1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
F0RM 10-Q
(Mark One)
Y QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
-----------------------------------------
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)
<Table>
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)
</Table>
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 Y 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 Y No
----- -----
Shares of Common Stock, $.0025 par value outstanding
at August 13, 2001: 6,721,904
2
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2001
<Table>
<Caption>
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets.................................................................. 1
June 30, 2001 (Unaudited) and December 31, 2000
Statements of Operations (Unaudited)............................................ 2
Quarter and six months ended June 30, 2001 and 2000
Statements of Cash Flows (Unaudited)............................................ 3
Six months ended June 30, 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.................. 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................... 11
Item 6. Exhibits and Reports on Form 8-K............................................ 12
SIGNATURES............................................................................ 13
</Table>
3
Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(In Thousands, Except Share Data)
<Table>
<Caption>
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 3,367 $ 15,879
Short-term investment ........................................ -- 5,019
Accounts receivable, net ..................................... 73,009 50,853
Inventories .................................................. 81,240 74,429
Income taxes receivable ...................................... -- 453
Other current assets ......................................... 4,016 4,213
--------- ---------
Total current assets ............................................ 161,632 150,846
Property, plant and equipment, net .............................. 78,401 73,917
Investment in Amercord Inc. ..................................... -- 2,393
Other assets .................................................... 4,044 3,985
--------- ---------
Total assets .................................................... $ 244,077 $ 231,141
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 39,170 $ 19,273
Accrued liabilities .......................................... 25,027 29,509
Revolving line of credit ..................................... 8,400 --
Income taxes payable ......................................... 3,583 --
--------- ---------
Total current liabilities ....................................... 76,180 48,782
Deferred income taxes ........................................... 3,943 3,927
Other liabilities ............................................... 5,254 5,442
Long-term debt .................................................. 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at June 30, 2001 and
December 31, 2000
Issued shares - 0 at June 30, 2001 and
December 31, 2000 ...................................... -- --
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued shares - 7,787,480 at June 30, 2001
and 7,164,024 at December 31, 2000 .................. 19 18
Common stock, Class B, $.0025 par value:
Authorized and issued shares - 0 at June 30, 2001
and 1,550,000 shares at December 31, 2000 ........... -- 4
Less: Treasury stock, at cost - 1,065,576 shares at
June 30, 2001 and 955,170 at December 31, 2000 ......... (14,228) (12,425)
Capital in excess of par .................................. 16,344 14,862
Retained earnings ......................................... 81,565 95,531
--------- ---------
Total stockholders' equity ................................ 83,700 97,990
--------- ---------
Total liabilities and stockholders' equity ...................... $ 244,077 $ 231,141
========= =========
</Table>
See accompanying notes.
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4
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<Table>
<Caption>
Quarter Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales ..................................... $ 158,745 $ 134,381 $ 267,356 $ 237,800
Cost of sales ................................. 111,479 94,648 192,893 169,474
--------- --------- --------- ---------
47,266 39,733 74,463 68,326
Selling, general and administrative expense ... 30,272 27,018 58,399 51,301
--------- --------- --------- ---------
Income from operations ........................ 16,994 12,715 16,064 17,025
Interest expense .............................. 1,854 1,724 3,433 3,448
--------- --------- --------- ---------
15,140 10,991 12,631 13,577
Loss on the write-down of Amercord Inc. ....... -- -- (2,393) --
Gain on sale of UltraCraft .................... -- 8,348 -- 8,348
--------- --------- --------- ---------
Income before income taxes .................... 15,140 19,339 10,238 21,925
Income tax expense ............................ 5,829 7,445 3,942 8,440
--------- --------- --------- ---------
Net income .................................... $ 9,311 $ 11,894 $ 6,296 $ 13,485
========= ========= ========= =========
Earnings Per Common Share - Basic:
Net income per common share ................... $ 1.34 $ 1.48 $ 0.86 $ 1.68
========= ========= ========= =========
Earnings Per Common Share - Assuming Dilution:
Net income per common share ................... $ 1.28 $ 1.43 $ 0.83 $ 1.63
========= ========= ========= =========
Dividends per common share .................... $ -- $ -- $ 0.10 $ 0.10
========= ========= ========= =========
</Table>
See accompanying notes.
