<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, 1998
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: (920) 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 May13,1998, the registrant had outstanding
10,674,160 shares of Common Stock.
<PAGE>
ABT BUILDING PRODUCTS CORPORATION and Subsidiaries
INDEX
<TABLE>
<CAPTION>
Part I: Financial Statements Page Number
- ------------------------------ -----------
<S> <C>
Unaudited Balance Sheets as of December 31, 1997
and March 31, 1998 3
Unaudited Statements of Income for the three
months ended March 31, 1997 and March 31, 1998 4
Unaudited Statements of Cash Flows for the three months
ended March 31, 1997 and March 31, 1998 5
Condensed Notes to Unaudited Financial
Statements 6 - 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations 19 - 23
Part II: Other Information 24
- ---------------------------
Signature Page 25
</TABLE>
<PAGE>
ABT Building Products Corporation and Subsidiaries
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
(unaudited)
Assets
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 329 $ 31
Accounts receivable, less allowances of
$6,303 and $4,725, respectively 29,395 49,135
Inventories 57,682 62,406
Prepaid expenses 5,305 7,177
Deferred tax assets 1,313 1,559
-------------- --------------
Total Current Assets 94,024 120,308
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Land 4,063 4,133
Buildings and improvements 44,153 44,153
Machinery and equipment 168,071 167,719
Furniture and fixtures 5,227 5,241
Construction in progress 18,140 21,170
-------------- --------------
239,654 242,416
Less accumulated depreciation (42,660) (46,448)
-------------- --------------
Net property, plant and equipment 196,994 195,968
OTHER ASSETS, Net 9,917 11,063
GOODWILL, Net 8,297 8,170
-------------- --------------
Total Assets $ 309,232 $ 335,509
============== ==============
Liabilities & Stockholders' Equity
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,501 $ 12,500
Accounts payable 14,467 13,657
Accrued expenses 11,373 19,274
-------------- --------------
Total Current Liabilities 38,341 45,431
LONG-TERM DEBT 120,410 135,102
OTHER LONG TERM LIABILITIES 7,279 7,440
DEFERRED INCOME TAXES 18,361 18,884
STOCKHOLDERS' EQUITY
Common stock 122 122
Additional paid-in capital 59,926 59,701
Cumulative translation adjustment (1,556) (1,313)
Retained earnings 92,127 94,923
Less treasury shares (25,778) (24,781)
-------------- --------------
Total Stockholders' Equity 124,841 128,652
-------------- --------------
Total Liabilities and Stockholders' Equity $ 309,232 $ 335,509
============== ==============
</TABLE>
See accompanying notes to the 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
MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
NET SALES $ 77,023 $ 75,701
COST OF SALES 52,574 56,743
------------- -------------
Gross Profit 24,449 18,958
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 13,093 12,047
------------- -------------
Operating Income 11,356 6,911
OTHER INCOME (EXPENSE) (1,331) (2,402)
------------- -------------
Income before income taxes 10,025 4,509
PROVISION FOR INCOME TAXES 3,871 1,713
------------- -------------
Net income $ 6,154 $ 2,796
============= =============
INCOME PER COMMON SHARE
BASIC $ 0.58 $ 0.26
============= =============
DILUTED $ 0.53 $ 0.25
============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 10,526 10,623
============= =============
DILUTED 11,701 11,388
============= =============
</TABLE>
See accompanying notes to the financial statements
4
<PAGE>
ABT Building Products Corporation and Subsidiaries
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $6,154 $2,796
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 3,749 4,770
Deferred income taxes 1,036 277
Cumulative translation adjustment (341) 243
Changes in certain assets and liabilities-
Accounts receivable (15,248) (19,740)
Inventories (8,649) (4,724)
Other assets (2,012) (3,069)
Accounts payable and accrued expenses 9,540 7,252
----------- -----------
Net cash provided by (used in) operating activities (5,771) (12,195)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (17,817) (3,566)
----------- -----------
Net cash used in investing activities (17,817) (3,566)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit 25,134 14,691
Exercise of stock options (69) 772
----------- -----------
Net cash provided by financing activities 25,065 15,463
----------- -----------
Net increase (decrease) in cash 1,477 (298)
Cash and Cash equivalents, beginning of period 24 329
----------- -----------
Cash and Cash equivalents, end of period $1,501 $31
=========== ===========
</TABLE>
See accompanying notes to the financial statements
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, 1997. 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, 1997, and March 31,
1998, and the consolidated statements of operations and cash flows for the three
months ended March 31, 1997 and 1998, include the accounts of ABT BUILDING
PRODUCTS CORPORATION, a Delaware corporation ("ABT"), and its wholly owned
subsidiaries ABTCO, Inc. ("ABTCO") and ABT Canada, Limited ("ABT Canada")
(collectively referred to as the "Company").
