<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
__________________
For Quarterly Period Ended September 30, 1996
Commission File Number 0-21856
ABT Building Products Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3684348
------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Neenah Center, Neenah, Wisconsin 54956
-------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 751-8611
--------------
Indicate by check mark 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 .
----- -----
As of the close of business on November 11, 1996, the registrant had
outstanding 10,485,660 shares of Common Stock.
<PAGE>
ABT Building Products Corporation and Subsidiaries
INDEX
Part I: Financial Statements Page Number
- ----------------------------- -----------
Unaudited Balance Sheets September 30, 1996
and December 31, 1995 3
Unaudited Statements of Income for the three
months and nine months ended September 30,
1996 and September 30, 1995 4
Unaudited Statements of Cash Flows for the
nine months ended September 30, 1996 and
September 30, 1995 5
Condensed Notes to Unaudited Financial
Statements 6 - 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 16
Part II: Other Information 17
- ---------------------------
Signature Page 18
<PAGE>
ABT Building Products Corporation and Subsidiaries
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ------------------
(unaudited)
Assets
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,317 $ 8,604
Accounts receivable, less allowances
of $2,452 and $4,683, respectively 25,961 45,347
Inventories 48,717 44,928
Prepaid expenses 1,838 4,172
Deferred tax assets 645 2,465
------------- ---------------
Total Current Assets 79,478 105,516
============= ===============
PROPERTY, PLANT AND EQUIPMENT
Land 2,960 2,974
Buildings and improvements 27,029 27,369
Machinery and equipment 95,111 97,913
Furniture and fixtures 3,808 3,799
Construction in progress 5,802 30,388
------------- ---------------
134,710 162,443
Less-Accumulated depreciation (16,155) (24,234)
------------- ---------------
Net property, plant and equipment 188,554 138,209
OTHER ASSETS, Net 2,724 3,628
GOODWILL, Net 10,011 9,696
------------- ---------------
Total Assets $ 210,767 $ 257,049
============= ===============
Liabilities & Stockholders' Equity
CURRENT LIABILITIES
Current Maturities of Long-Term Debt $ 123 $ 6,273
Accounts Payable 14,941 17,236
Accrued Expenses 8,652 14,946
------------- ---------------
Total Current Liabilities 23,716 38,455
LONG-TERM DEBT 84,506 92,504
OTHER LONG TERM LIABILITIES 6,189 7,241
DEFERRED INCOME TAXES 8,236 13,937
STOCKHOLDERS' EQUITY
Common stock 122 122
Additional paid-in capital 51,830 61,760
Cumulative transition adjustment (71) (435)
Retained earnings 53,485 72,412
Less: Treasury Shares (27,246) (28,947)
------------- ---------------
Total Stockholders' Equity 82,120 104,912
------------- ---------------
Total Liabilities and Stockholders'
Equity $ 210,767 $ 257,049
============= ===============
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
ABT Building Products Corporation and Subsidiaries
Statements of Income (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 66,694 $ 88,435 $ 183,298 $ 245,346
COST OF SALES 49,149 61,979 132,292 173,359
-------- -------- --------- ---------
Gross Profit 17,645 26,456 51,006 71,987
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,963 13,247 23,021 36,321
-------- -------- --------- ---------
Operating Income 8,582 13,209 27,985 36,666
OTHER INCOME (EXPENSE) (1,887) (1,894) (4,111) (5,618)
-------- -------- --------- ---------
Income before income
taxes 6,695 11,315 23,874 31,048
PROVISION FOR INCOME TAXES 2,621 4,421 9,358 12,121
-------- -------- --------- ---------
Net Income $ 4,074 $ 6,894 $ 14,516 $ 18,927
======== ======== ========= =========
INCOME PER COMMON SHARE $ 0.35 $ 0.60 $ 1.24 $ 1.65
======== ======== ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,670 11,571 11,700 11,486
======== ======== ========= =========
</TABLE>
See accompanying notes to the financial statements
4
<PAGE>
ABT Building Products Corporation and Subsidiaries
Statements of Cash Flows (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $14,516 $18,927
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 6,203 9,547
Deferred income taxes 1,325 3,881
Cumulative translation adjustment 445 (364)
Changes in certain assets and liabilities-
Accounts receivable (4,272) (19,386)
Inventories 665 3,789
Other assets 517 (3,702)
Accounts payable and accrued expenses (7,431) 9,641
---------- ----------
Net cash provided by operating activities 11,968 22,333
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of net assets (47,083) -
Capital expenditures (10,801) (28,423)
---------- ----------
Net cash used in investing activities (57,884) (28,423)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds of long-term debt 54,888 14,148
Exercise of stock options 237 (70)
Payments for the purchase of treasury shares (7,671) (1,701)
---------- ----------
Net cash provided by financing activities 47,454 12,377
---------- ----------
Net increase in cash 1,538 6,287
Cash and Cash equivalents, beginning of period 224 2,317
---------- ----------
Cash and Cash equivalents, end of period $1,762 $8,604
========== ==========
</TABLE>
See accompanying notes to the financial statements
5
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(1) General
The accompanying unaudited interim consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information not misleading. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995. In the opinion of management, these statements contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position of the Company (as defined below). Results
on the interim basis are not necessarily indicative of results which may be
expected for the full year.
