<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, 2000
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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 10, 2000: 6,432,764
Shares of Class B Common Stock, $.0025 par value outstanding at
November 10, 2000: 1,550,000
<PAGE> 2
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets..................................................................... 1
September 30, 2000 (Unaudited) and December 31, 1999
Statements of Operations (Unaudited)............................................... 2
Quarter and nine months ended September 30, 2000 and 1999
Statements of Cash Flows (Unaudited)............................................... 3
Nine months ended September 30, 2000 and 1999
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.................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................. 11
SIGNATURES............................................................................... 12
</TABLE>
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 23,627 $ 3,432
Accounts receivable, net ................................ 63,769 52,583
Inventories ............................................. 77,496 69,651
Income taxes receivable ................................. -- 226
Other current assets .................................... 4,471 3,872
-------------- --------------
Total current assets ....................................... 169,363 129,764
Property, plant and equipment, net ......................... 68,169 71,682
Investment in Amercord Inc. ................................ 2,393 2,393
Other assets ............................................... 2,533 2,457
-------------- --------------
Total assets ............................................... $ 242,458 $ 206,296
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 33,603 $ 16,933
Accrued liabilities ..................................... 21,123 26,953
Income taxes payable .................................... 4,172 --
-------------- --------------
Total current liabilities .................................. 58,898 43,886
Deferred income taxes ...................................... 4,829 2,236
Other liabilities .......................................... 5,633 5,848
Long-term debt ............................................. 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at September 30, 2000 and
December 31, 1999
Issued shares - 0 at September 30, 2000 and
December 31, 1999 ................................. -- --
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued shares - 7,114,834 at September 30, 2000
and 7,024,666 at December 31, 1999 ............. 17 17
Common stock, Class B, $.0025 par value:
Authorized and issued shares - 1,550,000 at
September 30, 2000 and December 31, 1999 ....... 4 4
Less: Treasury stock, at cost - 619,770 shares at
September 30, 2000 and 555,396 at December 31,
1999............................................ (7,550) (6,626)
Capital in excess of par ............................. 14,199 13,154
Retained earnings .................................... 91,428 72,777
-------------- --------------
Total stockholders' equity ........................... 98,098 79,326
-------------- --------------
Total liabilities and stockholders' equity ................. $ 242,458 $ 206,296
============== ==============
</TABLE>
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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,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales .................................... $ 134,085 $ 128,388 $ 369,965 $ 331,893
Cost of sales ................................ 93,808 88,920 261,362 228,437
-------------- -------------- -------------- --------------
40,277 39,468 108,603 103,456
Selling, general and administrative expense .. 27,122 25,004 78,423 71,145
-------------- -------------- -------------- --------------
Income from operations ....................... 13,155 14,464 30,180 32,311
Interest expense ............................. 1,305 1,685 4,753 5,124
-------------- -------------- -------------- --------------
11,850 12,779 25,427 27,187
Equity in loss of Amercord Inc. .............. -- (857) -- (1,402)
Gain on sale of UltraCraft ................... (336) -- 8,012 --
-------------- -------------- -------------- --------------
Income before income taxes ................... 11,514 11,922 33,439 25,785
Income tax expense ........................... 5,547 4,590 13,987 10,057
-------------- -------------- -------------- --------------
Net income ................................... $ 5,967 $ 7,332 $ 19,452 $ 15,728
============== ============== ============== ==============
Earnings Per Common Share - Basic:
Net income per common share .................. $ 0.74 $ 0.91 $ 2.42 $ 1.93
============== ============== ============== ==============
Earnings Per Common Share - Assuming Dilution:
Net income per common share .................. $ 0.71 $ 0.88 $ 2.34 $ 1.88
============== ============== ============== ==============
</TABLE>
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<PAGE> 5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................ $ 19,452 $ 15,728
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ....................... 7,040 6,226
Deferred income taxes ............................... 2,593 (1,620)
Loss in earnings of Amercord Inc. ................... -- 1,402
Loss on sale of assets .............................. 18 30
Gain on sale of UltraCraft .......................... (8,012) --
Changes in operating assets and liabilities:
Accounts receivable, net ......................... (14,689) (12,100)
Inventories ...................................... (10,023) (15,073)