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5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<Table>
<Caption>
Six Months Ended
June 30,
----------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net income .................................................. $ 6,296 $ 13,485
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................... 5,349 4,745
Deferred income taxes ................................. 16 3,093
Loss on the write-down of Amercord Inc. ............... 2,393 --
Loss on sale of assets ................................ 38 3
Gain on sale of UltraCraft ............................ -- (8,348)
Changes in operating assets and liabilities:
Accounts receivable, net ........................... (22,156) (9,155)
Inventories ........................................ (6,811) (12,885)
Income taxes receivable/payable .................... 3,863 5,219
Accounts payable and accrued liabilities ........... 15,415 8,591
Other assets and liabilities ....................... (14) (1,625)
-------- --------
Net cash provided by operating activities ................... 4,389 3,123
INVESTING ACTIVITIES
Proceeds from sale of short-term investment ................. 5,019 --
Proceeds from sale of assets ................................ 69 48
Proceeds from sale of UltraCraft ............................ -- 19,220
Additions to property, plant and equipment .................. (9,803) (6,888)
-------- --------
Net cash provided by (used by) investing activities ......... (4,715) 12,380
FINANCING ACTIVITIES
Net increase in revolving line of credit .................... 8,400 --
Net proceeds from issuance of common stock .................. 487 488
Repurchase of Class B shares ................................ (19,500) --
Dividends paid .............................................. (765) (801)
Treasury stock acquired ..................................... (1,803) --
Stock options, other ........................................ 588 --
Stock options exercised ..................................... 407 34
-------- --------
Net cash used by financing activities ....................... (12,186) (279)
Net increase (decrease) in cash ............................. (12,512) 15,224
Cash at beginning of period ................................. 15,879 3,432
-------- --------
Cash at end of period ....................................... $ 3,367 $ 18,656
======== ========
Supplemental information:
Cash paid for interest ...................................... $ 3,622 $ 3,647
======== ========
Cash paid for income taxes .................................. $ 753 $ 848
======== ========
</Table>
See accompanying notes.
-3-
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ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter and six months ended June 30, 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.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or market.
Inventories consist of the following (in thousands):
<Table>
<Caption>
June 30, December 31,
2001 2000
---------- ------------
Raw materials.............................................. $ 23,664 $ 23,229
Work in process............................................ 6,084 5,101
Finished goods and purchased stock......................... 51,492 46,099
---------- ----------
$ 81,240 $ 74,429
========== ==========
</Table>
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 did
not purchase any shares under this program during the second quarter of 2001.
For the six months ended June 30, 2001, the Company repurchased 110,406 shares
of its common stock at a cost of $1.8 million. The Class B share repurchase
described below was not a part of this stock repurchase program.
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, which has been reflected primarily as
a reduction to retained earnings. 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 converted the remaining 550,000
shares of Class B Common Stock into 550,000 shares of common stock. The Company
has retired all 1,550,000 previously authorized shares of Class B Common Stock.
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.
-4-
7
NOTE 5 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<Table>
<Caption>
Quarter Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Numerator:
Numerator for basic and diluted earnings per
common share .............................. $ 9,311 $11,894 $ 6,296 $13,485
Denominator:
Denominator for basic earnings per common
share - weighted-average shares ........... 6,980 8,021 7,327 8,020
Effect of dilutive securities:
Employee stock options .................... 288 286 278 251
------- ------- ------- -------
Denominator for diluted earnings per common
share - adjusted weighted-average shares .. 7,268 8,307 7,605 8,271
Basic earnings per common share ................. $ 1.34 $ 1.48 $ 0.86 $ 1.68
======= ======= ======= =======
Diluted earnings per common share ............... $ 1.28 $ 1.43 $ 0.83 $ 1.63
======= ======= ======= =======
</Table>
For the six months ended June 30, 2001 and for the quarter and six months ended
June 30, 2000 options to purchase 20,000 and 40,000 shares of common stock,
respectively, were excluded from the calculation of weighted average shares
outstanding 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.
-5-
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Quarter Ended June 30, 2001 Compared to Quarter Ended June 30, 2000
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segment:
<Table>
<Caption>
Quarter Ended June 30,
----------------------------------------------------------------------------
2001 2000
----------------------------------- -----------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
--------------- --------------- --------------- ---------------
Total Company:
Net sales - Alside(1) ........ $ 139,206 87.7% $ 119,135 88.7%
Net sales - AmerCable(1) ..... 19,539 12.3 15,246 11.3
--------------- --------------- --------------- ---------------
Total net sales ........... 158,745 100.0 134,381 100.0
Gross profit ................. 47,266 29.8 39,733 29.6
Selling, general and
administrative expense(2).. 30,272 19.1 27,018 20.1
--------------- --------------- --------------- ---------------
Income from operations ....... $ 16,994 10.7% $ 12,715 9.5%
=============== =============== =============== ===============
Alside:
Net sales(1) ................. $ 139,206 100.0% $ 119,135 100.0%
Gross profit ................. 43,346 31.1 37,045 31.1
Selling, general and
administrative expense .... 26,973 19.4 24,424 20.5
--------------- --------------- --------------- ---------------
Income from operations ....... $ 16,373 11.8% $ 12,621 10.6%
=============== =============== =============== ===============
AmerCable:
Net sales(1) ................. $ 19,539 100.0% $ 15,246 100.0%
Gross profit ................. 3,920 20.1 2,688 17.6
Selling, general and
administrative expense .... 1,729 8.8 1,512 9.9
--------------- --------------- --------------- ---------------
Income from operations ....... $ 2,191 11.3% $ 1,176 7.7%
=============== =============== =============== ===============
</Table>
(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 $1,570,000 and $1,082,000 for the quarters ended June 30, 2001
and 2000, respectively.
