<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
F0RM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
----------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-24956
ASSOCIATED MATERIALS INCORPORATED
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation of Organization) Identification No.)
2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (214) 220-4600
-----------------------------
Not Applicable
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Former Name, Former Address and Former
Fiscal Year, if Changed Since Last Report
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Shares of Common Stock, $.0025 par value outstanding at August 7,
1998: 6,852,024.
Shares of Class B Common Stock, $.0025 par value outstanding at
August 7, 1998: 1,550,000
<PAGE> 2
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets................................................................................ 1
June 30, 1998 (Unaudited) and December 31, 1997
Statements of Operations (Unaudited).......................................................... 2
Quarter and six months ended June 30, 1998 and 1997
Statements of Cash Flows (Unaudited).......................................................... 3
Six months ended June 30, 1998 and 1997
Notes to Financial Statements (Unaudited)..................................................... 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition....................................................................... 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 11
SIGNATURES .................................................................................. 12
</TABLE>
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 3,131 $ 1,935
Accounts receivable, net ............................................. 54,565 49,197
Inventories .......................................................... 63,239 56,621
Income taxes receivable .............................................. -- 266
Other current assets ................................................. 4,006 3,291
---------- ----------
Total current assets ...................................................... 124,941 111,310
Property, plant and equipment, net ........................................ 56,973 53,855
Investment in Amercord Inc. ............................................... 9,500 10,694
Other assets .............................................................. 3,247 2,645
---------- ----------
Total assets .............................................................. $ 194,661 $ 178,504
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts ...................................................... $ 2,270 $ 4,769
Accounts payable ..................................................... 25,120 17,174
Accrued liabilities .................................................. 22,494 25,862
Revolving line of credit ............................................. -- 564
Income taxes payable ................................................. 2,537 --
Current portion of long-term debt .................................... 1,750 1,750
---------- ----------
Total current liabilities ................................................. 54,171 50,119
Deferred income taxes ..................................................... 1,564 1,951
Other liabilities ......................................................... 2,862 3,100
Long-term debt ............................................................ 79,850 78,600
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at June 30, 1998 and December 31,
1997
Issued and outstanding shares - 0 at June 30, 1998 and
December 31, 1997 ........................................... -- --
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 6,852,024 at June 30, 1998
and 4,893,504 at December 31, 1997 ............................. 17 12
Common stock, Class B, $.0025 par value:
Authorized, issued and outstanding shares - 1,550,000 at
June 30, 1998 and 2,700,000 at December 31, 1997 ............... 4 7
Less: Treasury stock, at cost - 41,396 shares at June 30, 1998
and December 31, 1997 ............................................ (542) (542)
Capital in excess of par ............................................. 11,988 505
Retained earnings .................................................... 44,747 44,752
---------- ----------
Total stockholders' equity ........................................... 56,214 44,734
---------- ----------
Total liabilities and stockholders' equity ................................ $ 194,661 $ 178,504
========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 4
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ........................................ $ 108,789 $ 107,676 $ 187,439 $ 186,792
Cost of sales .................................... 74,700 74,694 131,020 133,795
---------- ---------- ---------- ----------
.................................................. 34,089 32,982 56,419 52,997
Selling, general and administrative expense ...... 22,051 20,827 42,525 40,129
---------- ---------- ---------- ----------
Income from operations ........................... 12,038 12,155 13,894 12,868
Interest expense ................................. 1,897 2,640 4,180 5,273
---------- ---------- ---------- ----------
. ................................................ 10,141 9,515 9,714 7,595
Equity in earnings (loss) of Amercord Inc. ....... (630) 105 (1,194) 107
---------- ---------- ---------- ----------
Income before income taxes and extraordinary
item .......................................... 9,511 9,620 8,520 7,702
Income tax expense ............................... 4,126 3,927 3,902 3,139
---------- ---------- ---------- ----------
Income before extraordinary item ................. 5,385 5,693 4,618 4,563
Extraordinary loss from retirement of debt, net
of income taxes ............................... -- -- 4,054 --
