<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 MARCH 31, 1997
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 May 14, 1997, the registrant had out
standing 10,526,160 shares of Common Stock.
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX
PART I: FINANCIAL STATEMENTS PAGE NUMBER
- ----------------------------- -----------
Unaudited Balance Sheets as of December 31, 1996
and March 31, 1997 3
Unaudited Statements of Income for the three
months ended March 31, 1996 and March 31, 1997 4
Unaudited Statements of Cash Flows for the three
months ended March 31, 1996 and March 31, 1997 5
Condensed Notes to Unaudited Financial
Statements 6 - 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 17
PART II: OTHER INFORMATION 18
- ---------------------------
Signature Page 20
<PAGE>
ABT Building Products Corporation and Subsidiaries
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31, 1996 March 31, 1997
----------------- --------------
(unaudited)
Assets
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 24 $ 1,501
Accounts receivable, less allowances of
$5,030 and $5,221, respectively 31,278 46,526
Inventories 47,237 55,886
Prepaid expenses 4,468 6,086
Deferred tax assets 765 1,211
------------ ------------
Total Current Assets 83,772 111,210
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Land 2,968 2,968
Buildings and improvements 28,700 28,773
Machinery and equipment 108,975 108,893
Furniture and fixtures 3,947 4,031
Construction in progress 45,525 62,590
------------ ------------
190,115 207,255
Less-Accumulated depreciation (25,646) (28,507)
------------ ------------
Net property, plant and equipment 164,469 178,748
OTHER ASSETS, Net 2,537 2,835
GOODWILL, Net 9,486 9,371
------------ ------------
Total Assets $ 260,264 $ 302,164
============ ============
<CAPTION>
Liabilities & Stockholders' Equity
<S> <C> <C>
CURRENT LIABILITIES
Current Maturities of Long-Term Debt 9,380 $ 12,505
Accounts Payable 15,432 22,337
Accrued Expenses 16,183 18,636
------------ ------------
Total Current Liabilities 40,995 53,478
LONG-TERM DEBT 90,691 112,700
OTHER LONG TERM LIABILITIES 6,957 7,139
DEFERRED INCOME TAXES 11,680 13,162
STOCKHOLDERS' EQUITY
Common stock 122 122
Additional paid-in capital 60,511 60,442
Cumulative translation adjustment (364) (705)
Retained earnings 76,637 82,791
Less: Treasury Shares (26,965) (26,965)
------------ ------------
Total Stockholders' Equity 109,941 115,685
------------ ------------
Total Liabilities and Stockholders' Equity $ 260,264 $ 302,164
============ ============
</TABLE>
See accompanying notes to the flnancial statements
3
<PAGE>
ABT Building Products Corporation and Subsidiaries
Statements of Income (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1997
-------- --------
<S> <C> <C>
NET SALES $74,362 $77,023
COST OF SALES 53,300 52,574
-------- --------
Gross profit 21,062 24,449
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,182 13,093
-------- --------
Operating income 10,880 11,356
OTHER INCOME (EXPENSE) (1,874) (1,331)
-------- --------
Income before income taxes 9,006 10,025
PROVISION FOR INCOME TAXES 3,525 3,871
-------- --------
Net Income $ 5,481 $ 6,154
======== ========
INCOME PER COMMON SHARE $0.48 $0.53
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 11,333 11,701
======== ========
</TABLE>
See accompanying notes to the financial statements
4
<PAGE>
ABT Building Products Corporation and Subsidiaries
Statement of Cash Flows (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,481 $ 6,154
Adjustments to reconcile net income to net cash provided
(used in) operating activities
Depreciation and amortization 3,044 3,749
Deferred income taxes 704 1,036
Cumulative translation adjustment (557) (341)
Changes in certain assets and liabilities-
Accounts receivable (21,498) (15,248)
Inventories (961) (8,649)
Other assets (1,459) (2,012)
Accounts payable and accrued expenses 8,844 9,540
-------- --------
Net cash provided by operating activities (6,402) (5,771)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,095) (17,817)
-------- --------
Net cash used in investing activities (5,095) (17,817)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (6,037) (2,866)
Proceeds from line of credit 17,500 28,000
Exercise of stock options (1) (69)
Payments for the purchase of treasury shares (1,701) 0
-------- --------
Net cash provided by financing activities 9,761 25,065
-------- --------
Net increase in cash (1,736) 1,477
CASH, beginning of period 2,317 24
-------- --------
CASH, end of period $ 581 $ 1,501
======== ========
</TABLE>
5
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited 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, 1996. 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 December 31, 1996, and March 31, 1997,
and the consolidated statements of operations and cash flows for the three
months ended March 31, 1996 and 1997, 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, MARCH 31,
1996 1997