(2) Basis of Presentation
The consolidated balance sheets at September 30, 1996, and December 31,
1995, and the consolidated statements of operations and cash flows for the nine
months ended September 30, 1996 and 1995, include the accounts of ABT Building
Products Corporation, a Delaware corporation ("ABT"), and its wholly owned
subsidiaries ABTco, Inc. ("ABTco"), KenTech Plastics, Inc. ("KenTech") and ABT
Canada, Limited ("ABT Canada") (collectively referred to as the "Company").
(3) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method. Inventory costs include material, labor,
and manufacturing overhead.
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
<S> <C> <C>
Finished products and work in process $31,957 $26,165
Raw Materials 9,205 11,217
Operating parts and supplies 7,555 7,546
------- -------
$48,717 $44,928
======= =======
</TABLE>
6
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(4) Long-Term Debt
Long-term debt as of December 31, 1995, and September 30, 1996, consisted
of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------- --------------
<S> <C> <C>
Total debt --
Revolving line of credit $34,500 $ 48,750
Term Loan 50,000 50,000
Capital lease obligations 129 27
------- --------
84,629 98,777
Less -- Current maturities (123) ( 6,273)
------- --------
Total long-term debt $84,506 $ 92,504
======= ========
</TABLE>
(5) Stockholders' Equity
Stockholders' Equity as of December 31, 1995, and September 30, 1996,
consisted of the following (in thousands):
<TABLE>
<CAPTION> Additional Cumulative
Common Paid-In Translation Retained Treasury
Stock Capital Adjustment Earnings Shares
----- ------- ----------- -------- ------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $122 $61,830 $ (71) $53,485 $(27,246)
Cumulative Translation -- -- (364) -- --
Adjustment
Exercise of Stock Options -- (70) -- -- --
Purchase of Treasury Shares -- -- -- -- (1,701)
Net Income through
September 30, 1996 18,927
____ ______ _____ ------- ________
$122 $61,760 $(435) $72,412 $(28,947)
==== ======= ===== ======= ========
</TABLE>
Commencing in the third quarter of 1994, the Board of Directors authorized
the repurchase of up to 2,200,000 shares of the Company's Common Stock in open
market transactions. At September 30, 1996, the Company had repurchased
1,797,000 shares for a total cost of $28,947,245. The cost to repurchase the
treasury shares has been recorded as a reduction of stockholders' equity.
7
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(6) Commitments and Contingencies
Under the terms of the asset purchase agreements between the Company and
the predecessor owners of the operations conducted by ABTco and ABT Canada, such
entities agreed to indemnify the Company for certain liabilities or obligations
arising on or prior to the change in ownership, including liabilities related to
environmental, product liability and litigation matters. In connection with
such transactions, as well as the acquisition of KenTech, the Company assumed
various liabilities and obligations, including obligations under product
warranties with respect to products manufactured prior to the change in
ownership.
Litigation
On August 30, 1995, the Company completed negotiations with Michigan
environmental authorities regarding a consent judgment providing for an odor
emissions abatement program at its Alpena, Michigan facility. The program
provides for phased installation of controls to effect a staged reduction of the
facility's emissions of odors into the air. It is estimated that capital
expenditures of approximately $6 million to $12 million will be required over
the next three to four years in order to attain compliance with the program. It
is the Company's position that costs incurred in complying with the consent
judgment will be borne in whole or in part by Abitibi-Price Corporation ("APC")
as the prior owner of the Alpena facility. Accordingly, on November 27, 1995,
the Company commenced an action against APC and its corporate parent in the
Circuit Court for the County of Oakland, Michigan, ABT Building Products
---------------------
Corporation and ABTco, Inc. v. Abitibi-Price Corporation and Abitibi-Price, Inc.