---------- ---------- ---------- ----------
Net income ....................................... $ 5,385 $ 5,693 $ 564 $ 4,563
========== ========== ========== ==========
Earnings Per Common Share:
Income before extraordinary item ................. $ 0.64 $ 0.75 $ 0.57 $ 0.60
Extraordinary loss from retirement of debt ....... -- -- (0.50) --
---------- ---------- ---------- ----------
Net income per common share ...................... $ 0.64 $ 0.75 $ 0.07 $ 0.60
========== ========== ========== ==========
Earnings Per Common Share - Assuming Dilution:
Income before extraordinary item ................. $ 0.63 $ 0.73 $ 0.56 $ 0.59
Extraordinary loss from retirement of debt ....... -- -- (0.49) --
---------- ---------- ---------- ----------
Net income per common share - assuming
dilution ...................................... $ 0.63 $ 0.73 $ 0.07 $ 0.59
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................................... $ 564 $ 4,563
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization ................................... 3,466 3,131
Deferred income taxes ........................................... (387) (463)
Equity in (earnings) loss of Amercord Inc. ...................... 1,194 (107)
Loss on sale of assets .......................................... 19 --
Extraordinary loss on retirement of debt, net of income taxes ... 4,054 --
Changes in operating assets and liabilities:
Accounts receivable, net ..................................... (5,368) (7,491)
Inventories .................................................. (6,618) (4,315)
Income taxes receivable/payable .............................. 5,644 3,071
Bank overdrafts .............................................. (2,499) 1,010
Accounts payable and accrued liabilities ..................... 4,578 9,413
Other assets and liabilities ................................. (1,294) (553)
---------- ----------
Net cash provided by operating activities ............................ 3,353 8,259
INVESTING ACTIVITIES
Proceeds from sale of assets ......................................... 45 --
Additions to property, plant and equipment, net ...................... (6,486) (4,609)
---------- ----------
Net cash used in investing activities ................................ (6,441) (4,609)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt ......................... 75,000 --
Net proceeds from issuance of common stock ........................... 11,485 --
Net increase (decrease) in revolving line of credit .................. (564) (1,803)
Principal payments of long-term debt ................................. (850) (850)
Principal payments of 11 1/2% Senior Subordinated Notes .............. (72,900) --
Prepayment premium on early retirement of debt ....................... (4,809) --
Debt issuance costs .................................................. (2,509) --
Dividends paid ....................................................... (569) (379)
Treasury stock acquired .............................................. -- (204)
Options exercised .................................................... -- 58
---------- ----------
Net cash provided by (used in) financing activities .................. 4,284 (3,178)
---------- ----------
Net increase in cash ................................................. 1,196 472
Cash at beginning of period .......................................... 1,935 2,384
---------- ----------
Cash at end of period ................................................ $ 3,131 $ 2,856
========== ==========
Supplemental information:
Cash paid for interest ............................................... $ 5,176 $ 5,262
========== ==========
Net cash paid for income taxes ....................................... $ 1,293 $ 1,050
========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 6
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter and six months ended June 30, 1998 have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting, the instructions to Form 10-Q, and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been included.
The results of operations for any interim period are not necessarily indicative
of the results of operations for a full year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or market.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Raw materials ............................... $ 18,251 $ 16,352
Work in process ............................. 5,005 4,936
Finished goods and purchased stock .......... 39,983 35,333
---------- ----------
$ 63,239 $ 56,621
========== ==========
</TABLE>
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):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales .............................. $ 16,280 $ 18,566 $ 32,927 $ 40,182
Costs and expenses ..................... 17,915 17,861 36,000 39,049
---------- ---------- ---------- ----------
Income (loss) from operations .......... (1,635) 705 (3,073) 1,133
Interest expense ....................... 366 376 718 799
Income tax expense (benefit) ........... (740) 120 (1,403) 120
---------- ---------- ---------- ----------
Net income (loss) ...................... $ (1,261) $ 209 $ (2,388) $ 214
========== ========== ========== ==========
Company's share of net income (loss) ... $ (630) $ 105 $ (1,194) $ 107
========== ========== ========== ==========
</TABLE>
NOTE 4 - LONG-TERM DEBT
In March 1998, the Company purchased $72.9 million of its outstanding 11 1/2%
Senior Subordinated Notes due August 15, 2003 ("11 1/2% Notes") through a tender
offer and consent solicitation. As a result of this transaction, the
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<PAGE> 7
Company incurred an extraordinary charge of approximately $4.1 million net of
income taxes of $2.8 million resulting from the premium paid in connection with
the purchase of the 11 1/2% Notes and the write off of debt issuance costs
associated with such 11 1/2% Notes.
