<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. 333-42065
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ASSOCIATED MATERIALS INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3089 75-1872487
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2200 ROSS AVENUE, SUITE 4100 EAST
DALLAS, TEXAS 75201
214-220-4600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------
ROBERT L. WINSPEAR
VICE PRESIDENT, TREASURER AND SECRETARY
2200 ROSS AVENUE, SUITE 4100 EAST
DALLAS, TEXAS 75201
214-220-4600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
JAMES E. O'BANNON
JONES, DAY, REAVIS & POGUE THOMAS A. EDWARDS
2300 TRAMMELL CROW CENTER LATHAM & WATKINS
2001 ROSS AVENUE 701 "B" STREET, SUITE 2100
DALLAS, TEXAS 75201 SAN DIEGO, CALIFORNIA 92101
214-220-3939 619-236-1234
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 17, 1998
PROSPECTUS
2,128,800 SHARES
ASSOCIATED LOGO
ASSOCIATED MATERIALS INCORPORATED
COMMON STOCK
------------------
Of the 2,128,800 shares of Common Stock being offered hereby (the "Stock
Offering"), 700,000 shares are being offered by Associated Materials
Incorporated ("Associated Materials" or the "Company") and 1,428,800 shares are
being offered by the Selling Stockholders (as defined herein). See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. Prior to this Stock Offering,
there has not been a public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$16.00 and $18.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "SIDE," subject to notice of issuance.
Concurrently with the Stock Offering, the Company is publicly offering
$75,000,000 aggregate principal amount of % Senior Subordinated Notes due
2008 (the "New Notes") by a separate prospectus (the "Note Offering"). The Stock
Offering is not contingent upon the completion of the Note Offering. See "The
Note Offering."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
==================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $440,000.
No expenses shall be paid by the Selling Stockholders. See "Shares
Eligible for Future Sale -- Registration Rights."
(3) The Company and certain Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 319,320 additional shares
of Common Stock, in the aggregate, solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them, and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery therefor on or
about , 1998 at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
------------------
SALOMON SMITH BARNEY DAIN RAUSCHER INCORPORATED
, 1998
<PAGE> 3
[Company logo]
[photographs of homes with vinyl siding and vinyl windows manufactured by the
Company]
Alside Premium Vinyl Siding and Windows
The Company has a number of trademarks and trade names, including AlsideH,
AlphaH, CenturionH, OmniH, UltraCraftH, UltraGuardH, UltraMaxxH, WilliamsportH,
CenterLock(TM), Charter Oak(TM), Conquest(TM), Excalibur(TM), Geneva(TM),
Greenbriar(TM), Highland Cedar(TM), Odyssey(TM), and Performance Series -- New
Construction(TM).
------------------
CERTAIN PERSONS PARTICIPATING IN THE STOCK OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE-COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes that the
over-allotment option granted to the Underwriters will not be exercised. Unless
the context requires otherwise, the term the "Company" refers to the business
and operations of Associated Materials Incorporated, including Alside and
AmerCable, but not Amercord. This Prospectus contains certain forward-looking
statements. See "Risk Factors."
THE COMPANY
Associated Materials is a leading, vertically integrated manufacturer and
nationwide distributor of exterior residential building products through its
Alside division ("Alside"). Alside's core products are vinyl siding and vinyl
windows. These products are marketed on a wholesale basis to more than 30,000
professional contractors engaged in home remodeling and new home construction,
principally through Alside's nationwide network of 66 Alside Supply Centers. In
recent years Alside has expanded its product offerings to include vinyl fencing,
vinyl decking and vinyl garage doors. In 1997, Alside accounted for
approximately 87% of the Company's net sales. In addition to Alside, the
Company's operations include its AmerCable division ("AmerCable"), a specialty
electrical cable manufacturer. Amercord Inc. ("Amercord"), a 50%-owned affiliate
managed by the Company, manufactures and sells steel cord and bead wire to tire
manufacturers.
Alside competes in the vinyl siding and vinyl window segments of the
exterior residential building products market. Since the early 1980's, vinyl
products have commanded an increasing share of the exterior siding and window
market due to the greater durability, lower maintenance requirements and lower
cost associated with vinyl compared to other materials such as wood and metal.
According to an industry study jointly prepared by Sabre Associates, Inc. and
Pure Strategy (the "Sabre Study"), based on unit sales, vinyl siding accounted
for approximately 47% of the exterior siding market in 1996, versus
approximately 17% in 1985 and vinyl windows accounted for approximately 45% of
the residential window market in 1996, versus approximately 27% in 1991.
Additionally, both vinyl siding and vinyl windows have become the preferred
products for professional home remodeling contractors, representing
approximately 62% and 75% of the home remodeling market for siding and windows
in 1996, respectively. More recently, vinyl siding and vinyl windows have
achieved increased acceptance in the new construction market. According to the
Sabre Study, sales of vinyl siding and vinyl windows in the new construction
market are each expected to grow at a rate of approximately 10% annually from
1996 to 2000 and overall, total sales of vinyl siding and vinyl windows are each
projected to increase approximately 7% annually between 1996 and 2000.
From 1993 to 1997, the Company's net sales and income from operations
increased 27.1% and 74.8% to $397.7 million and $33.0 million, respectively. The
Company's income from operations has increased at a faster rate than its net
sales primarily due to a shift in Alside's product mix from lower margin metal
siding to higher margin vinyl products, which the Company both manufactures and
distributes. Over the past five years, sales of vinyl siding and vinyl windows
have increased 49.0% and represented over 68.2% of Alside's 1997 net sales as
compared to 57.3% in 1993.
The Company believes that it is well positioned to capitalize on the
growing demand for vinyl building products. The following business strategy
should enable the Company to (i) maintain Alside's position as a leading
manufacturer and distributor of exterior residential building products, (ii)
continue to increase sales, and (iii) strengthen operating margins.
- - Company-Owned Distribution. Alside is one of only two major vinyl siding
manufacturers that markets its products primarily through a company-owned
distribution network. The Company believes that distributing products through
its nationwide network of 66 Alside Supply Centers provides Alside with
certain competitive advantages, including (i) long-standing customer
relationships, (ii) the ability to implement targeted marketing programs, and
(iii) a permanent presence in local markets. In 1997, approximately 78% of
Alside's net sales were made through its Supply Centers. In 1995, the Company
initiated a number of programs at its Supply Centers designed to enhance the
quality and training of its marketing and sales personnel and added additional
sales personnel. The Company believes these actions have increased, and will
continue to increase, Alside's market share and profitability.
3
<PAGE> 5
- - New Product Development. The Company intends to capitalize on Alside's vinyl
manufacturing expertise by continuing to develop and introduce new innovative
products that offer performance, cost and other advantages. For example, in
late 1995, Alside introduced Charter Oak, a patented premium siding product,
which accounted for approximately 22.9% of Alside's vinyl siding unit volume
in 1997. In early 1997, Alside introduced Conquest, a siding product designed
to increase Alside's penetration of the economy market segment. Conquest
accounted for approximately 18.2% of Alside's vinyl siding unit volume in
1997. Additionally, Alside, has broadened its product range by introducing a
number of other vinyl products such as vinyl fencing in 1993 and vinyl decking
and a redesigned vinyl garage door in 1997.
- - New Construction Market. According to the Sabre Study, the new construction
market will continue to be the fastest growing segment in the vinyl siding and
vinyl window industry. The Company intends to increase Alside's penetration of
the new construction market through a number of initiatives including new
product introductions such as Conquest, a recently formed sales group and
targeted marketing programs. As consolidation among builders continues and as
builders attempt to reduce the number of vendors used, the Company believes
that as a low-cost manufacturer with a national, company-owned distribution
system, Alside is well positioned to increase sales to nationwide
homebuilders.
- - Low-Cost and Vertically Integrated Operations. The Company believes that
Alside is a low-cost manufacturer of vinyl siding and other vinyl products due
to its manufacturing expertise, state-of-the-art technology and ability to
employ economies of scale. In addition, Alside's ability to produce its own
vinyl window extrusions and glass inserts, coupled with its high-speed welding
and cleaning equipment, provide it with cost and quality advantages over other
window manufacturers that are not as large or as vertically integrated as
Alside.
- - Manufacturing Capacity Expansion. Alside expects to significantly expand its
vinyl siding production capacity by increasing capacity at its existing vinyl
siding plant and by building a new vinyl siding manufacturing facility to meet
its future sales expectations. The Company intends to initially invest
approximately $12 million in the new facility, which is expected to become
operational in 1999.
The Company's other operating division, AmerCable, manufactures and markets
a variety of specialty electrical cable used in underground and surface mining,
shipboard, marine, offshore drilling, transportation and a variety of other
specialized industrial applications. AmerCable accounted for approximately 13%
of the Company's net sales in 1997. As a result of a shift of strategy in
mid-1996 to focus on its core products, AmerCable has lowered its costs and
improved manufacturing efficiencies and on-time delivery rates, thereby
substantially improving its profitability.
The Company's executive offices are located at Suite 4100 East, 2200 Ross
Avenue, Dallas, Texas 75201, and its telephone number is (214) 220-4600. The
Company was incorporated in Delaware in 1983.
4
<PAGE> 6
THE STOCK OFFERING
Common Stock offered by:
the Company................. 700,000 Shares
the Selling Stockholders.... 1,428,800 Shares
Common shares to be
outstanding
after the Stock Offering.... 8,293,504 Shares(1)
Use of Proceeds............... To fund, in part, the Company's 1998 capital
expenditure plan, including the construction of
a new vinyl siding manufacturing facility.
Pending such use, the net proceeds shall be
used to repay outstanding borrowings under the
Company's existing bank credit agreement. See
"Use of Proceeds."
Proposed Nasdaq National
Market symbol................. SIDE
- ---------------
(1) Includes 1,700,000 shares of the Company's Class B Common Stock to be
outstanding after the Stock Offering, which shares are convertible at any
time at the option of the holder into shares of Common Stock on a one-to-one
basis, and 1,000,000 shares of Class B Common Stock to be converted into
Common Stock and sold in the Stock Offering. See "Principal and Selling
Stockholders." The holder of shares of Class B Common Stock has the same
rights and privileges as holders of Common Stock except that the holder of
Class B Common Stock may vote (with the holders of Common Stock) only on
matters relating to changes in the Company's Certificate of Incorporation;
the sale, lease or disposition of certain assets; mergers or consolidations;
or the liquidation or dissolution of the Company. See "Description of
Capital Stock." Does not include 307,300 shares of Common Stock issuable
upon the exercise of outstanding stock options, of which options for 233,550
shares are exercisable as of the date of this Prospectus.
THE NOTE OFFERING
Concurrently with the Stock Offering, the Company is publicly offering
$75,000,000 aggregate principal amount of New Notes in the Note Offering by a
separate prospectus. The consummation of the Stock Offering and the consummation
of the Note Offering are not conditioned upon each other. The New Notes will be
issued pursuant to an indenture (the "New Indenture") and will be general
unsecured obligations of the Company, subordinate in right of payment to all
existing and future senior indebtedness of the Company, including amounts
borrowed under the Company's existing bank credit agreement (the "Credit
Agreement").
The Company has commenced a tender offer and consent solicitation (the
"Tender Offer" which, together with the Note Offering and the Stock Offering,
are collectively referred to herein as the "Offerings") to purchase for cash all
of its 11 1/2% Senior Subordinated Notes due August 15, 2003 (the "Existing
Notes"), of which $75,000,000 aggregate principal amount are currently
outstanding. In connection with the Tender Offer, the Company is soliciting
consents from holders of Existing Notes to amend the indenture under which the
Existing Notes were issued (the "Existing Indenture") in order to eliminate
substantially all of the restrictive covenants and certain other provisions
contained in the Existing Indenture (the "Proposed Amendments"). Holders of
Existing Notes who tender their Existing Notes in the Tender Offer are required
to consent to the Proposed Amendments. Under the terms of the Existing
Indenture, consents from the holders of a majority in principal amount of the
Existing Notes are required to approve the Proposed Amendments. The Tender Offer
is conditioned on the completion of the Note Offering and the receipt of the
requisite consents to the Proposed Amendments. See "The Note Offering."
As of February 12, 1998, the holders of $71,135,000, or approximately
94.8%, in principal amount of the Existing Notes had validly tendered their
Existing Notes and delivered their consents to the Proposed Amendments. If no
additional Existing Notes are tendered, $3,865,000 of Existing Notes will remain
outstanding after the Note Offering. However, the Company presently intends to
redeem all Existing Notes that remain outstanding following the Tender Offer
promptly after August 15, 1998, the first date on which the Existing Notes may
be redeemed by the Company under the terms of the Existing Indenture.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $312,972 $352,606 $350,029 $356,471 $397,690
Cost of sales............................................... 230,408 258,669 264,080 255,579 283,514
-------- -------- -------- -------- --------
Gross profit................................................ 82,564 93,937 85,949 100,892 114,176
Selling, general and administrative expenses................ 63,670 70,482 73,207 77,740 81,142
-------- -------- -------- -------- --------
Income from operations...................................... 18,894 23,455 12,742 23,152 33,034
Interest expense............................................ 7,581 10,580 11,474 10,882 9,795
Equity in earnings (loss) of Amercord....................... 1,039 100 537 1,724 (626)
-------- -------- -------- -------- --------
Income before income tax expense............................ 12,352 12,975 1,805 13,994 22,613
Income tax expense.......................................... 4,666 5,101 545 5,172 9,524
-------- -------- -------- -------- --------
Income before extraordinary item............................ 7,686 7,874 1,260 8,822 13,089
Extraordinary item(1)....................................... 1,876 -- -- -- --
-------- -------- -------- -------- --------
Net income.................................................. 5,810 7,874 1,260 8,822 13,089
Preferred dividends......................................... 583 -- -- -- --
-------- -------- -------- -------- --------
Income applicable to common stock........................... $ 5,227 $ 7,874 $ 1,260 $ 8,822 $ 13,089
======== ======== ======== ======== ========
SHARE DATA:
Basic earnings per common share............................. $ 0.84 $ 1.05 $ 0.17 $ 1.16 $ 1.72
Diluted earnings per common share(2)........................ 0.42 1.02 0.16 1.14 1.69
Weighted average number of diluted shares................... 12,320 7,757 7,663 7,714 7,756
Dividends per share......................................... -- -- -- -- $ 0.05
OTHER DATA:
EBITDA(3)................................................... $ 23,779 $ 27,959 $ 18,082 $ 29,025 $ 39,555
Capital expenditures........................................ 5,489 9,323 7,683 8,110 8,758
Cash provided by (used in) operating activities............. 3,982 (3,248) 5,328 15,055 22,496
Cash used in investing activities........................... (4,663) (9,206) (7,203) (8,087) (7,941)
Cash provided by (used in) financing activities............. 1,801 11,648 2,452 (6,863) (15,004)
Ratio of EBITDA to interest expense......................... 3.14x 2.64x 1.58x 2.67x 4.04x
Ratio of earnings to fixed charges.......................... 2.16x 1.92x 1.12x 1.93x 2.60x
PRO FORMA DATA:(4)
Income from operations................................................................................. $ 33,185
Interest expense....................................................................................... 7,926
Net income............................................................................................. 14,276
Diluted earnings per common share(2)................................................................... 1.69
Weighted average number of diluted shares.............................................................. 8,456
Ratio of earnings to fixed charges..................................................................... 3.04x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
AS ADJUSTED
FOR THE
ACTUAL OFFERINGS(4)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 61,191 $ 67,295
Total assets................................................ 178,504 181,231
Short-term debt, including current maturities............... 2,314 1,750
Long-term debt, less current maturities..................... 78,600 78,600
Stockholders' equity........................................ 44,734 51,047
</TABLE>
- ---------------
(1) The extraordinary item represents, net of tax, the loss recognized on the
prepayment premium paid on the retirement of the Company's 15% Senior
Secured Notes in August 1993.
(2) In accordance with the Securities and Exchange Commission (the "Commission")
Staff Accounting Bulletin No. 98, common shares, or options or warrants to
purchase common stock, issued for nominal consideration are reflected in
basic and diluted earnings per share for all periods. In this Prospectus,
the Company's Common Stock and Class B Common Stock are referred to
collectively as "common shares."
(3) EBITDA is calculated as income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA because
it believes that EBITDA is used by certain investors as one measure of an
issuer's historical ability to service its debt. EBITDA should not be
considered by an investor as an alternative to, or more meaningful than, net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. EBITDA as presented above for the Company
may not be comparable to similarly titled measures reported by other
companies.
(4) Gives effect to (i) the sale of the Common Stock offered by the Company
hereby at an assumed offering price of $17.00 per share and the application
of the estimated net proceeds therefrom to the repayment of indebtedness
under the Credit Agreement pending the use of such proceeds as described in
"Use of Proceeds," and (ii) the issuance of the New Notes at an assumed
interest rate of 9.5% and the application of the estimated net proceeds
therefrom, together with the borrowings under the Credit Agreement, to
purchase all of the outstanding principal amount of the Existing Notes in
connection with the Tender Offer and to pay related transaction costs. For
Income Statement Data, these events are assumed to occur at the beginning of
the period and for Balance Sheet Data, these events are assumed to occur at
December 31, 1997. Upon completion of the Tender Offer, the Company will
record an extraordinary charge estimated to be approximately $4.3 million,
net of tax ($0.56 per diluted common share), for the prepayment premium
expected to be paid with respect to the Tender Offer and the write off of
unamortized debt issuance costs associated with the Existing Notes.
6
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements that are based on the
beliefs of, and estimates and assumptions made by and information currently
available to, the Company's management. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or the Company's management, identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties. Actual results and events may vary materially from those
discussed in the forward-looking statements. Factors that might cause such a
difference are discussed below. Further, certain forward-looking statements
included in this Prospectus assume the completion of the Stock Offering, the
Note Offering and the Tender Offer, which transactions have yet to be completed
and which may not be completed. The failure to complete any of these
transactions will impact the Company's capital structure, as more fully
described under "Capitalization" and could have certain other effects, which are
more fully described herein. Prospective investors should carefully consider the
following factors in evaluating the Company and its business before purchasing
shares of Common Stock offered hereby.
General Industry, Economic, Interest Rates and Other Conditions. The
exterior residential building products industry in which Alside operates may be
significantly affected by changes in national and local economic and other
conditions, including employment levels, changing demographic considerations,
availability of financing, interest rates and consumer confidence, all of which
are outside of the Company's control. A prolonged recession affecting the
residential construction industry could result in a significant decrease in the
Company's financial performance.
Substantial Operating Leverage. The Company operates with substantial
operating leverage. A significant portion of Alside's selling, general and
administrative expenses are fixed costs which do not fluctuate proportionately
with sales. As a result, a percentage decline in Alside's net sales has a
greater percentage effect on Alside's operating income.
Fluctuating Raw Material Costs and Availability. The principal raw material
component of Alside's vinyl products is vinyl resin, which historically has
fluctuated significantly in price. During 1996, the average price of vinyl resin
was lower than 1995 levels. In 1997, the price of vinyl resin increased during
the first six months and then declined. Alside did not generally pass on any
additional costs or savings resulting from the fluctuations in resin prices in
1996 and 1997. Although prior to 1997, Alside had generally been able to pass on
price increases in vinyl resin to its customers, there can be no assurance that
in the future the market will respond favorably to such selling price increases
or that the Company will otherwise be able to absorb such cost increases without
significantly affecting its margins. Additionally, a major interruption in the
delivery of vinyl resin to Alside would disrupt Alside's operations and could
have an adverse effect on the Company's financial condition and results of
operations. Alside has contracts with two vendors to supply substantially all of
its vinyl resin requirements and believes its requirements could also be met by
other suppliers. Copper is the principal raw material used by AmerCable in the
manufacture of its products. Historically, copper has been subject to rapid
price movements. A decrease in the price of copper may also affect the Company's
gross margins as AmerCable prices its cable products based upon market prices
for copper at the time of shipment. As a result, sudden decreases in copper
prices can result in lower gross profit margins in future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Substantial Financial Leverage. Following the Offerings, the Company will
continue to be highly leveraged. As of December 31, 1997, after giving effect to
the Offerings, the Company's total indebtedness would have been approximately
$80.4 million and its stockholders' equity would have been $51.0 million. See
"Capitalization." The Company's high level of indebtedness presents certain
risks to its security holders and conceivably could adversely affect or impair,
among other things, the ability of the Company to obtain additional financing in
the future and to respond to market and general economic conditions,
extraordinary capital requirements (including the proposed construction of a new
vinyl siding manufacturing facility) and other factors. The Credit Agreement
includes covenants that require the maintenance of certain financial ratios and
net worth and that place restrictions on the repurchase of Common Stock and the
payment of dividends. Outstanding borrowings under the Credit Agreement are
collateralized by substantially all of the assets of the Company. In addition,
the Existing Indenture presently contains and the New Indenture will
7
<PAGE> 9
contain covenants that, among other things, limit the ability of the Company to
incur additional indebtedness, pay dividends, make certain investments and
repurchase stock or subordinated indebtedness. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Use of Proceeds."
Risks Associated with Manufacturing Expansion. The Company presently
intends to start construction of a new vinyl siding manufacturing facility in
1998 with operations anticipated to commence in 1999. The construction of a new
facility involves certain risks, including construction cost overruns and
delays, the hiring and training of new employees, compliance with environmental
health and safety and other regulatory requirements and the costs associated
with the acquisition of new production equipment, tooling and other machinery.
The inability of the Company to commence full-scale commercial production at its
new manufacturing facility in a timely manner could have an adverse effect on
the Company's results of operations and financial condition. In addition, at
such time as the Company commences production at this new facility, it may from
time to time experience lower than anticipated manufacturing efficiencies that
may adversely affect the Company's results of operations and financial
condition. Further, there can be no assurance that the Company will successfully
integrate the new facility with its existing manufacturing facilities or that it
will achieve the anticipated benefits and efficiencies from its expanded
manufacturing operations. In addition, the Company's operating results could be
adversely affected if sales of the Company's products do not increase at a rate
sufficient to offset the Company's increased expenses resulting from this
expansion. See "Use of Proceeds" and "Business -- Manufacturing."
Weather Impacts Quarterly Results. Because most of Alside's building
products are intended for exterior use, sales tend to be lower during periods of
inclement weather. Weather conditions in the first quarter of each calendar year
usually result in that quarter producing significantly less sales revenue than
in any other period of the year. Consequently, the Company has historically had
net losses in the first quarter and reduced profits from operations in the
fourth quarter of each calendar year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Quarterly Financial Data."
Competition from Vinyl Building Product Manufacturers and Alternative
Building Product Materials. With the exception of Owens Corning, no other
company within the vinyl residential siding market competes with Alside in both
manufacturing and distribution. However, Alside does compete with other
manufacturers of vinyl building products, including Aluminum Company of America,
CertainTeed Corporation, Jannock Limited, Nortek, Inc. and Royal Group
Technologies Limited. Some of these companies are larger and have greater
financial resources than the Company. The Company also competes with Owens
Corning and numerous large and small distributors of building products in its
capacity as a distributor of such products. Additionally, the Company's products
face competition from alternative materials: wood and aluminum in the window
markets, and wood, masonry and metal in the siding market. There can be no
assurance the Company will not be adversely impacted by its competitors or
alternative materials. See "Business -- Alside -- Competition."