Income taxes receivable/payable .................. 4,398 4,482
Bank overdrafts .................................. -- 3,204
Accounts payable and accrued liabilities ......... 11,555 11,556
Other assets and liabilities ..................... (1,408) (254)
------------ ------------
Net cash provided by operating activities ................. 10,924 13,581
INVESTING ACTIVITIES
Proceeds from sale of assets .............................. 64 38
Proceeds from sale of UltraCraft .......................... 18,885 --
Additions to property, plant and equipment ................ (8,998) (16,661)
------------ ------------
Net cash provided by (used by) investing activities ....... 9,951 (16,623)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock ................ 488 431
Principal payments of long-term debt ...................... -- (3,600)
Dividends paid ............................................ (801) (845)
Treasury stock acquired ................................... (924) (4,853)
Options exercised ......................................... 557 30
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Net cash used by financing activities ..................... (680) (8,837)
Net increase (decrease) in cash ........................... 20,195 (11,879)
Cash at beginning of period ............................... 3,432 14,964
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Cash at end of period ..................................... $ 23,627 $ 3,085
============ ============
Supplemental information:
Cash paid for interest .................................... $ 7,147 $ 7,075
============ ============
Net cash paid for income taxes ............................ $ 7,628 $ 8,951
============ ============
</TABLE>
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<PAGE> 6
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(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, 2000 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, 1999 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,
2000 1999
-------------- --------------
<S> <C> <C>
Raw materials .......................... $ 21,031 $ 20,043
Work in process ........................ 5,533 5,937
Finished goods and purchased stock ..... 50,932 43,671
-------------- --------------
$ 77,496 $ 69,651
============== ==============
</TABLE>
NOTE 3 - STOCKHOLDERS' EQUITY
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,
2000, 578,374 shares have been purchased under the program at a cost of $ 7.0
million.
The Company purchased 64,374 shares of its common stock at a cost of $924,000
during the quarter ended September 30, 2000. No common stock purchases were made
during the first or second quarter of 2000.
NOTE 4 - ULTRACRAFT SALE
The Company completed the sale of its UltraCraft operation, a manufacturer of
semi-custom frameless cabinets, in June 2000. Pre-tax net proceeds from the sale
were $18.9 million after transaction costs with a pre-tax gain on the sale of
$8.0 million. The gain on UltraCraft was reduced by $336,000 during the third
quarter due to a purchase price adjustment made in accordance with the agreement
for the sale of UltraCraft. UltraCraft represented approximately 5.7% of the
Company's net sales for 1999.
Under the terms of the indenture pursuant to which the Company issued its 9 1/4%
subordinated notes, the Company is obligated to make an offer to repurchase
these notes using the after-tax net proceeds from the UltraCraft sale, to the
extent the Company does not use these net proceeds within one year of the sale
to repay senior indebtedness
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<PAGE> 7
or to acquire assets used in, or other businesses similar to, the business
currently conducted by the Company.
As a result of the Company's acquisition of the Alpine assets (see Footnote 7)
together with anticipated capital expenditures, the Company presently believes
that it will not be obligated to make an offer to repurchase the notes.
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,
---------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
common share .................................... $ 5,967 $ 7,332 $ 19,452 $ 15,728
Denominator:
Denominator for basic earnings per common -
share weighted-average shares .................. 8,065 8,056 8,035 8,163
Effect of dilutive securities:
Employee stock options .......................... 286 245 263 205
--------- --------- --------- ---------
Denominator for diluted earnings per common
share - adjusted weighted-average shares ........ 8,351 8,301 8,298 8,368
Basic earnings per common share ....................... $ 0.74 $ 0.91 $ 2.42 $ 1.93
========= ========= ========= =========
Diluted earnings per common share ..................... $ 0.71 $ 0.88 $ 2.34 $ 1.88
========= ========= ========= =========
</TABLE>
For the nine months ended September 30, 2000 and 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 - INCOME TAXES
During the third quarter 2000, the Company recorded $1.1 million in additional
income tax expense due to an adjustment to a deferred tax asset which was
recorded in 1986 pursuant to the spin-off of the Company's tire cord operation
into Amercord.
NOTE 7 - SUBSEQUENT EVENT
On October 6, 2000, the Company acquired substantially all of the assets of
Alpine Industries, Inc. for $7.5 million in cash and the assumption of certain
payroll related and property tax liabilities. Included in the acquired assets is
Alpine's window fabrication facility located in Bothell, Washington. This
facility manufactures vinyl windows for the new construction, manufactured
housing and remodeling markets. The Company accounted for the acquisition using
the purchase method of accounting.