In April 1998, the AICPA issued Statement of Position 98-5 "
Reporting on Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
non-government entities to expense start-up costs, including organization costs,
as incurred. SOP 98-5 is effective for financial statements for periods
beginning after December 15, 1998 (the Company's fiscal year beginning January
1, 1999). When adopted, all capitalized start-up costs must be expensed and
recorded as a change in accounting principle. The Company has approximately $2.9
million of capitalized start-up costs recorded on its balance sheet as of March
31, 1998. The Company is studying the potential impact of the SOP 98-5 and has
not decided when it will adopt the new standard.
6
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(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 (in thousands).
December 31, March 31,
1997 1998
------------ ---------
Finished products and work in
process $ 38,935 $ 44,955
Raw materials 9,560 8,623
Operating parts and supplies 9,187 8,828
============ =========
$ 57,682 $ 62,406
============ =========
(4) LONG-TERM DEBT
Long-term debt as of December 31, 1997, and March 31, 1998, consisted
of the following (in thousands):
December 31, March 31,
1997 1998
----------- ---------
Total debt---
Revolving line of credit $ 80,675 $ 97,200
Term loans 40,625 37,500
Mississippi Business Finance Corp. Bonds:
Series 1997A 1,000 1,000
Series 1997B 10,610 11,902
Capital lease obligations 1 --
---------- ----------
132,911 147,602
Less---current maturities (12,501) (12,500)
========== ==========
Total long-term debt $ 120,410 $ 135,102
========== ==========
On April 1, 1997 the Company entered into a loan agreement with the
Mississippi Business Finance Corporation for the issuance of $1 million Variable
Rate Demand Revenue Bonds (Series 1997A) and $16.5 million Taxable Variable Rate
Demand Revenue Bonds (Series 1997B) to finance the acquisition and retrofitting
of a vinyl siding manufacturing facility in Holly Springs, Mississippi. The
bonds bear interest rates determined weekly by the remarketing agent. The
interest rates at March 31, 1998 were 3.90% and 5.65%, respectively. The bonds
mature on April 1, 2022 and are backed by Irrevocable Letters of Credit issued
under the Company's Revolving Credit Agreement. The amounts included in total
debt reflect drawings against the proceeds of the issued amount of the bonds.
7
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(5) STOCKHOLDERS' EQUITY
In 1998 the Company adopted Statement of Financial Accounting
Standards "SFAS" No. 130, "Reporting Comprehensive Income", which requires
companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The Company has chosen to
disclose Comprehensive Income, which encompasses net income and foreign currency
translation adjustments, in the notes to the condensed consolidated financial
statements for interim reporting purposes.
Total Comprehensive Income for the three months ended March 31, 1997
and 1998 was as follows:
1997 1998
-------- --------
Net Income $ 6,154 $ 2,796
Cumulative Translation Adjustment (341) 243
-------- --------
Total Comprehensive Income $ 5,813 $ 3,039
-------- --------
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, 1998, the Company had
repurchased 1,552,000 shares for a total cost of $24,780,690 (net of shares
reissued). The cost to repurchase the treasury shares has been recorded as a
reduction of stockholders' equity.
(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.
8
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
The Company and ABTco have been named as defendants in a class action and
five separate putative class actions (the "Hardboard Siding Actions") arising
from hardboard siding manufactured, distributed, or sold by them or by
Abitibi-Price Corporation ("APC"), Abitibi-Price, Inc. ("API") or
Abitibi-Consolidated, Inc. ("ACI"). APC, API, and ACI have also been named as
defendants in these actions, and APC has been named a defendant in certain other
actions, which may result in liability for the Company under the terms of the
Indemnity Settlement as described below:
(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 (the "Fyola Action").
-----
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.
The Company filed an "Answer and New Matter" on October 31, 1995, that
denied all material allegations of the complaint and asserted affirmative
defenses.
On February 5, 1996, plaintiffs filed an amended complaint adding ABTco
and APC as defendants. The amended complaint was otherwise substantially similar
to the original complaint.
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.
9
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. 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. On May 30, 1997, the
Court of Common Pleas of Allegheny County entered an order staying this action
pending a decision by the United States District Court for the Southern District
of Alabama as to whether the conditional order of certification already entered
in the Foster Action (which is discussed below) should be upheld, or whether the
classes and subclasses already conditionally certified in that action should be
decertified. The Fyola Action has not been certified as a class action.
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. CV-95-151 M,
- --------------------------------------------------
Circuit Court for Choctaw County, Alabama (the "Foster Action").
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 November 21,
1977, that Court remanded the action to the Circuit Court of Choctaw County,
Alabama, where it is currently pending. On October 31, 1996, defendants filed an
answer that denies all material allegations of the amended complaint and asserts
affirmative defenses.
10
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The parties are currently conducting certification discovery.
