<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-24956
ASSOCIATED MATERIALS INCORPORATED
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (214) 220-4600
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Not Applicable
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by X whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Shares of Common Stock, $.0025
par value outstanding at November 15, 1999: 6,481,883
-----------
Shares of Class B Common Stock, $.0025
par value outstanding at November 15, 1999: 1,550,000
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<PAGE> 2
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets......................................................... 1
September 30, 1999 (Unaudited) and December 31, 1998
Statements of Operations (Unaudited)................................... 2
Quarter and nine months ended September 30, 1999 and 1998
Statements of Cash Flows (Unaudited)................................... 3
Nine months ended September 30, 1999 and 1998
Notes to Financial Statements (Unaudited).............................. 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition...................................... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 12
SIGNATURES................................................................... 13
</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,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 3,085 $ 14,964
Accounts receivable, net.......................................... 57,856 45,756
Inventories....................................................... 71,318 56,245
Other current assets.............................................. 3,304 3,572
----------- -----------
Total current assets................................................. 135,563 120,537
Property, plant and equipment, net................................... 71,701 61,130
Investment in Amercord Inc........................................... 3,559 4,961
Other assets......................................................... 2,921 2,691
----------- -----------
Total assets......................................................... $ 213,744 $ 189,319
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts................................................... $ 3,204 $ -
Accounts payable.................................................. 27,454 11,713
Accrued liabilities............................................... 21,232 25,417
Income taxes payable.............................................. 5,064 582
Current portion of long-term debt................................. - 3,600
----------- -----------
Total current liabilities............................................ 56,954 41,312
Deferred income taxes................................................ 996 2,616
Other liabilities.................................................... 5,925 6,013
Long-term debt....................................................... 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at September 30, 1999 and
December 31, 1998
Issued shares - 0 at September 30, 1999 and
December 31, 1998........................................... - -
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued shares - 6,987,279 at September 30, 1999
and 6,938,747 at December 31, 1998....................... 17 17
Common stock, Class B, $.0025 par value:
Authorized and issued shares - 1,550,000 at
September 30, 1999 and December 31, 1998................. 4 4
Less: Treasury stock, at cost - 505,396 shares at
September 30, 1999 and 88,396 at December 31, 1998.......... (5,901) (1,048)
Capital in excess of par....................................... 12,734 12,273
Retained earnings.............................................. 68,015 53,132
----------- -----------
Total stockholders' equity..................................... 74,869 64,378
----------- -----------
Total liabilities and stockholders' equity........................... $ 213,744 $ 189,319
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 4
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales............................................... $ 128,388 $ 114,201 $ 331,893 $ 301,640
Cost of sales........................................... 88,920 77,671 228,437 208,691
---------- ---------- ---------- ----------
39,468 36,530 103,456 92,949
Selling, general and administrative expense............. 25,004 23,956 71,145 66,481
---------- ---------- ---------- ----------
Income from operations.................................. 14,464 12,574 32,311 26,468
Interest expense........................................ 1,685 1,802 5,124 5,982
---------- ---------- ---------- ----------
12,779 10,772 27,187 20,486
Equity in loss of Amercord Inc.......................... (857) (645) (1,402) (1,839)
---------- ---------- ---------- ----------
Income before income taxes and
extraordinary item................................... 11,922 10,127 25,785 18,647
Income tax expense ..................................... 4,590 4,386 10,057 8,288
---------- ---------- ---------- ----------
Income before extraordinary item........................ 7,332 5,741 15,728 10,359
Extraordinary loss from retirement of debt, net
of income taxes...................................... - (53) - (4,107)
---------- ---------- ---------- ----------
Net income.............................................. $ 7,332 $ 5,688 $ 15,728 $ 6,252
========== ========== ========== ==========
Earnings Per Common Share - Basic:
Income before extraordinary item........................ $ 0.91 $ 0.68 $ 1.93 $ 1.26
Extraordinary loss from retirement of debt.............. - - - (0.50)
---------- ---------- ---------- ----------
Net income per common share............................. $ 0.91 $ 0.68 $ 1.93 $ 0.76
========== ========== ========== ==========