Costs of Environmental Compliance. The Company's operations are subject to
various environmental statutes and regulations, including laws and regulations
addressing materials used in the manufacturing of the Company's products. In
addition, certain of the Company's operations are subject to federal, state and
local environmental laws and regulations that impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. Although the
Company believes it has made sufficient capital expenditures to maintain
compliance with existing laws and regulations, future expenditures may be
necessary as compliance standards and technology change. Unforeseen significant
expenditures required to maintain such compliance, including unforeseen
liabilities, could have an adverse effect on the Company's business and
financial condition. See "Business -- Government Regulation and Environmental
Matters."
8
<PAGE> 10
Control by Existing Stockholder. After the Stock Offering, the Winspear
Family Limited Partnership, a Texas limited partnership (the "Winspear
Partnership"), of which Mr. William W. Winspear, the Chairman, President and
Chief Executive Officer of the Company, is the managing general partner, will
beneficially own approximately 46.4% of the outstanding Common Stock of the
Company (assuming the conversion of all outstanding shares of Class B Common
Stock into shares of Common Stock). As a result, Mr. Winspear, or any successor
managing general partner, will have significant influence over all matters
requiring approval by the stockholders of the Company, including the election of
the Company's Board of Directors. See "Management," "Principal and Selling
Stockholders" and "Description of Capital Stock."
Absence of Prior Public Market; Possible Volatility of Stock Prices. Prior
to the Stock Offering, there has been no public market for the Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained after the Stock Offering or that any market that may develop for the
Common Stock will be liquid. The Common Stock has been approved for quotation on
the Nasdaq National Market under the symbol "SIDE," subject to notice of
issuance. The initial public offering price of the Common Stock offered hereby
was determined by negotiation between the Company, the Selling Stockholders and
the Representatives of the Underwriters and may bear no relationship to the
price at which the Common Stock will trade after completion of the Stock
Offering. For factors considered in determining the initial public offering
price, see "Underwriting." After completion of the Stock Offering, the market
price of the Common Stock could be subject to significant fluctuations in
response to various factors and events, including the liquidity of the market
for the Common Stock and variations in the Company's operating results.
Substantial Number of Shares Eligible for Future Sale. Sales of a
substantial number of shares of the Company's Common Stock in the public market
following the Stock Offering could adversely affect the market price for the
Common Stock. In addition to the 2,128,800 shares offered hereby, 6,164,704
shares of "restricted" Common Stock, as defined in Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), will be eligible for sale in the
public market after this Stock Offering in accordance with Rule 144 or Rule 701
under the Securities Act, of which 6,112,800 shares (5,902,000 shares if the
over-allotment option is exercised in full) are subject to 180-day lock-up
agreements with the Representatives and 14,400 shares are subject to a 90-day
lock-up agreement under the terms of a Registration Rights Agreement among the
Company and certain stockholders. See "Underwriting" and "Shares Eligible for
Future Sale -- Lock-up Agreements." The holders of substantially all of these
shares have registration rights which could permit such holders to sell their
shares to the public. There are also outstanding options for 307,300 shares of
Common Stock which shares, under certain circumstances, may become eligible for
immediate sale in the public market pursuant to Rule 701. See "Shares Eligible
for Future Sale."
Dilution. Purchasers of the Common Stock offered hereby will suffer an
immediate and substantial dilution in the net tangible book value per share of
the Common Stock. See "Dilution."
Anti-Takeover Provisions. The Company's Restated Certificate of
Incorporation (the "Certificate") and Restated Bylaws ("Bylaws") contain certain
provisions that could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions may limit the price that certain
investors may be willing to pay in the future for shares of the Company's Common
Stock. See "Description of Capital Stock -- State Law and Certain Certificate
and Bylaw Provisions." Additionally, the Certificate grants the Company's Board
of Directors the authority to issue, without stockholder approval, up to 100,000
shares of Preferred Stock having such rights, preferences and privileges as
designated by the Board of Directors. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. See
"Description of Capital Stock -- Preferred Stock."
9
<PAGE> 11
USE OF PROCEEDS
At an assumed initial public offering price of $17.00 per share, the net
proceeds to the Company from the sale of the 700,000 shares of Common Stock
being offered by the Company hereby are estimated to be approximately
$10,627,000 ($12,343,000 if the Underwriters' over-allotment option is exercised
in full) after deducting underwriting discounts and commissions and estimated
expenses of the Stock Offering payable by the Company. The Company intends to
use its net proceeds from the Stock Offering, together with cash from operations
and borrowings under the Credit Agreement, to fund the Company's 1998 capital
expenditure plan, including the construction of a new vinyl siding manufacturing
facility in order to expand the Company's production capacity. Although the
Company is in the initial planning stages with respect to the construction of
this facility, the Company presently estimates that the construction cost of
such facility (including the initial operating equipment) will be approximately
$12 million. Pending such use, the Company intends to use its net proceeds from
the Stock Offering to repay outstanding borrowings under the Credit Agreement.
As of December 31, 1997, $564,000 was outstanding under the Credit Agreement,
and the average interest rate thereunder was 8.5% at such date. The Credit
Agreement provides for a total credit facility of up to $50 million through May
31, 1999. The balance of the Company's net proceeds, if any, will be invested in
short-term, investment grade securities pending such use. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
THE NOTE OFFERING
Concurrently with the Stock Offering, the Company is publicly offering
$75,000,000 aggregate principal amount of New Notes in the Note Offering by a
separate prospectus. The consummation of the Stock Offering and the consummation
of the Note Offering are not conditioned on each other. The New Notes will be
issued pursuant to the New Indenture and will be general unsecured obligations
of the Company, subordinate in right of payment to all existing and future
senior indebtedness of the Company, including amounts borrowed under the Credit
Agreement.
On January 29, 1998, the Company commenced the Tender Offer to purchase for
cash all of its Existing Notes, of which $75,000,000 aggregate principal amount
are currently outstanding. The Note Offering and Tender Offer are contingent
upon each other. In connection with the Tender Offer, the Company is soliciting
consents from holders of Existing Notes to approve the Proposed Amendments to
the Existing Indenture in order to eliminate substantially all of the
restrictive covenants and certain other provisions contained in the Existing
Indenture. Holders of Existing Notes who tender their Existing Notes in the
Tender Offer are required to consent to the Proposed Amendments. Under the terms
of the Existing Indenture, consents from the holders of a majority in principal
amount of the Existing Notes are required to approve the Proposed Amendments.
The Tender Offer is conditioned on the completion of the Note Offering and the
receipt of the requisite consents to the Proposed Amendments. The Tender Offer
will expire on March 2, 1998, unless extended or terminated, at which time the
Company intends to purchase all of the Existing Notes validly tendered. The
Company intends to fund the costs associated with the purchase of the Existing
Notes pursuant to the Tender Offer, including the anticipated prepayment premium
and the related transaction costs, with the net proceeds of the Note Offering
and borrowings under the Credit Agreement. The Company intends to close the Note
Offering on the day it would become obligated to pay for the Existing Notes
tendered in the Tender Offer. If necessary, the Company will extend the Tender
Offer so that the proceeds of the Note Offering will be available to pay for the
Existing Notes tendered in the Tender Offer.
As of February 12, 1998, the holders of $71,135,000, or approximately
94.8%, in principal amount of the Existing Notes had validly tendered their
Existing Notes and delivered their consents to the Proposed Amendments. If no
additional Existing Notes are tendered, $3,865,000 of Existing Notes would
remain outstanding after the Note Offering. However, the Company presently
intends to redeem all Existing Notes that remain outstanding following the
Tender Offer promptly after August 15, 1998, the first date on which the
Existing Notes may be redeemed by the Company under the terms of the Existing
Indenture. The applicable redemption price on such date is 104.313% of the
outstanding principal amount of the Existing Notes.
10
<PAGE> 12
DIVIDEND POLICY
The Company paid its first cash dividend of $.05 per common share in March
1997. On January 28, 1998, the Board of Directors of the Company announced a
cash dividend of $.075 per common share ($569,513 in the aggregate), payable to
stockholders of record on February 2, 1998. The Company presently intends to pay
an annual cash dividend. However, the Company's future dividend policy will
depend upon the Company's capital requirements, results of operations, financial
condition and such other factors as the Company's Board of Directors deems
relevant. Further, the payment of cash dividends is restricted by covenants in
the Credit Agreement and in the Existing Indenture, and will be restricted under
the terms of the New Indenture.
11
<PAGE> 13
CAPITALIZATION
The following table presents the actual capitalization of the Company at
December 31, 1997 and as adjusted to give effect to the (i) sale of 700,000
shares of Common Stock by the Company in the Stock Offering at an assumed
initial public offering price of $17.00 per share and the application of the net
proceeds of the Stock Offering to the repayment of indebtedness under the Credit
Agreement pending the use of such proceeds as described under "Use of Proceeds,"
and (ii) as further adjusted to reflect the completion of the Note Offering and
the Tender Offer assuming all of the Existing Notes are purchased in the Tender
Offer.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
AS ADJUSTED AS ADJUSTED
FOR THE STOCK FOR THE
ACTUAL OFFERING OFFERINGS(1)
-------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 1,935 $ 11,998 $ 4,453
======== ======== ========
Short-term debt:
Revolving line of credit.................................. $ 564 $ -- $ --
Current maturities of long-term debt...................... 1,750 1,750 1,750
-------- -------- --------
Total short-term debt............................. $ 2,314 $ 1,750 $ 1,750
======== ======== ========
Long-term debt, less current maturities:
Taxable Notes............................................. $ 3,600 $ 3,600 $ 3,600
Existing Notes............................................ 75,000 75,000 --
New Notes................................................. -- -- 75,000
-------- -------- --------
Total long-term debt.............................. 78,600 78,600 78,600
-------- -------- --------
Stockholders' equity:
Preferred Stock, par value $.01 per share, 100,000
authorized shares; none issued......................... -- -- --
Common Stock, par value $.0025 per share; 15,000,000
authorized shares; 4,934,900 issued shares (6,634,900
issued shares, as adjusted)............................ 12 17 17
Class B Common Stock, par value $.0025 per share;
2,700,000 authorized shares; 2,700,000 issued shares
(1,700,000 authorized and issued shares, as
adjusted).............................................. 7 4 4
Capital in excess of par.................................. 505 11,130 11,130
Less treasury stock, at cost (41,396 shares).............. (542) (542) (542)
Retained earnings......................................... 44,752 44,752 40,438
-------- -------- --------
Total stockholders' equity........................ 44,734 55,361 51,047
-------- -------- --------
Total capitalization.............................. $123,334 $133,961 $129,647
======== ======== ========
</TABLE>
- ---------------
(1) Upon completion of the Tender Offer, the Company will record an
extraordinary charge estimated to be approximately $4.3 million, net of tax
($0.56 per diluted share of Common Stock), for the prepayment premium
expected to be paid with respect to the Tender Offer for the Existing Notes
and the write off of unamortized debt issuance costs associated with the
Existing Notes.
12
<PAGE> 14
DILUTION
As of December 31, 1997, the Company had a net tangible book value of
approximately $42.5 million, or $5.60 per common share. Without taking into
account any further adjustment in tangible book value after December 31, 1997,
other than to give effect to the sale of 700,000 shares of Common Stock offered
hereby by the Company (after deducting underwriting discounts and commissions
and estimated Stock Offering expenses), the pro forma net tangible book value of
the Company as of December 31, 1997 would have been approximately $53.2 million,
or $6.41 per common share. This represents an immediate increase in net tangible
book value of $0.81 per common share to existing stockholders and an immediate
dilution of $10.59 per common share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $17.00
Net tangible book value before the Stock Offering......... $5.60
Increase attributable to new investors.................... $0.81
Pro forma net tangible book value after the Stock
Offering.................................................. $ 6.41
Dilution to new investors................................... $10.59
</TABLE>
The following table summarizes, as of December 31, 1997, the relative
investments of all existing stockholders and new investors, giving pro forma
effect to the sale of 700,000 shares of Common Stock offered hereby by the
Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............. 7,593,504 91.6% $ 187,171 1.5% $ 0.025
New Investors...................... 700,000 8.4 11,900,000 98.5 17.00
--------- ----- ----------- -----
Total.................... 8,293,504 100.0% $12,087,171 100.0%
========= ===== =========== =====
</TABLE>
(1) Represents the aggregate number of shares of Common Stock outstanding and
the shares of Common Stock issuable upon conversion of all outstanding
shares of Class B Common Stock. See "Description of Capital Stock."
The foregoing tables assume no exercise of outstanding options to purchase
Common Stock. The Company presently has outstanding options to purchase 307,300
shares of Common Stock with an aggregate weighted average exercise price of
$7.79 per share, or $2,392,640 in the aggregate. If all such options were
exercised immediately prior to completion of the Stock Offering (which is not
anticipated), the Company would have 8,600,804 common shares outstanding and the
dilution to new investors would be $10.54. See "Description of Capital Stock."
13
<PAGE> 15
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for each of the years
in the five-year period ended December 31, 1997 were derived from the financial
statements of the Company which have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................. $312,972 $352,606 $350,029 $356,471 $397,690
Cost of sales............................................. 230,408 258,669 264,080 255,579 283,514
-------- -------- -------- -------- --------
Gross profit.............................................. 82,564 93,937 85,949 100,892 114,176
Selling, general and administrative expenses.............. 63,670 70,482 73,207 77,740 81,142
-------- -------- -------- -------- --------
Income from operations.................................... 18,894 23,455 12,742 23,152 33,034
Interest expense.......................................... 7,581 10,580 11,474 10,882 9,795
Equity in earnings (loss) of Amercord(1).................. 1,039 100 537 1,724 (626)
-------- -------- -------- -------- --------
Income before income tax expense.......................... 12,352 12,975 1,805 13,994 22,613
Income tax expense........................................ 4,666 5,101 545 5,172 9,524
-------- -------- -------- -------- --------
Income before extraordinary item.......................... 7,686 7,874 1,260 8,822 13,089
Extraordinary item(2)..................................... 1,876 -- -- -- --
-------- -------- -------- -------- --------
Net income................................................ 5,810 7,874 1,260 8,822 13,089
Preferred dividends....................................... 583 -- -- -- --
-------- -------- -------- -------- --------
Income applicable to common stock......................... $ 5,227 $ 7,874 $ 1,260 $ 8,822 $ 13,089
======== ======== ======== ======== ========
SHARE DATA:
Basic earnings per common share........................... $ 0.84 $ 1.05 $ 0.17 $ 1.16 $ 1.72
Diluted earnings per common share(3)...................... 0.42 1.02 0.16 1.14 1.69
Weighted average number of diluted shares................. 12,320 7,757 7,663 7,714 7,756
Dividends per share....................................... -- -- -- -- $ 0.05
OTHER DATA:
EBITDA (4)................................................ $ 23,779 $ 27,959 $ 18,082 $ 29,025 $ 39,555
Capital expenditures...................................... 5,489 9,323 7,683 8,110 8,758
Cash provided by (used in) operating activities........... 3,982 (3,248) 5,328 15,055 22,496
Cash used in investing activities......................... (4,663) (9,206) (7,203) (8,087) (7,941)
Cash provided by (used in) financing activities........... 1,801 11,648 2,452 (6,863) (15,004)
Ratio of EBITDA to interest expense....................... 3.14x 2.64x 1.58x 2.67x 4.04x
Ratio of earnings to fixed charges........................ 2.16x 1.92x 1.12x 1.93x 2.60x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 51,417 $ 51,336 $ 46,551 $ 51,821 $ 61,191
Total assets.............................................. 149,881 169,414 172,053 177,709 178,504
Short-term debt, including current maturities............. 2,321 15,719 19,921 14,808 2,314
Long-term debt, less current maturities................... 85,600 83,850 82,100 80,350 78,600
Stockholders' equity...................................... 14,114 22,046 23,306 32,246 44,734
</TABLE>
- ---------------
(1) In 1996, the Company's equity in the earnings of Amercord was effected by a
change in accounting principle, a settlement of a royalty dispute and an
asset impairment writedown, the net amount of which was approximately
$800,000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 2 to the Financial Statements.
(2) The extraordinary item represents, net of tax, the loss recognized on the
prepayment premium paid on the retirement of the Company's 15% Senior
Secured Notes in August 1993.
(3) In accordance with the Commission Staff Accounting Bulletin No. 98, common
shares, or options or warrants to purchase common stock, issued for nominal
consideration are reflected in basic and diluted earnings per share for all
periods.
(4) EBITDA is calculated as income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA because
it believes that EBITDA is used by certain investors as one measure of an
issuer's historical ability to service its debt. EBITDA should not be
considered by an investor as an alternative to, or more meaningful than, net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. EBITDA as presented above for the Company
may not be comparable to similarly titled measures reported by other
companies.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
General. The Company consists of two operating divisions, Alside and
AmerCable. In addition, Amercord, a 50%-owned affiliate, is accounted for using
the equity method. The Company's results of operations are primarily affected by
the operating results of Alside, which accounted for more than 85% of the
Company's net sales in each of the last three years. Because its residential
building products are consumer durable goods, Alside's sales are impacted by the
availability of consumer credit, consumer interest rates, employment trends,
changes in levels of consumer confidence, national and regional trends in new
housing starts and general economic conditions. Alside's sales are also affected
by changes in consumer preferences with respect to types of building products.
Alside's products are used in the repair and remodeling, as well as the new
construction, sectors of the building industry. For each of the three years in
the period ended December 31, 1997, Alside believes that its sales were made
primarily to the repair and remodeling sector.
The Company believes that vinyl building products will continue to gain
market share from metal and wood products due to vinyl's favorable attributes,
which include its durability, lower maintenance cost and lower cost compared to
wood and metal. Although no assurances can be given, the Company further
believes that these increases in market share, together with Alside's increased
marketing efforts, will increase Alside's sales of vinyl siding, vinyl windows
and other complementary building products.
The principal raw material used in Alside's products is vinyl resin which
in the past has fluctuated significantly in price. These fluctuations can impact
Alside's profitability. In general, short-term fluctuations in vinyl resin
prices do not affect the selling prices of the Company's vinyl window products.
Prior to 1997, the prices of the Company's vinyl siding products have generally
increased or decreased with the price of vinyl resin. During 1996 the average
price of vinyl resin was lower than 1995 levels. In 1997, the price of vinyl
resin increased during the first six months and then declined. Alside did not
generally pass on any additional costs or savings resulting from the
fluctuations in resin prices in 1996 and 1997.
The Company operates with substantial operating and financial leverage.
Significant portions of Alside's selling, general and administrative expenses
are fixed costs that neither increase nor decrease proportionately with sales.
As a result, a percentage change in Alside's net sales will have a greater
percentage effect on Alside's income from operations. In addition, interest
expense related to the Company's long-term debt is relatively fixed.
AmerCable. AmerCable modified its business strategy in the second quarter
of 1996 to focus on a core group of cable products that AmerCable believed
better utilized its manufacturing efficiencies and marketing and distribution
capabilities. Concurrently with this shift in its business strategy, AmerCable
reduced its workforce by approximately 15% to eliminate certain non-value added
processes and to focus its efforts on its core products. As a result of this
strategy, AmerCable has lowered its costs and improved manufacturing
efficiencies and on-time delivery rates, thereby substantially improving its
profitability.
Amercord. The Company presently expects Amercord's average selling prices
to decline further during 1998. Although Amercord continues to develop programs
to reduce its cost structure and improve its manufacturing efficiencies, the
Company does not currently expect Amercord to earn a profit in 1998. Since its
inception as a separate enterprise in 1986, Amercord has satisfied its working
capital and capital expenditure requirements from internally generated funds and
independent credit facilities that are not guaranteed by the Company and
Amercord has neither received capital from the Company nor made any
distributions to the Company. The Company presently believes that Amercord's
internally generated cash flow and credit facilities will provide sufficient
capital to fund its operations and currently planned capital expenditures and as
a result, the Company does not presently anticipate a need to make additional
capital contributions to Amercord.
15
<PAGE> 17
Segment Data. Alside accounted for more than 85% of the Company's net sales
and income from operations in each of the three years in the period ended
December 31, 1997. In 1997, Alside accounted for approximately 85% of the
Company's income from operations exclusive of corporate selling, general and
administrative expenses. Management believes that a discussion of the Company's
results and financial position for these periods is enhanced by presenting
segment information for Alside and AmerCable. The tables below set forth for the
periods indicated certain items from the Company's financial statements:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
% OF % OF % OF
TOTAL TOTAL TOTAL
NET NET NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- ----- -------- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
Net sales -- Alside....................................... $300,561 85.9% $314,645 88.3% $344,000 86.5%
Net sales -- AmerCable.................................... 49,468 14.1 41,826 11.7 53,690 13.5
-------- ----- -------- ----- -------- -----
Total net sales..................................... 350,029 100.0 356,471 100.0 397,690 100.0
Gross profit.............................................. 85,949 24.5 100,892 28.3 114,176 28.7
Selling, general and administrative expenses(1)........... 73,207 20.9 77,740 21.8 81,142 20.4
-------- ----- -------- ----- -------- -----
Income from operations.................................... 12,742 3.6 23,152 6.5 33,034 8.3
Interest expense.......................................... 11,474 3.3 10,882 3.1 9,795 2.5
Equity in earnings (loss) of Amercord..................... 537 0.2 1,724 0.5 (626) (0.1)
-------- ----- -------- ----- -------- -----
Income before income tax expense.......................... 1,805 0.5 13,994 3.9 22,613 5.7
Income tax expense........................................ 545 0.1 5,172 1.4 9,524 2.4
-------- ----- -------- ----- -------- -----
Net income.......................................... $ 1,260 0.4% $ 8,822 2.5% $ 13,089 3.3%
======== ===== ======== ===== ======== =====
ALSIDE:
Net sales................................................. $300,561 100.0% $314,645 100.0% $344,000 100.0%
Gross profit.............................................. 85,628 28.5 98,636 31.3 104,716 30.4
Selling, general and administrative expenses.............. 69,078 23.0 72,264 23.0 74,301 21.6
Income from operations.................................... 16,550 5.5 26,372 8.3 30,415 8.8
AMERCABLE:
Net sales................................................. $ 49,468 100.0% $ 41,826 100.0% $ 53,690 100.0%
Gross profit.............................................. 321 0.6 2,256 5.4 9,460 17.6
Selling, general and administrative expenses.............. 1,997 4.0 3,223 7.7 4,374 8.1
Income (loss) from operations............................. (1,676) (3.4) (967) (2.3) 5,086 9.5
</TABLE>
- ---------------
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $2.1 million, $2.3 million and $2.5 million for the years 1995,
1996 and 1997, respectively.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 compared to the Year Ended December 31, 1996.
General. The Company's net sales increased $41.2 million or 11.6% in 1997
as compared to 1996 due to an increase in sales volume at its Alside and
AmerCable divisions. Income from operations increased $9.9 million or 42.7% in
1997 as compared to 1996 due to increased sales volume at Alside and AmerCable
as well as manufacturing efficiency improvements at AmerCable. The Company's net
income increased $4.3 million or 48.4% in 1997 as compared to 1996 due to
increased operating income at its divisions which was partially offset by a loss
from its Amercord affiliate.