------------ ---------
<S> <C> <C>
Finished products and work in $ 30,330 $ 38,347
process
Raw materials 8,954 10,112
Operating parts and supplies 7,953 7,427
$ 47,237 $ 55,886
========= ========
</TABLE>
6
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(4) LONG-TERM DEBT
Long-term debt as of December 31, 1996, and March 31, 1997, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
---------- ---------
Total debt---
<S> <C> <C>
Revolving line of credit $ 50,065 $ 75,200
Term loan 50,000 50,000
Capital lease obligations 6 5
---------- ---------
100,071 125,205
Less---current maturities (9,380) (12,505)
TOTAL LONG-TERM DEBT $ 90,691 $ 112,700
========== =========
</TABLE>
(5) STOCKHOLDERS' EQUITY
Stockholders' Equity as of December 31, 1996, and March 31, 1997, 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, 1996 $ 122 $ 60,511 $ (364) $ 76,637 $ (26,965)
Cumulative translation (341)
adjustment
Exercise of stock options (69)
Purchase of treasury shares
Net income through March
31, 1997 6,154
March 31, 1997 $ 122 $ 60,442 $ (705) $ 82,791 $ (26,965)
========== ============= ============ ============ =============
</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 March 31, 1997, the Company had repurchased 1,685,000
shares for a total cost of $26,964,670. 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 Unaudited Financial Statements
(5) STOCKHOLDERS' EQUITY (CONTINUED)
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share and is effective for
financial statements for both interim and annual periods ended after December
15, 1997. SFAS No. 129 Disclosure of Information about Capital Structure has
been issued and is effective for financial statements for annual periods ended
after December 15, 1997. The expected impact of the adoption of these standards
will not be material.
(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 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, and APC's corporate parent Abitibi-Price, Inc. ("API"). Accordingly,
on November 27, 1995, the Company and ABTco commenced an action against APC and
API 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.
8
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The complaint initially asserted claims for breach of contract, fraudulent non-
disclosure and fraudulent misrepresentation. The Company and ABTco 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 and ABTco proceeded with their claims for breach of contract.
Discovery was completed. The Company and ABTco moved for summary judgment on
liability only; APC and API moved for summary judgment dismissing the remaining
claims in the complaint. By opinion and order dated March 28, 1997 (the
"Order"), the Circuit Court for the County of Oakland, Michigan, granted
defendants' motion for summary judgment, and denied plaintiffs' motion for
summary judgment, on plaintiffs' claim for breach of contract, thereby
dismissing the case. On April 15, 1997, the Company and ABTco filed a claim of
appeal from the Order in the Court of Appeals for the State of Michigan. By
application to the Court of Appeals dated April 30, 1997, defendants APC and API
indicated their intention to cross-appeal from the Order or, in the alternative,
to argue that the Order should be affirmed on grounds other than those expressly
considered by the Circuit Court.
The Company and ABTco have been named as defendants in a class action and
three separate putative class actions arising from hardboard siding
manufactured, distributed, or sold by them or by APC or API:
(1) Fyola et al. v. ABT Building Products Corporation, ABTco, Inc. and
------------ --------------------------------------------------
Abitibi-Price Corporation, Docket No. 95-12854, Court of Common Pleas of
- -------------------------
Allegheny County, Pennsylvania.
On August 8, 1995, plaintiffs Glenn Fyola, Patricia Fyola, Joyce D'Antonio,
and Kenneth Hyre filed this action in the Court of Common Pleas of Allegheny
County, Pennsylvania against the Company. Plaintiffs alleged that they were
suing 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. The original complaint alleged that the
exterior siding on plaintiffs' homes had prematurely rotted, warped, buckled,
and deteriorated. Plaintiffs asserted purported claims for breach of implied
warranty of merchantability, breach of implied warranty of fitness, breach of
express warranty, violation of the Pennsylvania Unfair Trade Practice and
Consumer Protection Law, and deceit by concealment. Plaintiffs, on behalf of
themselves and the putative class, sought compensatory and punitive damages in
unspecified amounts, including economic damages, treble damages under the
Pennsylvania Unfair Trade Practice and Consumer Protection Law, and an award of
attorneys' fees.
9
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company filed an "Answer and New Matter" on October 31, 1995, that denied
all material allegations of the complaint and asserted affirmative defenses.
