipments of products to OEM markets in
Europe and home center customers and distributors in North America, combined to
increase sales for the nine months ended September 26, 1998, by approximately
$16.4 million as compared to net sales for the nine months ended September 27,
1997. In addition, net sales increased by (i) approximately $7.9 million for
sales attributable to Amerimax Laminated Products, Inc., formerly JTJ
Laminating, Inc., acquired by the Company on March 28, 1997, and (ii) $720,000
due to strengthening of the Pound Sterling compared to the U.S. Dollar. These
increases were partially offset by (i) a $17.3 million decline in sales in door
and appliance products due to divestitures of the subsidiaries producing these
product lines, (ii) weakening of the Dutch Guilder and French Franc compared to
the U.S. Dollar, which reduced net sales approximately $3.0 million and $1.0
million, respectively, and (iii) other individually insignificant occurrences.
Net sales in the U.S. increased 16.0% to $300.4 million for the nine months
ended September 26, 1998, from $259.0 million for the nine months ended
September 27, 1997. Net sales in Europe increased 10.4% to $163.3 million for
the nine months ended September 26, 1998, from $147.9 million for the nine
months ended September 27, 1997.
COST OF GOODS SOLD. Cost of goods sold, as a percentage of net sales, increased
1.2% for the nine months ended September 26, 1998, from 81.1% in 1997 to 82.3%
in 1998. This increase is primarily attributable to sales of a greater
percentage of lower margin product (steel) from the Fabral acquisition and
higher paint costs at the Company's coil coating facility in Helena, Arkansas,
partially offset by (i) sales of a greater percentage of higher margin aluminum
products, particularly in Europe, and (ii) an overall improvement in gross
margin attributable to higher sales volume. Excluding Fabral, cost of goods
sold, as a percentage of net sales, increased from 80.7% in 1997 to 80.8% in
1998.
SELLING AND GENERAL. Selling and general expenses, as a percentage of net
sales, decreased 0.6% for the nine months ended September 26, 1998, from 8.7% in
1997 to 8.1% in 1998. This decrease is primarily attributable to Fabral, which
had lower selling and general expenses, as a percentage of net sales, than the
company prior to the Fabral acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization, as a percentage
of net sales, decreased 0.1% from 2.1% in 1997 to 2.0% 1998.
EARNINGS FROM OPERATIONS. For reasons stated above, earnings from operations in
the U.S. increased 12.2% to $16.5 million for the nine months ended September
26, 1998, from $14.7 million for the nine months ended September 27, 1997.
Earnings from operations in Europe increased 5.3% to $19.0 million for the nine
months ended September 26, 1998 from $18.1 million for the nine months ended
September 27, 1997.
INTEREST EXPENSE, NET. Net interest expense in the nine months ended September
26, 1998 increased 4.9% to $17.9 million for the nine months ended September 26,
1998, from $17.1 million for the nine months ended September 27, 1997. This
increase was due primarily to additional interest as a result of debt incurred
for the Fabral acquisition.
OTHER EXPENSES, NET. Other expenses were not significant in the nine-month
periods ended September 26, 1998 and September 27, 1997.
PROVISION FOR INCOME TAXES. The effective rate for the provision for income
taxes increased to 40.2% from 38.2% for the nine months ended September 26,
1998, and September 27, 1997, respectively. This increase was due primarily to
non-deductible goodwill arising from 1997 acquisitions.
EXTRAORDINARY ITEM. The nine months ended September 27, 1997, included a loss
of approximately $1.8 million, net of income taxes of $1.1 million, for the
write-off of deferred financing costs in connection with the extinguishment of
debt related to the amendment and restatement of the Company's Credit Agreement
to, among other items, provide available borrowings for the Fabral acquisition
(see Extraordinary Item in Notes to Condensed Consolidated Financial
Statements).
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. The Company's primary liquidity needs arise from debt service on
indebtedness incurred in connection with the Acquisition and the funding of
capital expenditures. As of September 26, 1998, the Company had outstanding
indebtedness for borrowed money of $228.5 million, $44.8 million of Preference
Shares and ordinary shareholders' equity of $11.6 million, representing a
decrease of $15.7 million and increases of $4.4 million and $8.1 million,
respectively, from December 26, 1997. Included in such indebtedness was
approximately $93.5 million under the Company's credit agreement, consisting of
$49.1 million under the Company's term loan and $44.4 million under the
Company's revolving credit facility. The undrawn amount of the revolving credit
facility at September 26, 1998, was approximately $55.6 million, which was
available for working capital and general corporate purposes, subject to
borrowing base limitations. As of September 26, 1998, this amount was fully
available.
