1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------------------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------------------
Commission file number: 0-24956
ASSOCIATED MATERIALS INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
- --------------------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation of Organization) (I.R.S. Employer Identification No.)
2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201
- --------------------------------------------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (214) 220-4600
------------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Shares of Common Stock, $.0025 par value outstanding at May 2, 2000:
6,475,755
Shares of Class B Common Stock, $.0025 par value outstanding at May 2, 2000:
1,550,000
2
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets................................................................................ 1
March 31, 2000 (Unaudited) and December 31, 1999
Statements of Operations (Unaudited).......................................................... 2
Quarter ended March 31, 2000 and 1999
Statements of Cash Flows (Unaudited).......................................................... 3
Quarter ended March 31, 2000 and 1999
Notes to Financial Statements (Unaudited)..................................................... 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................................. 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................... 9
SIGNATURES.......................................................................................... 10
3
Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(In Thousands, Except Share Data)
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 2,311 $ 3,432
Accounts receivable, net ................................ 53,863 52,583
Inventories ............................................. 77,656 69,651
Income taxes receivable ................................. -- 226
Other current assets .................................... 5,348 3,872
------------ ------------
Total current assets ....................................... 139,178 129,764
Property, plant and equipment, net ......................... 73,139 71,682
Investment in Amercord Inc. ................................ 2,393 2,393
Other assets ............................................... 2,420 2,457
------------ ------------
Total assets ............................................... $ 217,130 $ 206,296
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts ......................................... $ 5,592 $ --
Accounts payable ........................................ 24,337 16,933
Accrued liabilities ..................................... 15,775 26,953
Revolving line of credit ................................ 7,671 --
Income taxes payable .................................... 606 --
------------ ------------
Total current liabilities .................................. 53,981 43,886
Deferred income taxes ...................................... 2,269 2,236
Other liabilities .......................................... 5,764 5,848
Long-term debt ............................................. 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at March 31, 2000 and
December 31, 1999
Issued shares - 0 at March 31, 2000 and
December 31, 1999 ................................. -- --
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued shares - 7,024,666 at March 31, 2000
and at December 31, 1999 ....................... 17 17
Common stock, Class B, $.0025 par value:
Authorized and issued shares - 1,550,000 at
March 31, 2000 and December 31, 1999 ........... 4 4
Less: Treasury stock, at cost - 555,396 shares at
March 31, 2000 and at December 31, 1999 ........... (6,626) (6,626)
Capital in excess of par ............................. 13,154 13,154
Retained earnings .................................... 73,567 72,777
------------ ------------
Total stockholders' equity ........................... 80,116 79,326
------------ ------------
Total liabilities and stockholders' equity ................. $ 217,130 $ 206,296
============ ============
-1-
4
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
Quarter Ended
March 31,
-------------------------
2000 1999
---------- ----------
Net sales ........................................ $ 102,506 $ 84,597
Cost of sales .................................... 73,913 59,442
---------- ----------
28,593 25,155
Selling, general and administrative expense ...... 24,283 21,895
---------- ----------
Income from operations ........................... 4,310 3,260
Interest expense ................................. 1,724 1,679
---------- ----------
2,586 1,581
Equity in loss of Amercord Inc. .................. -- (228)
---------- ----------
Income before income taxes ....................... 2,586 1,353
Income tax expense ............................... 995 553
---------- ----------
Net income ....................................... $ 1,591 $ 800
========== ==========
Earnings Per Common Share - Basic:
Net income per common share ...................... $ 0.20 $ 0.10
========== ==========
Earnings Per Common Share - Assuming Dilution:
Net income per common share ...................... $ 0.19 $ 0.09
========== ==========
-2-
5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Quarter Ended
March 31,
--------------------------
2000 1999
---------- ----------
OPERATING ACTIVITIES
Net income ................................................. $ 1,591 $ 800
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization ........................ 2,370 1,999
Deferred income taxes ................................ 33 319
Equity in loss of Amercord Inc. ...................... -- 228
Loss on sale of assets ............................... 5 --
Changes in operating assets and liabilities:
Accounts receivable, net .......................... (1,280) (1,048)