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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, 2000 Compared to Quarter Ended September 30, 1999
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,
------------------------------------------------------------------
2000 1999
------------------------------- -------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside ................................. $ 118,293 88.2% $ 117,466 91.5%
Net sales - AmerCable .............................. 15,792 11.8 10,922 8.5
------------ ---------------- ------------ ----------------
Total net sales ................................. 134,085 100.0 128,388 100.0
Gross profit ....................................... 40,277 30.0 39,468 30.7
Selling, general and
administrative expense (1) ...................... 27,122 20.2 25,004 19.5
------------ ---------------- ------------ ----------------
Income from operations ............................. $ 13,155 9.8% $ 14,464 11.3%
============ ================ ============ ================
Alside:
Net sales .......................................... $ 118,293 100.0% $ 117,466 100.0%
Gross profit ....................................... 36,925 31.2 37,404 31.8
Selling, general and
administrative expense .......................... 24,405 20.6 22,745 19.3
------------ ---------------- ------------ ----------------
Income from operations ............................. $ 12,520 10.6% $ 14,659 12.5%
============ ================ ============ ================
AmerCable:
Net sales .......................................... $ 15,792 100.0% $ 10,922 100.0%
Gross profit ....................................... 3,352 21.2 2,064 18.9
Selling, general and
administrative expense .......................... 1,677 10.6 1,299 11.9
------------ ---------------- ------------ ----------------
Income from operations ............................. $ 1,675 10.6% $ 765 7.0%
============ ================ ============ ================
</TABLE>
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $1,040,000 and $960,000 for the quarters ended September 30,
2000 and 1999, respectively.
Overview
The Company's net sales increased to $134.1 million for the quarter
ended September 30, 2000 as compared to $128.4 million for the same period in
1999 due to higher selling prices at the Company's Alside division and higher
sales volume at its AmerCable division.
The Company's net income was $6.0 million, or $0.71 per share, for the
third quarter of 2000 as compared to $7.3 million, or $0.88 per share, for the
same period in 1999. The Company recorded several one-time accounting
adjustments during the third quarter 2000, which resulted in lower net income.
The adjustments included $1.1 million of additional income tax expense due to an
adjustment to a deferred tax asset which was recorded in 1986 when the Company
spun-off its tire cord operation into Amercord, a $940,000 charge ($578,000
after tax) for severance cost at Alside and a $336,000 decrease ($207,000 after
tax) in the gain on the sale of UltraCraft due to a purchase price adjustment.
Exclusive of these items, the Company's income from operations, net income and
earnings per share were $14.1 million, $7.9 million and $0.94, respectively. The
1999 period includes the results of the Company's UltraCraft operation, which
was sold in June 2000. UltraCraft's net sales and income from operations for the
third quarter 1999 were $6.2 million and $853,000, respectively.
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<PAGE> 9
ALSIDE. Alside's net sales were $118.3 million for the quarter ended
September 30, 2000 as compared to $117.5 million for the same period in 1999. As
noted above, net sales for the third quarter 1999 included $6.2 million in
UltraCraft sales. The increase in net sales was due to higher vinyl siding and
vinyl window selling prices as higher vinyl resin costs were passed through to
customers in the form of higher selling prices. For the third quarter 2000, unit
sales of vinyl windows were flat while unit sales of vinyl siding decreased 3.7%
as compared to the same period in 1999. Gross profit for the third quarter 2000
of $36.9 million was $479,000 lower than the 1999 period as the 1999 period
included $1.3 million of UltraCraft gross profits. Selling, general and
administrative expense increased to $24.4 million due to higher costs associated
with the expansion of Alside's Supply Center network in 2000 and $940,000 in
severance costs. Income from operations decreased $2.1 million to $12.5 million
for the third quarter of 2000 as compared to $14.7 million for the same period
in 1999 due to higher selling, general and administrative expense and the
elimination of UltraCraft's income from operations.
AMERCABLE. AmerCable's net sales increased 44.6% to $15.8 million for
the third quarter of 2000 as compared with $10.9 million for the same period in
1999 due primarily to higher sales volume of industrial and mining cables. Gross
profit as a percentage of sales increased to 21.2% for the 2000 period as
compared to 18.9% for the 1999 period due to improved fixed cost absorption
resulting from higher production volumes. Selling, general and administrative
expense increased to $1.7 million for the 2000 period due to higher personnel
costs, but decreased as a percentage of sales. Income from operations increased
to $1.7 million for the third quarter 2000 as compared with $765,000 for the
same period in 1999.
