<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
F0RM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-----------------------------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------
Commission file number: 0-24956
ASSOCIATED MATERIALS INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (214) 220-4600
-----------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check [X] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
<TABLE>
<S> <C>
Shares of Common Stock, $.0025 par value outstanding at November 13, 1998: 6,852,024
Shares of Class B Common Stock, $.0025 par value outstanding at November 13, 1998: 1,550,000
</TABLE>
<PAGE> 2
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets................................................................................ 1
September 30, 1998 (Unaudited) and December 31, 1997
Statements of Operations (Unaudited).......................................................... 2
Quarter and nine months ended September 30, 1998 and 1997
Statements of Cash Flows (Unaudited).......................................................... 3
Nine months ended September 30, 1998 and 1997
Notes to Financial Statements (Unaudited)..................................................... 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 13
SIGNATURES .................................................................................. 14
</TABLE>
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 9,233 $ 1,935
Accounts receivable, net ....................................................... 53,450 49,197
Inventories .................................................................... 63,745 56,621
Income taxes receivable ........................................................ -- 266
Other current assets ........................................................... 3,311 3,291
--------- ---------
Total current assets ................................................................ 129,739 111,310
Property, plant and equipment, net .................................................. 58,386 53,855
Investment in Amercord Inc. ......................................................... 9,355 10,694
Other assets ........................................................................ 3,197 2,645
--------- ---------
Total assets ........................................................................ $ 200,677 $ 178,504
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts ................................................................ $ -- $ 4,769
Accounts payable ............................................................... 24,844 17,174
Accrued liabilities ............................................................ 26,542 25,862
Revolving line of credit ....................................................... -- 564
Income taxes payable ........................................................... 4,150 --
Current portion of long-term debt .............................................. 4,050 1,750
--------- ---------
Total current liabilities ........................................................... 59,586 50,119
Deferred income taxes ............................................................... 1,404 1,951
Other liabilities ................................................................... 2,785 3,100
Long-term debt ...................................................................... 75,000 78,600
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at September 30, 1998 and December 31, 1997
Issued and outstanding shares - 0 at September 30, 1998 and
December 31, 1997 ..................................................... -- --
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - 6,852,024 at September 30, 1998
and 4,893,504 at December 31, 1997 ....................................... 17 12
Common stock, Class B, $.0025 par value:
Authorized, issued and outstanding shares - 1,550,000 at
September 30, 1998 and 2,700,000 at December 31, 1997 .................... 4 7
Less: Treasury stock, at cost - 41,396 shares at September 30, 1998
and December 31, 1997 ...................................................... (542) (542)
Capital in excess of par ....................................................... 11,988 505
Retained earnings .............................................................. 50,435 44,752
--------- ---------
Total stockholders' equity ..................................................... 61,902 44,734
--------- ---------
Total liabilities and stockholders' equity .......................................... $ 200,677 $ 178,504
========= =========
</TABLE>
See accompanying notes.
-1-
<PAGE> 4
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 114,201 $ 111,127 $ 301,640 $ 297,919
Cost of sales.......................................... 77,671 78,511 208,691 212,306
----------- ----------- ----------- -----------
36,530 32,616 92,949 85,613
Selling, general and administrative expense............ 23,956 21,517 66,481 61,646
----------- ----------- ----------- -----------
Income from operations................................. 12,574 11,099 26,468 23,967
Interest expense....................................... 1,802 2,228 5,982 7,501
----------- ----------- ----------- -----------
Equity in loss of Amercord Inc......................... (645) (731) (1,839) (624)
----------- ----------- ----------- -----------
Income before income taxes and extraordinary
item................................................ 10,127 8,140 18,647 15,842
Income tax expense..................................... 4,386 3,596 8,288 6,735
----------- ----------- ----------- -----------
Income before extraordinary item....................... 5,741 4,544 10,359 9,107
Extraordinary loss from retirement of debt, net
of income taxes..................................... (53) - (4,107) -
----------- ----------- ----------- -----------
Net income............................................. $ 5,688 $ 4,544 $ 6,252 $ 9,107
=========== =========== =========== ===========
Earnings Per Common Share:
Income before extraordinary item....................... $ 0.68 $ 0.60 $ 1.26 $ 1.20
Extraordinary loss from retirement of debt............. - - (0.50) -
----------- ----------- ----------- -----------
Net income per common share............................ $ 0.68 $ 0.60 $ 0.76 $ 1.20
=========== =========== =========== ===========
Earnings Per Common Share - Assuming Dilution:
Income before extraordinary item....................... $ 0.67 $ 0.58 $ 1.23 $ 1.17
Extraordinary loss from retirement of debt............. - - 0.49 -
----------- ----------- ----------- -----------
Net income per common share - assuming
dilution............................................ $ 0.67 $ 0.58 $ 0.74 $ 1.17
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
-2-
<PAGE> 5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................ $ 6,252 $ 9,107
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization ........................................ 5,374 4,741
Deferred income taxes ................................................ (547) 1,062
Equity in loss of Amercord Inc. ...................................... 1,839 624
Loss on sale of assets ............................................... 19 --
Extraordinary loss on retirement of debt, net of income taxes ........ 4,107 --
Changes in operating assets and liabilities:
Accounts receivable, net .......................................... (4,253) (7,625)
Inventories ....................................................... (7,124) (4,735)
Income taxes receivable/payable ................................... 7,294 2,228
Bank overdrafts ................................................... (4,769) 324
Accounts payable and accrued liabilities .......................... 8,350 11,034
Other assets and liabilities ...................................... (721) (93)
-------- --------
Net cash provided by operating activities ................................. 15,821 16,667
INVESTING ACTIVITIES
Proceeds from sale of assets .............................................. 45 --
Additions to property, plant and equipment ................................ (9,712) (6,307)
Investment in Amercord Inc. ............................................... (500) --
-------- --------
Net cash used in investing activities ..................................... (10,167) (6,307)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt .................................. 75,000 --
Net proceeds from issuance of common stock ................................ 11,485 --
Net decrease in revolving line of credit .................................. (564) (8,089)
Principal payments of long-term debt ...................................... (1,300) (1,300)
Principal payments of 11 1/2% Senior Subordinated Notes ................... (75,000) --
Prepayment premium on early retirement of debt ............................ (4,899) --
Debt issuance costs ....................................................... (2,509) --
Dividends paid ............................................................ (569) (379)
Treasury stock acquired ................................................... -- (542)
Options exercised ......................................................... -- 161
-------- --------
Net cash provided by (used in) financing activities ....................... 1,644 (10,149)
-------- --------
Net increase in cash ...................................................... 7,298 211
Cash at beginning of period ............................................... 1,935 2,384
-------- --------
Cash at end of period ..................................................... $ 9,233 $ 2,595
======== ========
Supplemental information:
Cash paid for interest .................................................... $ 8,857 $ 9,940
======== ========
Net cash paid for income taxes ............................................ $ 2,966 $ 3,445
======== ========
</TABLE>
See accompanying notes.