- -------------------------------------------------------------------------------
(Case No. 95-508819-CK), seeking to recover damages incurred in connection with
the remediation, correction and control of odor emissions at the Alpena
facility. The complaint initially asserted claims for breach of contract,
fraudulent non-disclosure and fraudulent misrepresentation. The Company has
determined not to pursue the claims for fraudulent non-disclosure and fraudulent
misrepresentation, and a stipulated order to that effect was filed on May 9,
1996. The Company is proceeding with its claims for breach of contract.
The Company and ABTco have been named as defendants in a class action and a
separate putative class action arising from hardboard siding manufactured,
distributed, or sold by them or by APC. Those actions are Foster et al. v.
----------------
ABTco, Inc., ABT Building Products Corporation, Abitibi-Price Inc. and Abitibi-
- -------------------------------------------------------------------------------
Price Corporation, Docket No. 96-0069-AH-M, which is currently pending in the
- ------------------
United States District Court for the Southern District of Alabama (the "Alabama
Action"); and Fyola et al. v. ABT Building Products Corporation, ABTco, Inc. and
------------------------------------------------------------------
Abitibi-Price Corporation, Docket No. 95-12854, which is currently pending in
- -------------------------
United States District Court for the Western District of Pennsylvania (the
"Pennsylvania Action").
8
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(6) Commitments and Contingencies (continued)
On December 21, 1995, plaintiffs Thomas and Linda Foster brought the Alabama
Action on behalf of themselves and a class generally composed of all individuals
and entities (i) that own or owned property in the United States on which
hardboard siding manufactured, distributed, or sold by the Company, ABTco or APC
has been installed and (ii) that have already suffered (or will suffer within
the warranty period) alleged damage because, according to plaintiffs, such
siding prematurely rots, buckles, swells, cracks, or otherwise deteriorates.
Plaintiffs and the class are seeking damages in unspecified amounts and an award
of attorneys' fees. The complaint alleges that the "aggregate amount in
controversy nationwide is in the millions of dollars." Plaintiffs also requested
injunctive relief, including relief that would require defendants, among other
things, to cease and desist from manufacturing, distributing, advertising and
marketing allegedly defective siding without disclosing its supposedly defective
nature.
On or about July 10, 1996, plaintiffs filed an amended complaint that is
substantially similar to plaintiffs' initial complaint, except the amended
complaint expressly states that plaintiffs do not seek any award of punitive or
treble damages, statutory attorneys' fees, or injunctive or equitable relief.
By order entered September 10, 1996, the United States District Court for the
Southern District of Alabama denied plaintiffs' motion to remand the Alabama
Action to the Circuit Court of Choctaw County, Alabama.
Counsel for plaintiffs in that Alabama Action has indicated in
correspondence that plaintiffs' counsel is considering filing an additional
putative class action in an unspecified state court. According to plaintiffs'
counsel, that additional putative class action would be based upon substantially
the same allegations as the Alabama Action, would involve substantially the same
parties as the Alabama Action, and would involve substantially the same requests
by plaintiffs for relief as the Alabama Action (except that, according to
plaintiffs' counsel, plaintiffs in the additional putative class action would
not seek any statutory attorneys' fees, consequential damages for structural
damages to plaintiffs' homes, or equitable relief). So far as the Company is
aware, plaintiffs' counsel has not actually filed any such additional putative
class action.
On August 8, 1995, plaintiffs Glenn Fyola, Patricia Fyola, Joyce D'Antonio,
and Kenneth Hyre filed the Pennsylvania Action on behalf of themselves and a
putative class composed of residential homeowners who reside in Pennsylvania and
whose homes have or had for their exterior siding a hardboard product which was
allegedly manufactured, distributed, or sold by the Company, ABTco or APC.
Plaintiffs allege that hardboard exterior siding on their homes has prematurely
rotted, warped, buckled and deteriorated. Plaintiffs are seeking compensatory
and punitive damages in unspecified amounts, including economic damages, treble
damages under the
9
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(6) Commitments and Contingencies (continued)
Pennsylvania Unfair Trade Practices and Consumer Protection Law, and an award of
attorneys' fees from the Company, ABTco, and APC.