Alside. Alside's net sales increased $29.4 million or 9.3% in 1997 as
compared to 1996 due to increased unit sales in virtually all product lines
except metal siding. Unit sales of vinyl siding and vinyl windows increased
11.2% and 16.0%, respectively, in 1997 as compared to 1996. Alside's 1997 sales
were also favorably impacted by increased unit sales volume of cabinets and
vinyl fence of 33.7% and 40.4%, respectively, as compared to 1996. In addition,
the average unit selling price of vinyl siding increased in 1997 due to Alside's
increased sales of premium siding products. The increase in Alside's sales was
partially offset by a decrease in metal siding sales as consumer preference
continued to shift away from metal siding. Gross profit as a percentage of sales
decreased to 30.4% in 1997 as compared to 31.3% in 1996 principally due to
increases in raw materials costs, primarily vinyl resin. Selling, general and
administrative expenses decreased as a percentage of net sales to 21.6% in 1997
from 23.0% in 1996. Selling, general and administrative expenses increased by
2.8% or $2.0 million to $74.3 million in 1997 due primarily to increased
advertising expenditures
16
<PAGE> 18
and higher employee compensation. Income from operations increased 15.3% or $4.0
million in 1997 as compared to 1996 due to increased sales volume which was
partially offset by increased raw material costs.
AmerCable. AmerCable's net sales increased $11.9 million or 28.4% in 1997
as compared to 1996 due to increased sales volume across all product lines.
Gross profit as a percentage of net sales increased to 17.6% in 1997 from 5.4%
in 1996 due to a 35% improvement in manufacturing efficiency (defined by the
Company as production volume per labor hour). The increases in sales and gross
profit were due primarily to AmerCable's implementation of its new business
strategy in May 1996 to focus on the production of core products which better
utilize its manufacturing and distribution capabilities. Selling, general and
administrative expenses increased to $4.4 million in 1997 from $3.2 million in
1996 due to higher incentive compensation. Income from operations increased to
$5.1 million in 1997 as compared to a loss from operations of $967,000 in 1996.
The increase was due to improved manufacturing efficiencies and increased sales
volume.
Amercord. The Company recorded a loss of $626,000 reflecting its share of
the after-tax loss of Amercord for the year ended 1997 as compared to income of
$1.7 million for the same period in 1996. The Company's equity in Amercord's
after-tax income for the year ended 1996 was approximately $900,000 exclusive of
the cumulative change in accounting principle, a royalty settlement and an
equipment writedown. Amercord's net sales decreased 14.5% to $74.9 million in
1997 compared to 1996 due primarily to a decrease in sales volume and a decrease
in the average unit sales price of its products. Gross profit decreased to $1.9
million in 1997 from $7.6 million in 1996 due primarily to lower sales prices
and decreased manufacturing efficiencies. Selling, general and administrative
expenses decreased 9.9% to $2.4 million in 1997 from $2.7 million in 1996.
Other. Net interest expense decreased $1.1 million or 10.0% in 1997 as
compared to 1996 primarily due to a decrease in the average borrowings under the
Credit Agreement, as well as interest income of $280,000 related to a $1.4
million income tax refund.
Year Ended December 31, 1996 compared to the Year Ended December 31, 1995.
General. The Company's net sales increased $6.4 million or 1.8% in 1996,
compared with 1995, due to higher Alside sales volume which was partially offset
by lower AmerCable sales volume. The Company's income from operations increased
$10.4 million or 81.7% in 1996 as compared to 1995 due primarily to higher sales
volume and lower raw material costs at its Alside division. The Company's net
income increased $7.6 million to $8.8 million for the year ended December 31,
1996 as compared to 1995 due primarily to higher income from operations at its
Alside division as well as improvements at both AmerCable and Amercord.
Alside. Alside's net sales increased $14.1 million or 4.7% in 1996 compared
with 1995 due to increased sales volume of vinyl siding, vinyl windows, vinyl
fencing and complementary building products distributed through its Supply
Centers. Unit sales of vinyl siding and vinyl windows increased by 8.9% and
5.2%, respectively, in 1996 as compared to 1995. The increase in vinyl product
sales was partially offset by a decrease in sales of metal siding as consumer
preference continued to shift from metal to vinyl products. Gross profit as a
percentage of net sales increased to 31.3% in the 1996 period from 28.5% in the
1995 period as a result of lower material costs, primarily vinyl resin. Selling,
general and administrative expenses remained constant as a percentage of net
sales at 23.0% for 1996 and 1995. Increased advertising costs, higher lease
expenses associated with both new and expanded Supply Centers, and higher
employee incentive compensation resulted in an increase in selling, general and
administrative expenses to $72.3 million in 1996 from $69.1 million in 1995. The
increase in selling, general and administrative expenses was partially offset by
an overall decrease in salaries of $800,000 consisting of a $1.8 million
decrease in Alside's headquarters salaries and a $1.0 million increase in Supply
Center salaries for the period ended December 31, 1996. The decrease in Alside's
headquarters salaries was primarily the result of Alside's reengineering program
in which many of the business processes performed at Alside's Akron, Ohio
headquarters either were eliminated or transferred to Supply Center personnel.
The personnel reductions related to this program and the related expenditures
were substantially completed in 1996. Alside's income from operations was $26.4
million for the period ended December 31, 1996 compared to $16.6 million for the
same period in 1995. The increase in income from
17
<PAGE> 19
operations of $9.8 million or 59.3% was due primarily to higher sales volume and
a decrease in vinyl resin costs.
AmerCable. AmerCable's net sales decreased $7.6 million or 15.4% in 1996 as
compared to 1995 due to a decrease in sales volume and lower copper prices which
were only partially offset by higher sales prices. The decrease in sales volume
and the higher sales prices were due primarily to the implementation of
AmerCable's modified business strategy which focuses on producing core products
which better utilize its manufacturing efficiencies and marketing and
distribution capabilities. Despite the decrease in sales volume resulting from
the modified strategy, profit margins have increased across all product lines
due to the focus on fewer products. AmerCable generally prices its products
based upon the copper price at the time of shipment; therefore, decreased copper
prices during 1996 accounted for approximately 25% of the decrease in sales. The
marine, shipboard and transportation product line had the most significant
volume decrease as AmerCable decreased its focus on transportation products
having lower profit margins. Increased sales of higher margin marine products
partially offset the decrease in sales volume. AmerCable's gross profit
increased as a percentage of sales to 5.4% in 1996 as compared to 0.6% in 1995
due to improved manufacturing efficiencies, better material utilization and
higher selling prices. Selling, general and administrative expenses increased to
$3.2 million in 1996 from $2.0 million in 1995 due to the severance charges
described below and the costs associated with the opening of a distribution
center in Houston, Texas. AmerCable's loss from operations in 1996 was $967,000
compared to a loss of $1.7 million in 1995 due to decreased sales volume being
offset by higher sales prices, lower copper prices and improved manufacturing
efficiencies. During the first half of 1996, AmerCable recorded charges of
$500,000 to write down copper inventory to its net realizable value and $275,000
for severance charges related to a 15% workforce reduction as part of a business
reorganization. These severance charges were paid in 1996. Net of these charges,
AmerCable's loss from operations for the year ended 1996 was $192,000. AmerCable
recorded income from operations of $931,000 for the second half of 1996.
Amercord. The Company recorded $1.7 million in equity in the after-tax
earnings of Amercord in 1996 compared to $537,000 during the same period in
1995. In 1996, Amercord recorded a $1.2 million gain to reflect the cumulative
effect of an accounting change when it changed its accounting policy for
maintenance parts. Amercord now capitalizes the cost of these parts upon
purchase and expenses such parts when used in the production cycle. Amercord
previously expensed the maintenance parts upon purchase. Amercord recorded a
pre-tax gain of $3.1 million in connection with the settlement of disputed
royalty payments for the years 1990-1995 and recorded a $2.7 million loss for a
write down of certain production equipment pursuant to Statement of Financial
Accounting Standards No. 121. The Company's equity in the earnings of Amercord,
exclusive of the items described above, was approximately $900,000. Amercord's
net sales increased 8.4% to $87.5 million in 1996 from $80.8 million in 1995
primarily due to a 9.9% and a 7.6% increase in tire bead and tire cord volume,
respectively. Gross profit increased $1.7 million or 29.0% in 1996 compared with
the same period in 1995 due to higher sales and lower unit production costs
experienced in 1996. Selling, general and administrative expenses as a
percentage of net sales remained constant at 3% for 1996 and 1995.
Other. The Company's net interest expense decreased $592,000 or 5.2% in
1996 compared with the same period in 1995 primarily due to a decrease in the
average borrowings under the Credit Agreement.
QUARTERLY FINANCIAL DATA
General. Because most of Alside's building products are intended for
exterior use, Alside's sales and operating profits tend to be lower during
periods of inclement weather. Weather conditions in the first quarter of each
calendar year historically result in that quarter producing significantly less
sales revenue than in any other period of the year. As a result, the Company has
historically had losses in the first quarter and reduced profits in the fourth
quarter of each calendar year due to the significant impact of Alside on the
Company's performance.
18
<PAGE> 20
Quarterly sales and operating profit data for the Company in 1996 and 1997
are shown in the table below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net sales -- Alside........................ $55,113 $ 85,403 $ 93,170 $80,959
Net sales -- AmerCable..................... 10,313 10,530 9,989 10,994
------- -------- -------- -------
Total net sales.......................... 65,426 95,933 103,159 91,953
Gross profit............................... 14,555 28,680 31,963 25,694
Income (loss) from operations.............. (3,222) 9,010 11,466 5,898
Net income (loss).......................... (3,473) 4,571 5,532 2,192
Basic earnings (loss) per common share..... (0.46) 0.60 0.73 0.29
Diluted earnings (loss) per common
share(1)................................. (0.45) 0.59 0.72 0.28
1997
Net sales -- Alside........................ $64,827 $ 94,165 $ 98,483 $86,525
Net sales -- AmerCable..................... 14,289 13,511 12,644 13,246
------- -------- -------- -------
Total net sales.......................... 79,116 107,676 111,127 99,771
Gross profit............................... 20,015 32,982 32,616 28,563
Income from operations..................... 713 12,155 11,099 9,067
Net income (loss).......................... (1,130) 5,693 4,544 3,982
Basic earnings (loss) per common share..... (0.15) 0.75 0.60 0.52
Diluted earnings (loss) per common
share(1)................................. (0.15) 0.73 0.58 0.51
</TABLE>
- ---------------
(1) In accordance with the Commission Staff Accounting Bulletin No. 98, common
stock, or options or warrants to purchase common stock, issued for nominal
consideration are reflected in basic and diluted earnings per share for all
periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.3 million, $15.1 million
and $22.5 million in 1995, 1996 and 1997, respectively. The increased operating
cash flows in 1997 were due primarily to a $4.3 million increase in net income
due to improved operating performance at Alside and AmerCable, as well as lower
working capital requirements in 1997 as compared to 1996. The increased
operating cash flows in 1996 were primarily due to Alside's improved operating
results.
In April 1996, the Company amended and restated the Credit Agreement to
increase the facility to permit borrowings of up to $50 million and to extend
the term to May 31, 1999. Available borrowings under the Credit Agreement are
limited to the lesser of the total facility less unused letters of credit or
availability based on percentages of eligible accounts receivable and
inventories. The Credit Agreement is secured by substantially all of the
Company's assets other than the Company's owned real property and its shares of
Amercord. At December 31, 1997, $7.5 million of this facility had been used to
issue a $5.5 million letter of credit securing the Company's taxable variable
rate notes (the "Taxable Notes") as well as $2.0 million securing various
insurance letters of credit. At December 31, 1997 the Company had an available
borrowing capacity under the Credit Agreement of approximately $40.4 million.
Capital expenditures totaled $7.7 million, $8.1 million and $8.8 million in
1995, 1996 and 1997, respectively. Expenditures in 1997 were primarily used to
increase vinyl extrusion capacity for siding, windows and fencing as well as to
increase and automate window fabrication capacity. Expenditures in 1996 were
primarily used to increase Alside's capacity to produce welded vinyl windows,
enhance the Company's window tooling design capability, continue automating its
window assembly process, and increase vinyl window extrusion capacity.
Significant expenditures made during 1995 include expenditures to further
automate the window assembly process and to purchase equipment to be used for
the production of vinyl fencing and vinyl garage doors. The Company has
historically funded such capital expenditure requirements out of cash generated
from operating activities and borrowings under its bank credit facility.
19
<PAGE> 21
The Company believes that historical capital expenditures represent a base
level of spending needed to maintain its vinyl siding and vinyl window
production equipment as well as provide for modest increases in plant
productivity and operating capacity. Presently anticipated capital expenditures
for 1998 of $25 million include funds for the construction of a new vinyl siding
manufacturing facility to increase vinyl siding extrusion capacity, as well as
expenditures to increase window welding capacity and window assembly capacity.
The net proceeds of the Stock Offering will be used to partially fund capital
expenditures in 1998. In the event the Company would decide not to proceed with
the Stock Offering, the Company presently intends to seek to fund substantially
all of its current 1998 capital expenditure plan with cash from operations,
available borrowings under the Credit Agreement and, if necessary, alternative
sources of financing.
The Company has completed its assessment of the effect of Year 2000 on its
management information systems and is currently Year 2000 compliant with respect
to substantially all of its systems. The Company does not expect any material
future expenditures will be required in order to become fully Year 2000
compliant.
The Company believes that future cash flows from operations and its
borrowing capacity under the Credit Agreement, together with the net proceeds
from the Offerings, will be sufficient to satisfy debt service requirements,
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.
The Company currently has outstanding $75,000,000 of the Existing Notes.
The Existing Notes are callable at the option of the Company beginning in August
1998 at 104.313% of the outstanding principal amount thereof, decreasing to 100%
of the principal amount in August 2001. In connection with the Note Offering,
the Company has commenced a tender offer to purchase all outstanding principal
amount of the Existing Notes. See "The Note Offering."
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations have
not been material during the past three 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. Although Alside has
historically been able to pass on price increases to its customers, Alside did
not generally pass on any additional costs or savings resulting from the
fluctuation in resin prices in 1996 and 1997. No assurances can be given that
Alside will be able to pass on any price increases in the future.
FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 Reporting Comprehensive Income and Statement of
Financial Accounting Standards No. 131 Disclosures About Segments of an
Enterprise and Related Information which are effective for financial statement
periods beginning after December 15, 1997. The Company believes that these
statements will have no effect on the Company's financial position, results of
operations or cash flows.
20
<PAGE> 22
BUSINESS
Associated Materials is a leading, vertically integrated manufacturer and
nationwide distributor of exterior residential building products through its
Alside division. Alside's core products are vinyl siding and vinyl windows.
These products are marketed on a wholesale basis to more than 30,000
professional contractors engaged in home remodeling and new home construction
principally through Alside's nationwide network of 66 Alside Supply Centers. In
recent years Alside has expanded its product offerings to include vinyl fencing,
vinyl decking and vinyl garage doors. In 1997, Alside accounted for
approximately 87% of the Company's net sales. In addition to Alside, the
Company's operations include its AmerCable division, a specialty electrical
cable manufacturer. Amercord, a 50%-owned affiliate managed by the Company,
manufactures and sells steel cord and bead wire to tire manufacturers.
INDUSTRY OVERVIEW
Vinyl siding competes with other materials, such as wood, masonry and
metals, for a share of the residential siding market. Vinyl siding has greater
durability and requires less maintenance than wood siding, and generally is less
expensive than wood, masonry or metal siding. According to the Sabre Study,
based on unit sales, vinyl siding accounted for approximately 47% of the
exterior siding market in 1996 versus approximately 17% in 1985. Since the early
1980's, vinyl siding has become the preferred siding product for professional
home remodeling contractors and their customers, and commanded approximately 62%
of the home remodeling marketplace for siding in 1996. More recently, vinyl
siding has achieved increased acceptance in the new construction market, as
builders and home buyers have recognized vinyl's low maintenance, durability and
price advantages. The Company believes that vinyl siding will continue to gain
market share in the new residential construction market while remaining the
preferred product of the remodeling marketplace.
Vinyl windows require less maintenance, are more durable than either wood
or aluminum windows and provide greater energy efficiency than aluminum windows.
According to the Sabre Study, based on unit sales, approximately 45% of all
residential windows sold in 1996 were vinyl windows versus approximately 27% in
1991. Since the early 1980's, vinyl windows have become the preferred window
product for professional home remodeling contractors and their customers, and
commanded approximately 75% of the home remodeling marketplace for windows in
1996. More recently, vinyl windows have achieved increased acceptance in the new
construction market as a result of builders and home buyers recognizing vinyl's
favorable attributes, the enactment of local legal or building code requirements
that mandate more energy efficient windows and the increased development and
promotion of vinyl window products by national window manufacturers. The Company
believes that vinyl windows will continue to gain market share in the new
residential construction market while remaining the preferred product of the
remodeling marketplace.
According to the Sabre Study, total sales of vinyl siding and vinyl windows
are each projected to increase approximately 7% annually between 1996 and 2000
and the new construction market for each of these vinyl products is expected to
grow at a rate of approximately 10% per year from 1996 to 2000.
BUSINESS STRATEGY
The Company believes that it is well positioned to capitalize on the
growing demand for vinyl building products. The following business strategy
should enable the Company to (i) maintain Alside's position as a leading
manufacturer and distributor of exterior residential building products, (ii)
continue to increase sales, and (iii) strengthen operating margins.
- - Company-Owned Distribution. Alside is one of only two major vinyl siding
manufacturers that markets its products primarily through a company-owned
distribution network. The Company believes that distributing products through
its nationwide network of 66 Alside Supply Centers provides Alside with
certain competitive advantages, including (i) long-standing customer
relationships, (ii) the ability to implement targeted marketing programs, and
(iii) a permanent presence in local markets. In 1997, approximately 78% of
Alside's net sales were made through its Supply Centers. In 1995, the Company
initiated a number of programs at its Supply Centers designed to enhance the
quality and training of its marketing and sales personnel and added additional
sales personnel. The Company believes these actions have increased, and will
continue to increase, Alside's market share and profitability.
21
<PAGE> 23
- - New Product Development. The Company intends to capitalize on Alside's vinyl
manufacturing expertise by continuing to develop and introduce new innovative
products that offer performance, cost and other advantages. For example, in
late 1995, Alside introduced Charter Oak, a patented premium siding product,
which accounted for approximately 22.9% of Alside's vinyl siding unit volume
in 1997. In early 1997, Alside introduced Conquest, a siding product designed
to increase Alside's penetration of the economy market segment. Conquest
accounted for approximately 18.2% of Alside's vinyl siding unit volume in
1997. Additionally, Alside, has broadened its product range by introducing a
number of other vinyl products such as vinyl fencing in 1993 and vinyl decking
and a redesigned vinyl garage door in 1997.
- - New Construction Market. According to the Sabre Study, the new construction
market will continue to be the fastest growing segment in the vinyl siding and
vinyl window industry. The Company intends to increase Alside's penetration of
the new construction market through a number of initiatives including new
product introductions such as Conquest, a recently formed sales group and
targeted marketing programs. As consolidation among builders continues and as
builders attempt to reduce the number of vendors used, the Company believes
that as a low-cost manufacturer with a national, company-owned distribution
system, Alside is well positioned to increase sales to nationwide
homebuilders.
- - Low-Cost and Vertically Integrated Operations. The Company believes that
Alside is a low-cost manufacturer of vinyl siding and other vinyl products due
to its manufacturing expertise, state-of-the-art technology and ability to
employ economies of scale. In addition, Alside's ability to produce its own
vinyl window extrusions and glass inserts, coupled with its high-speed welding
and cleaning equipment, provide it with cost and quality advantages over other
window manufacturers that are not as large or as vertically integrated as
Alside.
- - Manufacturing Capacity Expansion. Alside expects to significantly expand its
vinyl siding production capacity by increasing capacity at its existing vinyl
siding plant and by building a new vinyl siding manufacturing facility to meet
its future sales expectations. The Company intends to initially invest
approximately $12 million in the new facility, which is expected to become
operational in 1999.
ALSIDE
Products. Alside's principal product offerings are vinyl siding and vinyl
windows, which together accounted for approximately 68% of Alside's 1997 net
sales. Alside also manufactures a variety of other products including vinyl
fencing, vinyl decking, vinyl garage doors and semi-custom cabinets.
The vinyl siding market consists of four segments: builder, economy,
standard and premium. Vinyl siding quality is determined by its rigidity,
resistance to fading, thickness and ease of installation as well as other
factors. Historically, Alside targeted its products primarily to the standard
segment. More recently, the Company has broadened its product lines to increase
its penetration of the premium and economy segments. For example, in late 1995,
Alside introduced its patented Charter Oak siding which enabled Alside to
significantly penetrate the premium segment of the vinyl siding market. In 1997,
Alside introduced its Conquest siding product which has enabled Alside to
achieve additional market penetration in the economy segment of the siding
industry. While the Company currently does not manufacture a siding product
specifically designed for the builder segment of the market, it does market its
Conquest and Alpha products to the new construction market. In addition, the
Company intends to produce a product specifically targeted for this market
following the construction of its new vinyl siding manufacturing facility. In
addition to the new products described above, Alside has increased the number of
colors and profiles offered within its existing siding products and continues to
increase and improve upon the breadth of its vinyl siding product line. Alside
offers limited warranties ranging from 50-year warranties to lifetime warranties
with its siding products.
Alside divides its window products into the economy, standard and premium
categories. Product quality within the vinyl window industry is determined by a
number of competitive features including method of construction and materials
used. Rather than manufacturing standard size windows, Alside custom
manufactures virtually all of its windows to fit existing window openings.
Custom fabrication provides Alside's customers with a product that is less
expensive to install and more attractive after installation. All of Alside's
window products are accompanied by a limited lifetime warranty.
22
<PAGE> 24
A summary of Alside's siding and window product offerings is presented in
the table below according to the Company's product line classification and
includes the new CenterLock product which the Company intends to introduce in
the first quarter of 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PRODUCT LINE SIDING PRODUCTS WINDOW PRODUCTS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premium Charter Oak UltraMaxx
Greenbriar Omni
Highland Cedar
Williamsport
- -------------------------------------------------------------------------------------
Standard Odyssey Geneva
CenterLock Excalibur
- -------------------------------------------------------------------------------------
Economy Conquest Performance Series --
Alpha New Construction
Centurion
- -------------------------------------------------------------------------------------
</TABLE>
In addition to its siding and window product lines, Alside also
manufactures semi-custom cabinets for the kitchen and bath under the brand name
UltraCraft. Alside's sales of cabinets accounted for approximately 5% of its net
sales in 1997. Unit sales of UltraCraft cabinets have increased 33.7% for 1997
as compared to 1996 due to the Company's efforts to expand and improve its
dealer customer base. In 1993, Alside introduced vinyl fencing as a product line
under the brand name UltraGuard, currently a leading brand of both agricultural
and residential vinyl fencing. Although sales of UltraGuard fencing accounted
for less than 5% of Alside's net sales in 1997, unit sales of UltraGuard have
increased at an annual rate of over 35% since its introduction. Alside
introduced a raised panel vinyl garage door in 1997 under the brand name Premium
Garage Doors. Alside primarily markets its cabinets, fencing and garage doors
through independent dealers and not through its Supply Centers.
