1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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F0RM 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, 2001
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or
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-24956
ASSOCIATED MATERIALS INCORPORATED
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (214) 220-4600
-----------------------------
Not Applicable
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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 10, 2001: 6,098,448
Shares of Class B Common Stock, $.0025 par value outstanding at May 10, 2001:
550,000
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ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets................................................................................ 1
March 31, 2001 (Unaudited) and December 31, 2000
Statements of Operations (Unaudited).......................................................... 2
Quarter ended March 31, 2001 and 2000
Statements of Cash Flows (Unaudited).......................................................... 3
Quarter ended March 31, 2001 and 2000
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............................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................... 10
SIGNATURES.......................................................................................... 11
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Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(In Thousands, Except Share Data)
March 31, December 31,
2001 2000
----------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 2,046 $ 15,879
Short-term investment............................................. - 5,019
Accounts receivable, net.......................................... 56,219 50,853
Inventories....................................................... 77,146 74,429
Income taxes receivable........................................... 2,151 453
Other current assets.............................................. 4,325 4,213
----------- -----------
Total current assets................................................. 141,887 150,846
Property, plant and equipment, net................................... 78,020 73,917
Investment in Amercord Inc........................................... - 2,393
Other assets......................................................... 3,724 3,985
----------- -----------
Total assets......................................................... $ 223,631 $ 231,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 31,009 $ 19,273
Accrued liabilities............................................... 15,544 29,509
----------- -----------
Total current liabilities............................................ 46,553 48,782
Deferred income taxes................................................ 3,738 3,927
Other liabilities.................................................... 5,345 5,442
Long-term debt....................................................... 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at March 31, 2001 and
December 31, 2000
Issued shares - 0 at March 31, 2001 and
December 31, 2000........................................... - -
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued shares - 7,164,024 at March 31, 2001
and at December 31, 2000................................. 18 18
Common stock, Class B, $.0025 par value:
Authorized and issued shares - 1,550,000 at
March 31, 2001 and December 31, 2000..................... 4 4
Less: Treasury stock, at cost - 1,065,576 shares at
March 31, 2001 and 955,170 at December 31, 2000............. (14,228) (12,425)
Capital in excess of par....................................... 15,450 14,862
Retained earnings.............................................. 91,751 95,531
----------- -----------
Total stockholders' equity..................................... 92,995 97,990
----------- -----------
Total liabilities and stockholders' equity........................... $ 223,631 $ 231,141
=========== ===========
See accompanying notes.
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ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
Quarter Ended
March 31,
---------------------------------
2001 2000
------------- -------------
Net sales.................................................................. $108,611 $103,419
Cost of sales.............................................................. 81,414 74,826
--------- ---------
27,197 28,593
Selling, general and administrative expense................................ 28,127 24,283
--------- ---------
Income (loss) from operations.............................................. (930) 4,310
Interest expense........................................................... 1,579 1,724
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(2,509) 2,586
Loss on the writedown of Amercord Inc...................................... (2,393) -
--------- ---------
Income (loss) before income taxes.......................................... (4,902) 2,586
Income tax expense (benefit)............................................... (1,887) 995
--------- ---------
Net income (loss) ......................................................... $ (3,015) $ 1,591
========= =========
Net income (loss) per common share - Basic................................. $ (0.39) $ 0.20
======== ========
Net income (loss) per common share - Assuming Dilution..................... $ (0.39) $ 0.19
======== ========
Dividends per common share................................................. $ 0.10 $ 0.10
======== ========
See accompanying notes.