OTHER. Net interest expense decreased $380,000 or 22.6% for the third
quarter of 2000 compared with the same period in 1999 due primarily to an
increase in the Company's investment income. The Company recorded interest
income of $460,000 for the quarter ended September 30, 2000 as compared to
$76,000 for the same period in 1999.
During the third quarter 2000, the Company recorded $1.1 million in
additional income tax expense due to an adjustment to a deferred tax asset which
was recorded in 1986 pursuant to the spin-off of the Company's tire cord
operation into Amercord. The Company does not anticipate any additional
adjustments to its effective tax rate during 2000.
In the fourth quarter of 1999, Amercord was recapitalized. In this
transaction, the Company reduced its ownership in Amercord from 50.0% to 9.9%.
The Company currently accounts for Amercord using the cost method of accounting.
Prior to Amercord's recapitalization, the Company accounted for Amercord using
the equity method of accounting. The Company recorded a loss of $857,000 on its
equity in the losses of Amercord during the third quarter of 1999.
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<PAGE> 10
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999.
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,
-----------------------------------------------------------
2000 1999
---------------------------- -----------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Total Company:
Net sales - Alside ................................. $ 323,460 87.4% $ 300,730 90.6%
Net sales - AmerCable .............................. 46,505 12.6 31,163 9.4
---------- -------------- ---------- --------------
Total net sales ................................. 369,965 100.0 331,893 100.0
Gross profit ....................................... 108,603 29.4 103,456 31.2
Selling, general and
administrative expense(1) ....................... 78,423 21.2 71,145 21.4
---------- -------------- ---------- --------------
Income from operations ............................. $ 30,180 8.2% $ 32,311 9.7%
========== ============== ========== ==============
Alside:
Net sales .......................................... $ 323,460 100.0% $ 300,730 100.0%
Gross profit ....................................... 99,468 30.7 98,206 32.7
Selling, general and
administrative expense .......................... 70,578 21.8 64,866 21.6
---------- -------------- ---------- --------------
Income from operations ............................. $ 28,890 8.9% $ 33,340 11.1%
========== ============== ========== ==============
AmerCable:
Net sales .......................................... $ 46,505 100.0% $ 31,163 100.0%
Gross profit ....................................... 9,135 19.6 5,250 16.8
Selling, general and
administrative expense .......................... 4,760 10.2 3,491 11.2
---------- -------------- ---------- --------------
Income from operations ............................. $ 4,375 9.4% $ 1,759 5.6%
========== ============== ========== ==============
</TABLE>
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $3,085,000 and $2,788,000 for the nine-month periods ended
September 30, 2000 and 1999, respectively.
Overview
The Company's net sales increased to $370.0 million up 11.5% for the
nine months ended September 30, 2000 as compared to $331.9 million for the same
period in 1999 as sales increased at both Alside and AmerCable. The Company's
net income was $19.5 million ($2.34 per share) for the nine months ended
September 30, 2000 as compared to $15.7 million ($1.88 per share) for the same
period in 1999 due to the sale of the Company's UltraCraft division in June 2000
which resulted in a gain of $8.0 million ($4.9 million after-tax).
ALSIDE. Alside's net sales for the nine months ended
September 30, 2000 increased to $323.5 million as compared to $300.7 million for
the same period in 1999 due to higher selling prices for vinyl siding and vinyl
windows as well as higher sales volume of vinyl fence. For the nine months ended
September 30, 2000, unit sales of vinyl siding and vinyl windows increased 1.7%
and 2.2%, respectively as compared to the same period in 1999. Gross profit
increased $1.3 million to $99.5 million for the 2000 period as improved
productivity of Alside's window operations was partially offset by higher fixed
costs associated with the two siding manufacturing plants. Selling, general and
administrative expense increased to $70.6 million for the 2000 period due to
higher personnel costs and additional costs associated with the expansion of
Alside's Supply Center network. Income from operations decreased to $28.9
million for the nine months ended September 30, 2000 as compared to $33.3
million for the same period in 1999 as higher selling, general and
administrative expense more than offset the higher gross profit.