The Company and ABTco intend to defend the action vigorously.
(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. By order signed on
February 18, 1997, the court granted defendants' motion to stay the action,
without prejudice to a motion by either party for reconsideration of the stay
upon loss of jurisdiction over the Foster Action by the federal and state
courts.
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.
11
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
By order signed on October 2, 1997, the court granted defendants' motion
to stay the action, provided that in the event the court in the Foster Action
shall enter an order decertifying, in whole or in part, the classes and
subclasses conditionally certified in that action in such a way that the
representative plaintiffs in this action are not represented in that action, the
plaintiffs in this action may move for reconsideration of the stay.
The Company and ABTco intend to defend the action vigorously.
(5) Fiedler et al. v. ABT Building Products Corporation, ABTco, Inc.,
-------------- -----------------------------------------------
Abitibi-Price, Corp. and Abitibi-Consolidated, Inc., Civil Action No.
- ----------------------------------------------
97-CP-08-1545, Court of Common Pleas of Berkeley County, South Carolina.
On September 25, 1997, plaintiffs Nancy Fiedler and Daniel Gaines brought
this action on behalf of themselves and a putative class composed of all past
and present owners of mobile homes who reside or resided in South Carolina and
whose mobile homes had compressed wood fiber exterior siding designed, marketed,
or manufactured by the Company, ABTco, APC or ACI. Plaintiffs' complaint alleges
that defendants' siding is defective and fails to perform as warranted by
prematurely deteriorating, rotting, swelling, cracking, splitting, delaminating,
absorbing water, warping, bulging and/or buckling under normal conditions and
exposure. Plaintiffs' complaint asserts purported claims for breach of express
warranty, breach of implied warranty of merchantability, negligence/ negligence
per se/gross negligence and strict liability in tort. Plaintiffs, on behalf of
themselves and the putative class, seek actual, consequential and punitive
damages "not to exceed $74,999.00 per class member," and the costs and expenses
of the lawsuit. The action has not been certified as a class action.
On October 29, 1997, defendants removed the action to the United States
District Court for the District of South Carolina. On November 5, 1997,
defendants served an answer that denies all material allegations of the
complaint and asserts affirmative defenses. With consent of defendants, the
District Court remanded the case to the Court of Common Pleas of Berkeley County
by order dated Decem- ber 10, 1997. On February 11, 1998, defendants moved to
stay the action. On April 9, 1998, the Court denied that motion. The action is
currently in discovery.
The Company and ABTco intend to defend the action vigorously.
12
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(6) Jackson et al. v. ABTco, Inc., Abitibi-Price Corporation,
---------------------------------------------------------
Abitibi-Consolidated, Inc., Stone Container Corporation, Stone Consolidated
- ---------------------------------------------------------------------------
Corporation, Destiny Industries, Inc., Oakwood Homes Corporation, Case No.
- -----------------------------------------------------------------
98-CV115-RH, United States District Court for the Northern District of Florida
(the "Jackson Action").
-------
On March 11, 1998, plaintiffs Tom Jackson and Lloyd and Gladys Decker
brought this action in the Circuit Court of Bay County, Fourteenth Judicial
Circuit, Florida, on behalf of themselves and a putative class composed of
residents of the United States who have purchased hardboard siding from
defendants (including ABTco, Inc., APC and ACI) from January 1, 1980, until the
date of the filing of the complaint. Plaintiffs' complaint alleges that
defendants knowingly manufactured, distributed and falsely advertised a
defective hardboard siding product that discolors, deteriorates, causes damage
to other structures and otherwise does not perform as represented and warranted
and/or perform with the reasonable expectations of plaintiffs. Plaintiffs'
complaint asserts purported claims for fraud, intentional suppression, willful
representation, reckless representation, fraud-reasonable expectations,
post-sale fraud, post-sale suppression, post-sale reckless misrepresentation,
negligence, wanton misconduct, nuisance, breach of express warranty, breach of
implied warranty of merchantability, breach of implied warranty of fitness, and
violation of the Magnusson-Moss Act. Plaintiffs, on behalf of themselves and the
putative class, seek compensatory damages, attorneys' fees, and declaratory and
injunctive relief. The action has not been certified as a class action.
On May 1, 1998, all defendants removed the action to the United States
District Court for the Northern District of Florida. On May 12, 1998, ABTco,
APC, and ACI served an answer that denies all material allegations of the
complaint and asserts affirmative defenses.
ABTco intends to defend the action vigorously.
(7) Lillis et al. v. Abitibi-Price Corporation and Sunstate Manufactured
------------- ---------------------------------------------------
Homes of Georgia, Inc. d/b/a Peach State Homes, Inc., Case No. 97-18136 CA21,
- -----------------------------------------------------
Circuit Court of Dade County, Florida (the "Lillis Action").