The Company also filed a third-party complaint against additional defendants APC
and Maronda Homes, Inc. The third-party complaint asserted a single count
against
APC. In that count, the Company alleged that the hardboard siding at issue was
manufactured by APC and that, as a result, APC "may be solely liable for the
causes of action pleaded by plaintiffs assuming arguendo said causes of action
--------
have any validity." The third-party complaint also asserted a single count
against Maronda Homes, Inc. In that count, the Company asserted that to the
extent any hardboard siding involved in the case was manufactured by ABTco
(which the Company denies), and to the extent any such siding exhibited any
abnormal condition, that abnormal condition was a direct result of 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 asked 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 solely liable to plaintiffs, liable over to
the Company by way of contribution and/or indemnity, or jointly and severally
liable to plaintiffs with the Company.
On February 5, 1996, plaintiffs filed an amended complaint adding ABTco and
APC as defendants. Plaintiffs allege that hardboard exterior siding on their
homes has prematurely rotted, warped, buckled, and deteriorated. Plaintiffs and
the putative class are seeking compensatory damages in unspecified amounts,
including economic damages, treble damages under the Pennsylvania Unfair Trade
Practice and Consumer Protection Law, and an award of attorneys' fees from the
Company, ABTco and APC.
The action was removed to the United States District Court for the Western
District of Pennsylvania. By order dated November 25, 1996, that Court remanded
the action to the Court of Common Pleas for Allegheny County.
In response to the amended complaint, defendants filed an "Answer and New
Matter" dated December 27, 1996, that denies all material allegations of the
amended complaint and asserts affirmative defenses. Plaintiffs are currently
seeking discovery from defendants. On March 18, 1997, plaintiffs filed a motion
seeking certification of the putative class. Briefing on that motion is not
complete, and the court has not yet decided the motion. On March 25, 1997,
defendants filed a motion seeking a stay of the action or, in the alternative,
an order limiting discovery to certification-related issues until the court
rules upon plaintiffs' motion for class certification. The court has not yet
decided that motion. The action has not been certified as a class action.
10
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and ABTco intend to defend the action vigorously.
(2) Foster et al. v. ABTco, Inc., ABT Building Products Corporation, Abitibi-
------------- -------------------------------------------------------
Price, Inc. and Abitibi-Price Corporation, Docket No. 96-0069-AH-M, United
- -----------------------------------------
States District Court for the Southern District of Alabama.
On December 21, 1995, plaintiffs Thomas and Linda Foster brought this action
in the Circuit Court of Choctaw County, Alabama, 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, API, 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 filed an amended
complaint on July 10, 1996.
Plaintiffs and the putative class are seeking compensatory damages and an award
of attorneys' fees. The complaint alleges that the "amount in controversy is in
the millions of dollars classwide and is typically several thousand dollars for
each plaintiff and individual class member."
On December 22, 1995, this action was conditionally certified as a class
action by ex parte order.
-- -----
On January 23, 1996, defendants removed the action to the United States
District Court for the Southern District of Alabama. By order dated September
10, 1996, that court denied plaintiffs' motion to remand the action to the
Circuit Court of Choctaw County, Alabama. On October 31, 1996, defendants filed
an answer that denies all material allegations of the amended complaint and
asserts affirmative defenses. By order dated December 31, 1996, the District
Court denied plaintiffs' motion for reconsideration of its order of September
10, 1996, or in the alternative for certification of that order for
interlocutory appeal. On February 26, 1997, the United States Court of Appeals
for the Eleventh Circuit denied plaintiffs' petition for writ of mandamus, which
--------
sought to overturn the District Court's denial of plaintiffs' motion to remand
the action.
On March 19, 1997, the court entered an order establishing a schedule for
discovery concerning issues that are relevant to class certification. After
certification-related discovery is completed, the conditional order of
certification already entered in the action may be challenged.
The Company and ABTco intend to defend the action vigorously.
11
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(3) Dunn et al. v. ABTco, Inc., ABT Building Products Corporation, Abitibi-
----------- -------------------------------------------------------
Price, Inc. and Abitibi-Price Corporation, Docket No. 96-CVS7690, Superior Court
- -----------------------------------------
of Forsyth County, North Carolina.
On December 27, 1996, plaintiffs William Dunn and Paul and Teresa Sullivan
brought this action on behalf of themselves and a putative 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, API 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 putative class are seeking
compensatory damages and an award of attorneys' fees. The complaint alleges
that the "aggregate amount in controversy is in the millions of dollars
classwide." This action has not been certified as a class action. On January
28, 1997, all defendants moved to abate or stay the action. That motion was
argued on February 14, 1997. By order signed on February 18, 1997, the court
denied the motion to abate but granted the motion to stay.
The Company and ABTco intend to defend the action vigorously.