Inventories ....................................... (8,005) (3,154)
Income taxes receivable/payable ................... 832 (282)
Bank overdrafts ................................... 5,592 2,393
Accounts payable and accrued liabilities .......... (3,774) (2,153)
Other assets and liabilities ...................... (1,592) (501)
---------- ----------
Net cash used by operating activities ...................... (4,228) (1,399)
INVESTING ACTIVITIES
Proceeds from sale of assets ............................... 31 15
Additions to property, plant and equipment ................. (3,794) (7,997)
---------- ----------
Net cash used by investing activities ...................... (3,763) (7,982)
FINANCING ACTIVITIES
Net increase in revolving line of credit ................... 7,671 --
Principal payments on long-term debt ....................... -- (450)
Dividends paid ............................................. (801) (845)
Treasury stock acquired .................................... -- (2,459)
Options exercised .......................................... -- 30
---------- ----------
Net cash provided by (used by) financing activities ........ 6,870 (3,724)
Net decrease in cash ....................................... (1,121) (13,105)
Cash at beginning of period ................................ 3,432 14,964
---------- ----------
Cash at end of period ...................................... $ 2,311 $ 1,859
========== ==========
Supplemental information:
Cash paid for interest ..................................... $ 3,545 $ 3,544
========== ==========
Net cash paid for income taxes ............................. $ 580 $ 1,116
========== ==========
-3-
6
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2000
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter ended March 31, 2000 have been prepared in accordance
with generally accepted accounting principles for interim financial reporting,
the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999 filed with the Securities and Exchange
Commission. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
interim financial information have been included. The results of operations for
any interim period are not necessarily indicative of the results of operations
for a full year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or market.
Inventories consist of the following (in thousands):
March 31, December 31,
2000 1999
------------ ------------
Raw materials .................................... $ 21,726 $ 20,043
Work in process .................................. 6,803 5,937
Finished goods and purchased stock ............... 49,127 43,671
------------ ------------
$ 77,656 $ 69,651
============ ============
NOTE 3 - STOCKHOLDERS' EQUITY
Under its stock repurchase program, the Company is authorized to purchase up to
800,000 shares of common stock in open market transactions. The Company did not
purchase any shares of its common stock during the first quarter of 2000.
-4-
7
NOTE 4 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Quarter Ended
March 31,
-------------------------
2000 1999
---------- ----------
Numerator:
Numerator for basic and diluted earnings per common
Share - earnings ..................................... $ 1,591 $ 800
Denominator:
Denominator for basic earnings per common share -
Weighted-average shares .............................. 8,019 8,340
Effect of dilutive securities:
Employee stock options ............................... 219 152
---------- ----------
Denominator for diluted earnings per common share -
Adjusted weighted-average shares ..................... 8,238 8,492
Basic earnings per common share ............................ $ 0.20 $ 0.10
========== ==========
Diluted earnings per common share .......................... $ 0.19 $ 0.09
========== ==========
Options to purchase 90,000 and 140,000 shares of common stock were excluded from
the calculation of weighted average shares outstanding for the quarter ended
March 31, 2000 and March 31, 1999, respectively, because the average exercise
price of these shares was higher than the average market price of the common
stock during the period.
-5-
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segment:
Quarter Ended March 31,
-----------------------------------------------------------------
2000 1999
------------------------------ ------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
------------ --------------- ------------ ---------------
Total Company:
Net sales - Alside .................. $ 86,636 84.5% $ 74,109 87.6%
Net sales - AmerCable ............... 15,870 15.5 10,488 12.4
------------ ------------ ------------ ------------
Total net sales .................. 102,506 100.0 84,597 100.0
Gross profit ........................ 28,593 27.9 25,155 29.7
Selling, general and
administrative expense (1) ....... 24,283 23.7 21,895 25.9
------------ ------------ ------------ ------------
Income from operations .............. $ 4,310 4.2% $ 3,260 3.8%
============ ============ ============ ============
Alside:
Net sales ........................... $ 86,636 100.0% $ 74,109 100.0%
Gross profit ........................ 25,498 29.4 23,155 31.2
Selling, general and
administrative expense ........... 21,749 25.1 19,815 26.7
------------ ------------ ------------ ------------
Income from operations .............. $ 3,749 4.3% $ 3,340 4.5%
============ ============ ============ ============
AmerCable:
Net sales ........................... $ 15,870 100.0% $ 10,488 100.0%
Gross profit ........................ 3,095 19.5 2,000 19.1
Selling, general and
administrative expense ........... 1,571 9.9 1,194 11.4
------------ ------------ ------------ ------------
Income from operations .............. $ 1,524 9.6% $ 806 7.7%
============ ============ ============ ============
(1) Consolidated selling, general and administrative expenses include corporate
expenses of $963,000 and $886,000 for the quarter ended March 31, 2000 and 1999,
respectively.