On August 13, 1997, plaintiff Gloria Lillis filed this action in the
Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida
against APC and Sunstate Manufactured Homes of Georgia, Inc. The plaintiff
alleged that she was suing APC on behalf of herself and a putative class
composed of all persons who purchased in the State of Florida a new manufactured
home with APC hardboard siding. Plaintiff's complaint alleges that APC's
hardboard siding is defective because under normal maintenance it deteriorates,
delaminates, disintegrates, and
13
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
has virtually no resistance to moisture. Plaintiff's complaint against APC
asserts purported claims for breach of express warranty and a Florida statutory
claim for failure satisfactorily to resolve a warranty claim. Plaintiff, on
behalf of herself and the putative class, seeks compensatory damages, attorneys'
fees, costs and interest.
On September 17, 1997, defendants removed the action to the United States
District Court for the Southern District of Florida. On April 23, 1998, the
Court dismissed the action without prejudice by reason of the pendency of the
Foster Action.
(8) Arredondo, et al. v. Masonite Corporation, Abitibi-Price Corporation,
----------------- ------------------------------------------------
MG Building Materials, Inc., and Nu-Air Manufacturing Co., Inc., Cause No. 4571,
- ----------------------------------------------------------------
District Court of Jim Hogg County, Texas (the "Arredondo Action"); and Adams, et
--------- ---------
al. v. Masonite Corporation, Abitibi-Price Corporation, MG Building Materials,
- --- -----------------------------------------------------------------------
Inc. and Nu-Air Manufacturing Co., Inc., Cause No. 16707, District Court of
- ----------------------------------------
Duval County, Texas, (the "Adams Action").
-----
On August 30, 1996, two consolidated actions, the Adams Action, filed in
the District Court of Duval County, Texas, and the Arredondo Action, filed in
---------
the District Court of Jim Hogg County, Texas, were brought naming APC as a
defendant. In the Adams Action, the owners of approximately 140 homes, and in
-----
the Arredondo Action, the owners of approximately 30 homes, alleged that they
---------
had suffered damages as a result of APC hardboard siding installed on their
homes. The complaint in the Adams Action and the complaint in the Arredondo
----- ---------
Action are virtually identical and were filed by the same attorney. The
plaintiffs in the these actions allege that hardboard siding manufactured by APC
is defective and failed to perform to a level reasonably expected for a product
of its nature. The plaintiffs in the these actions assert purported claims for
negligence and gross negligence, breach of implied warranty of fitness, breach
of implied warranty of merchantability, breach of express warranty, negligent
misrepresentation, and violation of the Texas deceptive trade practices act. The
plaintiffs in the these actions seek actual and exemplary damages, including
damages for economic loss and mental anguish, treble damages, costs and
interest.
In both actions, APC filed a motion to transfer venue with respect to the
majority of the plaintiffs. The trial court granted APC's motion to transfer,
but rather than transfer those plaintiffs to the venue requested by APC,
transferred those plaintiffs to the county of their residence. APC sought
mandamus and review by the Texas Supreme Court on this issue, and the issue is
currently pending before the Texas Supreme Court.
14
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
As a result of the trial court's decision, there are currently three
actions pending: the original Arredondo Action, in which the owners of
---------
approximately 15 homes have remaining claims against APC; the original Adams
-----
Action, in which the owners of approximately 40 homes have remaining claims
against APC; and an action in Jim Wells County, Texas, in which is currently
unclear how many plaintiffs have claims against APC. Discovery is proceeding in
the Arredondo Action and in the Adams Action.
--------- ------
The Adams Action and the Arredondo Action are treated as non-class action
----- ---------
claims under the Indemnity Settlement as described above for which the Company
may have potential liability.
(9) Indemnity Settlement.
--------------------
On June 16, 1997, APC and Abitibi-Price Sales Corporation brought suit
against the Company and ABTco in the Supreme Court of the State of New York for
the County of Westchester alleging violation of the indemnity and warranty
provisions in the asset sale agreement relating to the [Acquisition] (the
"Abitibi Action"). On October 1, 1997, the Company and APC agreed to settle
-------
their claims under the Abitibi Action and to dismiss the Abitibi Action with
------- -------
prejudice. Pursuant to the Indemnity Settlement, the Company and APC agreed to
an allocation of liability with respect to claims relating to ABT Board (as
defined below) and APC Board (as defined below). The following description of
the terms of the Indemnity Settlement is general, and is subject to
restrictions, qualifications, and additional terms stated in the Indemnity
Settlement itself. In general, under the terms of the Indemnity Settlement all
amounts paid in settlement or judgment (other than punitive damages if they are
assessed against either the Company or APC individually) following the
completion of any claims process resolving any class action claim (including
consolidated cases involving more than 125 homes owned by named plaintiffs)
("Class Action Damage Amounts") that relate to siding sold by APC prior to
October 22, 1992, or held as finished goods inventory by APC on October 22, 1992
("APC Board") shall be paid 65% by Abitibi and 35% by the Company. Class Action
Damage Amounts relating to siding sold by the Company after October 22, 1992
("ABT Board") shall be paid 100% by the Company. Class Action Damage Amounts
that cannot be attributed to either the Company or APC ("Indeterminate Amounts")
shall be paid 50% by the Company and 50% by APC.