The Company's leveraged financial position requires that a substantial portion
of the Company's cash flow from operations be used to pay interest on the Notes,
principal and interest under the Company's credit agreement and other
indebtedness. Further, the Company's leveraged position may impede its ability
to obtain financing in the future for working capital, capital expenditures and
general corporate purposes. In addition, the Company's leveraged position may
make it more vulnerable to economic downturns and may limit its ability to
withstand competitive pressures. As previously noted, principal and interest
payments under the credit agreement and interest payments on the Notes represent
significant liquidity requirements for the Company. With respect to the $49.1
million of term loans, the Company must make scheduled quarterly principal
payments totaling $1.6 million over the remainder of 1998, $7.8 million in 1999,
$4.7 million in 2000, $4.6 million in 2001, $7.6 million in 2002, $13.4 million
in 2003 and $9.4 million in 2004. The term loans and the revolving credit
facility bear interest at floating rates.
CAPITAL EXPENDITURES. The Company's capital expenditures were $9.5 million and
$5.6 million in the nine months ended September 26, 1998, and September 27,
1997, respectively. Capital expenditures in 1998 include approximately $2.6
million for improvements to paintlines in Helena, Arkansas; Roermond, The
Netherlands and Corby, England. The balance of capital expenditures in both
periods primarily relate to purchases and upgrades of fabricating equipment,
transportation and material moving equipment, and information systems.
The Company has made and will continue to make capital expenditures to comply
with Environmental Laws. The Company estimates that its environmental capital
expenditures will be approximately $200,000 in 1998.
The Company's primary source of liquidity is funds generated from operations,
which are supplemented by borrowings under the credit agreement. Net cash
provided by operating activities increased $2.5 million during the nine months
ended September 26, 1998 compared to the nine months ended September 27, 1997.
Increased operating cash flows in 1998 as compared to 1997 are primarily due to
increased operating earnings in 1998. Accounts receivable and accounts payable
increased $15.3 million and $15.6 million, or 19.6% and 36.5%, respectively,
over December 26, 1997 levels due to the Company's normal seasonal activity. The
Company believes that cash generated from operations and, subject to borrowing
base limitations, borrowings under the Company's credit agreement will be
adequate to meet its needs for the foreseeable future, although no assurance to
that effect can be given.
WORKING CAPITAL MANAGEMENT. Working capital was $96.7 million as of September
26, 1998 compared to $101.5 million as of September 27, 1997. The Company
continues to aggressively manage working capital levels and believes that
current levels of working capital represent a liquid source of funds available
for future cash flows. The Company also believes that further reductions in
working capital can be achieved upon completion of current information systems
projects being undertaken in some of the Company's subsidiaries. The Company
believes these systems will offer distinct advantages in monitoring credit, open
receivables and inventory levels, while enabling centralized ordering and
inventory management. However, there can be no assurance that further working
capital reductions will be achieved.
20
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the application year in certain computer
programs. Any of the Company's computer programs that have date-sensitive
software, including embedded computer chips, may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure,
operating equipment failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company's plan to resolve the Year 2000 issue involves four phases:
assessment, remediation, testing and implementation. To date, management has
fully completed its assessment of the effect of the Year 2000 issue on its
information systems, including the operating systems and equipment used in its
manufacturing operations. Based on assessments conducted in 1997, the Company
determined that it would be required to modify or replace significant portions
of its software at two of its subsidiaries so that its computer systems will
properly utilize dates beyond December 31, 1999. Based upon assessments
conducted in 1998 with regard to operating equipment, the Company determined
that it would not be required to modify or replace any material pieces of
operating equipment in order for the equipment to properly utilize dates beyond
December 31, 1999.
With respect to remediation, two of the Company's subsidiaries are currently
undertaking conversions to fully integrated third-party software packages that
will process the majority of the Company's key transactions. These conversions,
including the testing and implementation of the new systems, are expected to be
fully complete during the second half of 1999. The Company estimates the costs
to complete the conversions to be approximately $2.0 million, which will be
funded through operating cash flows. Based upon the estimated costs remaining as
a percentage of total estimated costs, the Company is approximately 50% complete
with the remediation phase related to the modification and replacement of the
systems software located at the two subsidiaries. The Company believes that with
the current modifications of existing software, the Year 2000 issue can be
mitigated with respect to its significant processes.
Based upon the level of effort necessary to complete the task, the Company is
approximately 90% complete on the testing phase for all other systems and
operating equipment that the Company has assessed as being capable of properly
utilizing dates beyond December 31, 1999. Completion of the testing phase is
expected to occur by early 1999.