-3-
<PAGE> 6
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter and nine months ended September 30, 1998 have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting, the instructions to Form 10-Q, and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been included.
The results of operations for any interim period are not necessarily indicative
of the results of operations for a full year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or market.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials.......................................................... $ 18,482 $ 16,352
Work in process........................................................ 5,167 4,936
Finished goods and purchased stock..................................... 40,096 35,333
--------- ----------
$ 63,745 $ 56,621
========= ==========
</TABLE>
NOTE 3 - INVESTMENT IN AMERCORD INC. ("AMERCORD")
The Company's investment in Amercord, a 50% owned affiliate, is accounted for
using the equity method. Condensed statements of operations for Amercord are
presented below (in thousands):
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $ 15,565 $ 17,377 $ 48,492 $ 57,559
Costs and expenses ..................... 17,270 19,327 53,270 58,376
-------- -------- -------- --------
Loss from operations ................... (1,705) (1,950) (4,778) (817)
Interest expense ....................... 343 373 1,061 1,172
Income tax benefit ..................... (758) (860) (2,161) (740)
-------- -------- -------- --------
Net loss ............................... $ (1,290) $ (1,463) $ (3,678) $ (1,249)
======== ======== ======== ========
Company's share of net loss ............ $ (645) $ (731) $ (1,839) $ (624)
======== ======== ======== ========
</TABLE>
Amercord has retained McDonald & Company Securities, Inc. to serve as its
financial advisor in connection with the possible sale of Amercord. The Company
is also investigating other possibilities which would involve its continued
investment in Amercord. There can be no assurance as to whether any sale of
Amercord can be completed or the terms or timing thereof.
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<PAGE> 7
Amercord is not in compliance with certain financial covenants under its
existing bank credit agreement. Amercord has entered into a forbearance
agreement pursuant to which the lender has agreed not to exercise certain rights
under the credit agreement through December 31, 1998, subject to certain
conditions. In connection with the forbearance agreement, Associated Materials
and Ivaco, Inc. each made a $500,000 capital contribution to Amercord. In
addition, Associated Materials has guaranteed up to $2,000,000 of borrowings
under Amercord's credit agreement.
NOTE 4 - LONG-TERM DEBT
In March 1998, the Company purchased $72.9 million of its outstanding 11 1/2%
Senior Subordinated Notes due August 15, 2003 ("11 1/2% Notes") through a tender
offer and consent solicitation. As a result of this transaction, the Company
incurred an extraordinary charge of approximately $4.1 million net of income
taxes of $2.8 million resulting from the premium paid in connection with the
purchase of the 11 1/2% Notes and the write off of debt issuance costs
associated with such 11 1/2% Notes.
Simultaneously with the consummation of the tender offer, the Company issued $75
million of 9 1/4% Senior Subordinated Notes due March 1, 2008 (the "9 1/4%
Notes") with interest payable semi-annually on March 1 and September 1
commencing September 1, 1998. The 9 1/4% Notes are senior subordinated unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future "Senior Indebtedness" of the Company (as that term is
defined in the indenture pursuant to which the 9 1/4% Notes were issued (the "9
1/4% Note Indenture")).
The 9 1/4% Notes are redeemable at the Company's option, in whole or in part, at
any time on or after March 1, 2003, at redemption prices set forth in the 9 1/4%
Note Indenture. The 9 1/4% Note Indenture includes certain covenants that limit
the Company's ability to incur additional indebtedness, pay dividends and make
other restrictive payments, consummate certain transactions and other matters
similar to those which existed under the indenture pursuant to which the 11 1/2%
Notes were issued (the "11 1/2% Note Indenture").
On August 17, 1998, the Company redeemed the $2.1 million principal amount of 11
1/2% Notes that remained outstanding after the tender offer. As a result of this
transaction, the Company incurred an extraordinary charge of approximately
$53,000 net of income taxes of $37,000 resulting from the premium paid in
connection with the redemption.
NOTE 5 - STOCKHOLDERS' EQUITY
In March 1998, the Company completed an initial public offering ("IPO") of
2,448,120 shares of common stock at an offering price to the public of $16.00
per share. In the IPO, 808,520 shares were sold by the Company and 1,639,600
shares were sold by certain of the Company's stockholders. The offering resulted
in an increase in stockholder's equity of $11.5 million.
In connection with the IPO, 1,150,000 shares of Class B common stock were
converted into 1,150,000 shares of common stock.
On October 27, 1998 the Company's Board of Directors approved a stock repurchase
program of up to 800,000 shares of common stock in open market transactions
depending on market, economic and other factors.