Total amounts paid for joint local counsel and other joint expenses, for
Class Action Damage Amounts, and for plaintiffs' attorneys' fees and expenses
(collectively "Final Class Action Costs") are to be apportioned according to the
Company's and APC's proportional share of the Class Action Damage Amounts,
including the Indeterminate Amounts (the "Proportional Share").
15
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
All joint costs of defending and disposing of class action claims incurred
prior to the final determination of what portion of claims relate to APC Board
and what portion relate to ABT Board ("Preliminary Class Action Costs") are to
be paid 50% by the Company and 50% by APC, with provisions for adjustment if
either the Company's or APC's Proportional Share exceeds 60% of the Final Class
Action Costs. In the event any class action claim involves only ABT Board, the
Company shall pay 100% of the Preliminary Class Action Costs. In the event any
class action claim involves only APC Board, APC shall pay 65% and the Company
shall pay 35% of the Preliminary Class Action Costs.
Under the terms of the Indemnity Settlement, with respect to non-class
action claims relating to APC Board, the Company is responsible for the first
$100,000 in each calendar year of all amounts paid for settlements, judgments
and associated fees and expenses of local outside counsel. APC and the Company
are each responsible for 50% of such amounts in excess of $100,000 per year up
to $5,000 with respect to individual claims. APC is responsible for 100% of
amounts in excess of $5,000 with respect to individual claims. The Adams Action
-----
and the Arredondo Action are treated as Non-Class Action Claims under the
---------
Indemnity Settlement. With respect to Non-Class Action Claims relating to ABT
Board, the Company shall pay 100% of any amounts paid for settlements, judgments
and associated fees and expenses of local outside counsel representing the
parties in the jurisdictions where litigation or arbitration involving such
claims is pending.
The Company and ABTco are involved in two lawsuits with one of their
insurance carriers, Employers Insurance of Wausau, regarding the insurance
coverage available as relates to several of the Hardboard Siding Actions:
(1) Employers Insurance of Wausau, A Mutual Company v. ABT Building
---------------------------------------------------------------
Products Corporation and ABTco, Inc., Case No. 98-CV-86, Circuit Court of
- -------------------------------------
Marathon County, Wisconsin.
On February 16, 1998, plaintiff Employers Insurance Wausau, A Mutual
Company ("Wausau") filed this action in the Circuit Court of Marathon County,
Wisconsin, against the Company and ABTco. Wausau's lawsuit denies that Plaintiff
has an obligation to defend or indemnify the Company or ABTco in connection with
all or part of the Foster Action, the Fiedler Action, the Dunn Action, the
------ ------- ----
Ezzell Action and the Fyola Action (the "Underlying Lawsuits"). Wausau alleges
- ------ -----
that it has not been provided adequate and complete information regarding these
actions and the Company and ABTco's additional insurance coverages. Wausau's
complaint seeks declaratory relief and reimbursement for any amounts paid by
Wausau in connection with the Company and ABTco's defense of the Underlying
Lawsuits to the extent those amounts exceed Wausau's obligation as determined by
the Court.
16
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
On March 30, 1998, the Company and ABTco filed a motion to dismiss or stay
the action. On that same day, the Company and ABTco filed a motion to change
venue from Marathon County, Wisconsin to Winnebago County, Wisconsin. Plaintiff
is currently seeking discovery from the Company and ABTco.
(2) ABT Building Products Corp. and ABTco, Inc. v. Employers Insurance of
---------------------------------------------------------------------
Wausau, A Mutual Company, and Thomas A. Foster and Linda E. Foster, Circuit
- ------------------------------------------------------------------
Court of Choctaw County, Alabama.
On March 30, 1998, the Company and ABTco filed this action in the Circuit
Court of Choctaw County, Alabama against Wausau and Thomas and Linda Foster. The
Company and ABTco's complaint denies any liability to the plaintiffs in the
Underlying Lawsuits and alleges that Wausau has wrongfully refused to assume any
liability for indemnification in connection with the Underlying Lawsuits and has
wrongfully refused to defend the Company and ABTco in those actions (except to a
limited extent in the Fiedler Action, pursuant to a full reservation of rights).
-------
The Company and ABTco's complaint asserts claims for declaratory judgment and
breach of contract. The Company and ABTco's complaint seeks declaratory relief,
compensatory damages, fees (including attorney's fees), and costs.