With respect to third parties, the Company has communicated with many of its
major customers and its major vendors and suppliers to determine their state of
readiness with respect to the Year 2000 issue. In addition, the Company
conducted tests with several of its major vendors and suppliers during 1998, and
will continue to conduct such tests during 1999. All costs associated with
supplier and vendor compliance will be borne by the suppliers and vendors. To
date, based upon the information provided by customers and suppliers and the
tests which have been conducted with suppliers, the Company is not aware of any
problems that would materially impact its results of operations, liquidity or
capital resources.
While the Company currently believes that it will be able to modify or replace
its affected systems in time to minimize any detrimental effects on its
operations, failure to do so, or the failure of the Company's major customers
and suppliers to modify or replace their affected systems, could have a material
adverse impact on the Company's results of operations, liquidity or consolidated
financial position in the future. The most reasonably likely worst case scenario
of failure by the Company or its customers and suppliers to resolve the Year
2000 issue in a timely fashion would be a temporary slowdown at one or more of
the Company's facilities and a temporary inability on the part of the Company to
timely process orders and billings.
The Company's individual subsidiaries are currently identifying and considering
various contingency options, including identification of alternate suppliers and
vendors. Further, in the event that modifications and replacements of systems
are not completed timely, the Company has contingency plans in place that
21
<PAGE>
would provide for significant transactions to be processed by other facilities
located within the Company whose systems are capable of properly utilizing dates
beyond December 31, 1999.
EUROPEAN CURRENCY
The 1992 treaty on European Union provides that, on January 1, 1999, a new
single European currency, the "Euro," will become a currency in its own right,
replacing the currencies of the eleven initial members of the European Union
("participating countries"). Fixed conversion rates between the participating
countries' existing currencies ("legacy currencies") and the Euro will be
established as of that date. The Euro will then be available for non-cash
transactions. Between January 1, 1999 and January 1, 2002 (the "transition
period"), the participating countries will have the option of accounting for
their transactions in either Euros or their legacy currencies. The legacy
currencies are scheduled to remain legal tender as denominations of the Euro
until at least January 1, 2002, but not later than July 1, 2002. Beginning July
1, 2002, legacy currencies will cease to exist.
The Company is in the process of coordinating the preparations for the Euro,
particularly with respect to the Company's European subsidiaries. Preparations
include analyses to determine a schedule for the introduction of the Euro as a
house currency for subsidiaries located in participating countries, the economic
impact on the Company, and the cost of conversion. Preparations also include
coordination with customers, suppliers, and financial institutions to ensure a
smooth transition.
SCHEDULE FOR INTRODUCTION OF THE EURO--Three of the Companies' European
subsidiaries are located in participating countries, but have elected the option
of accounting for their transactions in their legacy currencies during at least
the first year of the transition period. However, the Company, including
subsidiaries located in both participating as well as non-participating
countries, expects to be able to transact business in the Euro as of January 1,
1999, when necessary to meet the needs of its customers. This will include the
ability to make and receive payments in the Euro, to invoice in the Euro, and to
provide pricing in the Euro.
ECONOMIC IMPACT ON THE COMPANY--The increased price transparency resulting from
the use of a single currency in the participating countries may affect the
ability of certain companies to price their products differently in the various
European markets. A possible result of this pricing transparency is price
harmonization at lower average prices for products sold in some markets.
However, due to the niche markets in which the Company operates, the Company
does not anticipate that pricing transparency resulting from the use of a single
currency by the participating countries will materially impact its sales.
In addition to the economic impact of pricing transparency, conversion to the
Euro may reduce the Company's exposure to changes in foreign exchange rates due
to the effect of having various assets and liabilities denominated in a single
currency as opposed to various legacy currencies. However, because there will be
less diversity in the Company's exposure to foreign currencies, movements in the
Euro's value in U.S. dollars could have a more pronounced effect, positive or
negative, on the Company's results.
COSTS OF CONVERSION TO THE EURO--The Company's European subsidiaries located in
participating countries have converted or are in the process of converting to
new computer systems to prepare for the Year 2000. These systems will also be
Euro-capable. The conversions are expected to be complete by mid 1999. The
Company estimates that its costs to complete the conversions to the new systems
will be approximately $1.0 million for the remainder of 1998 and 1999. Other
costs of conversion to the Euro are not expected to be material.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (December 31, 1999
for the
22
<PAGE>
Company). SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. For fair-value hedge transactions
in which the Company is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative instrument
will generally be offset in the income statement by changes in the hedged item's
fair value. For cash-flow hedge transactions, in which the Company is hedging
the variability of cash flows related to a variable-rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative instrument
will be reported in other comprehensive income. The gains and losses on the
derivative instrument that are reported in other comprehensive income will be
reclassified as earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective portion of all
hedges will be recognized in current-period earnings. Management is currently
reviewing the provisions of SFAS No. 133 and does not believe that the Company's
financial statements will be materially impacted by the adoption.