-5-
<PAGE> 8
NOTE 6 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
1998 1997 1998 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted loss per common
share - income before extraordinary item................... $ 5,741 $ 4,544 $ 10,359 $ 9,107
Denominator:
Denominator for basic earnings per common
share - weighted-average shares............................ 8,402 7,610 8,213 7,614
Effect of dilutive securities:
Employee stock options....................................... 133 162 232 162
-------- --------- --------- ---------
Denominator for diluted earnings per common share -
adjusted weighted-average shares............................. 8,535 7,772 8,445 7,776
======== ========= ========= =========
Basic earnings per common share................................ $ 0.68 $ 0.60 $ 1.26 $ 1.20
======== ========= ========= =========
Diluted earnings per common share.............................. $ 0.67 $ 0.58 $ 1.23 $ 1.17
======== ========= ========= =========
</TABLE>
Options to purchase 140,000 shares of common stock with a weighted average
exercise price of $13.14 per share were outstanding during the quarter ended
September 30, 1998 but were not included in the calculation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common stock during the period. Options to purchase 40,000
shares of common stock with an exercise price of $16.00 per share were
outstanding for the nine months ended September 30, 1998 but were excluded from
the diluted EPS calculation for the same reason as stated above.
NOTE 7 - ACCOUNTING CHANGES
In February 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," which revised disclosure requirements for pension and
other postretirement plans and standardized footnote disclosures. The Statement,
which is effective for fiscal years beginning after December 15, 1997, does not
change the measurement or recognition of benefit costs.
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which is effective for fiscal years beginning after June 15, 1999.
The Company believes this statement will have no effect on the Company's
financial position, results of operations or cash flows.
-6-
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended September 30, 1998 Compared to Quarter Ended September 30, 1997
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segment:
<TABLE>
<CAPTION>
Quarter Ended September 30,
------------------------------------------------------------------
1998 1997
------------------------------- -----------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
---------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside............................... $ 102,593 89.8% $ 98,483 88.6%
Net sales - AmerCable............................ 11,608 10.2 12,644 11.4
---------- ------- --------- -------
Total net sales................................ 114,201 100.0 111,127 100.0
Gross profit..................................... 36,530 32.0 32,616 29.3
Selling, general and
administrative expense (1)..................... 23,956 21.0 21,517 19.4
---------- ------- --------- -------
Income from operations........................... $ 12,574 11.0% $ 11,099 9.9%
========== ======= ========= =======
Alside:
Net sales........................................ $ 102,593 100.0% $ 98,483 100.0%
Gross profit..................................... 34,108 33.2 30,203 30.7
Selling, general and
administrative expense......................... 22,010 21.4 19,646 20.0
---------- ------- --------- -------
Income from operations........................... $ 12,098 11.8% $ 10,557 10.7%
========== ======= ========= =======
AmerCable:
Net sales........................................ $ 11,608 100.0% $ 12,644 100.0%
Gross profit..................................... 2,422 20.9 2,413 19.1
Selling, general and
administrative expense......................... 1,206 10.4 1,126 8.9
---------- ------- --------- -------
Income from operations........................... $ 1,216 10.5% $ 1,287 10.2%
========== ======= ========= =======
</TABLE>
(1) Consolidated selling, general and administrative expenses include
corporate expenses of $740,000 and $745,000 for the quarters ended
September 30, 1998 and 1997, respectively.
Overview
General. The Company's net sales increased $3.1 million to $114.2
million for the quarter ended September 30, 1998 as compared to the same period
in 1997 due to higher sales by the Company's Alside division. Income from
operations increased $1.5 million or 13.3% for the third quarter of 1998 as
compared to the same period in 1997 due to higher profits at the Company's
Alside division. The Company's net income was $5.7 million, or $0.67 per share
on 8.5 million weighted average shares for the third quarter of 1998 as compared
to $4.5 million, or $0.58 per share on 7.8 million weighted average shares in
the third quarter of 1997 due to higher income from operations and lower
interest expense. The increase in weighted average shares was the result of an
equity offering completed in March of 1998. An extraordinary loss of $53,000 net
of income tax was incurred as a result of the redemption of the remaining $2.1
million of the $75 million 11 1/2% Senior Subordinated Notes due August 15,
2003.
Alside. Net sales increased $4.1 million or 4.2% to $102.6 million for
the third quarter of 1998 as compared to the same period in 1997 due primarily
to increased sales volume of vinyl siding. Unit sales of vinyl
-7-
<PAGE> 10
siding increased 8.8% while unit sales of windows decreased 9.3% for the third
quarter of 1998 as compared to the same period in 1997. Gross profit as a
percentage of sales increased to 33.2% for the third quarter of 1998 as compared
to 30.7% for the same period in 1997 due primarily to lower vinyl resin prices.
Selling, general and administrative expense increased to $22.0 million or 12.0%
for the third quarter of 1998 as compared to the same period in 1997 due
primarily to higher personnel costs and a litigation claim. Income from
operations increased 14.6% to $12.1 million for third quarter of 1998 as
compared to $10.6 million for the same period in 1997 due to improved
profitability which was partially offset by higher selling, general and
administrative expense.
AmerCable. AmerCable's net sales decreased 8.2% to $11.6 million for
the third quarter ended September 30, 1998 as compared to the same period in
1997 due to lower copper prices. AmerCable's products are generally sold with
copper as a pass-through component. Gross profit as a percentage of sales
increased to 20.9% for the third quarter of 1998 as compared to 19.1% for the
same period in 1997 due to improved product mix. Selling, general and
administrative expense increased 7.1% to $1.2 million for the third quarter of
1998 as compared to 1997 due to higher personnel costs. Income from operations
as a percentage of sales increased slightly to 10.5% for the 1998 period as
compared to 10.2% for the 1997 period as higher profits were partially offset by
higher selling, general and administrative expense.
Amercord. The Company recorded a loss of $645,000 (or $0.07 per share)
for its equity in the after-tax loss of Amercord for the quarter ended September
30, 1998 as compared to a loss of $731,000 for the same period in 1997.