To complete its line of siding products, Alside also distributes metal
siding and related building products manufactured by other companies. Metal
siding products accounted for approximately 19% of Alside's 1993 sales. In 1997,
approximately 6% of Alside's sales were derived from metal siding and related
building products. The Company expects the sale of metal siding products to
continue to decline as these products are displaced by vinyl products. Alside
also selectively distributes a variety of complementary building products
manufactured by others, including wood windows, roofing materials, insulation,
cabinets and installation equipment.
Marketing and Distribution. Traditionally, most vinyl siding has been sold
to the home remodeling marketplace through independent distributors. The Company
believes that Alside is one of only two major vinyl siding manufacturers that
market their products primarily through company-owned distribution centers.
Alside has a nationwide distribution network of 66 Alside Supply Centers which
market Alside manufactured products and other complementary building products to
more than 30,000 professional home improvement and new construction contractors.
The Company believes that Alside Supply Centers provide "one-stop shopping" to
meet the specialized needs of its contractor-customers by distributing more than
2,000 building and remodeling products, including a broad range of
Company-manufactured vinyl siding and vinyl windows as well as products
manufactured by others, including metal siding, wood windows, roofing materials,
insulation, cabinets and installation equipment. In 1997, approximately 78% of
Alside's sales were made through its Supply Centers. In addition to sales and
promotional support, contractors look to their local Alside Supply Center to
provide a broad range of specialty product offerings in order to maximize their
ability to attract remodeling and homebuilding customers.
Alside believes that distributing products through its Supply Centers
provides the Company with certain competitive advantages such as (i)
long-standing customer relationships, (ii) the ability to implement targeted
marketing programs, and (iii) a permanent presence in local markets. Many of
Alside's contractor-customers have established, long-standing relationships with
their local Supply Center based upon individualized service and credit terms,
quality products, timely delivery, breadth of product offerings, strong sales
and
23
<PAGE> 25
promotional programs and competitive prices. Alside supports its
contractor-customer base with marketing and promotional programs that include
product sample cases, sales literature, product videos and other sales and
promotional materials. Professional contractors use these materials to sell
remodeling construction services to prospective customers. The customer
generally relies on the professional contractor to specify the brand of siding
or window to be purchased, subject to the customer's price, color and quality
requirements. Alside's daily contact with its contractor-customers also enables
it to closely monitor activity in each of the remodeling and new construction
markets in which Alside competes. This direct presence in the marketplace
permits Alside to obtain current local market information, providing Alside with
the ability to act promptly to adapt its product offerings on a
location-by-location basis.
Many of Alside's contractor-customers install both vinyl siding and vinyl
windows. Because Alside manufactures and distributes both vinyl windows and
vinyl siding, its contractor-customers can acquire both products from a single
source, which the Company believes provides Alside with a competitive advantage
in marketing these products to its target customer base. Furthermore, Alside has
the ability to achieve economies of scale in sales and marketing by developing
integrated programs on either a national or local basis for its vinyl siding and
vinyl window products.
Each of Alside's 66 Supply Centers is evaluated as a separate profit
center, and compensation of Supply Center personnel is based in part on the
Supply Center's operating results. Decisions to open new Supply Centers, and to
close or relocate existing Supply Centers, are based on Alside's continuing
assessment of market conditions and individual location profitability. Alside
added two Supply Centers to its distribution network in 1996. No additional
Supply Centers were added in 1997. The Company presently expects to open up to
four new Supply Centers in 1998.
Through certain of its Supply Centers, Alside's Builder Service Division
provides full-service product installation of its vinyl siding products,
principally to new homebuilders who value the importance of installation
services. Alside also provides installation services for vinyl replacement
windows through certain of its Supply Centers.
Alside also sells its manufactured products to large direct dealers and
distributors, generally in those areas where no Alside Supply Center currently
exists. Such sales accounted for approximately 22% of Alside's net sales in
1997. Despite their aggregate lower percentage of total sales, Alside's largest
individual customers are its large direct dealers and independent distributors.
Alside carefully monitors and evaluates its activity with these customers to
ensure the profitability of this higher volume and lower margin business. No
single customer accounted for 5% or more of Alside's 1997 sales. Alside
increased its network of independent distributors in 1997 and intends to seek to
further increase its network of independent distributors in 1998 in strategic
areas to improve its penetration into certain markets.
Manufacturing. Alside currently manufactures all of its vinyl siding at its
Ennis, Texas plant, which the Company believes is a low-cost manufacturing
facility. In 1998, the Company intends to expand its production capacity at this
plant. In order to meet its current sales expectations for Alside's siding
products, the Company intends to begin construction of a new vinyl manufacturing
facility in 1998. The new facility, which is expected to become operational in
1999, would initially increase Alside's vinyl siding production capacity by
approximately 25%. With a moderate investment in additional production
equipment, the Company expects that Alside's total vinyl siding production
capacity will be increased by approximately 50% from its 1998 capacity. Alside
also operates a vinyl extrusion facility in West Salem, Ohio to produce vinyl
window extrusions as well as vinyl fence and garage door panels. Alside operates
three window fabrication plants which each use vinyl extrusions manufactured by
Alside for the majority of their production requirements, produce their own
glass inserts and utilize high speed welding and cleaning equipment for their
welded window products. By producing its own vinyl extrusions and glass inserts,
Alside believes it achieves significant cost savings and higher product quality
compared to purchasing these materials from third-party suppliers.
Alside's vinyl extrusion plants generally operate on a three-shift basis to
optimize equipment productivity and utilize additional equipment to increase
capacity to meet higher seasonal needs. Alside's window plants generally operate
on a single shift basis utilizing both a second shift and increased numbers of
leased production personnel to meet higher seasonal needs.
24
<PAGE> 26
Raw Materials. The principal raw materials used by Alside are vinyl resins,
resin stabilizers and pigments, packaging materials, window hardware and glass,
all of which are available from a number of suppliers. The price of vinyl resin
has been, and may continue to be, volatile. Alside has contracts with two
suppliers to purchase substantially all of its vinyl resin requirements and
believes that its requirements could also be met by other suppliers. Prior to
1997, Alside generally had been able to pass through price increases in raw
materials to its customers. During 1996, the average price of vinyl resin was
lower than 1995 levels. In 1997, the price of vinyl resin increased during the
first six months and then declined. Alside did not generally pass on any
additional costs or savings resulting from the fluctuations in resin prices in
1996 and 1997.
Competition. Except for Owens Corning, no company within the residential
siding industry competes with Alside on both the manufacturing and distribution
levels. There are, however, numerous small and large manufacturers of metal and
vinyl siding products, including Aluminum Company of America, CertainTeed
Corporation, Jannock Limited, Nortek, Inc. and Royal Group Technologies Limited,
some of whom are larger in size and have greater financial resources than the
Company. Alside competes with Owens Corning and numerous large and small
distributors of building products in its capacity as a distributor of such
products. The market for vinyl replacement windows is highly fragmented, and
Alside believes that no single manufacturer accounts for a significant
percentage of national sales. Alside believes that the market trend towards
sales of welded vinyl windows, which Alside began manufacturing in 1992 and
which require expensive, more sophisticated production equipment, will result in
further consolidation of the window fabrication industry. Alside and its
competitors generally compete on price, product performance, and sales and
service support to professional contractors. Competition varies by region.
Alside also faces competition from alternative materials: wood and aluminum in
the window markets, and wood, masonry and metal in the siding market. However,
the Company believes Alside's products are competitive, and in most sectors are
gaining share at the expense of alternative materials due to vinyl's superior
qualities, including its lower material cost, durability and low maintenance
requirements.
AMERCABLE
AmerCable manufactures and markets a variety of jacketed electrical cable
utilized in underground and surface mining, shipboard, marine, offshore
drilling, transportation and a variety of other specialized industrial
applications. AmerCable principally manufactures specialty cable designed to
meet industry technical standards and end-users' specifications. AmerCable
markets its cable principally to independent distributors who resell to the end
user, except for those products that are distributed through its Offshore/Marine
Cable Specialist division. AmerCable's electrical cable plant operates on a
five-day, 24-hour basis. AmerCable accounted for approximately 13% of the
Company's net sales in 1997.
AmerCable modified its business strategy in the second quarter of 1996 to
focus on a core group of cable products which enabled AmerCable to take
advantage of manufacturing efficiencies as well as marketing and distribution
capabilities. Concurrently with this shift in its business strategy, AmerCable
reduced its workforce by approximately 15% to eliminate certain non-value added
processes and to focus its efforts on its core products. As a result of this
strategy, AmerCable has experienced lower costs, improved manufacturing
efficiencies and on-time delivery rates, and substantially improved productivity
in 1997. For 1997, as compared to 1996, AmerCable's sales increased 28.4% due to
increased sales volume and prices.
AmerCable manufactures and sells three types of cable products: mining
cables; marine, shipboard and transportation cables; and industrial cables which
accounted for 44%, 36% and 20% of its 1997 sales, respectively. AmerCable's
marine, shipboard and transportation cable products meet required industry
specifications for low smoke and low/non halogen characteristics. AmerCable
completes its line of cable products with industrial and utility cable products,
including diesel locomotive cable, portable power cable, jumper cable and
flexible robotic power distribution cable.
The principal raw material used by AmerCable is copper strand, which is
available from a number of suppliers. Historically, copper strand has been
subject to rapid price movements. AmerCable generally prices its cable products
based upon market prices for copper at time of shipment. As a result, sudden
decreases in copper prices can result in inventory being in excess of its net
realizable value. During 1996, AmerCable
25
<PAGE> 27
recorded a charge of $500,000 to write copper inventory down to its net
realizable value due to a sudden decrease in copper prices. In certain
instances, AmerCable may guarantee a fixed copper price for its products where
there is a significant time lag between the purchase order and shipment. In
these cases, AmerCable generally attempts to hedge its position on copper.
AmerCable competes with numerous large and small manufacturers, including
BICC Cables Corporation, Rockbestos Suprenant Cable Corp., BIW Cable System,
Inc., General Cable Corporation, and Essex Group Inc. Many of its competitors
have substantially greater resources than the Company. AmerCable generally does
not compete in the more commodity-oriented wire and cable markets, such as
residential building wire and computer network cable.
AMERCORD
Amercord, the Company's 50%-owned affiliate, principally manufactures and
markets steel cord and bead wire to the tire manufacturing industry. Tire cord
is comprised of fine strands of steel wire used to reinforce the tread area in
radial tires. Tire bead wire is used in the manufacturing of all tires to hold
the tire to the rim. Amercord is jointly owned by the Company and Ivaco, Inc.
("Ivaco"), a Canadian steel and wire producer. Pursuant to an agreement with
Ivaco, the Company provides management services relating to the day-to-day
operations of Amercord for an annual fee of $200,000, principally for financial
management services. Since its inception as a separate enterprise in 1986,
Amercord has satisfied its working capital and capital expenditure requirements
from internally generated funds and existing credit facilities. Due to such
requirements, no dividends have been paid to the Company or Ivaco and no further
cash contributions have been made to Amercord by the Company or Ivaco. The
Company believes Amercord's internally generated cash flow and credit facilities
will provide sufficient capital to fund its currently planned capital
expenditures.
Amercord believes it is one of eight domestic tire cord manufacturers and
one of six domestic tire bead manufacturers. Tire cord competitors include
larger companies such as Bekaert Corporation (U.S.A.) ("Bekaert") and American
Tokyo Rope, Inc., each of which have greater capital resources than Amercord.
Three of the world's largest tire manufacturers, The Goodyear Tire & Rubber
Company ("Goodyear"), Bridgestone/Firestone, Inc. and Michelin North America
("Michelin"), also produce a significant portion of their steel tire cord
requirements. Tire bead competitors include Bekaert and National-Standard
Company. Amercord is one of only two tire reinforcement suppliers that
manufacture both tire cord and tire bead. Amercord believes that this capability
improves its competitive position.
Amercord has a small customer base. During 1997, three customers, Michelin,
Cooper Tire and Rubber Company ("Cooper") and Dunlop Tire Corporation, each
purchased in excess of 10%, and collectively purchased an aggregate of 81%, of
Amercord's tire cord output. During 1997, three customers, Michelin, Cooper and
Bridgestone/Firestone, Inc., each purchased in excess of 10%, and collectively
purchased an aggregate of 68%, of Amercord's tire bead wire output. As a result
of the relatively small number of customers, the loss of one or more major
customers could have a material adverse effect on Amercord's business.
Additionally, further consolidation in the tire industry could require Amercord
to become more closely aligned with fewer tire manufacturers.
MANAGEMENT INFORMATION SYSTEMS
The Company uses a variety of hardware and software technologies in its
operations. Alside utilizes mainframe computer systems to operate its accounting
and certain manufacturing systems. Each Alside Supply Center has its own IBM
AS400 computer which processes inventory, receivables and other financial data,
which data is transmitted to Alside's headquarters on a daily basis. AmerCable
installed a new financial and manufacturing information system in 1996 which
runs on a PC platform. The Company has completed its assessment of the effect of
Year 2000 on its management information systems and is currently Year 2000
compliant with respect to substantially all of its systems. The Company does not
expect any material future expenditures will be required in order to become Year
2000 compliant.
26
<PAGE> 28
PROPERTIES
The Company's manufacturing operations include both owned and leased
facilities as described below:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE SQUARE FEET
-------- ------------- -----------
<S> <C> <C>
ALSIDE
Akron, Ohio Alside Headquarters 70,000
Vinyl Fencing, Vinyl Garage Doors and Vinyl Windows 577,000
Ennis, Texas Vinyl Siding Products 256,000
West Salem, Ohio Vinyl Window Extrusions, Fencing and Garage Door Panels 173,000
Liberty, North Carolina Cabinets 154,000
Kinston, North Carolina Vinyl Windows 236,000(1)
Cedar Rapids, Iowa Vinyl Windows 128,000(1)
AMERCABLE
El Dorado, Arkansas AmerCable Headquarters and Electrical Cable 317,000
</TABLE>
- ---------------
(1) Leased facilities.
Management believes that the Company's manufacturing plants are generally
in good operating condition and are adequate to meet anticipated requirements in
the near future. The Company is currently planning to significantly increase its
vinyl production capacity by constructing a new vinyl manufacturing facility.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "-- Manufacturing."
Alside also operates 66 Alside Supply Centers in major metropolitan areas
throughout the United States. Except for one owned location in Akron, Ohio, the
Company leases its Supply Centers for terms generally ranging from five to seven
years with renewal options. The Supply Centers range in size from 6,000 square
feet to 55,000 square feet depending on their sales volume and the breadth and
type of products offered at each location.
The leases for Alside's window plants extend through 2000 for the Cedar
Rapids location, and 2003 for the Kinston location. Each lease is renewable at
the Company's option for an additional five-year period. The Company's corporate
headquarters occupy approximately 3,500 square feet of leased office space in
Dallas, Texas. Under the Credit Agreement, the bank lender holds a security
interest in the Company's contract rights, including real property leases.
EMPLOYEES
Alside's employment needs vary seasonally with sales and production levels.
As of December 31, 1997, Alside had approximately 1,500 full-time employees,
including approximately 560 hourly workers. The West Salem, Ohio plant is
Alside's only unionized manufacturing facility, employing approximately 100
covered workers as of December 31, 1997. Additionally, approximately 35 hourly
workers in certain Supply Center locations are covered by collective bargaining
agreements. The Company considers Alside's labor relations to be good.
Alside operates vinyl window manufacturing plants in Cedar Rapids, Iowa;
Kinston, North Carolina; and Akron, Ohio with leased employees. The Company
believes that the employee leasing program provides it with scheduling
flexibility for seasonal production loads and with competitive advantages in
obtaining principally unskilled labor personnel. The aggregate number of leased
employees in the window plants ranges from approximately 400 to 600 people,
based on seasonal production requirements.
As of December 31, 1997, AmerCable employed 170 people, including 95 hourly
workers, none of whom are covered by collective bargaining agreements. AmerCable
maintains good relations with its employees.
27
<PAGE> 29
TRADEMARKS AND PATENTS
Alside has registered and nonregistered trade names and trademarks covering
the principal brand names and product lines under which its products are
marketed. Although Alside considers each of these items to be valuable, the
Company does not currently believe such property, other than the "Alside(R)"
trademark, to be material. Alside has obtained patents on certain claims
associated with its siding products, which the Company believes distinguish
Alside's new products from those of its competitors.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to numerous federal and state statutes and
regulations relating to, among other things, air and water quality, the
discharge of materials into the environment and safety and health issues. The
Company does not expect compliance with such provisions to have a material
impact on the Company's earnings or competitive position in the foreseeable
future. Additionally, no significant capital expenditures are presently
anticipated related to compliance with such provisions.
The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container storage area,
the use of such facilities was terminated prior to the acquisition of the Alside
assets by the Company from USX Corporation ("USX") in 1984. The effects of the
past practices at this facility are continuing to be investigated pursuant to
the terms of the consent order. The Company believes that USX bears financial
responsibility for substantially all of the direct costs of corrective action at
such facilities under the relevant contract terms and under statutory and common
law. To date, USX has reimbursed the Company for substantially all of the direct
costs of corrective action at such facilities, and the Company expects that USX
will continue to reimburse the Company for substantially all of the direct costs
of corrective action at such facilities. As a result, the Company believes that
any material claims resulting from this proceeding will not have a material
adverse effect on the Company.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which, after giving effect to the
Company's existing insurance coverage, is expected to have a material adverse
effect on the Company.
28
<PAGE> 30
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Directors, executive officers and certain key employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William W. Winspear (1)........ 64 Chairman of the Board, President and Chief Executive
Officer of the Company
Donald L. Kaufman (1).......... 66 President and Chief Executive Officer of Alside and Vice
President and Director of the Company
Richard I. Galland (2)(3)...... 81 Director
James F. Leary (3)(4).......... 67 Director
Alan B. Lerner (1)............. 67 Director
A. A. Meitz (3)(4)............. 60 Director
Gary D. Trabka (2)(5).......... 43 Director
Robert F. Hogan, Jr............ 41 President and Chief Executive Officer of AmerCable and Vice
President of the Company
Robert L. Winspear............. 32 Vice President, Treasurer and Secretary of the Company
James R. Bussman (6)........... 50 Executive Vice President -- Corporate Services of Alside
and Vice President of the Company
Michael R. St. Clair (6)....... 51 Executive Vice President -- Finance of Alside and Vice
President of the Company
Wayne D. Fredrick (6).......... 51 Group Vice President -- Window Products of Alside
Benjamin L. McGarry (6)........ 50 Group Vice President -- Vinyl Manufacturing of Alside
</TABLE>
- ---------------
(1) Serves in the class of directors whose terms expire at the Annual Meeting of
Stockholders in 2000.
(2) Serves in the class of directors whose terms expire at the Annual Meeting of
Stockholders in 2001.
(3) Member of the Compensation Committee and the Audit Committee.
(4) Serves in the class of directors whose terms expire at the Annual Meeting of
Stockholders in 1999.
(5) Pursuant to an agreement among The Prudential Insurance Company of America
("Prudential"), the Winspear Partnership and the Company (the "Stockholders'
Agreement"), Prudential may, under certain circumstances, nominate up to
three persons to the Board of Directors of the Company and the Winspear
Partnership has agreed to vote its shares of Common Stock in favor of such
nominees. Pursuant to the Stockholders' Agreement, Prudential designated Mr.
Trabka to serve as a Director of the Company. Mr. Trabka has informed the
Company that he intends to resign as a Director following the completion of
the Stock Offering. Further, Prudential has informed the Company that it
does not presently intend to exercise its right under the Stockholders'
Agreement to nominate persons to serve as directors following the completion
of the Stock Offering. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement."
(6) Messrs. Bussman, St. Clair, Fredrick and McGarry are considered key
employees of the Company because of their responsibilities as divisional
officers in the respective capacities indicated. The Company does not,
however, consider such employees to be executive officers of the Company.
The following is a brief description of the business experience of the
Directors, executive officers and certain key employees of the Company for at
least the past five years.
Mr. William W. Winspear has been Chairman of the Board, President and Chief
Executive Officer of the Company since its inception in 1983. Mr. Winspear was
President and Chief Executive Officer of Chaparral Steel Company from 1975 to
1982. Mr. William W. Winspear is Chairman of the Board of Amercord. Mr. Winspear
is the father of Robert L. Winspear.
Mr. Kaufman has been President of Alside since 1974 and has been Chief
Executive Officer of Alside since 1982. Mr. Kaufman joined Alside in 1955 and
became a Director and a Vice President of the Company in 1984.
29
<PAGE> 31
Mr. Galland became a Director of the Company in 1984. Mr. Galland was
formerly Chairman of the Board and Chief Executive Officer of American Petrofina
Incorporated, an energy exploration and production company and formerly Of
Counsel to the law firm of Jones, Day, Reavis & Pogue. Mr. Galland is also a
director of D. R. Horton, Inc., a homebuilding company, and Texas Industries,
Inc., a steel and construction materials production company.
Mr. Leary became a Director of the Company in 1984. Since September 1995,
Mr. Leary has been Vice Chairman -- Finance and a director of Search Financial
Services Inc., a consumer finance company, as well as serving as President of
Sunwestern Management Inc., an investment management company, since 1982. Mr.
Leary is also a director of Capstone Growth Fund and Capstone Fixed Income Fund,
and Phase-Out of America, Inc., a company that manufactures smoking cessation
devices.
Mr. Lerner became a Director of the Company in May 1997. Mr. Lerner retired
as Senior Executive Vice President from Associates Corporation of North America,
a consumer and commercial finance company in 1993, where he had been employed
since 1981.
Mr. Meitz became a Director of the Company in 1993. Mr. Meitz retired as
Senior Vice President of the consulting firm of Booz, Allen & Hamilton, Inc. in
1994 where he was employed since 1965. Mr. Meitz is a director of Greyhound
Lines, Inc., and Banctec, Inc., a computer systems development and support
services company.
Mr. Trabka became a Director of the Company in February 1994. Mr. Trabka
has been a Managing Director of the Prudential Capital Group since February
1989. Prior to 1989 Mr. Trabka was Vice President of Corporate Finance with
Prudential. Mr. Trabka serves as a director of Food Barn Stores, Inc., a retail
grocery chain at the request of Prudential. Mr. Trabka is also a director of the
Prudential Home Mortgage Company, Inc. Mr. Trabka has been designated by
Prudential to serve as a director of the Company pursuant to the Stockholders'
Agreement. See "Certain Relationships and Transactions -- Stockholders'
Agreement."
Mr. Hogan has been President and Chief Executive Officer of AmerCable since
November 1993 and Vice President of the Company since 1984. Prior to becoming
President of AmerCable, Mr. Hogan was Treasurer and Secretary of the Company
from 1984 to 1993.
Mr. Robert L. Winspear joined the Company in June 1993 and was named Vice
President, Treasurer and Secretary in October 1993. Prior to joining the
Company, Mr. Winspear was a Senior in the Financial Consulting and Audit
division of Arthur Andersen LLP, where he had been employed since 1988. Mr.
Winspear is also a director of Amercord. Mr. Winspear is the son of William W.
Winspear.
Mr. Bussman has been Executive Vice President -- Corporate Services of
Alside since 1983. Mr. Bussman has held various other positions with Alside
since 1972, and was named a Vice President of the Company in 1984.