Earnings Per Common Share - Assuming Dilution:
Income before extraordinary item........................ $ 0.88 $ 0.67 $ 1.88 $ 1.23
Extraordinary loss from retirement of debt.............. - - - (0.49)
---------- ---------- ---------- ----------
Net income per common share............................. $ 0.88 $ 0.67 $ 1.88 $ 0.74
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................. $ 15,728 $ 6,252
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization......................................... 6,226 5,374
Deferred income taxes................................................. (1,620) (547)
Loss in earnings of Amercord Inc...................................... 1,402 1,839
Loss on sale of assets................................................ 30 19
Extraordinary loss on retirement of debt.............................. - 4,107
Changes in operating assets and liabilities:
Accounts receivable, net........................................... (12,100) (4,253)
Inventories........................................................ (15,073) (7,124)
Income taxes receivable/payable.................................... 4,482 7,294
Bank overdrafts.................................................... 3,204 (4,769)
Accounts payable and accrued liabilities........................... 11,556 8,350
Other assets and liabilities....................................... (254) (721)
---------- ----------
Net cash provided by operating activities................................... 13,581 15,821
INVESTING ACTIVITIES
Proceeds from sale of assets................................................ 38 45
Additions to property, plant and equipment.................................. (16,661) (9,712)
Investment in Amercord Inc.................................................. - (500)
---------- ----------
Net cash used by investing activities....................................... (16,623) (10,167)
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt................................ - 75,000
Net proceeds from issuance of common stock.................................. 431 11,485
Net decrease in revolving line of credit.................................... - (564)
Principal payments of long-term debt........................................ (3,600) (1,300)
Principal payments on 11 1/2% Senior Subordinated Notes..................... - (75,000)
Prepayment premium of early retirement of debt.............................. - (4,899)
Debt issuance cost.......................................................... - (2,509)
Dividends paid.............................................................. (845) (569)
Treasury stock acquired..................................................... (4,853) -
Options exercised........................................................... 30 -
---------- ----------
Net cash provided by (used by) financing activities......................... (8,837) 1,644
Net increase (decrease) in cash............................................. (11,879) 7,298
Cash at beginning of period................................................. 14,964 1,935
---------- ----------
Cash at end of period....................................................... $ 3,085 $ 9,233
========== ==========
Supplemental information:
Cash paid for interest...................................................... $ 7,075 $ 8,857
========== ==========
Net cash paid for income taxes.............................................. $ 8,951 $ 2,966
========== ==========
</TABLE>
See accompanying notes.
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<PAGE> 6
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter and nine months ended September 30, 1999 have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting, the instructions to Form 10-Q, and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 filed
with the Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been
included. The results of operations for any interim period are not necessarily
indicative of the results of operations for a full year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or market.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials.................................................................. $ 21,098 $ 16,422
Work in process................................................................ 5,723 4,728
Finished goods and purchased stock............................................. 44,497 35,095
---------- ----------
$ 71,318 $ 56,245
========== ==========
</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,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 9,232 $ 15,565 $ 36,464 $ 48,492
Costs and expenses..................................... 11,613 17,270 39,890 53,270
---------- ---------- ---------- ----------
Loss from operations................................... (2,381) (1,705) (3,426) (4,778)
Interest expense....................................... 343 343 1,027 1,061
Income tax benefit..................................... (1,010) (758) (1,650) (2,161)
---------- ---------- ---------- ----------
Net loss............................................... $ (1,714) $ (1,290) $ (2,803) $ (3,678)
========== ========== ========== ==========
Company's share of net loss............................ $ (857) $ (645) $ (1,402) $ (1,839)
========== ========== ========== ==========
</TABLE>
Amercord is not in compliance with certain financial covenants under its
existing bank credit agreement. Amercord has extended its forbearance agreement
with its lender to November 26, 1999 subject to certain conditions. In
connection with this forbearance agreement, the Company has guaranteed
borrowings of up to $4,000,000 under Amercord's credit agreement. The Company is
currently in the later stages of negotiating the sale of its Amercord affiliate.