Simultaneously with the consummation of the tender offer, the Company issued $75
million of 9 1/4% Senior Subordinated Notes due March 1, 2008 (the "9 1/4%
Notes") with interest payable semi-annually on March 1 and September 1
commencing September 1, 1998. The 9 1/4% Notes are senior subordinated unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future "Senior Indebtedness" of the Company (as that term is
defined in the indenture pursuant to which the 9 1/4% Notes were issued (the "9
1/4% Note Indenture")).
The 9 1/4% Notes are redeemable at the Company's option, in whole or in part, at
any time on or after March 1, 2003, at redemption prices set forth in the 9 1/4%
Note Indenture. The 9 1/4% Note Indenture includes certain covenants that limit
the Company's ability to incur additional indebtedness, pay dividends and make
other restrictive payments, consummate certain transactions and other matters
similar to those which existed under the indenture pursuant to which the 11 1/2%
Notes were issued (the "11 1/2% Note Indenture").
NOTE 5 - STOCKHOLDERS' EQUITY
In March 1998, the Company completed an initial public offering ("IPO") of
2,448,120 shares of common stock at an offering price to the public of $16.00
per share. In the IPO, 808,520 shares were sold by the Company and 1,639,600
shares were sold by certain of the Company's stockholders. The offering resulted
in an increase in stockholder's equity of $11.5 million.
In connection with the IPO, 1,150,000 shares of Class B common stock were
converted into 1,150,000 shares of common stock.
NOTE 6 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted loss per common
share - income before extraordinary item .......... $ 5,385 $ 5,693 $ 4,618 $ 4,563
Denominator:
Denominator for basic earnings per common
share - weighted-average shares ................... 8,402 7,594 8,117 7,594
Effect of dilutive securities:
Employee stock options .............................. 158 191 158 191
-------- -------- -------- --------
Denominator for diluted earnings per common share -
adjusted weighted-average shares .................... 8,560 7,785 8,275 7,785
======== ======== ======== ========
Basic earnings per common share ....................... $ 0.64 $ 0.75 $ 0.57 $ 0.60
======== ======== ======== ========
Diluted earnings per common share ..................... $ 0.63 $ 0.73 $ 0.56 $ .059
======== ======== ======== ========
</TABLE>
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<PAGE> 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended June 30, 1998 Compared to Quarter Ended June 30, 1997
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segment:
<TABLE>
<CAPTION>
Quarter Ended June 30,
-----------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
---------- -------------------- --------- ---------------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside............................... $ 94,961 87.3% $ 94,165 87.5%
Net sales - AmerCable............................ 13,828 12.7 13,511 12.5
---------- ------- --------- -------
Total net sales................................ 108,789 100.0 107,676 100.0
Gross profit..................................... 34,089 31.3 32,982 30.6
Selling, general and
administrative expense (1)..................... 22,051 20.2 20,827 19.3
---------- ------- --------- -------
Income from operations........................... $ 12,038 11.1% $ 12,155 11.3%
========== ======= ========= =======
Alside:
Net sales........................................ $ 94,961 100.0% $ 94,165 100.0%
Gross profit..................................... 31,140 32.8 30,835 32.7
Selling, general and
administrative expense......................... 20,129 21.2 19,058 20.2
---------- ------- --------- -------
Income from operations........................... $ 11,011 11.6% $ 11,777 12.5%
========== ======= ========= =======
AmerCable:
Net sales........................................ $ 13,828 100.0% $ 13,511 100.0%
Gross profit..................................... 2,949 21.3 2,147 15.9
Selling, general and
administrative expense......................... 1,325 9.6 1,123 8.3
---------- ------- --------- -------
Income from operations........................... $ 1,624 11.7% $ 1,024 7.6%
========== ======= ========= =======
</TABLE>
(1) Consolidated selling, general and administrative expenses include
corporate expenses of $597,000 and $646,000 for the quarters ended June
30, 1998 and 1997, respectively.