The Company filed a third-party complaint dated November 21, 1995 against
additional defendants APC and Maronda Homes, Inc. In its third-party complaint,
the Company alleges that the hardboard siding at issue was manufactured by APC.
The Company also asserts that to the extent any hardboard siding involved in the
case was manufactured by ABTco and to the extent any such siding exhibited any
abnormal condition, that abnormal condition was caused by improper installation
of the siding by Maronda Homes, Inc. and its failure to follow applicable
building codes and application instructions. The Company's third-party complaint
asks that, should the Company be held liable to plaintiffs or the putative class
in any respect, judgments be entered against APC and Maronda Homes, Inc. holding
each of them liable to plaintiffs or to the Company.
Plaintiffs have moved to remand the Pennsylvania Action to the Court of
Common Pleas of Allegheny County, Pennsylvania. The court has not yet decided
that motion.
The Company intends to defend the Alabama Action and the Pennsylvania Action
vigorously.
The Company and certain officers were defendants in litigation in the
Circuit Court for the County of Oakland, Michigan, filed on December 12, 1995
(Pinckney Molded Plastics Inc. v ABT Building Products Corporation, et al.). On
May 1, 1996, the Company, and each of the other defendants, entered into a
settlement agreement with the plaintiff, Pinckney Molded Plastics, Inc. In
connection with the settlement agreement, the parties executed a Stipulation and
Order of Dismissal With Prejudice to the Circuit Court for the County of
Oakland, Michigan, which the court signed on July 8 and filed on July 10, 1996.
The settlement did not have a material impact on the financial condition of the
Company.
In addition, the Company is a party to various other legal proceedings
arising in the ordinary course of business, none of which, in management's
opinion is expected to have a material adverse effect on the Company's operating
results or financial condition.
10
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(7) Supplemental Cash Flow Disclosure
In addition to the information provided in the statements of cash flows, the
following is a supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
For Nine
Year Ended Months Ended
December 31, September 30,
1995 1996
<S> <C> <C>
Cash paid during period for --
Interest.......................................$ 4,834 $ 5,144
Income taxes.....................................10,833 6,701
</TABLE>
(8) Acquisitions
On April 3, 1995, the Company acquired KenTech, located in Hopkinsville,
Kentucky. The purchase price of KenTech was $14.1 million, which was funded from
drawings on the Company's revolving line of credit. The transaction was
accounted for under the purchase method of accounting, and, accordingly, the
Company's consolidated financial statements as of December 31, 1995 reflect the
results of operations of KenTech from the date of acquisition. The allocation of
the purchase price was based on estimates of the fair value of the net assets
acquired. This allocation is as follows:
<TABLE>
<CAPTION>
<S> <C>
Value assigned to assets and liabilities:
Cash $ 166
Accounts receivable 3,616
Inventories 4,237
Prepaid expenses 38
Property, plant and equipment 10,463
Other assets 1,412
Accounts payable and accrued liabilities (4,040)
Other liabilities (1,825)
-------
Total purchase price $14,067
=======
</TABLE>
On May 31, 1995, the Company acquired through its wholly-owned subsidiary,
ABT Canada, the Vinyl Division of EMCO Limited, located in Acton, Ontario. The
purchase price of the Vinyl Division was $33.0 million, which was funded from
drawings on the Company's revolving line of credit. The transaction was
accounted for under the
11
<PAGE>
ABT Building Products Corporation And Subsidiaries
Condensed Notes to Financial Statements
(8) Acquisitions (continued)
purchase method of accounting, and, accordingly, the Company's consolidated
financial statements as of December 31, 1995 reflect the results of operations
of the Vinyl Division from the date of acquisition. The allocation of the
purchase price was based on estimates of the fair value of the net assets
acquired. This allocation is as follows:
<TABLE>
<CAPTION>
<S> <C>
Value assigned to assets and liabilities:
Accounts receivable $ 4,541
Inventories 8,057
Prepaid expenses 276
Property, plant and equipment 22,022
Other assets 7,463
Accounts payable and accrued liabilities (8,721)
Other liabilities (622)
-------
Total purchase price $33,016
=======
</TABLE>
Presented below is the unaudited summarized pro forma statement of
operations for the nine months ended September 30, 1995. The statement gives
effect to the purchase of KenTech and the Vinyl Division as if such transactions
had taken place on January 1, 1995. These results include certain adjustments,
primarily for depreciation, interest and other expenses related to the
acquisitions, and are not necessarily indicative of what the results would have
been had the transactions actually occurred on such dates (in thousands, except
per share data).