The sale is expected to close in the fourth quarter of 1999 and is not expected
to materially impact the results of that quarter; however, there can be no
assurance that the sale of Amercord can be completed or the timing thereof.
NOTE 4 - STOCKHOLDERS' EQUITY
In October 1998 the Company's Board of Directors approved a stock repurchase
program. Under its stock repurchase program, the Company is authorized to
purchase up to 800,000 shares of common stock in open market transactions. At
September 30, 1999, 464,000 shares have been purchased under the program at a
cost of $5,359,000.
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<PAGE> 7
During the quarter ended September 30, 1999, the Company purchased 65,000
shares of its common stock at a cost of $926,000. For the nine months ended
September 30, 1999, the Company has purchased 417,000 shares of its common
stock at a cost of $4,853,000.
NOTE 5 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
common share - earnings before
extraordinary item............................... $ 7,332 $ 5,741 $ 15,728 $ 10,359
Denominator:
Denominator for basic earnings per common -
share weighted-average shares...................... 8,056 8,402 8,163 8,213
Effect of dilutive securities:
Employee stock options.............................. 245 133 205 232
--------- --------- --------- ---------
Denominator for diluted earnings per common
share - adjusted weighted-average shares............ 8,301 8,535 8,368 8,445
Basic earnings per common share before
extraordinary item..................................... $ 0.91 $ 0.68 $ 1.93 $ 1.26
========= ========= ========= =========
Diluted earnings per common share before
extraordinary item..................................... $ 0.88 $ 0.67 $ 1.88 $ 1.23
========= ========= ========= =========
</TABLE>
For the quarter and nine months ended September 30, 1999, options to purchase
40,000 shares of common stock were excluded from the calculation of weighted
average shares outstanding because the average exercise price of these shares
was higher than the average market price of the common stock during the period.
NOTE 6 - AMENDMENT OF REVOLVING CREDIT AGREEMENT
The Company amended its existing $50 million bank credit facility that expired
on May 31, 1999 to extend the term of the credit facility through May 2002. The
Company's amended bank credit agreement has improved pricing terms based upon
the Company's financial performance and released the lender's security interest
in the Company's equipment.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segment:
<TABLE>
<CAPTION>
Quarter Ended September 30,
---------------------------------------------------------------------
1999 1998
------------------------------- --------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
--------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside........................ $ 117,466 91.5% $ 102,593 89.8%
Net sales - AmerCable..................... 10,922 8.5 11,608 10.2
--------- ------- ---------- ------
Total net sales........................ 128,388 100.0 114,201 100.0
Gross profit.............................. 39,468 30.7 36,530 32.0
Selling, general and
administrative expense (1)............. 25,004 19.5 23,956 21.0
--------- ------- ---------- ------
Income from operations.................... $ 14,464 11.3% $ 12,574 11.0%
========= ======= ========== ======
Alside:
Net sales................................. $ 117,466 100.0% $ 102,593 100.0%
Gross profit.............................. 37,404 31.8 34,108 33.2
Selling, general and
administrative expense................. 22,745 19.3 22,010 21.4
--------- ------- ---------- ------
Income from operations.................... $ 14,659 12.5% $ 12,098 11.8%
========= ======= ========== ======
AmerCable:
Net sales................................. $ 10,922 100.0% $ 11,608 100.0%
Gross profit.............................. 2,064 18.9 2,422 20.9
Selling, general and
administrative expense................. 1,299 11.9 1,206 10.4
--------- ------- ---------- ------
Income from operations.................... $ 765 7.0% $ 1,216 10.5%
========= ======= ========== ======
</TABLE>
(1) Consolidated selling, general and administrative expenses include
corporate expenses of $960,000 and $740,000 for the quarters ended
September 30, 1999 and 1998, respectively.
Overview
The Company's net sales increased to $128.4 million or 12.4% for the
third quarter of 1999 as compared to the 1998 period due to higher sales at the
Company's Alside division. Income from operations increased 15.0% to $14.5
million for the third quarter of 1999 due to higher profits at its Alside
division. The Company's income before extraordinary item was $7.3 million or
$0.88 per share for the third quarter of 1999 as compared to $5.7 million or
$0.67 per share for the same period in 1998 due to higher income from
operations, lower interest expense and improved tax rates.