Overview
General. The Company's sales increased 1.0% to $108.8 million for the
second quarter of 1998 as compared to the same period in 1997 due to flat sales
at the Company's Alside and AmerCable divisions. Income from operations
decreased by $117,000 to $12.0 million as higher profits from AmerCable were
offset by lower profits from Alside. The Company's income before extraordinary
item was $5.4 million, or $.63 per share on 8.6 million weighted average shares
for the second quarter of 1998 as compared to $5.7 million or $.73 per share on
7.8 million weighted average shares in the second quarter of 1997 due to higher
income tax expense and a decrease in equity of the earnings of the Company's
affiliate, Amercord. The increase in weighted average shares was the result of
an equity offering completed in March of 1998.
Alside. Alside's net sales increased 1% to $95.0 million for the
quarter ended June 30, 1998 as compared to the 1997 period as higher sales of
vinyl siding products were partially offset by a decrease in sales of vinyl
windows. Unit sales of vinyl siding increased by 4.9% in 1998 while average
selling prices were flat for the quarter ended June 30, 1998 as compared to the
1997 period. Unit sales of windows decreased 11.2% for the quarter
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<PAGE> 9
ended June 30, 1998 as compared to the same period in 1997. Gross profit as a
percentage of net sales remained consistent for the 1998 and 1997 quarters.
Selling, general and administrative expense increased 5.6% to $20.1 million for
the quarter ended June 30, 1998 due primarily to higher personnel costs, higher
advertising expenditures and higher lease expense as well as the opening of 3
additional Supply Centers. Income from operations decreased $766,000 or 6.5% to
$11.0 million for the quarter ended June 30, 1998 as compared to $11.8 million
for the same period in 1997 due primarily to higher selling, general and
administrative expenses.
AmerCable. Net sales increased slightly to $13.8 million for the
quarter ended June 30, 1998 as higher sales volume was offset by lower copper
prices. AmerCable's sales for the quarter ended June 30, 1998 would have
increased by 9.7% had copper prices remained at 1997 levels. AmerCable's
products are generally priced with copper as a pass through component. Gross
profit as a percentage of sales increased to 21.3% for the quarter ended June
30, 1998 as compared to 15.9% for the same period in 1997 principally due to
improved product mix. Selling, general and administrative expenses increased
18.0% to $1.3 million due primarily to higher personnel costs including
incentive compensation. AmerCable's income from operations increased by 58.6% to
$1.6 million in the quarter ended June 30, 1998 due to the higher gross profits
discussed above.
Amercord. The Company recorded a loss of $630,000 for its equity in the
after-tax loss of Amercord for the quarter ended June 30, 1998 as compared to
income of $105,000 during the same period in 1997. Amercord's net sales
decreased 12.3% to $16.3 million for the quarter ended June 30, 1998 due
primarily to lower sales prices for both tire cord and tire bead. Gross profit
decreased to $(1.0) million for the quarter ended June 30, 1998 as compared to
$1.7 million for the same period in 1997 due primarily to a decrease in average
unit sales prices for tire cord and tire bead. Selling, general and
administrative expense decreased from $967,000 for the quarter ended June 30,
1997 to $631,000 for the same period in 1998 due to lower research and
development expenditures.
Other. Net interest expense decreased $743,000 or 28.1% for the quarter
ended June 30, 1998 as compared to the same period in 1997 due to a decrease in
the Company's borrowing, the repurchase of $72.9 million of 11 1/2% Notes and
the issuance of the 9 1/4% Notes. The Company recorded interest income of
$97,000 related to an income tax refund.
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<PAGE> 10
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997.
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segments.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside............................... $ 159,354 85.0% $ 158,992 85.1%
Net sales - AmerCable............................ 28,085 15.0 27,800 14.9
----------- ------- ----------- -------
Total net sales................................ 187,439 100.0 186,792 100.0
Gross profit..................................... 56,419 30.1 52,997 28.4
Selling, general and
administrative expense (1)..................... 42,525 22.7 40,129 21.5
----------- ------- ----------- -------
Income from operations........................... $ 13,894 7.4% $ 12,868 6.9%
=========== ======= =========== =======
Alside:
Net sales........................................ $ 159,354 100.0% $ 158,992 100.0%
Gross profit..................................... 50,483 31.6 48,711 30.6
Selling, general and
administrative expense......................... 38,771 24.3 36,803 23.1
----------- ------- ----------- -------
Income from operations........................... $ 11,712 7.3% $ 11,908 7.5%
=========== ======= =========== =======
AmerCable:
Net sales........................................ $ 28,085 100.0% $ 27,800 100.0%
Gross profit..................................... 5,936 21.1 4,286 15.4
Selling, general and
administrative expense......................... 2,550 9.1 2,169 7.8
----------- ------- ----------- -------
Income from operations........................... $ 3,386 12.0% $ 2,117 7.6%
=========== ======= =========== =======
</TABLE>
(1) Consolidated selling, general and administrative expenses include
corporate expenses of $1,204,000 and $1,157,000 for the six-month periods
ended June 30, 1998 and 1997, respectively.