Amercord's net sales decreased $1.8 million to $15.6 million for the quarter
ended September 30, 1998 due primarily to lower tire cord volume and lower sales
prices for both tire bead and tire cord. Gross profit increased to $(1.1)
million for the quarter ended September 30, 1998 as compared to $(1.4) million
for the same period in 1997 due primarily to improved manufacturing efficiency
which was partially offset by lower sales prices. Selling, general and
administrative expense decreased from $581,000 for the quarter ended September
30, 1997 to $557,000 for the same period in 1998 due to lower research and
development expenditures.
Other. Net interest expense decreased $426,000 or 19.1% for the quarter
ended September 30, 1998 as compared to the same period in 1997 due to a
decrease in the Company's borrowings, the repurchase of the 11 1/2% Notes and
the issuance of the 9 1/4% Notes. The Company recorded investment interest
income of $66,000.
-8-
<PAGE> 11
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997.
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segments.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------
1998 1997
------------------------------- -----------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
---------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside............................... $ 261,947 86.8% $ 257,475 86.4%
Net sales - AmerCable............................ 39,693 13.2 40,444 13.6
----------- ------- ----------- -------
Total net sales................................ 301,640 100.0 297,919 100.0
Gross profit..................................... 92,949 30.8 85,613 28.7
Selling, general and
administrative expense (1)..................... 66,481 22.0 61,646 20.7
----------- ------- ----------- -------
Income from operations........................... $ 26,468 8.8% $ 23,967 8.0%
=========== ======= =========== =======
Alside:
Net sales........................................ $ 261,947 100.0% $ 257,475 100.0%
Gross profit..................................... 84,591 32.3 78,914 30.6
Selling, general and
administrative expense......................... 60,781 23.2 56,449 21.9
----------- ------- ----------- -------
Income from operations........................... $ 23,810 9.1% $ 22,465 8.7%
=========== ======= =========== =======
AmerCable:
Net sales........................................ $ 39,693 100.0% $ 40,444 100.0%
Gross profit .................................... 8,358 21.1 6,699 16.6
Selling, general and
administrative expense......................... 3,756 9.5 3,295 8.2
----------- ------- ----------- -------
Income from operations........................... $ 4,602 11.6% $ 3,404 8.4%
=========== ======= =========== =======
</TABLE>
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $1,944,000 and $1,902,000 for the nine month periods ended
September 30, 1998 and 1997, respectively.
Overview
General. The Company's net sales increased $3.7 million to $301.6
million for the nine months ended September 30, 1998 as compared to the same
period in 1997 due to higher sales by the Company's Alside division. Income from
operations increased $2.5 million or 10.4% for the nine months ended September
30, 1998 as compared to the same period in 1997 due to higher profits at the
Company's Alside and AmerCable divisions. The Company's income before
extraordinary item was $10.4 million, or $1.23 per share on 8.4 million weighted
average shares for the nine months ended September 30, 1998 as compared to $9.1
million, or $1.17 per share on 7.8 million weighted average shares in the same
period in 1997 due to higher income from operations. The increase in weighted
average shares was the result of an equity offering completed in March of 1998.
An extraordinary loss of $4.1 million net of income tax was incurred as a result
of the repurchase of the $75 million 11 1/2% Senior Subordinated Notes due
August 15, 2003.
Alside. Net sales increased $4.5 million to $261.9 million for the nine
months ended September 30, 1998 as compared to the same period in 1997 due
primarily to increased sales volume of vinyl siding. Unit sales of vinyl siding
increased 6.1% while unit sales of windows decreased 10.5% for the nine months
ended September 30, 1998 as compared to the same period in 1997. Gross profit as
a percentage of sales increased to 32.3% for the 1998 period as compared to
30.6% for the 1997 period due primarily to lower vinyl resin prices. Selling,
general and administrative expense increased 7.7% to $60.8 million for the 1998
period as compared to the same period in 1997 due primarily to higher personnel
costs, higher advertising expenditures and higher lease expense. Income from
operations increased to $23.8 million for the 1998 period as compared to $22.5
million for
-9-
<PAGE> 12
the same period in 1997 due to improved profitability which was partially offset
by higher selling, general and administrative expense.
AmerCable. AmerCable's net sales decreased 1.9% to $39.7 million for
the nine months ended September 30, 1998 as compared to the same period in 1997
due primarily to lower copper prices. AmerCable's products are generally sold
with copper as a pass-through component. Gross profit as a percentage of sales
increased to 21.1% for the nine months ended September 30, 1998 as compared to
16.6% for the same period in 1997 due to improved product mix. Selling, general
and administrative expense increased 14.0% to $3.8 million for the nine months
ended September 30, 1998 as compared to 1997 due to higher personnel costs.
Income from operations as a percentage of sales increased to 11.6% for the 1998
period as compared to 8.4% for the 1997 period as higher profits were partially
offset by higher selling, general and administrative expense.
Amercord. The Company recorded a loss of $1.8 million (or $0.22 per
share) for its equity in the after-tax loss of Amercord for the nine months
ended September 30, 1998 as compared to a loss of $624,000 for the same period
in 1997. Amercord's net sales decreased $9.1 million to $48.5 million for the
nine months ended September 30, 1998 due to lower sales volume and lower sales
prices for both tire bead and tire cord. Gross profit decreased to $(2.9)
million for the nine months ended September 30, 1998 as compared to $1.4 million
for the same period in 1997 due almost exclusively to lower sales prices.
Average per unit sales prices decreased approximately 7% for the nine months
ended September 30, 1998. Selling, general and administrative expense decreased
from $2.2 million for the nine months ended September 30, 1997 to $1.8 million
for the same period in 1998 due to lower research and development expenditures.
Other. Net interest expense decreased $1.5 million or 20.3% for the
nine months ended September 30, 1998 as compared to the same period in 1997 due
to a decrease in the Company's borrowings, the repurchase of the 11 1/2% Notes
and the issuance of the 9 1/4% Notes. The Company recorded interest income of
$169,000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company had cash and cash equivalents of $9.2
million and available borrowing capacity of approximately $41.9 million under
its existing credit facility. Outstanding letters of credit totaled $8.1 million
securing $4.1 million of taxable notes, $2.0 million of borrowings under
Amercord's credit agreement and certain other obligations.