ALSIDE. Alside's net sales increased 14.5% to $117.5 million for the
quarter ended September 30, 1999 as compared to $102.6 million for the same
period in 1998 due primarily to higher sales volume. Unit sales of vinyl siding
increased 15.1% for the third quarter of 1999 as compared to the 1998 period.
Unit sales of vinyl windows increased 11.6% for the third quarter of 1999 as
compared to 1998. Gross profit as a percentage of net sales decreased for the
quarter ended 1999 due primarily to lower margins on vinyl siding and windows.
Margins on vinyl
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<PAGE> 9
products were adversely affected by an increase in vinyl resin prices. Alside
recovered the cost of vinyl resin price increases by increasing the average
sales price for vinyl siding products, but was not able to recover any
incremental margin on the sales price increases. Income from operations
increased $2.6 million to $14.7 million for the third quarter of 1999 as
compared to the same period in 1998. Selling, general and administrative
expense increased to $22.7 million but decreased as a percentage of net sales.
AMERCABLE. AmerCable's net sales decreased 5.9% to $10.9 million for
the third quarter of 1999 as compared with $11.6 million for the same period in
1998 due primarily to lower sales to AmerCable's offshore drilling industry
customers due to decreased demand resulting from lower commodity prices. Gross
profit as a percentage of sales decreased to 18.9% for the 1999 period as
compared to 20.9% for the 1998 period due to lower fixed cost absorption
resulting from lower production volumes. Income from operations was $765,000
for the quarter ended September 30, 1999 as compared to $1.2 million for the
same period in 1998. Selling, general and administrative expenses increased
7.7% to $1.3 million for the third quarter of 1999 due to higher personnel
costs and higher advertising expenditures.
AMERCORD. The Company recorded a loss of $857,000 reflecting its share
of the after-tax loss of Amercord for the quarter ended September 30, 1999 as
compared with a loss of $645,000 during the same period in 1998. Amercord's
gross profit decreased $440,000 to $(1.5) million for the quarter ended
September 30, 1999 as compared to $(1.1) million for the same period in 1998 due
to lower sales volume and lower manufacturing efficiencies resulting from the
loss of a major customer. Amercord expects to resume sales to this customer in
2000. Selling, general and administrative expenses increased to $894,000 in the
1999 period from $557,000 for the 1998 period due primarily to costs associated
with a voluntary severance program.
OTHER. Net interest expense decreased $117,000 or 6.5% for the third
quarter of 1999 compared with the same period in 1998 due primarily to the
repayment of the Company's taxable notes in April 1999. The Company recorded
interest income of $76,000 for the quarter ended September 30, 1999. The
Company's effective tax rate has decreased due to lower state taxes.
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<PAGE> 10
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998.
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segments.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------
1999 1998
--------------------------------- --------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside........................ $ 300,730 90.6% $ 261,947 86.8%
Net sales - AmerCable..................... 31,163 9.4 39,693 13.2
----------- ------- ----------- ------
Total net sales........................ 331,893 100.0 301,640 100.0
Gross profit.............................. 103,456 31.2 92,949 30.8
Selling, general and
administrative expense (1)............. 71,145 21.4 66,481 22.0
----------- ------- ----------- ------
Income from operations.................... $ 32,311 9.7% $ 26,468 8.8%
=========== ======= =========== ======
Alside:
Net sales................................. $ 300,730 100.0% $ 261,947 100.0%
Gross profit.............................. 98,206 32.7 84,591 32.3
Selling, general and
administrative expense................. 64,866 21.6 60,781 23.2
----------- ------- ----------- ------
Income from operations.................... $ 33,340 11.1% $ 23,810 9.1%
=========== ======= =========== ======
AmerCable:
Net sales................................. $ 31,163 100.0% $ 39,693 100.0%
Gross profit.............................. 5,250 16.8 8,358 21.1
Selling, general and
administrative expense................. 3,491 11.2 3,756 9.5
----------- ------- ----------- ------
Income from operations.................... $ 1,759 5.6% $ 4,602 11.6%
=========== ======= =========== ======
</TABLE>
(1) Consolidated selling, general and administrative expenses include
corporate expenses of $2,788,000 and $1,944,000 for the nine-month
periods ended September 30, 1999 and 1998, respectively.