Mr. St. Clair was named Executive Vice President -- Finance of Alside in
December 1994. Mr. St. Clair had been Senior Vice President -- Finance of Alside
since joining the Company from The Warner & Swasey Company, Inc., a machine tool
manufacturing company in 1985. Mr. St. Clair was named a Vice President of the
Company in 1986.
Mr. Fredrick was named Group Vice President -- Window Products of Alside in
January 1997. From 1990 to 1996, Mr. Fredrick was Senior Vice
President -- Window Products of Alside. Mr. Fredrick joined Alside in 1973.
Mr. McGarry was named Group Vice President -- Vinyl Manufacturing of Alside
in January 1997. From 1984 to 1996, Mr. McGarry was Senior Vice
President -- Manufacturing of Alside. Mr. McGarry joined Alside in 1980.
Officers of the Company serve at the discretion of the Board of Directors.
30
<PAGE> 32
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by the Company
for services rendered in 1997, 1996 and 1995 by the Chief Executive Officer and
each of the other executive officers of the Company. For the purposes of this
report, Messrs. W.W. Winspear, Kaufman, Hogan and R.L. Winspear are referred to
as the "named executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------ -----------------
FISCAL SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(2) COMPENSATION
--------------------------- ------ -------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
William W. Winspear............................. 1997 $436,667 $342,930 -- $ 31,600(3)
Chairman of the Board, President 1996 $400,000 $214,362 -- $ 30,250
and Chief Executive Officer 1995 $398,333 $ 28,005 -- $ 30,250
Donald L. Kaufman............................... 1997 $378,333 $209,529 100,000 $ 26,000(4)
President and Chief Executive 1996 $345,000 $181,666 -- $102,742
Officer of Alside 1995 $343,335 $102,595 -- $127,199
Robert F. Hogan, Jr............................. 1997 $172,917 $206,654 -- $ 5,600(5)
President and Chief Executive 1996 $150,000 $ -- -- $ 5,250
Officer of AmerCable 1995 $150,000 $ -- -- $ 5,250
Robert L. Winspear.............................. 1997 $100,816 $ 34,293 -- $ 3,529(6)
Vice President, Treasurer 1996 $ 82,292 $ 21,436 -- $ 2,880
and Secretary 1995 $ 79,583 $ 2,801 -- $ 2,785
</TABLE>
- ---------------
(1) Perquisites and other personal benefits received by the named executive
officers are not included in the Summary Compensation Table because the
aggregate amount of such compensation, if any, did not meet disclosure
thresholds established under current regulations of the Commission.
(2) In February 1997, Mr. Kaufman was granted options to purchase 100,000 shares
of Common Stock at $12.00 per share, the fair market value of the Common
Stock on the date of grant. The options vested 50% on the date of grant and
the balance vests on the second anniversary of the date of the grant.
(3) Includes directors fees of $26,000 and amounts accrued or allocated under
AmerCable's retirement plan of $5,600.
(4) Includes directors fees of $26,000.
(5) Includes amounts accrued or allocated under AmerCable's retirement plan of
$5,600.
(6) Includes amounts accrued or allocated under AmerCable's retirement plan of
$3,529.
31
<PAGE> 33
OPTION/SAR GRANTS IN 1997
The following table provides information regarding the grant of stock
options to the named executive officers in 1997. In addition, hypothetical gains
of 5% and 10%, along with a third column representing a 0% gain (listed in the
table under "Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term"), are shown for these stock options. These
hypothetical gains are based on assumed rate of annual compound stock price
appreciation of 0%, 5% and 10% from the date the stock options were granted over
the full option term of ten years.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF PERCENTAGE OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL OPTIONS/ ASSUMED ANNUAL RATES OF STOCK
UNDERLYING SARS PRICE APPRECIATION FOR OPTION
OPTIONS/ GRANTED TO EXERCISE TERM(3)
SARS EMPLOYEES PRICE PER EXPIRATION -------------------------------
NAME GRANTED IN 1997 SHARE(2) DATE 0% 5% 10%
---- ---------- -------------- --------- ----------------- ----- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
William W. Winspear............. 0 --% $ -- -- $ -- $ -- $ --
Donald L. Kaufman............... 100,000(1) 100 12.00 February 25, 2007 -- 754,673 1,912,491
Robert F. Hogan................. 0 -- -- -- -- -- --
Robert L. Winspear.............. 0 -- -- -- -- -- --
</TABLE>
- ---------------
(1) The exercise price was equal to the fair market value of the Common Stock on
the date of grant. The Company has not granted stock appreciation rights.
(2) The option for such shares became 50% vested on the date of grant and the
balance vests on the second anniversary of the grant.
(3) The potential realizable value portion of the foregoing table illustrate
value that might be realized upon exercise of the option immediately prior
to the expiration of its term, assuming the specified compounded rates of
appreciation on the Common Stock over the term of the option. The use of the
assumed 5% and 10% annual rates to stock price appreciation are established
by the Commission and is not intended by the Company to forecast possible
future appreciation of the price of its Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN 1997
AND DECEMBER 31, 1997 OPTION/SAR VALUES
The following table provides information, for each of the named executive
officers, regarding the exercise of options during 1997 and unexercised options
held as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
DECEMBER 31, 1997(1) AT DECEMBER 31, 1997(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William W. Winspear...................... -- $ -- -- -- $ -- $ --
Donald L. Kaufman........................ -- -- 50,000 50,000 250,000 250,000
Robert F. Hogan.......................... -- -- -- -- -- --
Robert L. Winspear....................... -- -- 20,000 -- 281,500 --
</TABLE>
- ---------------
(1) The Company has not granted stock appreciation rights.
(2) Value was determined based upon $17.00 per share (the mid-point of the price
range per share for Common Stock in the Stock Offering) multiplied by the
number of shares of Common Stock of the Company underlying such options.
32
<PAGE> 34
COMPENSATION AND INCENTIVE PROGRAMS
Profit Sharing Plan. The Company maintains a profit sharing plan (the
"Profit Sharing Plan") providing for annual bonus awards to certain key
employees, including each of the executive officers of the Company. Such bonus
amounts are based on the Company and, in the cases of Alside and AmerCable
personnel, the divisions meeting certain performance goals established by the
Company's Board of Directors. The Profit Sharing Plan is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee"),
none of the members of which is eligible for a bonus award pursuant to this
Plan. Bonus payments under the Profit Sharing Plan are not guaranteed. Cash
bonuses accrued under the Profit Sharing Plan in 1997, 1996 and 1995 to each of
the named executive officers are set forth in the Summary Compensation Table.
Alside Retirement Plan. The Company maintains a defined benefit pension
plan, the Alside Retirement Plan (the "Alside Plan"). The Alside Plan covers all
Alside employees who have completed one year of service, except for various
designated groups of hourly and union employees. Mr. Kaufman is the only
executive officer of the Company entitled to receive benefits pursuant to the
Alside Plan. Mr. Kaufman, who is age 66, would be eligible to receive a monthly
pension amount of approximately $14,000 if he were to retire in 1998. The
Company believes that Mr. Kaufman intends to remain in his current position as
President and Chief Executive Officer of Alside and has no current intention to
retire.
Executive Agreement. Pursuant to an agreement with the Company, Mr. Kaufman
is entitled to receive severance pay in an amount equal to his total earnings
for the twelve-month period prior to the termination of his employment for any
reason.
STOCK INCENTIVE PLAN
General. The Company's 1994 Stock Incentive Plan, as amended (the "Stock
Incentive Plan"), provides that the number of shares of Common Stock that may be
issued or transferred, plus the amount of shares of Common Stock covered by
outstanding awards granted under the Stock Incentive Plan, shall not in the
aggregate exceed 800,000. Presently, options for 307,300 shares of Common Stock
have been granted under the Stock Incentive Plan. The Company currently does not
intend to issue a significant number of options under the Stock Incentive Plan
in the near future.
Eligibility. Directors, officers and other key employees of and consultants
to the Company may be selected by the Board of Directors to receive benefits
under the Stock Incentive Plan.
Option Rights. The Board of Directors may grant rights ("Option Rights")
that entitle the optionee to purchase shares of Common Stock at a price equal to
or greater than market value on the date of grant. The option price is payable
at the time of exercise (i) in cash or cash equivalent, (ii) by the transfer to
the Company of shares of Common Stock that are already owned by the optionee and
have a value at the time of exercise equal to the option price, (iii) with any
other legal consideration the Board of Directors may deem appropriate, or (iv)
by any combination of the foregoing methods of payment. Any grant may provide
for deferred payment of the option price from the proceeds of sale through a
broker on the date of exercise of some or all of the shares of Common Stock to
which the exercise relates. The Board of Directors has the authority to specify
at any time that Restricted Shares (as defined), or other shares of Common Stock
which are subject to risk of forfeiture or restrictions on transfer will be
accepted for part or all of the option price. In such event, the Board of
Directors may provide that the shares of Common Stock received upon exercise of
the stock option will be subject to the same risks of forfeiture or restrictions
on transfer which applied to the shares used as payment for the option price.
Option Rights granted under the Stock Incentive Plan may be Option Rights
that are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code, Option Rights that are not intended to so qualify or
any combination of the foregoing. At or after the date of grant of any
nonqualified Option Rights, the Board of Directors may provide for the payment
of dividend equivalents to the optionee on a current, deferred or contingent
basis or may provide that dividend equivalents be credited against the option
price.
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<PAGE> 35
No Option Right may be exercised more than 10 years from the date of grant.
Each grant must specify the conditions, including as and to the extent
determined by the Board of Directors, the period of continuous employment or
continuous engagement of consulting services by the Company or any subsidiary,
that are necessary before the Option Rights will become exercisable, and may
provide for the earlier exercise of the Option Rights, including, without
limitation, in the event of a change in control of the Company or other similar
transaction or event. Successive grants may be made to the same optionee
regardless of whether Option Rights previously granted to him or her remain
unexercised.
Restricted Shares. An award of "Restricted Shares" involves the immediate
transfer by the Company to a participant of ownership of a specific number of
shares of Common Stock in consideration of the performance of services. The
participant is entitled immediately to voting, dividend and other ownership
rights in the shares. The transfer may be made without additional consideration
or for consideration in an amount that is less than the market value of the
shares on the date of grant, as the Board of Directors may determine.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Board of Directors. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as an
officer or other key employee during a specified period of years. In order to
enforce these forfeiture provisions, the transferability of Restricted Shares
will be prohibited or restricted in a manner and to the extent prescribed by the
Board of Directors for the period during which the forfeiture provisions are to
continue. The Board of Directors may provide for a shorter period during which
the forfeiture provisions are to apply, including, without limitation, in the
event of a change in control of the Company or other similar transaction or
event.
Deferred Shares. An award of "Deferred Shares" constitutes an agreement by
the Company to deliver shares of Common Stock to the participant in the future
in consideration of the performance of services, subject to the fulfillment of
such conditions during the Deferral Period (as defined in the Stock Incentive
Plan) as the Board of Directors may specify. During the Deferral Period, the
participant has no right to transfer any rights under the award and no right to
vote the shares covered by the award. On or after the date of any grant of
Deferred Shares, the Board of Directors may authorize the payment of dividend
equivalents thereon on a current, deferred or contingent basis in either cash or
additional shares of Common Stock. Grants of Deferred Shares may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant. Deferred Shares must be subject
to a Deferral Period, as determined by the Board of Directors on the date of
grant, except that the Board of Directors may provide for a shorter Deferral
Period, including, without limitation, in the event of change in control of the
Company or other similar transaction or event.
Transferability. Except as permitted by the Board of Directors, no Option
Right, or other "derivative security" within the meaning of Rule 16b-3 under the
Exchange Act is transferable by a participant except by will or the laws of
descent and distribution. Except as permitted by the Board of Directors, Option
Rights may not be exercised during a participant's lifetime except by the
participant or, in the event of his or her incapacity, by his or her guardian or
legal representative acting in a fiduciary capacity on behalf of the participant
under state law and court supervision.
Adjustments. The maximum number of shares of Common Stock that may be
issued or transferred under the Stock Incentive Plan, the number of shares
covered by outstanding awards and the option prices per share applicable
thereto, are subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations, mergers, consolidations,
spin-offs, reorganizations, liquidations, issuances of rights or warrants, and
similar transactions or events. In the event of any such transaction or event,
the Board of Directors may in its discretion provide in substitution for any or
all outstanding awards under the Stock Incentive Plan such alternative
consideration as it may in good faith determine to be equitable in the
circumstances and may require the surrender of all awards so replaced.
Administration. The Stock Incentive Plan is administered by the Board of
Directors though the Board of Directors may delegate all or any portion of its
authority to a committee. In connection with its administration of the Stock
Incentive Plan, the Board of Directors is authorized to interpret the Stock
Incentive Plan and related agreements and other documents. The Board of
Directors may make grants to participants under any
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<PAGE> 36
or a combination of all of the various categories of awards that are authorized
under the Stock Incentive Plan and may provide for special terms for awards to
participants who are foreign nationals, as the Board of Directors may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom.
Amendments. The Stock Incentive Plan may be amended from time to time by
the Board of Directors, but without further approval by the stockholders of the
Company no such amendment (unless expressly allowed pursuant to the adjustment
provisions described above) may increase the aggregate number of shares that may
be issued or transferred plus the amount of shares covered by outstanding
awards.
Federal Income Tax Consequences. The following is a brief summary of
certain of the federal income tax consequences of certain transactions under the
Stock Incentive Plan based on federal income tax laws in effect on the date of
this Prospectus. This summary is not intended to be exhaustive and does not
describe state or local tax consequences.
Nonqualified Option Rights. In general: (i) no income will be recognized by
an optionee at the time a nonqualified Option Right is granted; (ii) at the time
of exercise of a nonqualified Option Right, ordinary income will be recognized
by the optionee in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares if they are
nonrestricted on the date of exercise; and (iii) at the time of sale of shares
acquired pursuant to the exercise of a nonqualified Option Right, any
appreciation (or depreciation) in the value of the shares after the date of
exercise will be treated as either short-term or long-term capital gain (or
loss) depending on how long the shares have been held. Such long-term capital
gain will be eligible for a reduced rate if the shares are held for more than 18
months.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to an optionee pursuant to the exercise of an incentive
stock option and no disqualifying disposition of the shares is made by the
optionee within two years after the date of grant or within one year after the
transfer of the shares to the optionee, then upon the sale of the shares any
amount realized in excess of the option price will be taxed to the optionee as
long-term capital gain and any loss sustained will be long-term capital loss.
Such long-term capital gain will be eligible for a reduced rate if the shares
are held for more than 18 months.
If shares of Common Stock acquired upon the timely exercise of an incentive
stock option are disposed of prior to the expiration of either the one or two
year holding period described above, the optionee generally will recognize
ordinary income in the year of disposition in an amount equal to any excess of
the fair market value of the shares at the time of exercise (or, if less, the
amount realized on the disposition of the shares in a sale or exchange) over the
option price paid for the shares. Any further gain (or loss) realized by the
optionee generally will be taxed as short-term or long-term capital gain (or
loss) depending on the holding period.
Restricted Shares. A recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares reduced by any amount paid by the recipient at such time as
the shares are no longer subject to a risk of forfeiture or restrictions on
transfer for purposes of Section 83 of the Code. However, a recipient who so
elects under Section 83(b) of the Code within 30 days of the date of transfer of
the shares will have taxable ordinary income on the date of transfer of the
shares equal to the excess of the fair market value of the share (determined
without regard to the risk of forfeiture or restrictions on transfer) over any
purchase price paid for the shares. If a Section 83(b) election has not been
made, any non-restricted dividends received with respect to Restricted Shares
that are subject at that time to a risk of forfeiture or restrictions on
transfer generally will be treated as compensation that is taxable as ordinary
income to the recipient.
Deferred Shares. No income generally will be recognized upon the grant of
Deferred Shares. The recipient of a grant of Deferred Shares generally will be
subject to tax at ordinary income rates on the fair market value of
nonrestricted shares of Common Stock on the date that the Deferred Shares are
transferred to the recipient, reduced by any amount paid by the recipient, and
the capital gains or loss holding periods for the Deferred Shares will also
commence on that date.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock that is received as the result of a grant
of an award could subject an officer or Director to suit under
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<PAGE> 37
Section 16(b) of the Exchange Act, the tax consequences to the officer or
Director may differ from the tax consequences described above. In these
circumstances, unless a special election has been made, the principal difference
usually will be to postpone valuation and taxation of the stock received so long
as the sale of stock received could be subject the officer or Director to suit
under Section 16(b) of the Exchange Act, but no longer than six months.
Tax Consequences to the Company. To the extent that a participant
recognizes ordinary income in the circumstance described above, the Company for
which the participant performs services will be entitled to a corresponding
deduction provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not subject to
the annual compensation limitation set forth in Section 162(m) of the Code and
is not "excess parachute payment" within the meaning of Section 280G of the
Code.
DIRECTOR COMPENSATION
Directors, including Directors who are employees of the Company, receive an
annual retainer of $16,000 plus $2,500 for each Directors' meeting attended.
Directors are also reimbursed for reasonable travel expenses incurred in
connection with attendance at Directors' meetings.
Mr. Lerner was granted options to purchase 40,000 shares of Common Stock at
$16.00 per share in May 1997 upon first being elected to the Board of Directors
and the Company. The options became 50% vested on the date of grant and the
balance vests on the second anniversary of the date of grant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
Prudential, the Winspear Partnership and the Company are parties to a
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, Prudential and
the Winspear Partnership have agreed that (i) if the Winspear Partnership, or
any subsequent holder of its shares of Common Stock, intends to sell any of such
shares (other than in a public offering), to permit Prudential to participate in
such sale on a pro rata basis and (ii) if the Winspear Partnership, or any
subsequent holder of its shares of Common Stock, elects to sell shares of Common
Stock, to require Prudential and subsequent holders of its shares to participate
in such sale on a pro rata basis (but only if the total number of shares of
Common Stock to be sold pursuant to this clause exceeds 50% of the outstanding
shares of Common Stock and Class B Common Stock on a fully diluted basis). The
Stockholders' Agreement also requires, so long as Prudential and certain
Prudential affiliates beneficially own at least 15% of the outstanding Common
Stock (on a fully diluted basis), all shares of Common Stock subject to the
Stockholders' Agreement to be voted to elect two or three persons designated by
Prudential to the Company's Board of Directors (depending on the number of
directors making up the Board), or if Prudential and certain Prudential
affiliates beneficially own at least 5% (but less than 15%) of the Common Stock,
to elect to the Board one person designated by Prudential. Unless terminated
earlier, the Stockholders' Agreement expires on August 19, 2003.
Pursuant to the Stockholders' Agreement, Prudential designated Mr. Trabka
to serve as a Director of the Company. Prudential currently has the right to
nominate two additional directors. Mr. Trabka has informed the Company that he
intends to resign as a Director following the completion of the Stock Offering.
Further, Prudential has informed the Company that it does not presently intend
to exercise its right under the Stockholders' Agreement to nominate persons to
serve as directors following the completion of the Stock Offering.
REGISTRATION RIGHTS AGREEMENT
For a description of the Registration Rights Agreement among the Company,
Prudential, the Winspear Partnership and certain other stockholders of the
Company, see "Shares Eligible for Future Sale -- Registration Rights."
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<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, the
beneficial ownership of Common Stock by (i) each person known by the Company to
own beneficially more than 5% of the outstanding Common Stock, (ii) each
Director of the Company, (iii) each executive officer, (iv) each Selling
Stockholder and (v) all Directors and executive officers as a group, and as
adjusted to reflect the Stock Offering. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE STOCK OWNED AFTER THE STOCK
OFFERING OFFERING
----------------------- SHARES -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) TO BE SOLD NUMBER PERCENT(1)
------------------------ --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
William W. Winspear................ 3,851,200 50.7% 0 3,851,200 46.4%
2200 Ross Avenue, Suite 4100 East
Dallas, TX 75201(2)(3)
The Prudential Insurance Company of
America.......................... 2,700,000 35.6% 1,000,000 1,700,000 20.5%
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102 (4)(5)(6)
Richard I. Galland................. 40,000 * 0 40,000 *
Robert F. Hogan, Jr................ 80,000 1.1% 0 80,000 *
Donald L. Kaufman(7)............... 367,000 4.8% 0 367,000 4.4%
James F. Leary(8).................. 10,000 * 0 10,000 *
Alan B. Lerner(8).................. 20,000 * 0 20,000 *
A.A. Meitz(8)...................... 40,000 * 0 40,000 *
Gary D. Trabka(9).................. 0 -- 0 0 --
Robert L. Winspear(3)(4)(6)(8)..... 80,800 1.1% 0 80,800 *
Deborah J. Allan(3)(4)............. 60,800 * 60,800 0 --
C. Glen Beattie(4)................. 80,000 1.1% 80,000 0 --
Barbara W. Meyer(3)(4)............. 60,800 * 60,800 0 --
Donald W. Winspear(3)(4)........... 60,800 * 60,800 0 --
Malcolm G. Winspear(3)(4).......... 60,800 * 60,800 0 --
Frank T. Lauinger(4)............... 25,600 * 12,800 12,800 *
Principal Financial Securities,
Inc.(4).......................... 92,800 1.2% 92,800 0 --
All Directors and executive
officers as a group (9
persons)......................... 4,489,000 59.1% 0 4,489,000 54.1%
</TABLE>
- ---------------
* Less than 1%.
(1) The percentages shown assume the conversion of all outstanding shares of
Class B Common Stock into shares of Common Stock. See Note 5 below.
(2) All such shares are held of record by the Winspear Partnership of which Mr.
William W. Winspear is the Managing General Partner.
(3) William W. Winspear is the father of Robert L. Winspear, Deborah J. Allan,
Barbara W. Meyer, Donald W. Winspear and Malcolm G. Winspear.
(4) Each of these stockholders is selling shares of Common Stock in the Stock
Offering or will sell shares of Common Stock if the over-allotment option
granted to the Underwriters in the Stock Offering is exercised. Such
stockholders are referred to collectively herein as the "Selling
Stockholders."
(5) Prudential owns of record 2,700,000 shares of Class B Common Stock which may
be converted at any time at the election of the holder into Common Stock on
a one to one basis. The holder of shares of Class B Common Stock has rights
and privileges identical to the rights and privileges of the Common Stock,
except that the holder of shares of Class B Common Stock may vote (with the
holders of Common Stock) only on (i) any amendment to the Company's
Certificate of Incorporation, (ii) any sale or other disposition of all or
substantially all of the Company's assets, (iii) any merger or consolidation
of the Company, and (iv) any liquidation, dissolution or winding up of the
Company. See "Description of Capital Stock -- Class B Common Stock."
(footnotes continued on following page)
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<PAGE> 39
(6) The Company, Prudential and Robert L. Winspear have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to a maximum of 108,520, 150,000 and 60,800
shares of Common Stock, respectively, solely to cover over-allotments. The
number of shares of Common Stock shown in the table above to be beneficially
owned by such stockholders after the Stock Offering assumes that the
over-allotment option is not exercised.
(7) Includes options exercisable within 60 days of the date of this Prospectus
for 50,000 shares and includes 132,000 shares of Common Stock held by trusts
for the benefit of certain members of Mr. Kaufman's family, as to which Mr.
Kaufman disclaims beneficial ownership. Excludes 6,000 held by a charitable
foundation of which Mr. Kaufman is trustee, as to which Mr. Kaufman
disclaims beneficial ownership.