Net cash provided by operations was $15.8 million in the nine months
ended September 30, 1998 compared with $16.7 in the same period in 1997. The
decrease in cash provided by operations in the 1998 period was due principally
to lower net income for the period ended September 30, 1998 as compared to the
1997 period.
Capital expenditures totaled $9.7 million for the nine months ended
September 30, 1998, compared with $6.3 million during the same period in 1997.
Expenditures in the 1998 period were primarily used to increase window welding
and assembly capacity and increase vinyl siding extrusion and blending capacity.
The Company began construction on its new vinyl siding facility in August 1998
with the anticipation that the facility will be operational by April 1999. Due
to the delay in the commencement of construction, a portion of the capital
expenditures planned for 1998 will be incurred in early 1999.
In March 1998, the Company completed a tender offer and consent
solicitation with respect to its 11 1/2% Notes. In the tender offer, the Company
purchased $72.9 million of the $75.0 million 11 1/2% Notes. Simultaneously with
the consummation of the tender offer, the Company issued $75 million of 9 1/4%
Notes. Concurrently with these transactions, the Company completed an initial
public offering of 2,448,120 shares of common stock of which 808,520 shares were
sold by the Company. The remaining 1,639,600 shares were sold by certain of the
Company's stockholders including the holder of the Class B common stock who
converted 1,150,000 shares of Class B common stock into common stock on a
one-to-one basis in connection with the offering. Net proceeds to the Company,
after underwriting discounts and offering expenses, from the common stock and 9
1/4% Note offerings were $11.5 million and $72.4 million, respectively. The
Company redeemed the $2.1 million principal amount of 11 1/2% Notes that
remained outstanding on August 17, 1998.
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<PAGE> 13
Amercord has retained McDonald & Company Securities, Inc. to serve as
its financial advisor in connection with the possible sale of Amercord. The
Company is also investigating other possibilities which would involve its
continued investment in Amercord. There can be no assurance as to whether any
sale of Amercord can be completed or the terms or timing thereof.
Amercord is not in compliance with certain financial covenants under
its existing bank credit agreement. Amercord has entered into a forbearance
agreement pursuant to which the lender has agreed not to exercise certain rights
under the credit agreement through December 31, 1998, subject to certain
conditions. In connection with the forbearance agreement, Associated Materials
and Ivaco, Inc. each made a $500,000 capital contribution to Amercord. In
addition, Associated Materials has guaranteed up to $2,000,000 of borrowings
under Amercord's credit agreement.
Effective October 1, 1998 the Company established an Employee Stock
Purchase Plan ("ESPP"). Employees participating in the ESPP can purchase shares
at a 15% discount through payroll deductions of up to 25% of their eligible
compensation. The Company registered 250,000 shares of common stock with the SEC
in September 1998 for issuance pursuant to the ESPP.
On October 27, 1998 the Company's Board of Directors approved a stock
repurchase program of up to 800,000 shares of common stock in open market
transactions depending on market, economic and other factors.
The Company believes the future cash flows from operations and its
borrowing capacity under its existing credit agreement will be sufficient to
satisfy its obligations to pay principal and interest on its outstanding debt,
maintain current operations, provide sufficient capital for presently
anticipated capital expenditures and fund its share repurchase program. However,
there can be no assurances that the cash so generated by the Company will be
sufficient for such purposes.
YEAR 2000
Historically, computer programs have used a two-digit format rather
than a four-digit format to refer to the year. After the year 1999, these
computer programs will not recognize the year correctly which may cause the
computer application to fail or to process data incorrectly.
State of Readiness. The Company began its Year 2000 program in 1997 in
order to ensure all systems were Year 2000 compliant. The Company's Alside
division divided its Year 2000 information technology ("IT") project as follows:
mainframe, AS 400 systems, manufacturing systems and PC systems. Alside has
reviewed its mainframe and AS 400 systems and believes all date fields have been
corrected. All mission critical programs within its mainframe have been tested
and are believed to be Year 2000 compliant. The mission critical programs
include the general ledger, accounts payable, billing/receivable and payroll.
Alside estimates that updates to its manufacturing systems are approximately 50%
complete with final completion scheduled for early 1999. Alside is currently
assessing the status of its PC systems. The Company's AmerCable division
believes its IT systems are Year 2000 compliant. Alside and AmerCable are
currently assessing and updating their non-IT systems. The Company's Alside and
AmerCable divisions are currently contacting significant customers and suppliers
to assess Year 2000 compliance and readiness. The responses are being evaluated
to determine the possible risks that may affect the Company's operations.
Costs. To date the Company's costs to address Year 2000 issues have not
been material. The Company's Alside division designs the majority of its
application systems in-house. The process of reviewing the in-house systems and
converting date sensitive fields was done by Alside's computer programmers as
part of routine system maintenance. Alside has retained an independent
consultant to assist with Year 2000 compliance for its manufacturing systems.
Alside presently estimates its manufacturing system update will cost
approximately $250,000. The Company's AmerCable division installed a new
information system in 1996 that is Year 2000 compliant. AmerCable's system
acquisition was not accelerated due to Year 2000 and is therefore not considered
as part of the Year 2000 expenditures.
Company Risks and Contingency Plan. The Company believes that its most
significant remaining Year 2000 risk is associated with its customers and
suppliers. Once the Company completes its customer and supplier
-11-
<PAGE> 14
readiness evaluation it will be better able to formulate a contingency plan. The
Company believes its customers will not be significantly impacted by the Year
2000 due to the nature of the home improvement business.
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations
have not been material during the past two years. Inflation could adversely
affect the Company if inflation results in significantly higher interest rates
or substantial weakness in economic conditions. Alside's principal raw material,
vinyl resin, has been subject to rapid price increments. Alside has historically
been able to pass on price increases to its customers. No assurances can be
given that Alside will continue to be able to pass on any price increases.