Overview
The Company's net sales were flat at $187.4 million for the six months ended
June 30, 1998 as compared to $186.8 million of the same period in 1997. Income
from operations increased by $1.0 million or 8.0% to $13.9 million for the six
months ended June 30, 1998 due to increased profitability at the Company's
AmerCable division. The Company's income before extraordinary item increased
slightly to $4.6 million ($0.56 per share) for the six months ended June 30,
1998 as compared to $4.6 million ($0.59 per share) for the same period in 1997
as higher income from operations was offset by lower earnings from the Company's
Amercord affiliate. The weighted average number of shares increased to 8.3
million for the six months ended June 30, 1998 as compared to 7.8 million for
the same period 1997 as a result of the Company's equity offering completed in
March 1998. An extraordinary loss of $4.1 million net of income tax was incurred
as a result of the repurchase of $72.9 million of the $75 million of 11 1/2%
Senior Subordinated Notes due August 15, 2003.
Alside. Alside's net sales for the six months ended June 30, 1998
increased slightly to $159.4 million as compared to $159.0 million for the same
period in 1997. Alside's higher sales of vinyl siding products were offset by
lower sales of vinyl windows. Unit sales of vinyl windows for the six months
ended June 30, 1998 decreased 11.2% while vinyl siding unit sales increased 4.4%
as compared to the same period in 1997. Gross profit as a percentage of net
sales increased to 31.6% for the six months ended June 30, 1998 as compared to
30.6% for the same period in 1997 due to lower raw material costs, primarily
vinyl resin. Selling, general and administrative expense increased 5.3% to $38.8
million for the six months ended June 30, 1998 due primarily to higher personnel
costs, higher advertising expenditures and higher lease expense as well as the
opening of additional Supply
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<PAGE> 11
Centers. Income from operations decreased 1.6% to $11.7 million for the six
months ended June 30, 1998 as compared to $11.9 million for the same period in
1997 as improved gross profits were more than offset by increased selling,
general and administrative expenses.
AmerCable. AmerCable's net sales increased slightly to $28.1 million
for the six months ended June 30, 1998 as compared to $27.8 million in the 1997
period as higher sales volume was partially offset by lower copper prices. Had
copper prices remained at 1997 levels, AmerCable's sales for the six months
ended June 30, 1998 would have increased by 8.1%. Gross profit increased $1.7
million or 38.5% for the six months ended June 30, 1998 as compared to the 1997
period principally due to a more favorable product mix. Selling, general and
administrative expenses increased to $2.6 million due primarily to higher
personnel costs. Income from operations increased to $3.4 million for the six
months ended 1998 as compared to $2.1 million for the same period in 1997 due to
the factors discussed above.
Amercord. The Company recorded a loss of $1.2 million for its equity in
the after-tax loss of Amercord for the six months ended June 30, 1998 as
compared to income of $107,000 during the same period in 1997. Amercord's net
sales decreased 18.1% to $32.9 million for the six months ended June 30, 1998
due to lower tire cord sales volume and lower unit sales prices for both tire
cord and tire bead. Gross profit decreased to $(1.8) million for the six months
ended June 30, 1998 as compared to $2.8 million for the same period in 1997
primarily due to the lower average selling prices for tire cord and tire bead.
Selling, general and administrative expense decreased to $1.2 million for the
six months ended June 30, 1998 from $1.6 million for the same period in 1997.