Overview
The Company's net sales increased to $331.9 million up 10.0% for the
nine months ended September 30, 1999 as compared to $301.6 million for the same
period in 1998 due to strong sales at the Company's Alside division. Income
from operations increased by $5.8 million or 22.1% to $32.3 million for the
nine months ended September 30, 1999 due to increased profitability at the
Company's Alside division. The Company's income before extraordinary item
increased to $15.7 million ($1.88 per share) for the nine months ended
September 30, 1999 as compared to $10.4 million ($1.23 per share) for the same
period in 1998 due to higher income from operations, lower interest expense and
smaller losses from the Company's Amercord affiliate.
ALSIDE. Alside's net sales for the nine months ended September 30,
1999 increased 14.8% to $300.7 million as compared to $261.9 million for the
same period in 1998 due to higher sales volume across all product lines. For
the nine months ended September 30, 1999, unit sales of vinyl siding and vinyl
windows increased 17.2% and 11.0%, respectively as compared to the same period
in 1998. Gross profit as a percentage of net sales increased to 32.7% for the
nine months ended September 30, 1999 as compared to 32.3% for the same period
in 1998. Selling, general and administrative expense increased to $64.9 million
for the nine months ended September 30, 1999 due to higher personnel costs and
incentive compensation. Income from operations increased 40.0% to $33.3 million
for the nine months ended September 30, 1999 as compared to $23.8 million for
the same period in 1998 due to improved gross profits that were partially
offset by increased selling, general and administrative expenses.
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<PAGE> 11
AMERCABLE. AmerCable's net sales decreased to $31.2 million for the
nine months ended September 30, 1999 as compared to $39.7 million in the 1998
period due primarily to lower sales to AmerCable's mining and offshore drilling
industry customers due to decreased demand resulting from lower commodity
prices. Gross profit decreased $3.1 million or 37.2% to $5.3 million for the
nine months ended September 30, 1999 as compared to the 1998 period principally
due to unfavorable fixed cost absorption resulting from lower production volume
and reduced sales volume. Selling, general and administrative expenses
decreased 7.1% to $3.5 million due to lower personnel costs, primarily
incentive compensation. Income from operations decreased $2.8 million to $1.8
million for the nine months ended 1999 as compared to $4.6 million for the same
period in 1998.
AMERCORD. The Company recorded a loss of $1.4 million for its equity
in the after-tax loss of Amercord for the nine months ended September 30, 1999
as compared to a loss of $1.8 million during the same period in 1998. Amercord's
gross profit increased $1.7 million to $(1.2) million for the nine months ended
September 30, 1999 as compared to $(2.9) million for the same period in 1998 due
primarily to increased manufacturing efficiencies. Selling, general and
administrative expenses increased to $2.3 million in 1999 from $1.8 million in
1998.
OTHER. Net interest expense decreased $858,000 or 14.3% for the nine
months ended September 30, 1999 as compared to the same period in 1998. The
decrease was due primarily to the repurchase and redemption of $75.0 million of
11 1/2% senior subordinated notes and the issuance of the 9 1/4% senior
subordinated notes and the repayment of the Company's taxable notes. The
Company recorded interest income of $217,000 for the nine months ended
September 30, 1999. The Company's effective tax rate has decreased due to lower
state taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company had cash and cash equivalents of $3.1
million and available borrowing capacity of approximately $44.4 million under
its existing credit facility. Outstanding letters of credit totaled $5.6
million securing $1.6 million of various insurance letters of credit and $4.0
million securing a letter of credit to guarantee borrowings of up to $4.0
million of Amercord's credit facility. The Company amended its existing $50
million bank credit facility that expired on May 31, 1999 to extend the term of
the credit facility through May 2002. The Company's amended bank credit
agreement has improved pricing terms based upon the Company's financial
performance and released the lender's security interest in the Company's
equipment.