CERTAIN FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) relating to the
Company that are based on the beliefs of the Company's management. When used in
this report, the words "anticipate," "believe," "estimate," "expect," "intend,"
and similar expressions, as they relate to the Company or its management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to the operations and results of operations of the
Company as well as its customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment trends, changes in
levels of consumer confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs, pricing pressures,
shifts in market demand, the effects of the Year 2000 on the Company and its
suppliers and customers and general economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
-12-
<PAGE> 15
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 - Associated Materials Incorporated Employee Stock
Purchase Plan.
27 - Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated September
21, 1998, under Item 5 - Other Events. The report related to
the announcement of the Company's possible sale of its
Amercord affiliate and changes made to Amercord's existing
credit agreement.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED MATERIALS INCORPORATED
---------------------------------
(Registrant)
Date: November 13, 1998 By: /s/ Robert L. Winspear
-----------------------------
Robert L. Winspear
Vice President and Chief
Financial Officer
Date: November 13, 1998 By: /s/ Robert L. Winspear
-----------------------------
Robert L. Winspear
Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
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<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.1 Associated Materials Incorporated Employee Stock Purchase Plan
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
ASSOCIATED MATERIALS INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Associated Materials Incorporated by providing eligible employees
with the opportunity to acquire a proprietary interest in the Company through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan Administrator shall administer the Plan and
shall have full authority and discretion to interpret and construe any provision
of the Plan and to adopt such rules and regulations for administering the Plan
as it may deem necessary, and to take any action it may deem necessary in order
to comply with the requirements of Section 423 of the Code. Decisions of the
Plan Administrator and the Board shall be final and binding on all parties
having an interest in the Plan. The Plan Administrator shall have full authority
and discretion to retain and engage such third party firms (including, without
limitation, brokerage and record keeping firms) as it shall from time to time
deem advisable or appropriate.
B. The Board shall have the full authority and discretion
to designate Corporate Affiliates as Participating Companies from time to time
and to terminate any such designation; to decide any questions relating to the
administration of the Plan that are referred to the Board by the Plan
Administrator; and to amend the Plan as provided in Section X.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares
of authorized but unissued Common Stock or shares of Common Stock held in the
Company's treasury. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed 250,000 shares.
B. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
<PAGE> 2
IV. PURCHASE PERIODS
Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive Purchase Periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the
Effective Date shall be eligible to participate in the Plan on the first day of
any Purchase Period under the Plan, provided such individual remains an Eligible
Employee on such day. Eligibility to participate in the Plan shall be limited to
Eligible Employees employed by the Company or by a Corporate Affiliate that is a
U.S. subsidiary of the Company.
B. Each individual who becomes an Eligible Employee after
the Effective Date shall be eligible to participate in the Plan on the first day
of any Purchase Period commencing thereafter, provided such individual remains
an Eligible Employee on such day.
C. To participate in the Plan for a particular Purchase
Period, an Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator and file such forms with the Plan Administrator (or its
designee) before the first day of such Purchase Period. An Eligible Employee's
enrollment in the Plan for a Purchase Period will remain in effect for all
subsequent Purchase Periods until modified or terminated by the Eligible
Employee or until he or she no longer qualifies as an Eligible Employee.
VI. PAYROLL DEDUCTIONS; SHORTFALL CONTRIBUTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be (i) any whole
multiple of one percent (1%) of the Eligible Compensation paid to the
Participant during each Purchase Period or (ii) any whole dollar amount of the
Eligible Compensation paid to the Participant during each Purchase Period,
provided that the Participant's payroll deduction for any Purchase Period shall
not exceed a maximum of twenty-five percent (25%) of such Eligible Compensation.
The deduction rate so authorized shall continue in effect for the entire
Purchase Period. The Participant may not increase his or her rate of payroll
deduction during a Purchase Period. However, the Participant may, at any time
prior to the tenth (10th) Business Day immediately preceding the Purchase Date
for the Purchase Period, reduce his or her rate of payroll deduction to any
whole percentage or whole dollar amount or to zero, such reduction to become
effective prospectively as soon as administratively feasible after filing the
appropriate form with the Plan Administrator. The Participant may not, however,
effect more than one (1) such reduction per Purchase Period. If a Participant
reduces his or her payroll deductions to zero, the Participant's previous
payroll deductions for the Purchase Period will still be applied to the purchase
of shares of Common Stock on the Purchase Date, unless the Participant elects to
terminate his or her purchase rights for the Purchase Period in accordance with
Section VII.E.
2
<PAGE> 3
B. Payroll deductions shall begin on the first pay day of
each Purchase Period and shall (unless sooner terminated) continue through the
pay day ending on or immediately prior to the last day of the Purchase Period.
The amounts so collected shall be credited to the Participant's Account under
the Plan. Payroll deduction amounts need not be held in any segregated account
or trust fund and may be commingled with the general assets of the Company and
used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. A Participant whose net pay after all deductions
therefrom on any given pay day is not sufficient to fund the payroll deduction
authorized by the Participant for a Purchase Period shall be permitted to fund
any such shortfall by contributing the amount thereof to the Plan in cash, by
personal check or in any other form permitted from time to time by the Plan
Administrator ("Shortfall Contributions"). Shortfall Contributions must be
contributed to the Plan before the tenth (10th) Business Day immediately
preceding the Purchase Date for the Purchase Period. All references in this Plan
to payroll deductions also shall be deemed to refer to and include Shortfall
Contributions, except where the context clearly requires otherwise.
E. No interest shall accrue on the payroll deductions of
a Participant in the Plan.
VII. PURCHASE RIGHTS
A. A Participant shall be granted a separate purchase
right on the first day of each Purchase Period in which he or she participates.
The purchase right shall provide the Participant with the right to purchase
shares of Common Stock on the Purchase Date upon the terms set forth below.
Under no circumstances shall purchase rights be granted under the Plan to any
Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Section 424(d) of the Code) or hold outstanding options
or other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any Corporate Affiliate.