Overview
Strong performances by the Company's Alside and AmerCable divisions
resulted in the best first quarter results in the Company's history. The
Company's net sales increased 21.2% to $102.5 million for the quarter ended
March 31, 2000 as compared to $84.6 million for the same period in 1999, while
income from operations increased 32.2% to $4.3 million as compared to the 1999
period.
The Company's net income was $1.6 million, or $0.19 per share, for the
first quarter of 2000 as compared to $800,000, or $.09 per share, for the same
period in 1999 due to higher income from operations and the reduction of
nonoperating losses from Amercord, which is now accounted for using the cost
method.
The Company's results of operations are primarily affected by its
Alside division, which accounted for more than 86% of the Company's annual net
sales in each of the last three years. Because most of Alside's building
products are intended for exterior use, Alside's sales and operating profits
tend to be lower during periods of
-6-
9
inclement weather. Weather conditions in the first quarter of each calendar year
historically result in that quarter producing significantly less sales revenue
than in any other period of the year. As a result, the Company has historically
had losses or small profits in the first quarter and reduced profits in the
fourth quarter of each calendar year due to the significant impact of Alside on
the Company's performance.
ALSIDE. Alside's net sales increased 16.9% to $86.6 million for the
quarter ended March 31, 2000 as compared to $74.1 million for the same period in
1999 due primarily to a higher sales volume of vinyl siding and higher selling
prices implemented to offset higher vinyl resin costs. Higher sales volume of
vinyl fence and cabinets also contributed to strong sales in the first quarter.
Gross profit as a percentage of sales decreased to 29.4% for the 2000 period as
compared to 31.2% for the same period in 1999 due to higher vinyl resin and
transportation costs as well as higher operational costs at the Freeport, Texas
vinyl siding facility due to seasonal inefficiencies. Selling, general and
administrative expense increased $1.9 million to $21.7 million primarily due to
higher personnel costs. Included in selling, general and administrative expense
is an $850,000 gain recorded by Alside upon the demutualization of one of its
insurance providers. Income from operations increased 12.2% to $3.7 million for
the 2000 period as compared to $3.3 million for the same period in 1999.
AMERCABLE. Net sales increased 51.3% to $15.9 million for the quarter
ended March 31, 2000 as compared to $10.5 million for the same period in 1999
primarily due to higher sales volume of industrial cable products. Gross profit
as a percentage of sales increased to 19.5% for the 2000 period as compared to
19.1% for the same period in 1999 due to improved fixed cost absorption
resulting from higher production volume which was partially offset by a less
favorable product mix. Selling, general and administrative expense decreased as
a percentage of sales but increased $377,000 to $1.6 million due to higher
personnel costs. Income from operations increased $718,000 or 89% to $1.5
million for the period ended March 31, 2000 as compared to $806,000 for the same
period in 1999.
OTHER. Net interest expense increased $45,000 or 2.7% for the first
quarter of 2000 compared with the same period in 1999 due to an increase in the
Company's average short-term borrowings and a decrease in investment interest
income. The Company recorded interest income of $97,000 for the quarter ended
March 31, 2000. In the fourth quarter of 1999, Amercord was recapitalized. In
this transaction, the Company reduced its ownership in Amercord from 50.0% to
9.9%. The Company currently accounts for Amercord using the cost method of
accounting. Prior to Amercord's recapitalization, the Company accounted for
Amercord using the equity method of accounting. The Company recorded a loss of
$228,000 on its equity in the losses of Amercord during the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
Borrowings under the Company's existing credit facility were $7.7
million at March 31, 2000, excluding outstanding letters of credit totaling $1.6
million securing various insurance letters of credit. At March 31, 2000 the
Company had an available borrowing capacity of approximately $40.7 million.