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ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Quarter Ended
March 31,
--------------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net income (loss) ............................................................ $ (3,015) $ 1,591
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Depreciation and amortization........................................... 2,661 2,370
Deferred income taxes................................................... (189) 33
Loss on the writedown of Amercord Inc................................... 2,393 -
Loss on sale of assets.................................................. 50 5
Changes in operating assets and liabilities:
Accounts receivable, net............................................. (5,366) (1,280)
Inventories.......................................................... (2,717) (8,005)
Income taxes receivable/payable...................................... (1,698) 832
Bank overdrafts...................................................... - 5,592
Accounts payable and accrued liabilities............................. (2,229) (3,774)
Other assets and liabilities......................................... (17) (1,592)
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Net cash used by operating activities......................................... (10,127) (4,228)
INVESTING ACTIVITIES
Proceeds from sale of short-term investment................................... 5,019 -
Proceeds from sale of assets.................................................. 20 31
Additions to property, plant and equipment.................................... (6,765) (3,794)
--------- ---------
Net cash used by investing activities......................................... (1,726) (3,763)
FINANCING ACTIVITIES
Net increase in revolving line of credit...................................... - 7,671
Dividends paid................................................................ (765) (801)
Treasury stock acquired....................................................... (1,803) -
Stock options, other.......................................................... 588 -
--------- ---------
Net cash (used by) provided by financing activities........................... (1,980) 6,870
Net decrease in cash.......................................................... (13,833) (1,121)
Cash at beginning of period................................................... 15,879 3,432
--------- ---------
Cash at end of period......................................................... $ 2,046 $ 2,311
========= =========
Supplemental information:
Cash paid for interest........................................................ $ 3,502 $ 3,545
========= =========
Net cash paid for income taxes................................................ $ 257 $ 580
========= =========
See accompanying notes.
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ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2001
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter ended March 31, 2001 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, 2000 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.
The Company's Alside division manufactures and distributes building products.
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
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.
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,
2001 2000
----------------- ------------------
Raw materials.................................................................. $ 23,973 $ 23,229
Work in process................................................................ 6,051 5,101
Finished goods and purchased stock............................................. 47,122 46,099
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$ 77,146 $ 74,429
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NOTE 3 - STOCKHOLDERS' EQUITY
Under its stock repurchase program, the Company is authorized to purchase up to
1.6 million shares of common stock in open market transactions. The Company
purchased 110,406 shares of its common stock at a cost of $1.8 million during
the first quarter of 2001. At March 31, 2001, the Company had repurchased
1,024,180 shares of common stock under this program at a cost of $13.7 million.
The share repurchase described in Note 7 below was not part of this stock
repurchase program.
NOTE 4 - AMERCORD INC.
The Company wrote off its $2.4 million investment in Amercord Inc. during the
first quarter of 2001. Amercord's operating results and financial position
deteriorated during the first quarter 2001. The Company believes that it will
not recover its investment in Amercord without a restructuring of Amercord. The
Company's investment in Amercord consists of a $1.5 million subordinated note
and 9.9% of Amercord's common stock.
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NOTE 5 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
Quarter Ended
March 31,
----------------------------------------
2001 2000
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Numerator:
Numerator for basic and diluted earnings per common
Share - earnings (loss).................................................. $ (3,015) $ 1,591
Denominator:
Denominator for basic earnings per common share -
Weighted-average shares.................................................. 7,677 8,019
Effect of dilutive securities:
Employee stock options................................................... - 219
---------- ----------
Denominator for diluted earnings per common share -
Adjusted weighted-average shares......................................... 7,677 8,238
Basic earnings (loss) per common share......................................... $ (0.39) $ 0.20
========== ==========
Diluted earnings (loss) per common share....................................... $ (0.39) $ 0.19
========== ==========
In accordance with Statement of Financial Accounting Standard No. 128,
approximately 268,000 potential common shares were excluded from the calculation
of weighted average shares outstanding for the quarter ended March 31, 2001. Due
to the loss incurred in that quarter, inclusion of these shares would have been
antidilutive.
Options to purchase 90,000 shares of common stock were excluded from the
calculation of weighted average shares outstanding for the quarter ended March
31, 2000, because the average exercise price of these shares was higher than the
average market price of the common stock during the period.