(4) Ezzell et al. v. ABTco, Inc., ABT Building Products Corporation, Abitibi-
------------- -------------------------------------------------------
Price, Inc. and Abitibi-Price Corporation, No. 97-CVS-167, Superior Court of
- -----------------------------------------
Onslow County, North Carolina.
On January 21, 1997, plaintiffs John and Rosemary Ezzell filed this action on
behalf of themselves and a putative 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, API,
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, discolors, deteriorates, and otherwise
does not perform as expressly represented or warranted, and/or would not perform
in accordance with the reasonable expectations of class members and other
consumers that such siding is durable, suitable and proper to be used on
personal residences or other properties. The complaint alleges that "the
aggregate amount in controversy is typically several thousand dollars for each
plaintiff and individual class member." On March 27, 1997, the Company and
ABTco served an answer that denies all material allegations of the complaint and
asserts affirmative defenses. The action has not been certified as a class
action.
12
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and ABTco intend to defend the action vigorously.
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, are
expected to have a material adverse effect on the Company's operating results or
financial condition.
(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 THREE FOR THREE
MONTHS ENDED MONTHS ENDED
<S> <C> <C>
MARCH 31, MARCH 31,
1996 1997
----- ------
Cash paid during period for --
Interest....................... $ 512 $1,937
Income taxes................... 307 649
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
- ---------------------------------------------------------------------
NET SALES
- ---------
Net sales increased by $2.6 million (3.6%) from $74.4 million for the
quarter ended March 31, 1996 to $77.0 million in the 1997 quarter. This increase
is attributable to increased sales in the Interior Hardboard and Exterior
Hardboard Siding product lines, partially offset by a decrease in Plastics
product sales.
The increase in Exterior Hardboard Siding sales of $2.8 million was
primarily the result of price increases implemented during 1996. The average
selling price increased 16% over the same period last year. Shipments of
Exterior Hardboard Siding decreased 7% for the three months ended March 31, 1997
when compared to the same period last year. The sales volume decline was
principally due to a reduction in inventory during the first quarter of 1996 in
order to meet strong customer demand.
The increase in Interior Hardboard sales of $2.4 million was primarily the
result of new product introductions and strong demand for the Company's doorskin
products. Unit volume shipments were 7% ahead of the same period last year and
the average selling price increased 3% when compared with the same period last
year.
Plastic sales were negatively impacted by severe weather in the mid-western
states. As a result, sales for the quarter ended March 31, 1997 were $2.6
million lower than the same period last year. The average selling prices for all
product lines were lower than the same period last year primarily due to sales
mix. Unit volume shipments for Plastic shutters and mouldings were off 16% and
4% respectively, when compared to the same period last year. Vinyl siding
shipments were up 16% over the same period last year however; shipments were
below expectations.
GROSS PROFIT
- ------------
Gross profit increased by $3.4 million (16.1%) from $21.1 million for the
three months ended March 31, 1996 to $24.5 million in the 1997 quarter. Selling
price increases implemented on Exterior Hardboard Siding and strong demand for
the Interior Hardboard doorskin product line were the principal contributors to
the increase in gross profit. These increases were partially offset by higher
thermoplastic resin costs. Gross profit as a percentage of net sales increased
from 28.3% for the three months ended March 31, 1996 to 31.7% for the 1997
quarter primarily due to price increases implemented during 1996, strong demand
for the doorskin product line and volume increases in the vinyl siding product
line.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- ---------------------------------------------
Selling, general and administrative expenses increased by $2.9 million
(28.6%) from $10.2 million for the three months ended March 31, 1996 to $13.1
million in the 1997 quarter. Selling, general and administrative expenses
increased $0.8 million as a result of an increase in advertising and promotional
expenditures, $0.3 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 salaries and facility expense
related to the development of the Company's distribution centers in Holly
Springs, MS. and Acton, Ontario. Selling, general and administrative costs as a
percentage of net sales increased from 13.7% for the three months ended March
31, 1996 to 17.0% for the 1997 quarter. The higher cost as a percentage of net
sales is due to lower than expected sales in the Plastics product lines that
were impacted by severe weather in the mid-western states and the increase in
legal fees as discussed above.
OPERATING INCOME
- ----------------
Operating Income increased by $1.0 million (11.3%) from $9.0 million for
the three months ended March 31, 1996 to $10.0 million for the 1997 quarter. The
improvement is the result of the operating income generated by the selling price
increases implemented during 1996 and strong demand for the Company's Exterior
Hardboard Siding and the doorskin products, partially offset by some raw
material price increases.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
- ---------------------------------------------------------------------
(CONTINUED)
- -----------
OTHER INCOME (EXPENSE)
- ----------------------
Interest expense decreased $0.6 million from $1.9 million in first quarter
1996 to $1.3 million (net of $0.8 million of capitalized interest) in first
quarter 1997. 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 March 31, 1997 as compared to the 1996 quarter.