(8) Includes options exercisable within 60 days of the date of this Prospectus
by Messrs. Leary, Lerner, Meitz and R.L. Winspear for 10,000, 20,000, 40,000
and 20,000 shares, respectively.
(9) Mr. Trabka is a Managing Director of the Prudential Capital Group. See Note
5.
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<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to the Company's capital stock and
certain other matters are subject to the detailed provisions of the Company's
Restated Certificate of Incorporation (the "Certificate") and the Company's
Restated Bylaws (the "Bylaws"). See "Additional Information."
AUTHORIZED SHARES
Under the Certificate, the Company has the authority to issue 17,800,000
shares consisting of (i) 15,000,000 shares of Common Stock, par value $.0025 per
share ("Common Stock"), (ii) 2,700,000 shares of Class B Common Stock, par value
$.0025 per share ("Class B Common Stock"), and (iii) 100,000 shares of Preferred
Stock, par value $.01 per share ("Preferred Stock").
COMMON STOCK
As of the date this Prospectus and prior to the sale of the shares pursuant
to the Stock Offering, there were 4,893,504 shares of Common Stock issued and
outstanding, which were held by 27 stockholders of record. As of the date of
this Prospectus, the Company has outstanding the following securities
convertible into, and options exercisable for, shares of Common Stock: (i)
2,700,000 shares of Class B Common Stock, each of which is convertible into one
share of Common Stock (see "-- Class B Common Stock" below), and (ii) options to
acquire an aggregate of 307,300 shares of Common Stock. In connection with the
Stock Offering, Prudential has agreed to convert 1,000,000 shares of Class B
Common Stock into shares of Common Stock (and to convert up to an additional
150,000 shares of Class B Common Stock if the Underwriters' over-allotment
option is exercised in full), and to sell all such shares of Common Stock in the
Stock Offering. After giving effect to the Stock Offering, if all such
conversion rights or options were exercised, the Company would be obligated to
issue an additional 2,007,300 shares of Common Stock.
Holders of shares of Common Stock are entitled to one vote per share in the
election of directors and all other matters submitted to a vote of stockholders.
Such holders do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock have no redemption or conversion rights and
no preemptive or other rights to subscribe for securities of the Company. The
outstanding shares of Common Stock are fully paid and non-assessable.
Subject to the rights of holders of any outstanding shares of the Company's
Preferred Stock, all shares of Common Stock, together with all shares of Class B
Common Stock, are entitled to (i) to share equally in dividends from sources
legally available therefor when, as and if declared by the Board of Directors,
and (ii) upon dissolution of the Company, to receive pro rata any assets of the
Company after the satisfaction of corporate liabilities.
Payment of cash dividends is restricted by covenants in the Credit
Agreement and the Existing Indenture and will be restricted by the New
Indenture.
CLASS B COMMON STOCK
All 2,700,000 authorized shares of Class B Common Stock are issued and
outstanding and are owned by Prudential. Prudential acquired such shares of
Class B Common Stock (or warrants exercisable for such shares) in 1984 in
connection with the Company's financing of the acquisition of its present
businesses. Each share of Class B Common Stock may be converted at any time at
the election of the holder into one share of Common Stock. The Certificate
provides that any shares of Class B Common Stock that are converted into shares
of Common Stock or otherwise acquired by the Company shall be permanently
retired and shall not be reissued.
Holders of shares of Class B Common Stock have rights and privileges
identical to holders of shares of Common Stock, except that shares of Class B
Common Stock may be voted (with the Common Stock as a single class) only on (i)
any amendment to the Certificate, (ii) any sale or other disposition of all or
substantially all of the Company's assets on which the holders of shares of
Common Stock have the right to vote, (iii) any merger or consolidation of the
Company on which the holders of shares of Common Stock have
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<PAGE> 41
the right to vote, and (iv) any liquidation, dissolution or winding up of the
Company on which the holders of shares of Common Stock have the right to vote.
PREFERRED STOCK
Under the Certificate, the Company has authority to issue 100,000 shares of
Preferred Stock. As of the date of this Prospectus, no shares of Preferred Stock
are outstanding and the Company has no present intention to issue any shares of
Preferred Stock.
Preferred Stock may be issued, from time to time in one or more series, and
the Board of Directors, without further approval of the stockholders, is
authorized to fix the dividend rights and terms, redemption rights and terms,
liquidation preferences, conversion rights, voting rights and sinking fund
provisions applicable to each such series of Preferred Stock. If the Company
issues a series of Preferred Stock in the future that has voting rights or
preference over the Common Stock with respect to the payment of dividends, upon
the Company's liquidation, dissolution or winding up, the rights of the holders
of the Common Stock offered hereby may be adversely affected. The issuance of
shares of Preferred Stock could be utilized, under certain circumstances, in an
attempt to prevent an acquisition of the Company.
STATE LAW AND CERTAIN CERTIFICATE AND BYLAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "DGCL"). Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder," unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within the previous three years, did own) 15% or more of
the corporation's voting stock. This statute contains provisions enabling a
corporation to avoid the statute's restrictions if the stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's certificate of incorporation or bylaws. The Company's Certificate
and Bylaws do not contain such a provision, and the Company does not presently
intend to submit such a provision to its stockholders. Under Section 203, the
term "interested stockholder" does not include any person who owned shares in
excess of the 15% limitation prior to December 23, 1987 or any person who
acquired shares in excess of the 15% limitation from a pre-December 23, 1987
owner by gift or in a transaction in which no consideration was exchanged. Under
such provisions, the Company believes neither the Winspear Partnership nor
Prudential should be considered "interested stockholders" subject to the
provisions of Section 203.
The Certificate contains provisions which provide for a classified board of
directors consisting of three classes with directors serving staggered
three-year terms. Therefore, only one third of the directors are subject to
election by the stockholders each year. Under the DGCL, if a board of directors
is classified, a director may not be removed except for cause unless the
corporation's articles of incorporation provide otherwise. The Certificate
provides that until such time as Prudential and its affiliates are the record
holders of less than 5% of the outstanding Common Stock (on a fully diluted
basis), any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the outstanding shares of the
Company entitled to vote in an election of Directors. The Certificate also
provides that until such time as Prudential and its affiliates own less than 5%
of the outstanding Common Stock (on a fully diluted basis) the holders of 25% or
more of the outstanding Common Stock shall have the right to call a special
meeting of stockholders solely for the purpose of removing any Director, filling
any vacancy created thereby and amending the Bylaws. The Certificate provides
that, except with respect to the removal and replacement of directors while
Prudential and its affiliates own 5% or more of the outstanding Common Stock,
the stockholders may not take action by written consent, as the DGCL would
otherwise permit, but can act only at a meeting of the stockholders. A special
meeting of the stockholders can be called by the Chairman of the Board or Chief
Executive Officer or at the request of a majority of the Board of Directors and
by the stockholders under the circumstances described above.
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<PAGE> 42
The Certificate provides that, to the full extent permitted by the DGCL or
any other applicable laws as presently or hereafter in effect, no Director of
the Company in his capacity shall be personally liable to the Company in his
capacity as a director of the Company. The DGCL does not permit limitation of
liability of any director (i) for breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases, or (iv) for any transaction from which the director derived an
improper personal benefit. The Company has entered into certain agreements
("Indemnification Agreements") with each of its Directors and executive officers
designed to give effect to the foregoing provisions of the Certificate and to
provide certain additional assurances against the possibility of uninsured
liability. The effect of these provisions and the Indemnification Agreements
will be to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from negligence or gross negligence) except in the situations
described in clauses (i)-(iv) of the second sentence of this paragraph. These
provisions and the Indemnification Agreements will not alter the liability of
Directors of the Company under federal securities laws.
The provisions of the DGCL, the Certificate and the Bylaws discussed above
would make more difficult or discourage a proxy contest or the acquisition of
control by a holder of a substantial block of the Company's stock or the removal
of the incumbent Board of Directors. Such provisions could also have the effect
of discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company, even though such an attempt might be
beneficial to the Company and its stockholders. In addition, since these
provisions are designed to discourage accumulations of large blocks of the
Company's stock by purchasers whose objective is to have such stock repurchased
by the Company at a premium, such provisions could tend to reduce the temporary
fluctuations in the market price of the Common Stock which are caused by such
accumulations. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, L.L.C. is the transfer agent and
registrar for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Stock Offering, the Company will have 8,293,504
common shares outstanding (including both Common Stock and Class B Common
Stock). Of these shares, the 2,128,800 shares of Common Stock sold in this Stock
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for shares purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act.
The remaining 6,164,704 common shares (including Class B Common Stock)
which were originally issued and sold by the Company in private transactions in
reliance upon exemptions from the Securities Act, are deemed "restricted shares"
under Rule 144. Holders of 5,639,200 common shares (including Class B Common
Stock) have certain registration rights described below. All of such restricted
shares will be eligible for sale in the public market in accordance with Rule
144 after this Stock Offering. However, 6,127,200 of the restricted shares are
subject to the lock-up agreements described below and not eligible for sale
until the expiration thereof.
There are also outstanding options for 307,300 shares of Common Stock, of
which 233,550 are presently exercisable. Under certain circumstances, the shares
issued upon exercise of such options may become eligible for immediate sale in
the public market pursuant to Rule 701 under the Securities Act. See "-- Rule
701 Restrictions," below, and "Management -- Stock Incentive Plan."
41
<PAGE> 43
LOCK-UP AGREEMENTS
The Directors and executive officers of the Company and certain other
stockholders of the Company (the Winspear Partnership and Prudential), who will
beneficially own in the aggregate 6,112,800 common shares after the Stock
Offering, have agreed that they will not offer, sell or otherwise dispose of any
of their shares for a period of 180 days from the date of this Prospectus
related to this Stock Offering without the prior written consent of Smith Barney
Inc., subject to certain limited exceptions. The Company has agreed not to
offer, sell or grant any option to purchase or otherwise dispose of any shares
of Common Stock for a period of 180 days from the effective date of the
Registration Statement related to this Stock Offering without the prior written
consent of Smith Barney Inc., except that the Company may issue shares of Common
Stock upon conversion of shares of Class B Common Stock or pursuant to existing
option agreements and may grant options to purchase shares of Common Stock
pursuant to the Stock Incentive Plan. Smith Barney Inc. has advised the Company
that it is not a party to any agreement or understanding, nor does Smith Barney
Inc. have any present intention, to release such shares prior to the expiration
of the 180-day period. Further, two stockholders who hold an aggregate of 14,400
shares of Common Stock and who are not selling shares in the Stock Offering are
subject to the terms of a Registration Rights Agreement with the Company whereby
these stockholders will not be permitted to sell their shares of Common Stock
for a period of 90 days from the date of this Prospectus.
RULE 144 RESTRICTIONS
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
restricted shares have been held for at least one year from the later of the
date of issuance by the Company or acquisition from an affiliate, may sell such
securities in brokers' transactions or directly to market makers, provided the
number of shares sold by such person in any three-month period does not exceed
the greater of 1% of the then-outstanding shares of the Common Stock (65,935
shares based on the number of shares of Common Stock to be outstanding after the
Stock Offering) or the average weekly trading volume in the public market during
the four calendar weeks preceding the filing of the seller's Form 144. The
one-year holding period begins running when the shares have been fully paid for.
Sales under Rule 144 are also subject to certain notice requirements and the
availability of current public information concerning the Company. After two
years have elapsed from the later of the issuance of restricted shares by the
Company or their acquisition from an affiliate, such shares may be sold without
limitation by persons who have not been affiliates of the Company for at least
three months.
RULE 701 RESTRICTIONS
Securities issued in reliance on Rule 701 are also restricted shares and
may be sold by persons other than affiliates of the Company subject to the
manner of sale provisions of Rule 144 and by affiliates, subject to the lock-up
agreements, under Rule 144 without compliance with its one-year minimum holding
period requirements.
STOCK INCENTIVE PLAN
The Stock Incentive Plan authorizes the grant of Restricted Shares,
Deferred Shares, or incentive stock options and nonqualified stock options
exercisable for, up to an aggregate of 800,000 shares of Common Stock. All
incentive stock options granted under the plan will be exercisable at a price
per share equal to the fair market value of the underlying stock on the date of
grant. Nonqualified stock options will be exercisable at the price per share
determined by the Compensation Committee of the Board of Directors. The Company
does not intend to grant options under the Stock Incentive Plan in connection
with the Stock Offering. Additionally, the Company currently does not intend to
issue a significant number of options in the near future. See
"Management -- Stock Incentive Plan."
Following this Stock Offering, the Company intends to register under the
Securities Act the shares of Common Stock issuable under the Stock Incentive
Plan. The Company has agreed with the Underwriters that
42
<PAGE> 44
it will not register shares issuable pursuant to the Stock Incentive Plan for a
period of 90 days after the date of this Prospectus.
REGISTRATION RIGHTS
Under the terms of an agreement among the Company, Prudential and certain
other stockholders (the "Registration Rights Agreement"), beginning one year
after the completion of the Stock Offering, upon the request of either
Prudential or the Winspear Partnership and its private transferees the Company
shall, subject to certain exceptions, be required to effect two registrations of
the Common Stock, provided that certain minimum and maximum numbers of shares
are included in the request. The Registration Rights Agreement also grants
secondary offering rights ("piggy-back" rights) to Prudential, the Winspear
Partnership and certain other stockholders in connection with such requested
registrations and any other Company registration of Common Stock or Common Stock
equivalents. The registration rights may not be transferred, with certain
exceptions, to persons who, after such transfer, would hold less than 100,000
shares of Common Stock or Class B Common Stock. Following the Stock Offering, an
aggregate of 5,639,200 common shares (including shares of the Company's Class B
Common Stock) will be eligible for registration under the Registration Rights
Agreement.
The Registration Rights Agreement further provides that the Company will
bear all expenses associated with the Company's obligation to effect such
registrations, other than underwriting discounts, commissions and transfer
taxes, if any. The Company's obligation to pay such expenses includes the
out-of-pocket expenses (including legal and accounting expenses) for the first
registration of Common Stock by Prudential or its private transferees, up to
$100,000, and for the first registration of Common Stock by the Winspear
Partnership or its private transferees, up to $100,000, including the
registration effected in connection with the Stock Offering.
POTENTIAL EFFECT OF FUTURE SALES
There has been no public market for the Common Stock prior to this Stock
Offering. No predictions can be made of the effect, if any, of future public
sales of restricted shares of Common Stock or the availability of restricted
shares of Common Stock for sale in the public market. Sales of substantial
amounts of Common Stock in the public market could adversely affect prevailing
market prices.
43
<PAGE> 45
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated , 1998, each of the Underwriters named below has
severally agreed to purchase, and the Company and the Selling Stockholders have
agreed to sell to such Underwriters, the number of shares of Common Stock
("Shares") set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Smith Barney Inc............................................
Dain Rauscher Incorporated..................................
Total............................................. 2,128,800
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares are subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all Shares
offered hereby (other than those covered by the over-allotment option described
below) if any such Shares are taken.
The Underwriters, for whom Smith Barney Inc. and Dain Rauscher Incorporated
are acting as the Representatives ("Representatives"), initially propose to
offer part of the Shares directly to the public at the public offering price set
forth on the cover page of this Prospectus and part of the Shares to certain
dealers at a price which represents a concession not in excess of $0. per Share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $0. per Share to certain other
dealers. After the initial offering of the Shares to the public, the public
offering price and such concessions may be changed by the Representatives. The
Representatives have advised the Company that the Underwriters do not intend to
confirm any Shares to any accounts over which they exercise discretionary
authority.
The Company, Prudential and Robert L. Winspear have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to a maximum of 108,520, 150,000 and 60,800
additional shares of Common Stock, respectively, at the price to public set
forth on the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the Shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of Shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
Shares listed in such table.
The Company, its officers and directors and certain stockholders designated
by the Representatives have agreed that, for a period of 180 days from the date
of this Prospectus, they will not, without the prior written consent of Smith
Barney Inc., offer, sell, contract to sell, grant any options for the sale of,
or otherwise dispose of any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock of
the Company subject to certain limited exceptions. The Company has further
agreed with the Underwriters that the Company will not register shares issuable
pursuant to the Stock Incentive Plan for a period of 90 days from the date of
this Prospectus. In addition, under the terms of the Registration Rights
Agreement, two stockholders owning an aggregate of 14,400 shares of Common Stock
will be prohibited from selling such shares for a period of 90 days following
the completion of the Stock Offering. See "Shares Available for Future
Sale -- Lock-Up Agreements."
44
<PAGE> 46
Prior to this Stock Offering, there has not been any public market for the
Common Stock of the Company. Consequently, the initial public offering price for
the shares of Common Stock included in this Stock Offering has been determined
by negotiations between the Company, the Selling Stockholders and the
Representatives. The factors considered in determining such price were the
history of and prospects for the Company's business and the industry in which it
competes, an assessment of the Company's management and the present state of the
Company's development, the past and present revenues and earnings of the
Company, the prospects for growth of the Company's revenues and earnings, the
current state of the economy in the United States and the current level of
economic activity in the industry in which the Company competes and in related
or comparable industries, and currently prevailing conditions in the securities
markets, including current market valuations of publicly traded companies which
the Company and the Representatives believe are comparable to the Company.
In connection with the Stock Offering and in compliance with applicable
law, the Underwriters may over-allot (i.e., sell more Common Stock than the
total amount shown on the list of Underwriters which appears above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchases of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
syndicate short position created in connection with the Stock Offering. A
syndicate short position may be covered by exercise of the option described
above in lieu of or in addition to open market purchases. In addition, the
contractual arrangements among the Underwriters include a provision whereby, if
the Representatives purchase Common Stock in the open market for the account of
the underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
recover from (or decline to pay) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. ("NASD"), if more than 10% of the net proceeds of a public
offering of equity securities, not including underwriting compensation, are
intended to be paid to members of the NASD or affiliated or associated persons
that are participating in the distribution of the offering, the price at which
the equity securities are to be distributed to the public must be no higher than
that recommended by a "qualified independent underwriter," as defined in Rule
2720 of the Conduct Rules of the NASD. Prudential is selling 1,000,000 shares of
Common Stock (1,150,000 shares if the Underwriters' over-allotment option is
exercised in full) in the Stock Offering and as a result is expected to receive
in the aggregate more than 10% of the net proceeds of the Stock Offering.
Accordingly, Smith Barney Inc. has agreed to act as the qualified independent
underwriter in pricing the Stock Offering and conducting due diligence. The
price of the shares, when sold to the public at the public offering price set
forth on the cover of this Prospectus, will not be higher than that recommended
by Smith Barney Inc.
Salomon Brothers Inc is acting as the underwriter in connection with the
Note Offering. Smith Barney Inc. and Salomon Brothers Inc are affiliated but
separately registered broker/dealers under the common control of Salomon Smith
Barney Holdings Inc.
The Company and the Selling Stockholders and the Underwriters have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
45
<PAGE> 47
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon by
Jones, Day, Reavis & Pogue, Dallas, Texas, counsel to the Company. Certain legal
matters in connection with the Stock Offering will be passed upon for the
Underwriters by Latham & Watkins, San Diego, California.
EXPERTS
The financial statements of the Company at December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the shares of Common Stock offered hereby, reference
is made to the Registration Statement, including the exhibits filed as part
thereof. Statements made in this Prospectus as to the contents of any contract,
agreement or other document summarize the principal provisions thereof; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to such exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Such reports and other information may be
inspected and copied at prescribed rates at the Public Reference Room of the
Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the public
reference facilities maintained by the Commission at 7 World Trade Center, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained by mail at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and that is located at
http://www.sec.gov.
46
<PAGE> 48
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets at December 31, 1997 and 1996................ F-3
Statements of Operations for each of the three years in the
period ended December 31, 1997............................ F-4
Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1997............... F-5
Statements of Cash Flows for each of the three years in the
period ended December 31, 1997............................ F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Associated Materials Incorporated
Dallas, Texas
We have audited the accompanying balance sheets of Associated Materials
Incorporated as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Materials
Incorporated at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 29, 1998
F-2
<PAGE> 50
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 2,384 $ 1,935
Accounts receivable, net of allowance for doubtful
accounts of $3,749 and $4,423 at December 31, 1996 and
1997, respectively..................................... 47,208 49,197
Inventories............................................... 58,357 56,621
Income taxes receivable................................... 587 266
Other current assets...................................... 3,025 3,291
-------- --------
Total current assets........................................ 111,561 111,310
Property, plant and equipment, net.......................... 51,649 53,855
Investment in Amercord Inc.................................. 11,320 10,694
Other assets................................................ 3,179 2,645
-------- --------
Total assets................................................ $177,709 $178,504
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts........................................... $ 4,853 $ 4,769
Accounts payable.......................................... 17,114 17,174
Accrued liabilities....................................... 22,965 25,862
Revolving line of credit.................................. 13,058 564
Current portion of long-term debt......................... 1,750 1,750
-------- --------
Total current liabilities................................... 59,740 50,119
Deferred income taxes....................................... 1,884 1,951
Other liabilities........................................... 3,489 3,100
Long-term debt.............................................. 80,350 78,600
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 100,000 shares at December 31,
1996 and 1997
Issued shares -- 0 at December 31, 1996 and 1997....... -- --
Common stock, $.0025 par value:
Authorized shares -- 15,000,000 at December 31, 1996
and 1997
Issued shares -- 4,893,504 at December 31, 1996 and
4,934,900 at December 31, 1997........................ 12 12
Common stock Class B, $.0025 par value:
Authorized and issued shares -- 2,700,000 at December
31, 1996 and 1997..................................... 7 7
Less: Treasury stock, at cost -- 0 shares at December 31,
1996 and 41,396 at December 31, 1997................... -- (542)
Capital in excess of par.................................. 185 505
Retained earnings......................................... 32,042 44,752
-------- --------
Total stockholders' equity.................................. 32,246 44,734
-------- --------
Total liabilities and stockholders' equity.................. $177,709 $178,504
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 51
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $350,029 $356,471 $397,690
Cost of sales.............................................. 264,080 255,579 283,514
-------- -------- --------
85,949 100,892 114,176
Selling, general and administrative........................ 73,207 77,740 81,142
-------- -------- --------
Income from operations..................................... 12,742 23,152 33,034
Interest expense........................................... 11,474 10,882 9,795
-------- -------- --------
1,268 12,270 23,239
Equity in earnings (loss) of Amercord Inc. ................ 537 1,724 (626)
-------- -------- --------
Income before income tax expense........................... 1,805 13,994 22,613
Income tax expense......................................... 545 5,172 9,524
-------- -------- --------
Net income................................................. $ 1,260 $ 8,822 $ 13,089
======== ======== ========
Basic earnings per common share............................ $ 0.17 $ 1.16 $ 1.72
======== ======== ========
Diluted earnings per common share.......................... $ 0.16 $ 1.14 $ 1.69
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 52
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK TREASURY STOCK CAPITAL IN TOTAL
--------------- --------------- --------------- EXCESS RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT OF PAR EARNINGS EQUITY
------ ------ ------ ------ ------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994... 4,832 $12 2,700 $ 7 -- $ -- $ 67 $21,960 $22,046
Net income................... -- -- -- -- -- -- -- 1,260 1,260
----- --- ----- --- -- ----- ---- ------- -------
Balance at December 31, 1995... 4,832 12 2,700 7 -- -- 67 23,220 23,306
Net income................... -- -- -- -- -- -- -- 8,822 8,822
Exercise of Common Stock
options and related tax
benefits................... 62 -- -- -- -- -- 118 -- 118
----- --- ----- --- -- ----- ---- ------- -------
Balance at December 31, 1996... 4,894 12 2,700 7 -- -- 185 32,042 32,246
Net income................... -- -- -- -- -- -- -- 13,089 13,089
Cash dividends............... -- -- -- -- -- -- -- (379) (379)
Exercise of Common Stock
options and related tax
benefits................... 41 -- -- -- -- -- 320 -- 320
Purchase of treasury
shares..................... -- -- -- -- 41 (542) -- -- (542)
----- --- ----- --- -- ----- ---- ------- -------
Balance at December 31, 1997... 4,935 $12 2,700 $ 7 41 $(542) $505 $44,752 $44,734
===== === ===== === == ===== ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 53
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,260 $ 8,822 $ 13,089
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 5,340 5,873 6,521
Deferred income taxes..................................... (1,167) 2,002 67
Provision for losses on accounts receivable............... 2,853 3,087 3,500
(Equity) loss in earnings of Amercord Inc................. (537) (1,724) 626
Loss (gain) on sale of assets............................. (446) 10 (348)
Changes in operating assets and liabilities:
Accounts receivable.................................... (4,674) (1,540) (5,489)
Inventories............................................ 3,014 (2,435) 1,736
Other current assets................................... (292) (1,058) (266)
Bank overdrafts........................................ 986 (1,194) (84)
Accounts payable....................................... (2,165) 2,625 60
Accrued liabilities.................................... 1,392 623 2,897
Income taxes receivable/payable........................ 46 (160) 480
Other assets........................................... (45) (203) 96
Other liabilities...................................... (237) 327 (389)
------- ------- --------
Net cash provided by operating activities................... 5,328 15,055 22,496
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (7,683) (8,110) (8,758)
Proceeds from sale of assets................................ 480 23 817
------- ------- --------
Net cash used in investing activities....................... (7,203) (8,087) (7,941)
FINANCING ACTIVITIES
Net increase (decrease) in revolving line of credit......... 4,202 (5,113) (12,494)
Principal payments of long-term debt........................ (1,750) (1,750) (1,750)
Dividends paid.............................................. -- -- (379)
Treasury stock acquired..................................... -- -- (542)
Options exercised........................................... -- -- 161
------- ------- --------
Net cash provided by (used in) financing activities......... 2,452 (6,863) (15,004)
------- ------- --------
Net increase (decrease) in cash............................. 577 105 (449)
Cash at beginning period.................................... 1,702 2,279 2,384
------- ------- --------
Cash at end of period....................................... $ 2,279 $ 2,384 $ 1,935
======= ======= ========
Supplemental Information:
Cash paid for interest.................................... $11,459 $10,895 $ 10,110
======= ======= ========
Net cash paid for income taxes............................ $ 1,658 $ 3,546 $ 9,098
======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 54
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Line of Business
Associated Materials Incorporated (the "Company") consists of two operating
divisions, Alside and AmerCable, and a 50%-owned affiliate, Amercord Inc.