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):
For Three For Three
Months Ended Months Ended
March 31, March 31,
1997 1998
---- ----
Cash paid during period for --
Interest....................... $ 1,937 $ 2,696
Income taxes................... 649 247
17
<PAGE>
ABT BUILDING PRODUCTS CORPORATION AND SUBSIDIARIES
Condensed Notes to Unaudited Financial Statements
(8) RESTRUCTURING CHARGE
On July 7, 1997 the Company announced that it was restructuring its
Plastic Products Group. The restructuring program was implemented to phase out
the Company's Plastics industrial business and to allow the Company to focus on
specialty building products. Accordingly, the Company recognized a $10.4 million
charge during the period ended June 30, 1997. $8.9 million of the restructuring
charge consisted of a write-down of certain machinery and equipment, inventory
and goodwill to net realizable values, the remaining $1.5 million consisted of
severance payments and outstanding lease obligations related to the closing of
certain leased facilities. The impact on diluted earnings per share for the year
ended December 31, 1997 amounted to $0.56. At March 31, 1998 the remaining
balance of $0.8 million related to the restructuring is included in the accrued
expenses in the Company's consolidated balance sheet.
(9) EARNINGS PER SHARE
Basic earnings per common share were computed by dividing net income
by the weighted average number of shares outstanding during the period. Diluted
earnings per share were calculated by including the effect of all dilutive
securities. For the three months ended March 31, 1997 and 1998, the effect of
potentially dilutive stock options was 1,175,011 and 765,505, respectively.The
Company had additional outstanding stock options of 981,200 and 1,319,492 as of
March 31, 1997 and 1998, respectively, which were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of common shares.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Quarter Ended March 31, 1998 compared to Quarter Ended March 31, 1997
- ---------------------------------------------------------------------
NET SALES
- ---------
Net sales decreased by $1.3 million (1.7%) from $77.0 million for the
quarter ended March 31, 1997 to $75.7 million in the 1998 quarter. This decrease
reflects a $0.8 million (2.4%) increase in Specialty Products sales, offset by a
$2.1 million (4.7%) decrease in Exterior Product sales.
The increase in Specialty Product sales of $0.8 million was
attributable to a $1.1 million increase in plastic mouldings sales partially
offset by $0.3 million decrease in interior hardboard. Plastic moulding sales
increased due to continued growth in the major home center retailers. Shipments
of moulding were 11.3% greater than the same period last year. Interior
hardboard sales were impacted by lower demand for industrial products in the
Canadian market. Shipments of interior hardboard were 6.0% less than the same
period last year.
The decrease in Exterior Products sales of $2.1 million was
attributable to a decrease of $4.0 million in exterior hardboard siding, a
decrease of $0.8 million in exterior plastics offset by $2.7 million of sales in
fiber cement siding, a product introduced during the second half of 1997. The
exterior hardboard siding sales were impacted by aggressive pricing by
competitors in fiber cement and hardboard siding markets, resulting in lower
selling prices (4%) and volumes (11%) when compared to the same period last
year. Exterior Plastics sales have been negatively impacted by the
discontinuation of industrial plastic product sales as part of a restructuring
in the second quarter of 1997 offset by an increase in vinyl siding sales. Vinyl
siding sales increased due to the continued growth in the wholesale distributor
and home center retailer distribution channels. Vinyl siding volumes were 24%
greater than the same period last year. Selling prices for vinyl siding were 8%
lower than the same period last year.
GROSS PROFIT
- ------------
Gross profit decreased by $5.5 million (22.5%) from $24.4 million for
the three months ended March 31, 1997 to $18.9 million in the 1998 quarter.
Lower volume and price reductions implemented on exterior hardboard siding, as
well as, lower selling prices in vinyl siding products were the principal
contributors to the decrease in gross profit. Gross profit as a percentage of
net sales decreased from 31.7% for the three months ended March 31, 1997 to
25.0% for the 1998 quarter primarily due to lower pricing in the exterior
hardboard siding and vinyl siding products as well as lower volumes in exterior
hardboard siding.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- ---------------------------------------------
Selling, general and administrative expenses decreased by $1.1
million (8.0%) from $13.1 million for the three months ended March 31, 1997 to
$12.0 million in the 1998 quarter. Selling, general and administrative expenses
decreased due to lower promotional costs as a result of lower sales in Exterior
Products. Selling, general and administrative costs as a percentage of net sales
decreased from 17.0% for the three months ended March 31, 1997 to 15.9% for the
1998 quarter. The lower cost as a percentage of net sales is due to lower
promotional expenses as a result of the decline in sales for the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997.
OPERATING INCOME
- ----------------
Operating Income decreased by $4.4 million (39.2%) from $11.3 million
for the three months ended March 31, 1997 to $6.9 million for the 1998 quarter.