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995
------------------
<S> <C>
Net sales $206,843
Net income 13,873
Earnings per common share $ 1.19
Average common shares outstanding 11,700
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
----------------------
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995
NET SALES
- ----------
Net sales increased by $21.7 million (32.6%) from $66.7 million for the
quarter ended September 30, 1995 to $88.4 million in the 1996 quarter. This
increase is attributable to increased sales in all of the Company's product
lines.
The increase in Plastics sales of $12.4 million was primarily due to
increased sales from two acquisitions during 1995. KenTech Plastics, a
manufacturer of plastic shutters, exterior accessories and industrial products,
was acquired in April, 1995. In June, 1995, the Company acquired the Vinyl
Siding Division of EMCO, Ltd., a manufacturer of vinyl siding and accessories.
Combined, the two acquisitions increased net sales by approximately $13.7
million in the 1996 quarter.
The increase in Hardboard-based Siding sales of $6.6 million was primarily
the result of price increases implemented during the first quarter of 1996. The
average selling price increased 15% over the same period last year. Shipments of
Hardboard-based Siding increased 6% for the three months ended September 30,
1996 when compared to the same period last year.
The increase in Interior Hardboard sales of $2.7 million was primarily the
result of new product introductions and price increases implemented during this
year. Unit volume shipments were 12% ahead of the same period last year and the
average selling price increased 3% when compared with the same period last year.
GROSS PROFIT
- ------------
Gross profit increased by $8.9 million (50.8%) from $17.6 million for the
three months ended September 30, 1995 to $26.5 million in the 1996 quarter. The
1995 acquisitions and price increases implemented on Hardboard-based Siding were
the principal contributors to the increase in gross profit. Interior Hardboard
products and lower thermoplastic resin costs also contributed to the gross
profit increases. Gross profit as a percentage of net sales increased from 26.3%
for the three months ended September 30, 1995 to 29.9% for the 1996 quarter
primarily due to price increases implemented during 1996 and the impact of lower
resin costs and volume increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- ---------------------------------------------
Selling, general and administrative expenses increased by $4.3 million
(47.8%) from $9.0 million for the three months ended September 30, 1995 to $13.3
million in the 1996 quarter. Selling, general and administrative expenses
increased $2.6 million as a result of the 1995 acquisitions, $0.4 million of the
increase represents legal fees incurred as a result of certain litigation ( see
Certain Litigation below ), with the balance of the increase primarily due to
increases in promotional expenses, allowances and bonuses, directly related to
the increase in sales and profitability over the 1995 period. Selling, general
and administrative costs as a percentage of net sales increased from 13.4% for
the three months ended September 30, 1995 to 15.0% for the 1996 quarter. The
increase is due to higher selling, general and administrative expenses as a
percentage of net sales for the 1995 acquisitions, as well as, the increase in
legal fees and bonuses.
OPERATING INCOME
- ----------------
Operating Income increased by $4.6 million (53.9%) from $8.6 million for the
three months ended September 30, 1995 to $13.2 million for the 1996 quarter. The
improvement is the result of the operating income generated by the 1995
acquisitions, as well as selling price increases, raw material price reductions
and volume increases.
OTHER INCOME (EXPENSE)
- ----------------------
Interest expense was slightly lower for the three month period ended
September 30,1996 when compared to the same period last year. Slightly higher
outstanding indebtedness was offset by a slight decline in the Company's
weighted average interest rate on outstanding borrowings during the three months
ended September 30, 1995 to as compared to the 1996 quarter.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995
(Continued)
NET INCOME
- ----------
Net Income increased by $2.8 million (69.2%) from $4.1 million for the three
months ended September 30, 1995 to $6.9 million for the 1996 quarter. The
increase is attributable to the factors discussed above.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
NET SALES
- ---------
Net sales increased by $62.0 million (33.9%) from $183.3 million for the
nine months ended September 30, 1995 to $245.3 million for the same period in
1996. This increase is attributable to increased sales in all of the Company's
product lines.
The increase in Plastics sales of $40.1 million was primarily due to the
impact of two acquisitions during 1995 (previously discussed). Combined, the two
acquisitions increased net sales by approximately $40.1 million in the 1996
period. Plastic sales were also favorably impacted by new plastic moulding
product introductions. Unit volume shipments for mouldings increased 13% over
the same period last year.