("Amercord"), which is accounted for using the equity method. Alside is engaged
principally in the manufacture and distribution of exterior residential building
products to professional contractors throughout the United States. AmerCable
manufactures jacketed electrical cable utilized in a variety of industrial
applications. Amercord manufactures and sells steel tire cord and tire bead wire
used in the tire manufacturing industry.
Accounting Changes
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 allows the Company to use the intrinsic value method or the fair
market value to determine the cost of stock compensation. The Company will
continue to use the intrinsic value method to measure stock-based compensation
costs in accordance with APB Opinion No. 25.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS No. 121") during 1996. The adoption of SFAS No. 121 had
no effect on the financial statements at the time of adoption. An impairment
loss was recorded for the Company's affiliate, Amercord. See Note 2.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" and Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" which are effective for financial statement
periods beginning after December 15, 1997. The Company believes that these
statements will have no effect on the Company's financial position, results of
operations or cash flows.
Revenue Recognition
Product sales are recognized at the time of shipment.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the assets which
range from 3 to 30 years.
Income Tax
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Negative book balances
are classified as bank overdrafts on the accompanying balance sheets.
F-7
<PAGE> 55
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Derivatives
The Company has an interest rate swap in order to manage interest rate risk
on a portion of its long-term debt (see Note 8). Gains or losses based upon
differences in the market interest rate and the fixed rate are recognized in the
period such differences are incurred. In addition, the Company may attempt to
hedge its position with respect to raw material or currency fluctuations on
specific contracts. In these instances, the Company may enter into forward
contracts or purchase options, the cost of which are realized upon the
completion of the contract. The nominal amounts outstanding under these
contracts were not material at December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
$8.0 million, $6.8 million and $6.3 million in 1997, 1996 and 1995,
respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
F-8
<PAGE> 56
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT IN AMERCORD
The Company's investment in Amercord, a 50% owned affiliate, is accounted
for using the equity method. Amercord manufactures and sells steel tire cord and
tire bead wire used in the tire manufacturing industry. Equity in the
undistributed earnings of Amercord since acquisition through December 31, 1997
totals $5,444,000.
Condensed financial information for Amercord is presented below (in
thousands):
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales............................................. $80,764 $87,538 $74,880
Costs and expenses.................................... 77,148.. 82,229 75,349
------- ------- -------
Income (loss) from operations......................... 3,616 5,309 (469)
Interest expense...................................... (1,911) (1,734) (1,518)
Income tax (expense) benefit.......................... (631) (1,323) 735
------- ------- -------
Income (loss) before cumulative effect of a change in
accounting principle................................ 1,074 2,252 (1,252)
Cumulative effect of a change in accounting principle
(net of tax)........................................ -- 1,196 --
------- ------- -------
Net income (loss)..................................... 1,074 3,448 (1,252)
------- ------- -------
Company's share of net income (loss).................. $ 537 $ 1,724 $ (626)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Assets (pledged)............................................ $52,364 $50,075
Liabilities................................................. 29,152 28,115
Stockholders' equity........................................ 23,212 21,960
</TABLE>
In 1996, Amercord recorded a $1,196,000 gain to reflect the cumulative
effect of an accounting change when it changed its accounting policy for
maintenance parts. Amercord now capitalizes the cost of these parts upon
purchase and expenses such parts when used in the production cycle. Amercord
previously expensed the maintenance parts upon purchase. Also in 1996, Amercord
recorded a pre-tax gain of $3,093,000 in connection with the settlement of
disputed royalty payments for the years 1990-1995 and recorded a $2,723,000 loss
for a write down of certain production equipment pursuant to SFAS No. 121.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts on accounts receivable for
the years ended December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period............................. $2,563 $2,769 $3,749
Provision for losses..................................... 2,853 3,087 3,500
Losses sustained (net of recoveries)..................... 2,647 2,107 2,826
------ ------ ------
Balance at end of period................................... $2,769 $3,749 $4,423
====== ====== ======
</TABLE>
F-9
<PAGE> 57
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................... $14,903 $16,352
Work-in-progress............................................ 5,276 4,936
Finished goods and purchased stock.......................... 38,178 35,333
------- -------
$58,357 $56,621
======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Land........................................................ $ 1,290 $ 1,290
Buildings................................................... 21,319 22,740
Machinery and equipment..................................... 73,463 79,390
------- --------
96,072 103,420
Less accumulated depreciation............................... 44,423 49,565
------- --------
$51,649 $ 53,855
======= ========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Employee compensation....................................... $ 6,558 $ 7,612
Sales promotions and incentives............................. 2,692 3,408
Employee benefits........................................... 8,424 9,201
Interest.................................................... 3,307 3,272
Other....................................................... 1,984 2,369
------- -------
$22,965 $25,862
======= =======
</TABLE>
7. REVOLVING CREDIT ARRANGEMENTS
In April 1996, the Company amended and restated its credit agreement with
KeyBank, N.A. ("Credit Agreement") to increase the total credit facility to $50
million and extend the term to May 31, 1999. Available borrowings under the
Credit Agreement are limited to the lesser of the total facility less unused
letters of credit or availability based on percentages of eligible accounts
receivable and inventories. Unused letters of credit totaled $7,468,000 at
December 31, 1997, of which $5,471,000 was related to the Taxable Notes (see
Note 8) and $1,997,000 was primarily related to insurance. The Company's
available borrowing capacity at December 31, 1997 was approximately $40.4
million. The Credit Agreement includes covenants that require the maintenance of
certain financial ratios and net worth and that place restrictions on the
repurchase of common stock and the payment of dividends. Outstanding borrowings
under the agreement are collateralized by substantially all of the assets of the
Company.
Interest is payable on the utilized revolving credit facility at either the
prime commercial rate (8.50% at December 31, 1997) or LIBOR (5.72% at December
31, 1997) plus 2.00% at the option of the Company and on the unused credit
facility at a rate of .25%. Letter of credit fees of 1.5% are paid at
origination.
The weighted average interest rate for borrowings under the revolving
credit facility during the period was 8.07% and 8.23% for December 31, 1997 and
1996, respectively.
F-10
<PAGE> 58
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt at December 31 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Taxable Variable Rate Demand Notes.......................... $ 7,100 $ 5,350
11 1/2% Senior Subordinated Notes due 2003.................. 75,000 75,000
------- -------
82,100 80,350
Less amounts due in one year................................ 1,750 1,750
------- -------
$80,350 $78,600
======= =======
</TABLE>
Scheduled principal payments are $1,750,000 in 1998 and $3,600,000 in 1999.
Interest on the Taxable Variable Rate Demand Notes (the "Taxable Notes") is
payable monthly at the greater of the 30 or 90 day commercial paper rate plus
0.125%. Effective April 5, 1993, the Company entered into an interest rate swap
which fixed the interest rate on the Taxable Notes at 5.57% per annum for a
period of five years. The Taxable Notes are payable in quarterly installments
ranging from $400,000 to $450,000 through January 1, 1999, with the remaining
balance due on April 1, 1999. The Taxable Notes are secured by an irrevocable
letter of credit in accordance with the Credit Agreement (see Note 7). The
Taxable Notes contain similar covenants and restrictions in the Credit Agreement
described in Note 7.
Interest on the Senior Subordinated Notes is payable semiannually. The
Senior Subordinated Notes are unsecured. The Indenture pursuant to which the
Senior Subordinated Notes were issued contains covenants that, among other
things, limit the ability of the Company to incur additional indebtedness, pay
dividends, make certain investments and repurchase stock or subordinated
indebtedness.
The estimated fair value of the Taxable Notes at December 31, 1997 was
$5,350,000. The Taxable Notes have a variable interest rate and therefore trade
at face value. The fair value of the Senior Subordinated Notes at December 31,
1997 was $79,688,000 based upon quoted market price.
9. COMMITMENTS
Commitments for future minimum lease payments under noncancelable operating
leases, principally for manufacturing and distribution facilities and certain
equipment, are approximately $9,200,000, $7,530,000, $5,319,000, $3,428,000,
$2,565,000 and $1,382,000 for the years ending December 31, 1998, 1999, 2000,
2001, 2002 and thereafter, respectively. Lease expense was approximately
$10,901,000, $10,391,000 and $9,186,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
F-11
<PAGE> 59
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
Income tax expense for the years ended December 31 consists of (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ ------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes............... $1,559 $ (981) $2,252 $1,918 $7,816 $55
State income taxes................. 153 (186) 918 84 1,641 12
------ ------- ------ ------ ------ ---
$1,712 $(1,167) $3,170 $2,002 $9,457 $67
====== ======= ====== ====== ====== ===
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income taxes as of December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Medical benefits.......................................... $ 1,680 $ 1,581
Bad debt expense.......................................... 1,301 1,847
Pension expense........................................... 1,806 3,427
Inventory costs........................................... 994 247
Other..................................................... 805 305
------- -------
Total deferred tax assets................................... 6,586 7,407
Deferred tax liabilities:
Depreciation.............................................. 7,976 8,519
Other..................................................... 494 839
------- -------
Total deferred tax liabilities.............................. 8,470 9,358
------- -------
Net deferred tax liabilities................................ $(1,884) $(1,951)
======= =======
</TABLE>
The reconciliation of the statutory rate to the Company's effective income
tax rate for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. 34.0% 34.0% 35.0%
State income taxes, net of federal income tax benefit....... 5.6 4.3 4.6
Equity in (earnings) loss of Amercord....................... (8.1) (3.3) .8
Other....................................................... (1.3) 1.9 1.7
---- ---- ----
Effective rate.............................................. 30.2% 36.9% 42.1%
==== ==== ====
</TABLE>
11. STOCKHOLDERS' EQUITY
The Class B Common Stock is convertible on a one-for-one basis into Common
Stock at any time subject to legal restrictions, if any, applicable to the
holder of such shares. The Class B Common Stock has the same rights and
privileges extended to the Common Stock except that the holder of Class B Common
Stock may vote only on matters pertaining to changes in the Certificate of
Incorporation; the sale, lease, or disposition of certain assets; mergers or
consolidations; or the liquidation or dissolution of the Company.
F-12
<PAGE> 60
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128 which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share amounts for all periods presented
have been restated to conform to SFAS 128 requirements, and in accordance with
the Securities and Exchange Commission ("the Commission") Staff Accounting
Bulletin No. 98, common shares, or options or warrants to purchase common stock,
issued for nominal consideration are reflected in basic and diluted earnings per
share for all periods.
The following table sets forth the computation of basis and diluted
earnings per share but does not reflect additional shares to be offered in
conjunction with the registration statement with respect to the proposed
offering of Common Stock as disclosed in Note 17:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
--------- --------- ----------
(IN THOUSANDS,EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per common
share -- income available to common shareholders... $1,260 $8,822 $13,089
Denominator:
Denominator for basic earnings per common share --
weighted-average shares............................ 7,532 7,594 7,594
Effect of dilutive securities:
Employee stock options............................. 131 120 162
------ ------ -------
Denominator for diluted earnings per common share --
adjusted weighted-average shares................... 7,663 7,714 7,756
====== ====== =======
Basic earnings per common share......................... $ 0.17 $ 1.16 $ 1.72
====== ====== =======
Diluted earnings per common share....................... $ 0.16 $ 1.14 $ 1.69
====== ====== =======
</TABLE>
F-13
<PAGE> 61
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS
The Company has a stock option plan, whereby it grants non-statutory stock
options to certain directors, officers and key employees. The Company has
authorized 800,000 shares of common stock to be issued under the plan. The
options granted in 1995, 1996 and 1997 were granted at fair market value on the
grant date and are exercisable for ten years. One-half of the options vest upon
grant date and the remainder vest after two years.
Transactions during 1995, 1996 and 1997 under this plan are summarized
below:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1994.................. 299,000 $ .003 to $ 6.00
Granted................................................. 33,000 $5.00
Expired or canceled..................................... (69,800) $ .003 to $ 6.00
------- ----------------
Options outstanding at December 31, 1995.................. 262,200 $ .003 to $ 5.00
Exercised............................................... (62,400) $.003
Granted................................................. 12,500 $5.00
------- ----------------
Options outstanding at December 31, 1996.................. 212,300 $2.925 to $ 5.00
Exercised............................................... (40,500) $2.925 to $ 5.00
Granted................................................. 140,000 $12.00 to $16.00
Expired or canceled..................................... (4,500) $5.00
------- ----------------
Options outstanding at December 31, 1997.................. 307,300 $2.925 to $16.00
</TABLE>
Options to purchase 233,550, 189,550 and 239,700 shares were exercisable at
December 31, 1997, 1996 and 1995, respectively. The weighted average exercise
price of options outstanding was $7.79, $3.47 and $2.57 at December 31, 1997,
1996 and 1995, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------
WEIGHTED
AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------------
SHARES LIFE IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE
- ------- ------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
136,800 5.67 $ 2.925 136,800 $ 2.925
30,500 7.41 $ 5.000 26,750 $ 5.000
100,000 9.17 $12.000 50,000 $12.000
40,000 9.42 $16.000 20,000 $16.000
</TABLE>
The Company adopted the disclosure provisions of SFAS No. 123 in 1996, and
continues to measure stock-based compensation in accordance with APB No. 25. Pro
forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of that Statement. The weighted
average fair value at date of grant for options granted during 1997, 1996, and
1995 was $6.09, $2.56 and $2.39 per option, respectively. The fair value of the
options was estimated at the date of the grant using the minimum value method
option pricing model assuming dividend yields of 1.0% and a weighted-average
expected life of an option of 10 years. A risk-free interest rate of 7.03%,
6.87% and 6.76% was used for 1997, 1996 and 1995, respectively.
Stock based compensation costs would have reduced net income by $389,000,
$17,000 and $55,000 and $.05, $.00 and $.01 per basic and diluted share in 1997,
1996 and 1995, respectively, if the fair values of the options granted in that
year had been recognized as compensation expense on a straight-line basis over
the
F-14
<PAGE> 62
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
vesting period of the grant. The pro forma effect on net income for 1997, 1996
and 1995 is not representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.
14. SEGMENTS OF BUSINESS
The Company operates in two industry segments: building products and
electrical cable products. The principal business activities of the building
segment include the manufacture of vinyl siding, vinyl replacement windows and
cabinets, and the wholesale distribution of these and other complementary
building products principally to professional home remodeling and new
construction contractors. The principal business activity of the electrical
cable segment is the manufacture and sale of jacketed electrical cable.
Comparative financial data by industry segment for the years ended December
31 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Building products................................ $300,561 $314,645 $344,000
Electrical cable products........................ 49,468 41,826 53,690
-------- -------- --------
$350,029 $356,471 $397,690
======== ======== ========
Operating profits (losses):
Building products................................ $ 16,550 $ 26,372 $ 30,415
Electrical cable products........................ (1,676) (967) 5,086
Corporate expense................................ (2,132) (2,253) (2,467)
-------- -------- --------
$ 12,742 $ 23,152 $ 33,034
======== ======== ========
Identifiable assets:
Building products................................ $131,570 $133,023 $139,751
Electrical cable products........................ 27,091 24,746 20,349
Corporate........................................ 13,392 19,940 18,404
-------- -------- --------
$172,053 $177,709 $178,504
======== ======== ========
Depreciation and amortization:
Building products................................ $ 3,466 $ 4,282 $ 5,029
Electrical cable products........................ 1,334 1,154 1,096
Corporate........................................ 540 437 396
-------- -------- --------
$ 5,340 $ 5,873 $ 6,521
======== ======== ========
Net additions to property, plant, and equipment:
Building products................................ $ 6,669 $ 6,982 $ 8,108
Electrical cable products........................ 1,014 1,128 635
Corporate........................................ -- -- 15
-------- -------- --------
$ 7,683 $ 8,110 $ 8,758
======== ======== ========
</TABLE>
The Company operates principally in the United States. Operating profit for
each segment is net sales less operating expenses. Identifiable assets by
segment are those used in the Company's operations in each segment. Corporate
assets are principally the Company's investment in Amercord. Neither aggregate
export sales nor sales to a single customer have accounted for 10% or more of
consolidated net sales in any of the years presented.
F-15
<PAGE> 63
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. RETIREMENT PLANS
The Company has defined benefit contributory pension plans (the "Plans")
covering substantially all of its salaried employees and certain nonsalaried
employees. Employees are fully vested upon attaining five years of service
including past service with the businesses acquired by the Company. The
Company's policy is to fund pension costs in accordance with actuarially based
computations.
The actuarial present value at December 31, 1997 and 1996 was determined
using a discount rate of 7.0% and 7.5%, respectively, and projected compensation
increases of 4.5%. The expected long-term rate of return on assets was 9%. Plan
assets consist primarily of equity securities, U.S. government obligations,
corporate bonds and real estate.
Retirement plan costs, as determined by the projected unit credit cost
method, are summarized below for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Benefit cost for service during the year............... $ 742 $1,110 $1,165
Interest cost on projected benefit obligation.......... 1,553 1,744 1,863
Return on assets....................................... (3,412) (3,356) (4,614)
Net amortization....................................... 2,360 1,901 2,649
------ ------ ------
Net retirement plan costs.............................. $1,243 $1,399 $1,063
====== ====== ======
</TABLE>
A schedule reconciling the projected benefit obligation with the Company's
recorded pension liability as of December 31 is shown below (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$17,608 and $22,924, respectively......................... $20,755 $24,066
Effect of projected salary increases........................ 5,490 6,172
------- -------
Present value of the projected benefit obligation........... 26,245 30,238
Plan assets at fair value................................... 23,120 27,363
------- -------
Plan assets less than the present value of the projected
benefit obligations....................................... 3,125 2,875
The recorded pension liability (included in the accrued
current liabilities in the balance sheets) is calculated
by adding to the above amount:
Unrecognized net gains.................................... 3,450 4,489
The portion of the liability which, under SFAS No. 87, is
being amortized over 16 years.......................... (1,127) (905)
------- -------
Recorded pension liability.................................. $ 5,448 $ 6,459
======= =======
</TABLE>
The Company sponsors a defined contribution plan (the "401(k) Plan")
intended to provide assistance in accumulating personal savings for retirement.
The 401(k) Plan qualified as a tax-exempt plan under Sections 401(a) and 401(k)
of the Internal Revenue Code and covers all full-time employees of AmerCable.
The Company matches up to 3.5% of eligible compensation. For the years ended
December 31, 1997, 1996 and 1995 the Company's pre-tax contributions to the
401(k) Plan were $175,000, $145,000 and $136,000, respectively.
F-16
<PAGE> 64
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. CONTINGENCIES
The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container storage area,
the use of such facilities was terminated prior to the acquisition of the
facilities by the Company from USX Corporation (USX) in 1984. The Company
believes that USX bears financial responsibility for substantially all of the
direct costs of corrective action at such facilities under relevant contract
terms and under statutory and common law. The effects of the past practices of
this facility are continuing to be investigated pursuant to the terms of the
consent order and as a result the Company is unable to reasonably estimate a
reliable range of the aggregate cost of corrective action at this time. To date,
USX has reimbursed the Company for substantially all of the direct costs of
corrective action at such facilities. The Company expects that USX will continue
to reimburse the Company for substantially all of the direct costs of corrective
action at such facilities. As a result, the Company believes that any material
claims resulting from this proceeding will not have a material adverse effect on
the Company.
17. PUBLIC OFFERINGS
The Company has filed a registration statement with the Commission to sell,
through an initial public offering, 2,128,800 shares (before over-allotment) of
the Company's Common Stock (the "Stock Offering"). Of these shares, 700,000
shares of Common Stock (808,520 shares if the over-allotment option is exercised
in full) will be sold by the Company with the remaining 1,428,800 shares to be
sold by certain stockholders. In addition, the Company has filed a registration
statement with the Commission to sell $75,000,000 aggregate principal amount of
Senior Subordinated Notes due 2008 (the "New Notes"). The issuance of the New
Notes in such offering (the "Note Offering") is conditioned upon the successful
completion of a tender offer and consent solicitation with respect to the
Company's outstanding Senior Subordinated Notes (Note 8). The Stock Offering is
not contingent upon the completion of the Note Offering and the Note Offering is
not contingent upon the completion of the Stock Offering.