The decrease is primarily due to the impact of lower volumes and recent price
decreases in exterior hardboard siding as well as lower pricing in vinyl siding
partially offset by an increase in vinyl siding volume and a reduction in
selling, general and administrative expenses.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
- --------------------------------------------------------------------
(Continued)
- -----------
OTHER INCOME (EXPENSE)
- ----------------------
Interest expense increased $1.1 million from $1.3 million (net of
$0.8 million of capitalized interest) for the three months ended March 31, 1997
to $2.4 million (net of $0.2 million of capitalized interest) for the 1998
quarter. Higher outstanding indebtedness was partially offset by a slight
decline in the Company's weighted average interest rate on outstanding
borrowings during the three months ended March 31, 1998 as compared to the 1997
quarter.
NET INCOME
- ----------
Net Income decreased by $3.4 million (54.6%) from $6.2 million for
the three months ended March 31, 1997 to $2.8 million for the 1998 quarter. The
decrease is attributable to the factors discussed above.
SIGNIFICANT BUSINESS TRENDS
- ---------------------------
Management believes that the level of housing starts has 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 1.3 million in 1995 to 1.49 million as of
March, 1998. The level of housing starts in Canada increased from 0.111 million
in 1995 to 0.148 million in March, 1998.
The cost of thermoplastic resins (polystyrene, polypropylene,
polyethylene and polyvinyl chloride) used in the Company's Specialty Products
and Exterior Products operations increased substantially during 1995 before
declining somewhat during the fourth quarter of 1995 and remaining at that level
through March 1998. 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.
The recent consolidation in the vinyl siding industry has resulted in
increased competitive pricing of the Company's exterior plastics products. The
Company cannot predict the actions of its competitors, which could further
negatively impact earnings in the future.
The Company has recently introduced Fiber Cement Siding. A major
competitor in the fiber cement siding market is aggressively marketing and
pricing its product. In response, among other actions, the Company has lowered
its pricing on both the Exterior Hardboard Siding and Fiber Cement Siding
products to protect its market share against competition from fiber cement
siding products. The Company has also implemented a strategy to shift product
mix in its exterior hardboard siding products from the 7/16" siding products
into trimboard and utility panels, in an effort to reduce the impact of the
pricing pressures. The lower prices have impacted earnings to date and could
continue to further negatively impact earnings. The Company cannot predict the
actions of this or other competitors, however, there have been recent
announcements by competitors that they are planning to add new fiber cement
lines to expand their product offerings, which could negatively impact earnings
in the future.
Management also believes that continued penetration into the home
center retailer market will have a significant beneficial influence on the
Company's level of business activity. Sales to these customers have increased
approximately 25% for the quarter ended March 1998 when compared to the same
period last year. In addition, sales to the top three home center retailer
customers increased 49% for the quarter ended March 1998 as compared to the same
period last year. Management believes that this market will continue to grow in
importance to the Company.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
- ---------------------------------------------------------------------
(Continued)
- -----------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Historically, the Company derived its cash from funds generated by
operations and from third-party financings, including the Credit Facility. The
Company believes that its operating cash flow, together with borrowings under
the Credit Facility, will be sufficient to meet its operating expenses, capital
requirements and debt service requirements.
At March 31, 1998, the Company had working capital of $74.9 million
with a current ratio of 2.6 to 1.0 as compared with working capital of $55.7
million and a current ratio of 2.5 to 1.0 at December 31, 1997. The increase in
working capital and the change in the current ratio were primarily due to the
increase in accounts receivable and inventories, partially offset by an increase
in accrued expenses. The increase in accounts receivable and accounts payable
were a result of the increase in business activity in the first quarter of 1998
versus the last quarter of 1997.
Capital expenditures during the three months ended March 31, 1998
amounted to approximately $3.6 million, and were incurred primarily for
improvements of the Company's manufacturing facilities, including $1.4 million
related to the retrofitting of the vinyl siding manufacturing facility in Holly
Springs.
Debt increased from $132.9 million at December 31, 1997 to $147.6
million (including $12.5 million of current maturities) as of March 31, 1998.
The increase in debt was primarily due to the increases in working capital and
capital expenditures offset, in part, by cash generated from operations.
On April 1, 1997 the Company entered into a loan agreement with the
Mississippi Business Finance Corporation for the issuance of $1 million Variable
Rate Demand Revenue Bonds (Series 1997A) and $16.5 million Taxable Variable Rate
Demand Revenue Bonds (Series 1997B) to finance the acquisition and retrofitting
of a vinyl siding manufacturing facility in Holly Springs, Mississippi. The
Industrial Revenue Bonds bear interest rates determined weekly by the
remarketing agent. . The Industrial Revenue Bonds mature on April 1, 2022 and
are backed by irrevocable letters of credit issued under the Company's Credit
Facility. The amounts included in total debt reflect only drawings against
proceeds of the issued amounts of the Industrial Revenue Bonds and do not
reflect amounts held in a segregated escrow account pending disbursement.