Net cash provided by operations was $13.6 million in the nine months
ended September 30, 1999 compared with $15.8 million in the same period in
1998. The decrease in cash provided by operations for the 1999 period as
compared to the 1998 period was due primarily to higher sales that resulted in
increased accounts receivable and inventories.
Capital expenditures totaled $16.7 million for the nine months ended
September 30, 1999, compared with $9.7 million during the same period in 1998.
Expenditures in the 1999 period were used primarily in the construction of the
Company's new vinyl siding manufacturing plant as well as to increase
production flexibility and capacity at AmerCable. Capital expenditures on the
new vinyl siding manufacturing plant were $9.4 million in 1999. Operations
began at the Company's new vinyl siding facility in July of 1999.
During the nine months ended September 30, 1999, the Company purchased
417,000 shares of its common stock at a cost of $4.9 million. These purchases
were made under its previously announced share repurchase program pursuant to
which the Company is authorized to purchase up to a total of 800,000 shares of
common stock from time to time in open market transactions. The Company's
ability to repurchase shares of its common stock is subject to the terms of the
indenture pursuant to which its 9 1/4% senior subordinated notes were issued.
Amercord is not in compliance with certain financial covenants under
its existing bank credit agreement. Amercord has extended its forbearance
agreement with its lender to November 26, 1999 subject to certain conditions. In
connection with this forbearance agreement, the Company has guaranteed
borrowings of up to $4,000,000 under Amercord's credit agreement. The Company is
currently in the later stages of negotiating the sale of its Amercord affiliate.
The sale is expected to close in the fourth quarter of 1999 and is not expected
to materially impact the results of that quarter; however, there can be no
assurance that the sale of Amercord can be completed or the timing thereof.
The Company believes the future cash flows from operations and its
borrowing capacity under its existing or new credit agreement will be
sufficient to satisfy its obligations to pay principal and interest on its
outstanding debt, maintain current operations, provide sufficient capital for
presently anticipated capital expenditures and fund its stock repurchase
program. However, there can be no assurances that the cash so generated by the
Company will be sufficient for these purposes.
-9-
<PAGE> 12
YEAR 2000
Historically, computer programs have used a two-digit format rather
than a four-digit format to refer to the year. After the year 1999, these
computer programs will not recognize the year correctly which may cause the
computer application to fail or to process data incorrectly.
STATE OF READINESS. The Company began its Year 2000 program in 1997 in
order to ensure all systems were Year 2000 compliant. The Company's Alside
division divided its Year 2000 information technology ("IT") project as
follows: mainframe, AS 400 systems, manufacturing systems and PC systems.
Alside has reviewed its mainframe and AS 400 systems and believes all date
fields have been corrected. All mission critical programs within its mainframe
have been tested and are believed to be Year 2000 compliant. The mission
critical programs include the general ledger, accounts payable,
billing/receivable and payroll. Updates to Alside's manufacturing systems were
completed in the first quarter of 1999. Testing of its manufacturing systems
was completed in the second quarter of 1999. Alside has established a task
force consisting of representatives from Information Services, distribution and
each of the manufacturing facilities to review the status of its PC systems.
Alside identified the system updates necessary to ensure its PC systems are
Year 2000 compliant. Alside anticipates completion of its PC systems update by
November 1999. The Company's AmerCable division believes its IT systems are
Year 2000 compliant. Alside and AmerCable have completed the update of their
non-IT systems. The Company has contacted significant suppliers to assess Year
2000 compliance and readiness. The majority of the questionnaires sent to
suppliers have been returned. Based upon the responses received, it appears the
Company's suppliers are aware of the Year 2000 issue and are taking the
necessary steps to ensure Year 2000 compliance.