F-17
<PAGE> 65
[map of the United States showing locations of Company and division
headquarters,
manufacturing plants and Alside Supply Centers]
Associated Materials Headquarters Alside Headquarters Alside
Manufacturing Plants
Alside Supply Centers AmerCable Amercord Inc.
[photographs of vinyl fence, a vinyl garage door and
kitchen cabinets manufactured by the Company]
UltraGuard Vinyl Fence Premium Vinyl Garage Doors
UltraCraft Cabinets
<PAGE> 66
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 10
The Note Offering..................... 10
Dividend Policy....................... 11
Capitalization........................ 12
Dilution.............................. 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 29
Certain Relationships and Related
Transactions........................ 36
Principal and Selling Stockholders.... 37
Description of Capital Stock.......... 39
Shares Eligible for Future Sale....... 41
Underwriting.......................... 44
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
2,128,800 SHARES
ASSOCIATED MATERIALS INCORPORATED
COMMON STOCK
ASSOCIATED LOGO
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
DAIN RAUSCHER INCORPORATED
======================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable in connection with the issuance and distribution
of Common Stock to be registered, other than underwriting discounts and
expenses, are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,137
NASD filing fee............................................. 5,605
NASDAQ listing fee.......................................... 39,269
Printing expenses........................................... 100,000
Legal fees and expenses..................................... 225,000
Accounting fees and expenses................................ 25,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees......................................... 10,000
Miscellaneous expenses...................................... 14,989
--------
Total............................................. $440,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate of Incorporation (the "Certificate") of the
Company provides that to the full extent permitted by the General Corporation
Law of the State of Delaware ("DGCL") or any other applicable laws as presently
or hereafter in effect, no director of the Company shall be personally liable to
the Company or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Company. The DGCL
would not permit limitation of liability of any such director (i) for breach of
such director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, or (iv) for any transaction for which such
person derived an improper personal benefit. The Certificate and the Company's
Restated Bylaws ("Bylaws") provide that each person who is or was a director or
officer of the Company, or each such person who is or was serving at the request
of the Board of Directors or an officer of the Company, as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including the heirs, executors and administrators of such
person), shall be indemnified by the Company to the full extent permitted by the
DGCL or any other applicable laws as presently or hereafter in effect.
The Company has entered into certain agreements (the "Indemnification
Agreements") with each of its directors and executive officers (each an
"Indemnitee") designed to give effect to the foregoing provisions of the
Certificate and Bylaws. The Indemnification Agreements are intended to provide
certain additional assurances against the possibility of uninsured liability
primarily because the Indemnification Agreements (i) specify the extent to which
the Indemnitees shall be entitled to receive benefits not expressly set forth in
the DGCL, and (ii) include a number of procedural provisions designed to provide
certainty in administration of the rights to indemnity. Pursuant to the
Indemnification Agreements, among other things, an Indemnitee will be entitled
to indemnification as provided by the DGCL and, in general, subject to
limitations (if any) imposed by applicable law, to indemnification for any
amount which the Indemnitee is or becomes legally obligated to pay relating to
failure to act or neglect or breach of duty, including any actual or alleged
error, misstatement or misleading statement, which such person commits, suffers,
permits or acquiesces in while acting in the Indemnitee's position with the
Company. The right to receive payments in excess of those expressly provided for
in the DGCL is not required under the Indemnification Agreements in connection
with any claim against the Indemnitee (i) for which payment is actually made to
the Indemnitee under a valid and collectible insurance policy, (ii) which
results in a final, nonappealable order for the Indemnitee to pay a fine or
similar governmental imposition which the Company is prohibited by applicable
law from paying, or (iii) based upon or attributable to the Indemnitee gaining
in fact a personal profit to which he was not legally
II-1
<PAGE> 68
entitled, including without limitation profits made from the purchase and sale
by the Indemnitee of equity securities of the Company which are not recoverable
by the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and profits arising from transactions in
publicly traded securities of the Company which were effected by the Indemnitee
in violation of Section 10(b) of the Exchange Act or Rule 10b-5 promulgated
thereunder.
The Company has purchased and maintains insurance on behalf of any person
who is or was a director or officer against any loss arising from any claim
asserted against him and incurred by him in any such capacity, subject to
certain exclusions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three years ended November 30, 1997, the Company issued 102,900
shares of Common Stock, par value $.0025 per share, upon exercise from time to
time of options granted to officers and employees of the Company, for $161,195
in the aggregate. These transactions were exempt from the registration
requirements of the Securities Act pursuant to Section 3(b) of the Securities
Act and Rule 701 thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation, as amended, of
Associated Materials Incorporated (the "Company")
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1, Commission
File No. 33-84110 (the "1994 Registration Statement")).
3.2 -- Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of the 1994 Registration Statement).
4.1 -- Indenture, dated as of August 1, 1993, between the
Company and U.S. Trust Company of Texas, N.A., as Trustee
(the "Indenture") incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form
10-K").
4.2 -- Form of Senior Subordinated Note issuable under the
Indenture (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-1,
Commission File No. 33-64788 (the "1993 Registration
Statement").
4.3 -- Registration Rights Agreement, dated as of August 19,
1993, among the Company, PruSupply Capital Assets, Inc.
("PruSupply"), W.W. Winspear, M.M. Winspear, D.J. Allan,
M.G. Winspear, D.W. Winspear, R.L. Winspear, B.W. Meyer,
The Principal/The Eppler, Guerin & Turner, Inc., Frank T.
Lauinger, John Wallace and Bonnie B. Smith (incorporated
by reference to Exhibit 4.3 to the 1993 Form 10-K).
4.4 -- Stockholders' Agreement, dated as of August 19, 1993,
among the Company, PruSupply, W.W. Winspear and M.M.
Winspear (incorporated by Reference to Exhibit 4.4 to the
1993 Form 10-K).
4.5 -- Amendment to the Stockholders' Agreement, dated as of
April 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.5 to the 1994 Registration Statement).
4.6 -- Second Amendment to the Stockholders' Agreement, dated as
of July 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.6 to the 1994 Registration Statement).
4.7 -- Third Amendment to the Stockholders' Agreement, dated as
of October 12, 1994, among the Company, Prudential and
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.15 to the 1994 Registration
Statement).
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
<C> <S>
4.8 -- Assumption Agreement, effective as of July 29, 1994, by
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.7 to the 1994 Registration
Statement).
4.9 -- Assumption Agreement, effective as of September 30, 1994
by The Prudential Insurance Company of America
("Prudential") (incorporated by reference to Exhibit 4.14
to the 1994 Registration Statement).
4.10 -- Trust Indenture, dated as of June 1, 1992, between the
Company and KeyBank, N.A. (formerly Society National
Bank) ("KeyBank"), relating to the Company's taxable
variable rate demand notes ("Taxable Notes")
(incorporated by reference to Exhibit 4.43 to the 1993
Registration Statement).
4.11 -- Remarketing Agreement, dated as of June 1, 1992, between
the Company and KeyBank as Remarketing Agent, relating to
the Taxable Notes (incorporated by reference to Exhibit
4.44 to the 1993 Registration Statement).
4.12 -- Note Purchase Agreement, dated as of June 26, 1992,
between the Company and Automated Cash Management Trust,
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.45 to the 1993 Registration Statement).
4.13 -- Irrevocable Letter of Credit, dated as of June 1, 1992,
between the Company and KeyBank relating to the Taxable
Notes (incorporated by reference to Exhibit 4.46 to the
1993 Registration Statement).
4.14 -- Master Agreement, dated as of April 5, 1993, between the
Company and KeyBank evidencing an interest rate swap
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.47 to the 1993 Registration Statement).
4.15 -- Specimen Stock Certificate.
4.16 -- Form of Indenture between the Company and U.S. Trust
Company of Texas, N.A., as Trustee (the "New Indenture")
(incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, Commission
File No. 333-42067).
4.17 -- Form of Senior Subordinated Note under the New Indenture
(incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1, Commission
File No. 333-42067).
5.1 -- Opinion of Jones, Day, Reavis & Pogue.
10.1 -- Agreement of Sale, dated as of January 30, 1984, between
USX Corporation (formerly United States Steel
Corporation) ("USX") and the Company (incorporated by
reference to Exhibit 10.1 to the 1993 Registration
Statement).
10.2 -- Amendment Agreement, dated as of February 29, 1984,
between USX and the Company (incorporated by reference to
Exhibit 10.2 to the 1993 Registration Statement).
10.3 -- Subscription and Stockholders Agreement, dated as of June
25, 1986, among the Company, Florida Wire and Cable
Company, GCR S.p.A. and Amercord Inc. (the "Subscription
Agreement") (incorporated by reference to Exhibit 10.5 to
the 1993 Registration Statement).
10.4 -- Management Agreement, effective as of May 1, 1986,
between Amercord Inc. and the Company (incorporated by
reference to Exhibit 10.8 to the 1993 Registration
Statement).
10.5 -- Form of Indemnification Agreement between the Company and
each of the Directors and executive officers of the
Company (incorporated by reference to Exhibit 10.14 to
the 1994 Registration Statement).
10.6 -- Profit Sharing Plan of the Company (incorporated by
reference to Exhibit 10.15 to the 1993 Registration
Statement).
10.7 -- Alside Retirement Plan (incorporated by reference to
Exhibit 10.16 to the 1993 Registration Statement).
</TABLE>
II-3
<PAGE> 70
<TABLE>
<CAPTION>
<C> <S>
10.8 -- Associated Materials Incorporated Amended and Restated
1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997).
10.9 -- Letter Agreement, dated May 13, 1983, between Donald L.
Kaufman and the Company, as amended (incorporated by
reference to Exhibit 10.4 to the 1994 Registration
Statement).
10.10 -- Second Amended and Restated Loan and Security Agreement,
dated as of April 2, 1996, between the Company and
KeyBank (the "Credit Agreement") (incorporated by
reference to Exhibit 10.1 to the March 31, 1996 Form
10-Q).
10.11 -- Third Amended and Restated Note, dated April 2, 1996,
from the Company to KeyBank relating to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to
the March 31, 1996 Form 10-Q).
11.1* -- Computation of Earnings Per Share.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
23.2* -- Consent of Ernst & Young LLP.
23.3* -- Consent of Sabre Associates, Inc.
23.4* -- Consent of Pure Strategy.
24.1 -- Powers of Attorney of Directors and certain executive
officers of the Company.
</TABLE>
- ---------------
* Filed herewith.
(b) Financial Statement Schedules:
All financial statement schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of schedules, or because the information required is included in the
financial statements and notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Pre-Effective Amendment No. 2 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas on February 16th, 1998.
ASSOCIATED MATERIALS INCORPORATED
By: /s/ ROBERT L. WINSPEAR
------------------------------------
Robert L. Winspear
Vice President, Secretary and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 2 to the Registration Statement has been signed by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
WILLIAM W. WINSPEAR* Chairman of the Board, President and Chief
- ----------------------------------------------------- Executive Officer (Principal Executive
William W. Winspear Officer)
/s/ ROBERT L. WINSPEAR Vice President, Secretary and Treasurer
- ----------------------------------------------------- (Principal Financial and Accounting
Robert L. Winspear Officer)
RICHARD I. GALLAND*
- -----------------------------------------------------
Richard I. Galland Director
DONALD L. KAUFMAN*
- -----------------------------------------------------
Donald L. Kaufman Director
JAMES F. LEARY*
- -----------------------------------------------------
James F. Leary Director
ALAN B. LERNER*
- -----------------------------------------------------
Alan B. Lerner Director
A. A. MEITZ*
- -----------------------------------------------------
A. A. Meitz Director
GARY D. TRABKA*
- -----------------------------------------------------
Gary D. Trabka Director
</TABLE>
Robert L. Winspear, by signing his name hereto, does sign and execute this
Pre-Effective Amendment No. 2 to the Registration Statement on behalf of each of
the above-named officers and directors of Associated Materials Incorporated on
the 16th day of February, 1998, pursuant to powers of attorney executed on
behalf of each of such officers and directors, and previously filed with the
Securities and Exchange Commission.
*By: /s/ ROBERT L. WINSPEAR
-------------------------------
Robert L. Winspear
Attorney-in-Fact
II-5
<PAGE> 72
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation, as amended, of
Associated Materials Incorporated (the "Company")
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1, Commission
File No. 33-84110 (the "1994 Registration Statement")).
3.2 -- Restated Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of the 1994 Registration Statement).
4.1 -- Indenture, dated as of August 1, 1993, between the
Company and U.S. Trust Company of Texas, N.A., as Trustee
(the "Indenture") incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (the "1993 Form
10-K")).
4.2 -- Form of Senior Subordinated Note issuable under the
Indenture (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-1,
Commission File No. 33-64788 (the "1993 Registration
Statement")).
4.3 -- Registration Rights Agreement, dated as of August 19,
1993, among the Company, PruSupply Capital Assets, Inc.
("PruSupply"), W.W. Winspear, M.M. Winspear, D.J. Allan,
M.G. Winspear, D.W. Winspear, R.L. Winspear, B.W. Meyer,
The Principal/The Eppler, Guerin & Turner, Inc., Frank T.
Lauinger, John Wallace and Bonnie B. Smith (incorporated
by reference to Exhibit 4.3 to the 1993 Form 10-K).
4.4 -- Stockholders' Agreement, dated as of August 19, 1993,
among the Company, PruSupply, W.W. Winspear and M.M.
Winspear (incorporated by Reference to Exhibit 4.4 to the
1993 Form 10-K).
4.5 -- Amendment to the Stockholders' Agreement, dated as of
April 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.5 to the 1994 Registration Statement).
4.6 -- Second Amendment to the Stockholders' Agreement, dated as
of July 1, 1994, among the Company, PruSupply, W.W.
Winspear and M.M. Winspear (incorporated by reference to
Exhibit 4.6 to the 1994 Registration Statement).
4.7 -- Third Amendment to the Stockholders' Agreement, dated as
of October 12, 1994, among the Company, Prudential and
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.15 to the 1994 Registration
Statement).
4.8 -- Assumption Agreement, effective as of July 29, 1994, by
the Winspear Family Limited Partnership (incorporated by
reference to Exhibit 4.7 to the 1994 Registration
Statement).
4.9 -- Assumption Agreement, effective as of September 30, 1994
by The Prudential Insurance Company of America
("Prudential") (incorporated by reference to Exhibit 4.14
to the 1994 Registration Statement).
4.10 -- Trust Indenture, dated as of June 1, 1992, between the
Company and KeyBank, N.A. (formerly Society National
Bank) ("KeyBank"), relating to the Company's taxable
variable rate demand notes ("Taxable Notes")
(incorporated by reference to Exhibit 4.43 to the 1993
Registration Statement).
4.11 -- Remarketing Agreement, dated as of June 1, 1992, between
the Company and KeyBank as Remarketing Agent, relating to
the Taxable Notes (incorporated by reference to Exhibit
4.44 to the 1993 Registration Statement).
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.12 -- Note Purchase Agreement, dated as of June 26, 1992,
between the Company and Automated Cash Management Trust,
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.45 to the 1993 Registration Statement).
4.13 -- Irrevocable Letter of Credit, dated as of June 1, 1992,
between the Company and KeyBank relating to the Taxable
Notes (incorporated by reference to Exhibit 4.46 to the
1993 Registration Statement).
4.14 -- Master Agreement, dated as of April 5, 1993, between the
Company and KeyBank evidencing an interest rate swap
relating to the Taxable Notes (incorporated by reference
to Exhibit 4.47 to the 1993 Registration Statement).
4.15 -- Specimen Stock Certificate.
4.16 -- Form of Indenture between the Company and U.S. Trust
Company of Texas, N.A., as Trustee (the "New Indenture")
(incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1, Commission
File No. 333-42067).
4.17 -- Form of Senior Subordinated Note under the New Indenture
(incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1, Commission
File No. 333-42067).
5.1 -- Opinion of Jones, Day, Reavis & Pogue.
10.1 -- Agreement of Sale, dated as of January 30, 1984, between
USX Corporation (formerly United States Steel
Corporation) ("USX") and the Company (incorporated by
reference to Exhibit 10.1 to the 1993 Registration
Statement).
10.2 -- Amendment Agreement, dated as of February 29, 1984,
between USX and the Company (incorporated by reference to
Exhibit 10.2 to the 1993 Registration Statement).
10.3 -- Subscription and Stockholders Agreement, dated as of June
25, 1986, among the Company, Florida Wire and Cable
Company, GCR S.p.A. and Amercord Inc. (the "Subscription
Agreement") (incorporated by reference to Exhibit 10.5 to
the 1993 Registration Statement).
10.4 -- Management Agreement, effective as of May 1, 1986,
between Amercord Inc. and the Company (incorporated by
reference to Exhibit 10.8 to the 1993 Registration
Statement).
10.5 -- Form of Indemnification Agreement between the Company and
each of the Directors and executive officers of the
Company (incorporated by reference to Exhibit 10.14 to
the 1994 Registration Statement).
10.6 -- Profit Sharing Plan of the Company (incorporated by
reference to Exhibit 10.15 to the 1993 Registration
Statement).
10.7 -- Alside Retirement Plan (incorporated by reference to
Exhibit 10.16 to the 1993 Registration Statement).
10.8 -- Associated Materials Incorporated Amended and Restated
1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1997).
10.9 -- Letter Agreement, dated May 13, 1983, between Donald L.
Kaufman and the Company, as amended (incorporated by
reference to Exhibit 10.4 to the 1994 Registration
Statement).
10.10 -- Second Amended and Restated Loan and Security Agreement,
dated as of April 2, 1996, between the Company and
KeyBank (the "Credit Agreement") (incorporated by
reference to Exhibit 10.1 to the March 31, 1996 Form
10-Q).
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- Third Amended and Restated Note, dated April 2, 1996,
from the Company to KeyBank relating to the Credit
Agreement (incorporated by reference to Exhibit 10.1 to
the March 31, 1996 Form 10-Q).
11.1* -- Computation of Earnings Per Share.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- List of Subsidiaries of the Company.
23.1 -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
23.2* -- Consent of Ernst & Young LLP.
23.3* -- Consent of Sabre Associates, Inc.
23.4* -- Consent of Pure Strategy.
24.1 -- Powers of Attorney of Directors and certain executive
officers of the Company.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 11.1
ASSOCIATED MATERIALS INCORPORATED
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Income applicable to common stock........... $ 5,227 $7,874 $1,260 $8,822 $13,089
======= ====== ====== ====== =======
Weighted average number of basic common
shares outstanding........................ 6,235 7,532 7,532 7,594 7,594
Basic earnings per common share............. $ 0.84 $ 1.05 $ 0.17 $ 1.16 $ 1.72
======= ====== ====== ====== =======
Exercise outstanding warrants and options... 6,109 299 262 212 307
Repurchase of shares under the treasury
stock method.............................. (24) (74) (131) (92) (145)
Weighted average number of diluted common
shares outstanding........................ 12,320 7,757 7,663 7,714 7,756
Diluted earnings per common share........... $ 0.42 $ 1.02 $ 0.16 $ 1.14 $ 1.69
======= ====== ====== ====== =======
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated January 29, 1998 in
the Registration Statement (Form S-1 No. 333-42065) and related Prospectus of
Associated Materials Incorporated for the registration of 2,835,900 shares of
its common stock.
/s/ ERNST & YOUNG LLP
Dallas, Texas
February 16, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT
OF
SABRE ASSOCIATES, INC.
Sabre Associates, Inc. ("Sabre") hereby consents to the summary of the
market information contained in our 1986 and 1992 studies titled "Plastic
Siding, Windows and Doors" and our 1997 study titled "Plastic Siding and Windows
in the U.S. and Canada -- 1996-2000" in the Registration Statement of Associated
Materials Incorporated (the "Company") relating to the public offering of common
stock (Commission File No. 333-42065) and the Registration Statement of the
Company relating to the public offering of $75,000,000 in principal amount of
senior subordinated notes due 2008 (Commission File No. 333-42067) and the
prospectus included as part of each such Registration Statement, including all
amendments thereto. The Company acknowledges that Sabre compiles the data
received by it from manufacturers, retailers, distributors, installers, home
builders and remodelers, trade associations, government sources and other
consulting and marketing research firms. As a result, Sabre cannot guarantee the
accuracy or completeness of such data. SABRE MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE DATA OR RESULTS TO BE OBTAINED BY THE COMPANY OR
OTHERS FROM THE USE OF THE DATA.
The Company hereby agrees to indemnify Sabre for any third party claims
that may arise from the use of the summary of the data in the Company's
Registration Statements referred to above. IN NO EVENT SHALL SABRE BE LIABLE TO
THE COMPANY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL,
ARISING OUT OF OR IN CONNECTION WITH THE FURNISHING BY SABRE OF THE DATA TO THE
COMPANY AS SET FORTH HEREIN.
Sabre's consent to the filing of this Consent in the Company's Registration
Statements shall not be deemed to be an admission that Sabre is an expert within
the meaning of Rule 436 under the Securities Act of 1933, as amended.
This Consent will not be valid unless signed by both parties.
SABRE ASSOCIATES, INC.
By: /s/ Stephen H. Senzer 2/13/98
-------------------------------
Title: President (Date)
ASSOCIATED MATERIALS INCORPORATED
By: /s/ James R. Bussman 2/12/98
-------------------------------
James R. Bussman (Date)
Vice President
<PAGE> 1
EXHIBIT 23.4
CONSENT
OF
PURE STRATEGY
Pure Strategy hereby consents to the summary of the market information
contained in our 1997 study titled "Plastic Siding and Windows in the U.S. and
Canada -- 1996-2000" in the Registration Statement of Associated Materials
Incorporated (the "Company") relating to the public offering of common stock
(Commission File No. 333-42065) and the Registration Statement of the Company
relating to the public offering of $75,000,000 in principal amount of senior
subordinated notes due 2008 (Commission File No. 333-42067) and the prospectus
included as part of each such Registration Statement, including all amendments
thereto. The Company acknowledges that Pure Strategy compiles the data received
by it from manufacturers, retailers, distributors, installers, home builders and
remodelers, trade associations, government sources and other consulting and
marketing research firms. As a result, Pure Strategy cannot guarantee the
accuracy or completeness of such data. PURE STRATEGY MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE DATA OR RESULTS TO BE OBTAINED BY THE COMPANY OR
OTHERS FROM THE USE OF THE DATA.
The Company hereby agrees to indemnify Pure Strategy for any third
party claims that may arise out of the use of the summary of the data in the
Company's Registration Statements referred to above. IN NO EVENT SHALL PURE
STRATEGY BE LIABLE TO THE COMPANY FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT,
SPECIAL OR CONSEQUENTIAL, ARISING OUT OF OR IN CONNECTION WITH THE FURNISHING BY
PURE STRATEGY OF THE DATA TO THE COMPANY AS SET FORTH HEREIN.
Pure Strategy's consent to the filing of this Consent in the Company's
Registration Statements shall not be deemed to be an admission that Pure
Strategy is an expert within the meaning of Rule 436 under the Securities Act of
1933, as amended.
This Consent will not be valid unless signed by both parties.
PURE STRATEGY
By: /s/ H.L. Bootier 2/13/98
------------------------------------------------
Title: Principal, Pure Strategy (Date)
ASSOCIATED MATERIALS INCORPORATED
By: /s/ James R. Bussman 2/12/98
------------------------------------------------
James R. Bussman (Date)
Vice President