On February 2, 1998 the Company and its bank group executed a First
Amendment to the Third Amended and Restated Credit Agreement (the "Credit
Facility") which superseded all prior credit agreements. The Credit Facility
provides a line of credit to the Company totaling $225.0 million consisting of a
$175.0 million continuing revolving credit facility (the "Revolving Credit
Facility") and a term loan facility (the "Term Loan") under which the Company
borrowed $50.0 million on April 3, 1995. The Credit Facility matures on March
10, 2002, subject to extensions 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, 1998,
$37.5 million was outstanding under the Term Loan and the interest rate on the
Term Loan was 7.99% and $97.2 million was outstanding under the Revolving Credit
Facility and the weighted average interest rate on the outstanding Revolving
Credit Facility was 6.32%.
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
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
- ---------------------------------------------------------------------
(Continued)
- -----------
ENVIRONMENTAL COMPLIANCE (continued)
- ------------------------------------
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 Unaudited Financial Statements, the Company entered into a
consent decree with respect to odor emissions at its Alpena, Michigan, facility.
To date, the Company has expended approximately $8.0 million in connection with
this program. Additional capital expenditures of up to $4.0 million may be
required over the next several years in order to attain compliance with the
program.
Although no assurances can be given as to any ultimate recoveries,
the prior owners of certain of the Company's businesses have agreed to indemnify
the Company against certain environmental liabilities. In connection with the
Acquisition, the seller has agreed to indemnify the Company with respect to
certain pre-Acquisition environmental matters and has placed $5.0 million in
escrow to fund any required remediation of such conditions. In connection with
the purchase of Canexel, Avenor is obligated to indemnify the Company against
certain environmental liabilities associated with Canexel's Nova Scotia
production 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 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 been named as a defendant in similar litigation (see
Note 6 of the Notes to the Unaudited 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.
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.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND
---
RESULTS OF OPERATIONS
---------------------
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
- ---------------------------------------------------------------------
(Continued)
- -----------
YEAR 2000 COMPLIANCE
- --------------------
The Company is currently implementing an upgrade to its existing
financial, sales, production and distribution software that is Year 2000
compliant. It is also conducting a comprehensive review of the balance of its
computer systems to identify those processes that could be adversely affected by
the year 2000 issue and is developing an implementation plan to resolve any
issue that might arise. In conducting its review, the Company is actively
soliciting its suppliers and customers to assess any Year 2000 issue that might
arise from interaction of its computer systems with those of its suppliers and
customers. The Year 2000 issue refers to the inability of many of its computer
programs and systems to process accurately dates later than December 31, 1999.
Unless these programs are modified to handle the century change, they will
likely interpret the Year 2000 as the year 1900. Although final cost estimates
have yet to be determined, it is anticipated that these Year 2000 costs will
result in an increase to the Company's expenses during 1998 and 1999 but are not
expected to have a material impact on its ongoing results of operations.
ACCOUNTING CHANGES
- ------------------
In 1998 the Company adopted Statement of Financial Accounting
Standards "SFAS" No. 130, "Reporting Comprehensive Income", which requires
companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in a financial
statement for the period in which they are recognized. The Company has chosen to
disclose Comprehensive Income, which encompasses net income and foreign currency
translation adjustments, in the notes to the condensed consolidated financial
statements for interim reporting purposes. In July 1997, the Financial
Accounting Standards Board issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". This standard expands certain reporting and
disclosure requirements for segments from current standards. The Company is not
required to adopt SFAS No. 131 until December 1998. The expected impact of the
adoption of these standards will not be material.
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.
23
<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 1997 Annual Meeting held on May 5, 1998.
1. Election of Directors
George T. Brophy
Warner C. Frazier
Samuel P. Frieder
James A. Kohlberg
John R. Garrett
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, 1998.
10,634,160 shares were outstanding at
the Record Date of March 13, 1998.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
24
<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: May 13, 1998
ABT BUILDING PRODUCTS CORPORATION
/s/ Joseph P. O'Neill
---------------------------------------
Joseph P. O'Neill
(Vice President - CFO)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 49,135
<ALLOWANCES> 4,725
<INVENTORY> 62,406
<CURRENT-ASSETS> 120,308
<PP&E> 242,416
<DEPRECIATION> 46,448
<TOTAL-ASSETS> 335,509
<CURRENT-LIABILITIES> 45,431
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 128,530
<TOTAL-LIABILITY-AND-EQUITY> 335,509
<SALES> 75,701
<TOTAL-REVENUES> 75,701
<CGS> 56,743
<TOTAL-COSTS> 12,047
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,402
<INCOME-PRETAX> 4,509
<INCOME-TAX> 1,713
<INCOME-CONTINUING> 2,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,796
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
</TABLE>