NOTE REGARDING FORWARD LOOKING STATEMENTS: The Management's Discussion and
Analysis and other sections of this Form 10-Q may contain forward looking
statements that are based on current expectations, estimates and projections
about the industries in which the Company operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," or variations of such words and
similar expressions are intended to identify such forward looking statements.
These forward-looking statements are based on a number of assumptions that could
ultimately prove inaccurate, and, therefore, there can be no assurance that they
will prove to be accurate. All such forward looking statements are subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995.
Important factors that could cause future financial performance to differ
materially and significantly from past results and from those expressed or
implied in this document include, without limitation, the risks of acquisition
of businesses (including limited knowledge of the businesses acquired and
misrepresentations by sellers), changes in business strategy or development
plans, the cyclical demand for the Company's products, the supply and/or price
of aluminum and other raw materials, currency exchange rate fluctuations,
environmental regulations, availability of financing, competition, reliance on
key management personnel, ability to manage growth, loss of customers, and a
variety of other factors. For further information on these and other risks, see
the "Risk Factors" section of Item 1. of the Company's Annual Report on Form
10-K for the year ended December 26, 1997, as well as the Company's other
filings with the Securities and Exchange Commission.
23
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of Euramax
International plc and its subsidiaries are included in Part I, Item
1.
Condensed Consolidated Statements of Earnings for the quarters ended
September 27, 1997, and September 26, 1998
Condensed Consolidated Statements of Earnings for the nine months
ended September 27, 1997, and September 26, 1998
Condensed Consolidated Balance Sheets at December 26, 1997, and
September 26, 1998
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 27, 1997, and September 26, 1998
Notes to condensed consolidated financial statements
(b) The Company filed no reports on Form 8-K during the three months ended
September 26, 1998.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(c) Exhibits:
<TABLE>
<C> <S>
2.1** Purchase Agreement dated as of April 28, 1997, among the Company and Genstar
Capital Corporation ("GCC"), Ontario Teachers' Pension Plan Board and the
Management Stockholders of Gentek Holdings, Inc. ("Holdings") as sellers GCC as
sellers' representative; Holdings and Gentek Building Products, Inc. ("GBPI").
(Incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed August
1, 1997).
3.1* Articles of Association of Euramax International plc
3.2* Memorandum and Articles of Association of Euramax European Holdings plc
3.3* Articles of Association of Euramax International B.V.
3.4* Articles of Incorporation of Amerimax Holdings, Inc.
3.5* Bylaws of Amerimax Holdings, Inc.
4.3* Indenture, dated as of September 25, 1996, by and among Euramax International plc,
Euramax European Holdings plc, Euramax European Holdings B.V., Amerimax Holdings,
Inc. and the Chase Manhattan Bank, as Trustee.
4.4* Deposit Agreement, dated as of September 25, 1996, by and among Euramax
International plc, Euramax European Holdings plc, Euramax European Holdings B.V.,
and The Chase Manhattan Bank, as book-entry depositary
4.5* Registration Rights Agreement, dated as of September 25, 1996, by and among Euramax
International plc, Euramax European Holdings plc, Euramax European Holdings B.V.,
Amerimax Holdings, Inc. and J.P. Morgan Securities Inc. and Goldman Sachs & Co.
4.6* Purchase Agreement dated as of September 18, 1996, by and among Euramax
International Ltd., Euramax European Holdings Ltd., Euramax European Holdings B.V.,
Amerimax Holdings, Inc. and J.P. Morgan Securities Inc. and Goldman Sachs & Co.
21.1** Subsidiaries of Euramax International plc
27.1 Financial Data Schedule: nine months ended September 26, 1998
27.2 Restated Financial Data Schedule: six months ended June 27, 1998
</TABLE>
- ------------------------
* Incorporated by reference to the Exhibit with the same number in the
Registrant's Registration Statement on Form S-4 (333-05978) which became
effective on February 7, 1997.
** Incorporated by reference to the Exhibit with the same number in the
Registrant's Annual Report on Form 10-K (333-05978) which was filed on March
12, 1998.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Euramax International plc has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EURAMAX INTERNATIONAL PLC
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ ---------------------------------------- ------------------
<S> <C> <C>
/s/ J. DAVID SMITH
- -------------------------------------- Chief Executive Officer and President
J. David Smith 11/3/98
/s/ R. SCOTT VANSANT
- -------------------------------------- Chief Financial Officer and Secretary
R. Scott Vansant 11/3/98
</TABLE>
26
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<PAGE>
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0
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