B. Each purchase right shall be automatically exercised
on the Purchase Date, and shares of Common Stock shall accordingly be purchased
on such date on behalf of each Participant participating in the related Purchase
Period (other than any Participant whose payroll deductions have previously been
refunded in accordance with paragraph E below). The purchase shall be effected
by applying the Participant's Account balance as of the last day of the Purchase
Period to the purchase of shares of Common Stock (subject to the limitation on
the maximum number of shares purchasable per Participant) at the Purchase Price
in effect for that Purchase Period.
3
<PAGE> 4
C. The number of shares of Common Stock purchasable by a
Participant on each Purchase Date shall be the number of whole and fractional
shares obtained by dividing the Participant's Account balance on the last day of
the Purchase Period by the Purchase Price in effect for that Purchase Date.
However, the maximum number of shares of Common Stock purchasable per
Participant on any one Purchase Date shall not exceed 3,000 shares.
D. Any portion of the Participant's Account balance that
is not applied to the purchase of Common Stock by reason of the limitation on
the maximum number of shares purchasable by the Participant on the Purchase Date
shall be refunded as soon as administratively feasible.
E. The following provisions shall govern the termination
of outstanding purchase rights:
(i) A Participant may, at any time prior to the tenth
(10th) Business Day immediately preceding the Purchase Date for the
Purchase Period, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its
designee), and no further payroll deductions shall be collected from or
made by the Participant with respect to such terminated purchase right.
The Participant's entire Account balance as of the effective date of
such termination shall be refunded as soon as administratively
feasible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
Purchase Period for which the terminated purchase right was granted. In
order to resume participation in any subsequent Purchase Period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) before the first day of the new Purchase
Period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in employment status) while his or her purchase right remains
outstanding, then that purchase right shall immediately terminate, and
the Participant's entire Account balance shall be refunded as soon as
administratively feasible. However, should the Participant cease to
remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up
until the tenth (10th) Business Day immediately preceding the Purchase
Date for the Purchase Period in which such leave commences, to withdraw
his or her entire Account balance. If a Participant on such an unpaid
leave does not exercise this right, such Participant's Account balance
shall be held for the purchase of shares at the next Purchase Date. In
no event, however, shall any further payroll deductions be collected on
the Participant's behalf during any such unpaid leave. Upon the return
to active service of any Participant previously on unpaid leave, his or
her payroll deductions under the Plan shall automatically resume at the
rate in effect at the time the leave began, unless the Participant
elected to withdraw his or her Account balance for the Purchase Period
in which the leave commenced.
(iv) Notwithstanding any other provision of the Plan
to the contrary, a Participant's purchase rights with respect to a
Purchase Period shall
4
<PAGE> 5
terminate, and his or her Account balance shall be refunded as soon as
administratively feasible, if the Participant's employment with the
Participating Companies terminates for any reason on or before the
Purchase Date for such Purchase Period.
F. Each outstanding purchase right shall automatically be
exercised, immediately prior to the date any Corporate Transaction is
consummated, by applying the Participant's Account balance to the purchase of
whole and fractional shares of Common Stock at a purchase price per share equal
to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share
of Common Stock on the first day of the Purchase Period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the date such Corporate Transaction is consummated.
However, the applicable limitation on the number of shares of Common Stock
purchasable per Participant shall continue to apply to any such purchase. The
Company shall use reasonable efforts to provide prior written notice of the
occurrence of any Corporate Transaction, and Participants shall, following the
receipt of such notice, have the right to terminate their outstanding purchase
rights prior to the effective date of the Corporate Transaction.
G. Should the total number of shares of Common Stock which
are to be purchased pursuant to outstanding purchase rights on any particular
date exceed the number of shares then available for issuance under the Plan, the
Plan Administrator shall make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the Account balance of each
Participant, to the extent in excess of the aggregate Purchase Price payable for
the Common Stock pro-rated to such individual, shall be refunded as soon as
administratively feasible.
H. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
I. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase right until the
shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become the owner of the purchased
shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such rights, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000) worth of stock of the Company and of any
Corporate Affiliate (determined on the basis of the Fair Market Value of such
stock on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding, subject to the following:
5
<PAGE> 6
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue on the Purchase Date in effect
for the Purchase Period for which such right is granted.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
B. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Period, then
the Participant's Account balance with respect to such purchase right shall be
refunded as soon as administratively feasible.
C. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on August 26, 1998
and shall become effective on the Effective Date, provided no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock shall
be issued hereunder, until the Company shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation other than approval of
the Plan by the Company's stockholders. In the event stockholder approval of the
Plan by majority vote of the shares represented in person or by proxy at a
meeting of the stockholders of the Company at which a quorum is present is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and the Participants' Account balances shall be
distributed as soon as administratively feasible.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest to occur of (i) the last Business Day in December
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been sold to Participants pursuant to purchase rights exercised under
the Plan or (iii) the date on which all purchase rights are exercised in
connection with a Corporate Transaction. Following such termination, no further
purchase rights shall be granted or exercised, and no further payroll deductions
shall be collected under the Plan.
6
<PAGE> 7
X. AMENDMENT OF THE PLAN
A. The Plan may be amended from time to time by the Board
or any duly authorized committee thereof, and all purchase rights outstanding at
the effective date of any such amendment will be subject to such amendment. In
the event any law, or any rule or regulation issued or promulgated by the
Internal Revenue Service, the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc., any stock exchange upon which the
Common Stock is listed for trading, or any other governmental or
quasi-governmental agency having jurisdiction over the Company, the Common Stock
or the Plan, requires the Plan to be amended, or in the event any of the rules
under Section 16 of the 1934 Act are amended or supplemented (e.g., by addition
of alternative rules), in either event to require or permit the Company to add,
remove or lessen any restrictions on or with respect to purchase rights under
the Plan, the Board reserves the right to amend the Plan to the extent of any
such requirement, amendment or supplement, and all purchase rights then
outstanding will be subject to such amendment.