NET INCOME
- ----------
Net Income increased by $0.7 million (12.3%) from $5.5 million for the
three months ended March 31, 1995 to $6.2 million for the 1997 quarter. 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 1.52 million as of February , 1997. The level of housing starts in Canada
decreased from 0.156 million in 1991 to 0.142 million in February 1997.
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 remaining at that level during 1996. Thermoplastic resin costs have
increased during the first quarter of 1997. Management believes that product
price increases, continuing cost reduction programs and increased production
efficiencies will counteract, to some extent, the impact of raw material price
increases.
In late 1995, two of the Company's largest exterior hardboard siding
product competitors announced the discontinuation the production of certain
"oriented strand board" ("OSB") siding products (see Certain Litigation). The
discontinuation of these siding products has created an increase in demand for
the Company's exterior hardboard 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 March 31, 1997, the Company had working capital of $57.7 million with a
current ratio of 2.1 to 1.0 as compared with working capital of $42.8 million
and a current ratio of 2.0 to 1.0 at December 31, 1996. 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
March 31, 1997. The increases in accounts receivable and accounts payable were a
result of the increase in business activity in the first quarter of 1997 versus
the last quarter of 1996.
Long-term debt increased from $90.7 million at December 31, 1996 to $112.7
million as of March 31, 1996. This increase of $22.0 million is net of $3.1
million of short-term maturities reclassified from long-term debt at March 31,
1997. The increase in debt was primarily due to the increases in working
capital and capital expenditures, offset, in part, by cash generated by
operations.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
- ---------------------------------------------------------------------
(CONTINUED)
- -----------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
In March 1997, the Company and its bank group executed a Third Amended and
Restated Credit Agreement ("Credit Agreement") which replaced all prior credit
agreements. The Credit Agreement provides a line of credit to the Company
totaling $250 million consisting of a $175 million continuing revolving credit
facility, a $25 million 364-day line of credit and a term loan facility under
which the Company borrowed $50 million on April 3, 1995. The Credit Agreement
matures on March 10, 2002, subject to extension for additional one-year periods.
The term loan requires 16 equal quarterly principal payments of $3.125 million
commencing on June 30, 1997, and continuing through March 31, 2001. As of March
31, 1997, 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 $75.2
million was 6.1%.
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, will be both moisture and
insect resistant, and 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 for 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 three months ended March 31, 1997 amounted
to approximately $17.8 million, and were incurred primarily for improvements of
the Company's manufacturing facilities, including $11.5 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. The Company instituted
litigation to recover such costs from the former owner of the facility, but the
trial court dismissed the litigation. The Company has filed a claim of appeal
from the trial court's decision to dismiss the litigation. 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 exterior hardboard 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 exterior hardboard 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.
16
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996
- ---------------------------------------------------------------------
(CONTINUED)
- -----------
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.
PRIVATE SECURITIES LITIGATION REFORM ACT DISCLOSURE
- ---------------------------------------------------
This report contains various forward looking statements, including
financial, operating and other projections. There are many factors that could
cause actual results to differ materially, including adoption of new
environmental laws and regulations and changes in how they are interpreted and
enforced; general business conditions, such as level of competition, changes in
demand for the Company's products and strength of the economy in general. These
and other factors are discussed in this report, the Company's Annual Report on
Form 10-K and other documents the Company has filed with the Securities and
Exchange Commission.
17
<PAGE>
PART II: OTHER INFORMATION
- ---------------------------
Item 1. Legal proceedings
See Note 6 to the Company's Consolidated Financial
Statements.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following items have been submitted for approval by the
holders of the Company's common stock at the 1996 Annual Meeting
held on April 30, 1997.
1. Election of Directors
George T. Brophy
Warner C. Frazier
Samuel P. Frieder
James A. Kohlberg
W. Dexter Paine, III
George W. Peck IV
Nelson J. Rohrbach
2. Ratification of the appointment of Arthur Andersen, LLP as
independent auditors for the year ended December 31, 1997.
10,526,160 shares were outstanding at the Record Date of
March 7, 1997.
18
<PAGE>
PART II: OTHER INFORMATION (continued)
- ---------------------------
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
19
<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 under
signed thereunto duly authorized.
Date: May 14, 1997
ABT BUILDING PRODUCTS CORPORATION
/s/ Michael A. Lupo
------------------------------------------
Michael A. Lupo
(Executive Vice President & CFO)
20
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