Net cash used by operations was $4.2 million in the quarter ended March
31, 2000 compared with $1.4 million in the same period in 1999. The increase in
cash used by operations for the 2000 period was due primarily to higher
inventory levels. Inventory levels increased at Alside due to higher sales, an
increase in the number of Supply Centers and the addition of the new Freeport
vinyl siding plant. AmerCable's inventory balances increased due to higher
sales.
Capital expenditures totaled $3.8 million for the quarter ended March
31, 2000, compared with $8.0 million during the same period in 1999.
Expenditures in the 2000 period were used primarily to increase extrusion
capacity at Alside and increase capacity and processing efficiencies at
AmerCable.
The Company has guaranteed a $3.0 million note secured by Amercord's
real property. Should the guarantee be exercised by Amercord's lender, the
Company and Ivaco have the option to assume the loan. Ivaco has indemnified the
Company for 50% of any loss under the guarantee.
-7-
10
The Company believes the future cash flows from operations and its
borrowing capacity under its existing credit agreement will be sufficient to
satisfy its obligations to pay principal and interest on its outstanding debt,
maintain current operations, provide sufficient capital for presently
anticipated capital expenditures and fund its stock repurchase program. However,
there can be no assurances that the cash so generated by the Company will be
sufficient for these purposes.
EFFECTS OF INFLATION
The Company believes that the effects of inflation on its operations
have not been material during the past two years. Inflation could adversely
affect the Company if inflation results in significantly higher interest rates
or substantial weakness in economic conditions. Alside's principal raw material,
vinyl resin, has been subject to rapid price changes. Alside has historically
been able to pass on price increases to its customers. No assurances can be
given that Alside will be able to pass on any price increases in the future.
CERTAIN FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on the beliefs of, and estimates and
assumptions made by and information currently available to, the Company's
management. When used in this report, the words "anticipate," "believe,"
"estimate," "expect," "intend," and similar words, as they relate to the Company
or the Company's management, identify forward-looking statements. These
statements reflect the current views of the Company's management regarding the
operations and results of operations of the Company as well as its customers and
suppliers, including as a result of the availability of consumer credit,
interest rates, employment trends, changes in levels of consumer confidence,
changes in consumer preferences, national and regional trends in new housing
starts, raw material costs, pricing pressures, shifts in market demand and
general economic conditions. These statements are subject to certain risks and
uncertainties. Certain factors that might cause a difference are discussed in
more detail in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. Should one or more of these risks or uncertainties occur, or
should management's assumptions or estimates prove incorrect, actual results and
events may vary materially from those discussed in the forward-looking
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to commodity price risk, interest rate risk and
foreign currency exchange rate risk. The Company has experienced no significant
changes in market risk during the first quarter of 2000. The Company's market
risk is described in more detail in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
-8-
11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 - Assumption Agreement, effective as of February 16, 2000, by
PCG Finance Company II, LLC.
10.1 - Agreement, dated as of December 18, 1999, between Michael
Caporale, Jr. and the Company.
27 - Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended March 31, 2000, Associated Materials
Incorporated filed no Current Reports on Form 8-K.
-9-
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED MATERIALS INCORPORATED
---------------------------------
(Registrant)
Date: May 2, 2000 By: /s/ Robert L. Winspear
--------------------------------------------
Robert L. Winspear
Vice President and Chief Financial Officer
Date: May 2, 2000 /s/ Robert L. Winspear
--------------------------------------------
Robert L. Winspear
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-10-
13
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
4.1 Assumption Agreement, effective February 16, 2000, by PCG
Finance Company II, LLC.
10.1 Agreement, dated as of December 18, 1999, between Michael
Caporale, Jr. and the Company.
27 Financial Data Schedule.