B. The Plan may be terminated at any time by action of the
Board; provided, however, that the termination of the Plan shall not adversely
affect the terms of any outstanding purchase rights.
C. Notwithstanding the foregoing, the Board may not,
without the approval of the Company's stockholders, increase the number of
shares of Common Stock issuable under the Plan, except to the extent permitted
under Section III.B.
D. With respect to any Participating Corporation which
employs Eligible Employees who reside outside of the United States, and
notwithstanding anything herein to the contrary, the Board may in its sole
discretion amend the terms of the Plan, or any purchase right granted under the
Plan, in order to comply with the requirements of local law, and may, where
appropriate, establish one or more sub-plans to reflect such amended provisions
applicable to such Eligible Employees.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration
of the Plan shall be paid by the Company.
B. Nothing in the Plan shall confer upon any Participant
any right to continue in the employ of the Company or any Corporate Affiliate
for any period of specific duration, or interfere with or otherwise restrict in
any way the rights of the Company (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such Participant's employment at any time for any reason,
with or without cause.
7
<PAGE> 8
APPENDIX
The following definitions shall be in effect under the Plan:
A. Account shall mean the account established by the Plan
Administrator to record a Participant's payroll deductions as of any given date.
B. Board shall mean the Company's Board of Directors.
C. Business Day shall mean a day on which the New York
Stock Exchange is open for trading.
D. Code shall mean the Internal Revenue Code of 1986, as
amended.
E. Common Stock shall mean the Company's common stock, par
value $.0025 per share.
F. Company shall mean Associated Materials Incorporated, a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Associated Materials Incorporated which shall by
appropriate action adopt the Plan.
G. Corporate Affiliate shall mean any parent or subsidiary
corporation of the Company (as determined in accordance with Section 424 of the
Code), whether now existing or subsequently established.
H. Corporate Transaction shall mean either of the
following stockholder-approved transactions to which the Company is a party:
(i) a merger, consolidation or reorganization of the
Company into or with another corporation or legal person as a result of
which securities possessing less than fifty percent (50%) of the total
combined voting power of the then-outstanding voting securities of such
corporation or person immediately after such transaction are held in
the aggregate by the holders of the voting securities of the Company
immediately prior to such transaction, or
(ii) a sale or other transfer of all or substantially
all of the assets of the Company to another corporation or other legal
person as a result of which securities possessing less than fifty
percent (50%) of the total combined voting power of the
then-outstanding voting securities of such corporation or person
immediately after such sale or transfer are held in the aggregate by
the holders of the voting securities of the Company immediately prior
to such sale or transfer.
I. Effective Date shall mean October 1, 1998.
<PAGE> 9
J. Eligible Compensation means the following items of
remuneration paid to a Participant by one or more Participating Companies during
each Purchase Period: base salary, overtime pay, commissions and cash incentive
compensation, computed before giving effect to the Participant's salary
reduction elections under Section 125 or Section 401(k) of the Code or the
Participant's deferral elections under any nonqualified deferred compensation
plan of the Company or any Corporate Affiliate.
K. Eligible Employee shall mean an Employee who is
employed by a Participating Company on a basis under which he or she is
regularly expected to render at least twenty (20) hours of service per week for
more than five (5) months per calendar year for earnings considered wages.
Notwithstanding the foregoing, a person who is an independent contractor
performing services for a Participating Company shall not be eligible to
participate in the Plan.
L. Employee shall mean an individual who is a common law
employee of the Company or any Corporate Affiliate.
M. Fair Market Value per share of Common Stock on any
relevant date shall be the closing selling price per share of Common Stock on
the date in question on the stock exchange determined by the Plan Administrator
to be the primary market for the Common Stock or the NASDAQ, as such price is
officially quoted in the composite tape of transactions on such exchange or
NASDAQ. If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
N. 1933 Act shall mean the Securities Act of 1933, as
amended.
O. 1934 Act shall mean the Securities Exchange Act of
1934, as amended.
P. Participant shall mean any Eligible Employee of a
Participating Company who is actively participating in the Plan.
Q. Participating Company shall mean the Company, each
Corporate Affiliate that is a direct or indirect domestic subsidiary of the
Company and each other Corporate Affiliate that is authorized from time to time
by the Board to extend the benefits of the Plan to its Eligible Employees. For
purposes of the foregoing, the term "subsidiary" has the meaning set forth in
Section 424(f) of the Code.
R. Plan shall mean the Company's Employee Stock Purchase
Plan, as set forth in this document.
S. Plan Administrator shall mean the person or persons
appointed by the Board from time to time as the plan administrator of the Plan.
T. Purchase Date shall mean the last Business Day of each
Purchase Period or, with respect to a Corporate Transaction, the date specified
for the purchase in Section VII.F.
A-2
<PAGE> 10
U. Purchase Period shall mean a period of six (6) months
extending from January 1 to June 30 and from July 1 to December 31 of each year;
provided, however, that the first Purchase Period shall begin on October 1,
1998, and shall end on December 31, 1998.
V. Purchase Price shall mean the purchase price per share
at which Common Stock will be purchased on the Participant's behalf on each
Purchase Date and shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the first day of the
Purchase Period in which the Purchase Date occurs or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date.
W. Service shall mean the performance of services to the
Company or any Corporate Affiliate by a person in the capacity of an Employee.
X. Shortfall Contributions shall have the meaning ascribed
to such term in Section VI.D. of the Plan.
A-3
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,233
<SECURITIES> 0
<RECEIVABLES> 60,665
<ALLOWANCES> 7,215
<INVENTORY> 63,745
<CURRENT-ASSETS> 129,739
<PP&E> 58,386
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<CURRENT-LIABILITIES> 59,586
<BONDS> 75,000
0
0
<COMMON> 21
<OTHER-SE> 61,881
<TOTAL-LIABILITY-AND-EQUITY> 200,677
<SALES> 114,201
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