The increase in Hardboard-based Siding sales of $16.8 million was the result
of price increases implemented during the first quarter of 1996 as well as an
increase in demand for the product line (see Significant Business Trends
below). The average selling price increased 9% over the same period last year.
Shipments of Hardboard-based Siding increased 8% for the nine months ended
September 30, 1996 when compared to the same period last year.
The increase in Interior Hardboard sales of $5.1 million was primarily the
result of new product introductions and price increases implemented during this
year. Unit volume shipments were 8% ahead of the same period last year and the
average selling price increased 2% when compared with the same period last year.
GROSS PROFIT
- ------------
Gross profit increased by $21.0 million (41.1%) from $51.0 million for the
nine months ended September 30, 1995 to $72.0 million for the same period in
1996. The 1995 acquisitions and price increases implemented on Hardboard-based
Siding were the principal contributors to the increase in gross profit. Interior
Hardboard products, the demand for the company's Hardboard-based Siding product
line, new plastic moulding product introductions and lower thermoplastic resin
costs also contributed to gross profit. Gross profit as a percentage of net
sales increased from 27.8% for the period ended September 30, 1995 to 29.3% for
the 1996 period primarily due to price increases implemented during 1996, the
increase in demand for the Hardboard-based Siding product line, raw material
cost reductions and volume increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- ---------------------------------------------
Selling, general and administrative expenses increased by $12.3 million
(53.4%) from $23.0 million for the nine months ended September 30, 1995 to $35.3
million for the 1996 period. Selling, general and administrative expenses
increased $8.2 million as a result of the 1995 acquisitions, $0.9 million of the
increase represents legal fees incurred as a result of certain litigation ( see
Certain Litigation below ), with the balance of the increase primarily due to
increases in promotional expenses, allowances and bonuses, directly related to
the increase in sales and profitability over the 1995 period. Selling, general
and administrative costs as a percentage of net sales increased from 12.6% for
the nine months ended September 30, 1995 to 14.4% for the 1996 period. The
increase is due to higher selling, general and administrative expenses as a
percentage of net sales for the 1995 acquisitions, as well as, the increase in
legal fees and bonuses.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995 (Continued)
OPERATING INCOME
- ----------------
Operating Income increased by $8.7 million (31.0%) from $28.0 million for
the nine months ended September 30, 1996 to $36.7 million for the 1996 period.
The improvement is the result of the operating income generated by the 1995
acquisitions, as well as selling price increases, new product introductions, raw
material cost reductions and volume increases.
OTHER INCOME (EXPENSE)
- ----------------------
Interest expense increased by $1.5 million for the nine month period ended
September 30,1996 when compared to the same period last year. The increase is
attributable to higher outstanding indebtedness, partially offset by a slight
decline in the Company's weighted average interest rate on outstanding
borrowings during the nine months ended September 30, 1995 as compared to the
1996 period.
NET INCOME
- ----------
Net Income increased by $4.4 million (30.4%) from $14.5 million for the nine
months ended September 30, 1995 to $18.9 million for the 1996 period. The
increase is attributable to the factors discussed above.
SIGNIFICANT BUSINESS TRENDS
- ---------------------------
Management believes that the level of housing starts and expenditures for
home improvements have a significant influence on the Company's ability to
generate sales, particularly in relation to demand for its siding products. The
level of housing starts in the United States increased from 1.01 million in 1991
to 1.46 million in 1994, and decreased slightly to 1.44 million as of September,
1996. The level of housing starts in Canada decreased from 0.156 million in 1991
to 0.132 million in September, 1996. Although management is unable to predict
future levels of housing starts, management believes that introduction of new
products and acquisitions of product lines will allow the Company to maintain
levels of production and sales should housing starts decline.
The cost of thermoplastic resins (polystyrene, polypropylene, polyethylene
and polyvinyl chloride) used in the Company's Plastics operations increased
substantially during 1995 before declining somewhat during the fourth quarter of
1995 and the first half of 1996.
Two of the Company's largest hardboard-based siding product competitors
recently discontinued the production of certain "oriented strand board" ("OSB")
siding products. The discontinuation of these siding products has created an
increase in demand for the Company's hardboard-based siding products
manufactured at the Roaring River, NC facility.