NOTE 6 - RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
NOTE 7 - SUBSEQUENT EVENT
On April 29, 2001, the Company repurchased 1,000,000 shares of its class B
common stock from The Prudential Insurance Company of America ("Prudential") and
its wholly owned subsidiary, PCG Finance Company II, LLC ("PCG") at $19.50 per
share, or $19.5 million in the aggregate. The share purchase was financed
through available cash and borrowings under the Company's $50,000,000 credit
facility. Following the purchase, Prudential and PCG will continue to own, in
the aggregate, 550,000 shares of class B common stock.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Quarter Ended March 31, 2001 Compared to Quarter Ended March 31, 2000
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segment:
Quarter Ended March 31,
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2001 2000
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Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
--------------- ------------------ -------------- -----------------
Total Company:
Net sales - Alside (1).................... $ 89,939 82.8% $ 87,141 84.3%
Net sales - AmerCable (1)................. 18,672 17.2 16,278 15.7
--------- ------- --------- -------
Total net sales........................ 108,611 100.0 103,419 100.0
Gross profit.............................. 27,197 25.0 28,593 27.7
Selling, general and
administrative expense (2)............. 28,127 25.9 24,283 23.5
--------- ------- --------- -------
Income (loss) from operations............. $ (930) (.9)% $ 4,310 4.2%
========= ======= ========= =======
Alside:
Net sales (1)............................. $ 89,939 100.0% $ 87,141 100.0%
Gross profit.............................. 23,718 26.4 25,498 29.3
Selling, general and
Administrative expense................. 24,875 27.7 21,749 25.0
--------- ------- --------- -------
Income (loss) from operations............. $ (1,157) (1.3)% $ 3,749 4.3%
========= ======= ========= =======
AmerCable:
Net sales (1)............................. $ 18,672 100.0% $ 16,278 100.0%
Gross profit.............................. 3,479 18.7 3,095 19.1
Selling, general and
Administrative expense................. 1,876 10.1 1,571 9.7
--------- ------- --------- -------
Income from operations.................... $ 1,603 8.6% $ 1,524 9.4%
========= ======= ========= =======
(1) Certain prior period amounts have been reclassified to conform with the
current period presentation.
(2) Consolidated selling, general and administrative expenses include corporate
expenses of $1.4 million and $963,000 for the quarter ended March 31, 2001 and
2000, respectively.
Overview
The Company's net sales increased 5.0% to $108.6 million for the
quarter ended March 31, 2001 as compared to $103.4 million for the same period
in 2000 due to higher sales at the Company's Alside and AmerCable divisions.
Income from operations decreased to a loss of $930,000 for the 2001 period as
compared to income of $4.3 million for the same period in 2000. Income from
operations was adversely impacted by several factors, including the sale of the
Company's UltraCraft cabinet operations in June 2000 (which increased first
quarter 2000 income by approximately $1.0 million), approximately $847,000 in
losses from the Alpine window operation acquired in October 2000, additional
selling, general and administrative expense associated with the opening of eight
additional Alside Supply Centers and an $850,000 one-time insurance gain
recorded in 2000.
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The Company's net loss for the quarter ended March 31, 2001 was $3.0
million, or $(0.39) per share, as compared to income of $1.6 million, or $0.19
per share, for the same period in 2000 due to lower income from operations as
discussed above and the writedown of the Company's investment in Amercord Inc.
Exclusive of the Amercord writedown, the Company's net loss was $0.20 per share.
Seasonality/Weather
The Company's results of operations are primarily affected by its
Alside division, which accounted for more than 87% 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 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.
In general, weather conditions during the first quarter of 2001 were poor, being
marked by colder temperatures and higher precipitation as compared to the first
quarter of 2000.
ALSIDE. Alside's net sales increased 3.2% to $89.9 million for the
quarter ended March 31, 2001 as compared to $87.1 million for the same period in
2000 as higher vinyl window sales were partially offset by lower vinyl siding
and vinyl fence sales. Unit sales of vinyl siding decreased 2.8% for the 2001
period while the Company estimates that the vinyl siding industry as a whole was
down 19% for the same period. Unit sales of vinyl windows increased 32.8% for
the first quarter of 2001 as compared to 2000. The 32.8% increase in volume did
not include the incremental window sales from the acquisition of Alpine window
operation in October 2000. Gross profit decreased to $23.7 million for 2001 as
compared to $25.5 million for the same period in 2000. Selling, general and
administrative expense increased to $24.9 million for 2001 as compared to $21.7
million for the same period in 2000 due primarily to the addition of eight new
Supply Centers and the one-time insurance gain of $850,000 recorded in 2000.
Alside's loss from operations was $1.2 million for the first quarter 2001 as
compared to income of $3.7 million for the 2000 period due to higher selling,
general and administrative expense and the adverse impact of the sale of
Alside's cabinet operation in June 2000, which increased 2000 income from
operations by $1.0 million, as well as a loss of approximately $847,000 from
Alpine's operations in 2001.