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<PAGE> 11
AMERCABLE. AmerCable's net sales increased to $46.5 million for the
nine months ended September 30, 2000 as compared to $31.2 million in the 1999
period due primarily to higher sales volume of industrial and mining cable
products. Gross profit increased 74.0% to $9.1 million for the nine months ended
September 30, 2000 as compared to $5.3 million for the same period in 1999 due
to higher sales volume. Selling, general and administrative expenses increased
$1.3 million to $4.8 million for the nine months ended 2000 due to higher
personnel costs. Income from operations increased $2.6 million to $4.4 million
for the nine months ended 2000 as compared to $1.8 million for the same period
in 1999.
OTHER. Net interest expense decreased $371,000 or 7.2% for the nine
months ended September 30, 2000 as compared to the same period in 1999. The
decrease was due to an increase in the Company's investment income. The Company
recorded interest income of $659,000 for the nine months ended September 30,
2000 as compared to $217,000 for the 1999 period.
During the third quarter 2000, the Company recorded $1.1 million in
additional income tax expense due to an adjustment to a deferred tax asset which
was recorded in 1986 pursuant to the spin-off of the Company's tire cord
operation into Amercord. The Company does not anticipate any additional
adjustments to its effective tax rate during 2000.
In the fourth quarter of 1999, Amercord was recapitalized. In this
transaction, the Company reduced its ownership in Amercord from 50.0% to 9.9%.
The Company currently accounts for Amercord using the cost method of accounting.
Prior to Amercord's recapitalization, the Company accounted for Amercord using
the equity method of accounting. The Company recorded a loss of $1.4 million on
its equity in the losses of Amercord for the nine months ended September 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 the Company had cash and cash equivalents of $23.6
million and available borrowing capacity of approximately $48.0 million under
its existing credit facility. Outstanding letters of credit totaled $2.0 million
securing various insurance letters of credit.
Net cash provided by operations was $10.9 million in the nine months
ended September 30, 2000 compared with $13.6 million in the same period in 1999.
The decrease in cash provided by operations for the 2000 period as compared to
the 1999 period was due primarily to lower operating profits.
Capital expenditures totaled $9.0 million for the nine months ended
September 30, 2000, compared with $16.7 million during the same period in 1999.
Expenditures in the 2000 period were used primarily to increase extrusion
capacity for window profiles, fencing and siding products, improve window
manufacturing efficiency and upgrade window information systems at Alside.
Expenditures at AmerCable were used primarily to expand capacity and improve
processing efficiencies. Capital expenditures for the nine months ended
September 30, 1999 included $9.4 million for the construction of a new vinyl
siding manufacturing plant located in Freeport, Texas.
On October 6, 2000, the Company acquired substantially all of the assets
of Alpine Industries, Inc. for $7.5 million in cash and the assumption of
certain payroll related and property tax liabilities. Included in the acquired
assets is Alpine's window fabrication facility located in Bothell, Washington.
This facility manufactures vinyl windows for the new construction, manufactured
housing and remodeling markets. The Company does not expect Alpine to realize a
profit for at least six months.
Under the terms of the indenture pursuant to which the Company issued
its 9 1/4% subordinated notes, the Company is obligated to make an offer to
repurchase these notes using the after-tax net proceeds from the UltraCraft
sale, to the extent the Company does not use these net proceeds within one year
of the sale to repay senior indebtedness or to acquire assets used in, or other
businesses similar to, the business currently conducted by the Company.
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<PAGE> 12
As a result of the Company's acquisition of the Alpine assets together
with anticipated capital expenditures, the Company presently believes that it
will not be obligated to make an offer to repurchase the notes.
The Company has guaranteed a $3.0 million note secured by Amercord's
real property. Should the guarantee be exercised by Amercord's lender, the
Company and Ivaco have the option to assume the loan. Ivaco has indemnified the
Company for 50% of any loss under the guarantee.
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.
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. 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.
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, risks
associated with integrating Alpine's assets with the Company's existing window
operations 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, 1999. 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,
2000. 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, 1999.
-10-
<PAGE> 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule.
(b) Reports on Form
During the quarter ended September 30, 2000, Associated Materials
Incorporated filed no Current Reports on Form 8-K.
-11-
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED MATERIALS INCORPORATED
---------------------------------
(Registrant)
Date: November 13, 2000 By: /s/ Robert L. Winspear
-----------------------------
Robert L. Winspear
Vice President and Chief
Financial Officer
Date: November 13, 2000 By: /s/ Robert L. Winspear
-----------------------------
Robert L. Winspear
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
-12-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