Management also believes that continued penetration into the mass
merchandiser market will have a significant influence on the Company's level of
business activity. Management believes that this market will continue to grow in
importance to the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1996, the Company had working capital of $67.1 million with
a current ratio of 2.7 to 1.0 as compared with working capital of $55.8 million
and a current ratio of 3.4 to 1.0 at December 31, 1995. The increase in working
capital and the change in the current ratio were primarily due to the increase
in accounts receivable, partially offset by an increase in accounts payable at
September 30, 1996. The increases in accounts receivable and accounts payable
were a result of the increase in business activity in the third quarter of 1996
versus the last quarter of 1995.
Long-term debt increased from $84.5 million at December 31, 1995 to $92.5
million as of September 30, 1996. This increase of $8.0 million is net of $6.25
million of short-term maturities reclassified from long-term debt during 1996.
The increase in debt was primarily due to the increases in working capital and
fixed assets, offset, in part, by cash generated by operations.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
LIQUIDITY AND CAPITAL RESOURCES(Continued)
- ------------------------------------------
The Company has a line of credit totaling $175 million consisting of a $30
million primary revolving credit facility, a secondary revolving credit facility
of $95 million and a term loan facility. On April 3, 1995 the Company borrowed
$50 million under the term loan facility. The term loan requires quarterly
payments of interest only for the first two years and interest and principal (16
quarterly installments of $3.125 million) over the next four years. As of
September 30, 1996, the interest rate on the $50.0 million term loan was 7.99%
and the weighted average interest rate on the outstanding revolving loans of
$48.75 million was 6.3%.
In November 1995, the Board of Directors approved plans for the
construction of a facility which will manufacture a fiber-reinforced cement
plank or panel. This product, will be fire rated and will be both moisture and
insect resistant, will initially be produced as exterior siding in a wide
variety of simulated woodgrain surfaces, including fir and cedar. The Company
has executed various agreements to provide the primary production equipment and
for the construction of the facility. It is anticipated that the plant will be
completed in the second half of 1997. The estimated cost of construction is $55
million.
Capital expenditures during the nine months ended September 30, 1996
amounted to approximately $28.4 million, and were incurred primarily for
improvements of the Company's manufacturing facilities, including $15.6 million
related to the construction of the fiber cement facility.
Management believes that the Company's cash on hand, anticipated funds from
operations and available borrowings under the revolving credit facility will be
sufficient to cover both its short-term and long-term working capital, capital
expenditure and debt service requirements.
ENVIRONMENTAL COMPLIANCE
- ------------------------
The Company's operations are subject to federal and state government
regulations pertaining to air emissions, waste water discharge and solid waste
disposal. While environmental compliance costs in the future will depend on
regulatory developments that cannot be predicted, the Company believes that
compliance will be achieved with a combination of capital expenditures and
modifications to its production processes. As discussed more fully in Note 6 of
the Notes to the Financial Statements, the Company entered into a consent decree
with respect to odor emissions at its Alpena, Michigan facility requiring
estimated expenditures of $6 million to $12 million over the next three to four
years. The Company has instituted litigation to recover such costs from the
former owner of the facility. The Company does not anticipate that costs
relating to environmental activities will have a material adverse impact on its
financial condition or operating results.
CERTAIN LITIGATION
- ------------------
In recent years, a number of lawsuits have been brought against
manufacturers of OSB and hardboard-based siding products alleging various design
and production defects and breach of express or implied warranties. Such
litigation has resulted in substantial settlements by certain competitors of the
Company. The Company has recently been named as a defendant in similar
litigation (see Note 6 of the Notes to the Financial Statements). The Company
believes that its hardboard-based siding products are free of defects and, when
properly installed and maintained, are suitable for their intended purposes and
meet all applicable quality standards. Nevertheless, no assurance can be given
that the Company will not be required to expend significant resources to defend
against claims of this nature.
SEASONALITY
- -----------
The Company's quarterly results of operations are moderately seasonal due to
increases in construction activity that typically occur in the second and third
quarters and, to a lesser extent, the first quarter, thereby increasing sales
and gross profits in such periods as compared to the fourth quarter.
INFLATION
- ---------
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
16
<PAGE>
Part II: Other Information
- ---------------------------
Item 1. Legal proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
None
<PAGE>
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.
Date: November 11, 1996
ABT Building Products Corporation
/s/ Michael A. Lupo
-------------------------------
Michael A. Lupo
(Executive Vice President & CFO)
<TABLE> <S> <C>
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
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