AMERCABLE. AmerCable's net sales increased 14.7% to $18.7 million for
the quarter ended March 31, 2001 as compared to $16.3 million for the same
period in 2000 due to higher sales across all product lines, primarily higher
sales volume of industrial and mining cables. Gross profit increased 12.4% to
$3.5 million for the 2001 period but decreased as a percentage of sales as
higher fixed cost absorption was more than offset by changes in product mix to
lower margin products. Selling, general and administrative expense increased to
$1.9 million for 2001 as compared to $1.6 million for 2000 due to higher
personnel costs and higher marketing expenditures. Income from operations
increased 5.2% to $1.6 million for the 2001 period due to improved fixed cost
absorption which was partially offset by product mix and higher selling, general
and administrative expense.
OTHER. Net interest expense decreased 8.4% to $1.6 million for the first
quarter of 2001 compared with $1.7 million for the same period in 2000 due to a
decrease in the Company's average short-term borrowings. The Company recorded
interest income of $176,000 for the quarter ended March 31, 2001 as compared to
$97,000 for the same period in 2000. The Company wrote off its $2.4 million
investment in Amercord Inc. during the first quarter of 2001 due to the
deterioration of Amercord's operating results and financial position during the
quarter. The Company believes that it will not recover its investment in
Amercord without a restructuring of Amercord. The Company's investment in
Amercord consists of a $1.5 million subordinated note and 9.9% of Amercord's
common stock.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001 the Company had cash and cash equivalents of $2.0
million and available borrowing capacity of approximately $47.9 million under
its existing credit facility. Outstanding letters of credit totaled $2.1 million
securing various insurance letters of credit.
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Net cash used by operations was $10.1 million in the quarter ended March
31, 2001 compared with $4.2 million in the same period in 2000. The increase in
cash used by operations for the 2001 period was due primarily to lower operating
profits and higher accounts receivable balances due partially to higher sales.
Capital expenditures totaled $6.8 million for the quarter ended March
31, 2001, compared with $3.8 million during the same period in 2000. Alside's
expenditures in the 2001 period were incurred primarily to increase fence and
window capacity and for a new financial and ERP system which will be implemented
over a two-year period at an estimated cost of $10.3 million. Capital
expenditures on the new ERP system were $2.1 million for the first quarter of
2001. AmerCable's expenditures were incurred primarily to expand manufacturing
capacity.
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, Inc. have the option to assume the loan. Ivaco, Inc. has
indemnified the Company for 50% of any loss under the guarantee. The Company
believes that it is adequately secured under its guarantee of the $3.0 million
Amercord note such that no losses are anticipated with respect to this
guarantee.
On April 29, 2001, the Company repurchased 1,000,000 shares of its
class B common stock from Prudential Insurance Company of America and its wholly
owned subsidiary, PCG Finance Company II, LLC, at $19.50 per share, or $19.5
million in the aggregate. The share purchase was financed through available cash
and borrowings under the Company's $50,000,000 credit facility.
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 have not been
material to its operating results for each of the past three years. Alside's
principal raw material, vinyl resin, has been subject to rapid price changes,
including in 1999 and 2000. Alside has historically been able to pass on price
increases to its customers. The results of operations for individual quarters
can and have been negatively impacted by a delay between the time of vinyl resin
price increases and price increases in Alside's products. However, over longer
periods of time, the impact of the price increases in vinyl resin has
historically not been material. No assurances can be given that Alside will be
able to pass on any price increases in the future. Alside does not presently
expect any significant change in the price of vinyl resin for 2001.
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, weather conditions, 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, 2000. 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.
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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 2001. 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, 2000.
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Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 - Stock Disposition Agreement, dated April 29, 2001, among
Associated Materials Incorporated, The Prudential Insurance Company
of America and PCG Finance Company II, LLC (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K, dated April 29, 2001).
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2001.
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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 10, 2001 By: \s\ Robert L. Winspear
----------------------------
Robert L. Winspear
Vice President and Chief Financial
Officer
Date: May 10, 2001 \s\ Robert L. Winspear
-----------------------------
Robert L. Winspear
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
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INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.1 Stock Disposition Agreement, dated April 29, 2001, among Associated Materials
Incorporated, The Prudential Insurance Company of America and PCG Finance Company II,
LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K, dated April 29, 2001).
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