COSTS. To date, the Company's costs to address Year 2000 issues have
not been material. The Company's Alside division designs the majority of its
application systems in-house. The process of reviewing the in-house systems and
converting date sensitive fields was done by Alside's computer programmers as
part of routine system maintenance. Alside retained an independent consultant
to assist with Year 2000 compliance for its manufacturing systems and created a
PC systems task force to identify and address certain hardware and software
systems. Alside has spent approximately $250,000 to date and estimates it will
spend an additional $100,000 to complete its Year 2000 program. The Company's
AmerCable division installed a new information system in 1996 that is Year 2000
compliant. AmerCable's system acquisition was not accelerated due to Year 2000
and is therefore not considered as part of the Year 2000 expenditures.
COMPANY RISKS AND CONTINGENCY PLAN. The Company believes that its most
significant remaining Year 2000 risk is associated with its suppliers. The
Company completed its evaluation of its suppliers and believes its major
suppliers are Year 2000 compliant based upon their responses to the Company's
Year 2000 questionnaire. Based upon supplier readiness, availability of raw
materials from a variety of suppliers and guaranteed delivery contracts with
vinyl resin suppliers, the Company does not anticipate any material production
delays due to raw material unavailability. The Company believes its customers
will not be significantly impacted by the Year 2000 due to the nature of the
home improvement business.
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations
have not been material during the past two years. Inflation could adversely
affect the Company if inflation results in significantly higher interest rates
or substantial weakness in economic conditions. Alside's principal raw
material, vinyl resin, has been subject to rapid price changes. Vinyl resin
prices have increased in 1999 and exceeded 1998 prices in the third quarter of
1999. The Company believes vinyl resin prices will continue to increase in the
fourth quarter of 1999. Alside has historically been able to pass on price
increases to its customers. No assurances can be given that Alside will be able
to pass on any price increases in the future.
-10-
<PAGE> 13
CERTAIN FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on the beliefs of, and estimates and
assumptions made by and information currently available to, the Company's
management. When used in this report, the words "anticipate," "believe,"
"estimate," "expect," "intend," and similar words, as they relate to the
Company or the Company's management, identify forward-looking statements. These
statements reflect the current views of the Company's management regarding the
operations and results of operations of the Company as well as its customers
and suppliers, including as a result of the availability of consumer credit,
interest rates, employment trends, changes in levels of consumer confidence,
changes in consumer preferences, national and regional trends in new housing
starts, raw material costs, pricing pressures, shifts in market demand, Year
2000 issues and general economic conditions. These statements are subject to
certain risks and uncertainties. Certain factors that might cause a difference
are discussed in more detail in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. Should one or more of these risks or
uncertainties occur, or should management's assumptions or estimates prove
incorrect, actual results and events may vary materially from those discussed
in the forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to commodity price risk, interest rate risk and
foreign currency exchange rate risk. The Company has experienced no significant
changes in market risk during the quarter or nine months ended September 30,
1999. The Company's market risk is described in more detail in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
-11-
<PAGE> 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended September 30, 1999, Associated Materials
Incorporated filed no Current Reports on Form 8-K.
-12-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED MATERIALS INCORPORATED
(Registrant)
Date: November 15, 1999 By: /s/ Robert L. Winspear
--------------------------------------------
Robert L. Winspear
Vice President and Chief Financial Officer
Date: November 15, 1999 /s/ Robert L. Winspear
--------------------------------------------
Robert L. Winspear
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-13-
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,085
<SECURITIES> 0
<RECEIVABLES> 64,100
<ALLOWANCES> 6,244
<INVENTORY> 71,318
<CURRENT-ASSETS> 135,563
<PP&E> 71,701
<DEPRECIATION> 0
<TOTAL-ASSETS> 213,744
<CURRENT-LIABILITIES> 56,954
<BONDS> 75,000
0
0
<COMMON> 21
<OTHER-SE> 74,848
<TOTAL-LIABILITY-AND-EQUITY> 213,744
<SALES> 331,893
<TOTAL-REVENUES> 0
<CGS> 228,437
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 71,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,124
<INCOME-PRETAX> 25,785
<INCOME-TAX> 10,057
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,728
<EPS-BASIC> 1.93
<EPS-DILUTED> 1.88
</TABLE>