Other. Net interest expense decreased $1.1 million or 20.7% for the six
months ended June 30, 1998 as compared to the same period in 1997 due to a
decrease in the Company's borrowing, the repurchase of $72.9 million of 11 1/2%
Notes and the issuance of the 9 1/4% Notes. The Company recorded interest income
of $97,000 related to an income tax refund.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had cash and cash equivalents of $3.1 million and
available borrowing capacity of approximately $43.4 million under its existing
credit facility. Outstanding letters of credit totaled $6.6 million securing
$4.5 million of taxable notes and certain other obligations.
Net cash provided by operations was $3.4 million in the six months ended June
30, 1998 compared with $8.3 in the same period in 1997. The decrease in cash
provided by operations in the 1998 period was due principally to lower payables
for the period ended June 30, 1998 as compared to the 1997 period.
Capital expenditures totaled $6.5 million for the six months ended June 30,
1998, compared with $4.6 million during the same period in 1997. Expenditures in
the 1998 period were primarily used to increase window welding and assembly
capacity and increase vinyl siding extrusion capacity.
The Company expects to begin construction on its new vinyl siding facility in
August 1998 with the anticipation that the facility will be operational by April
1999. Due to the delay in the commencement of construction, a portion of the
capital expenditures planned for 1998 will be realized in early 1999.
In March 1998, the Company completed a tender offer and consent solicitation
with respect to its 11 1/2% Notes. In the tender offer, the Company purchased
$72.9 million of the $75.0 million 11 1/2% Notes. Simultaneously with the
consummation of the tender offer, the Company issued $75 million of 9 1/4%
Notes. Concurrently with these transactions, the Company completed an initial
public offering of 2,448,120 shares of common stock of which 808,520 shares were
sold by the Company. The remaining 1,639,600 shares were sold by certain of the
Company's stockholders including the holder of the Class B common stock who
converted 1,150,000 shares of Class B common stock into common stock on a
one-to-one basis in connection with the offering. Net proceeds to the Company,
after underwriting discounts and offering expenses, from the common stock and 9
1/4% Note offerings were $11.5 million and $72.4 million, respectively.
-9-
<PAGE> 12
The Company has given notice to redeem the $2.1 million principal amount of 11
1/2% Notes that remain outstanding on August 17, 1998. The applicable redemption
price on such date is 104.313% of the outstanding principal amount of the 11
1/2% Notes.
The Company believes the future cash flows from operations and its borrowing
capacity under its existing credit agreement will be sufficient to satisfy its
obligations to pay principal and interest on its outstanding debt, maintain
current operations and provide sufficient capital for presently anticipated
capital expenditures. However, there can be no assurances that the cash so
generated by the Company will be sufficient for such purposes.
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations have not
been material during the past two years. Inflation could adversely affect the
Company if inflation results in significantly higher interest rates or
substantial weakness in economic conditions. Alside's principal raw material,
vinyl resin, has been subject to rapid price increments. Alside has historically
been able to pass on price increases to its customers. No assurances can be
given that Alside will continue to be able to pass on any price increases.
CERTAIN FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995) relating to the Company
that are based on the beliefs of the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," "intend," and
similar expressions, as they relate to the Company or its management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to the operations and results of operations of the Company
as well as its customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment trends, changes in
levels of consumer confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs, pricing pressures,
shifts in market demand, and general economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
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<PAGE> 13
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 June 30, 1998, Associated Materials
Incorporated filed no Current Reports on Form 8-K.
-11-
<PAGE> 14
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: August 13, 1998 By: \s\ Robert L. Winspear
-------------------------------------
Robert L. Winspear, Vice President,
Vice President and Chief Financial Officer
Date: August 13, 1998 \s\ Robert L. Winspear
-------------------------------------
Robert L. Winspear, Vice President,
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,131
<SECURITIES> 0
<RECEIVABLES> 61,129
<ALLOWANCES> 6,564
<INVENTORY> 63,239
<CURRENT-ASSETS> 124,941
<PP&E> 56,973
<DEPRECIATION> 0
<TOTAL-ASSETS> 194,661
<CURRENT-LIABILITIES> 54,171
<BONDS> 77,100
0
0
<COMMON> 21
<OTHER-SE> 56,193
<TOTAL-LIABILITY-AND-EQUITY> 194,661
<SALES> 108,789
<TOTAL-REVENUES> 0
<CGS> 74,700
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,897
<INCOME-PRETAX> 9,511
<INCOME-TAX> 4,126
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,385
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.63
</TABLE>