Overview
The Company's net sales increased 18.1% to $158.7 million for the
second quarter of 2001 as compared to $134.4 million for the same period in 2000
due to higher sales volume at the Company's Alside and AmerCable divisions.
Income from operations increased 33.7% to $17.0 million for the second quarter
of 2001 due to higher profits at both Alside and AmerCable. The Company's net
income decreased to $9.3 million or $1.28 per share for the second quarter of
2001 as compared to $11.9 million or $1.43 per share for the same period in 2000
due to the sale of the Company's UltraCraft cabinet operation in June 2000,
which resulted in a pre-tax gain of $8.3 million. The Company's second quarter
2000 net income and earnings per share were $6.8 million and $0.81 per share,
respectively, exclusive of the UltraCraft sale.
-6-
9
ALSIDE. Alside's net sales increased 16.8% to $139.2 million for the
quarter ended June 30, 2001 as compared to $119.1 million for the same period in
2000 due primarily to higher sales volume across most product lines. Unit sales
of vinyl siding increased 9.2% in the second quarter of 2001 while the Company
believes the vinyl siding industry as a whole decreased 3.5%. Exclusive of the
incremental window sales from the acquisition of the Alpine window operations in
October 2000, unit sales of vinyl windows increased 47.6% in the second quarter
of 2001 as compared to the 2000 period as Alside continues to increase sales by
leveraging improvements in efficiency and customer service resulting from the
restructuring of its window operations. Gross profit as a percentage of sales
remained constant at 31.1%. Selling, general and administrative expense
increased to $27.0 million for the second quarter of 2001 compared to $24.4
million for the 2000 period due primarily to higher personnel costs and higher
lease expense due to the addition of six Supply Centers during the past 15
months. The 2001 period includes the operations of these new locations for the
full quarter. Income from operations increased 29.7% to $16.4 million for the
2001 period as compared to $12.6 million for the same period in 2000 due to
higher sales volume.
AMERCABLE. AmerCable's net sales increased 28.2% to $19.5 million for
the second quarter of 2001 as compared with $15.3 million for the same period in
2000 due primarily to higher sales volume across all product lines, particularly
marine and telecommunications. Gross profit as a percentage of sales increased
to 20.1% for the 2001 period as compared to 17.6% for the 2000 period due to
higher sales volume which resulted in improved fixed cost absorption. Selling,
general and administrative expenses increased to $1.7 million for the second
quarter of 2001 as compared to $1.5 million for the same period in 2000 due to
higher personnel costs which were partially offset by lower bad debt expense.
Income from operations increased $1.0 million to $2.2 million for the quarter
ended June 30, 2001 as compared to $1.2 million for the same period in 2000.
OTHER. Net interest expense increased $130,000 or 7.5% for the second
quarter of 2001 compared with the same period in 2000 due primarily to an
increase in the Company's short-term borrowings incurred to finance the purchase
of 1,000,000 shares of Class B Common Stock for $19.5 million in April 2001. The
Company recorded interest income of $40,000 for the quarter ended June 30, 2001
as compared to $102,000 for the same period in 2000.
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10
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segments.
<Table>
<Caption>
Six Months Ended June 30,
----------------------------------------------------------------------------
2001 2000
----------------------------------- -----------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
--------------- --------------- --------------- ---------------
Total Company:
Net sales - Alside(1) $ 229,145 85.7% $ 206,276 86.7%
Net sales - AmerCable(1) 38,211 14.3 31,524 13.3
--------------- --------------- --------------- ---------------
Total net sales 267,356 100.0 237,800 100.0
Gross profit 74,463 27.9 68,326 28.8
Selling, general and
administrative expense(2) 58,399 21.9 51,301 21.6
--------------- --------------- --------------- ---------------
Income from operations $ 16,064 6.0% $ 17,025 7.2%
=============== =============== =============== ===============
Alside:
Net sales(1) $ 229,145 100.0% $ 206,276 100.0%
Gross profit 67,064 29.3 62,543 30.4
Selling, general and
administrative expense 51,848 22.7 46,173 22.4
--------------- --------------- --------------- ---------------
Income from operations $ 15,216 6.6% $ 16,370 8.0%
=============== =============== =============== ===============
AmerCable:
Net sales(1) $ 38,211 100.0% $ 31,524 100.0%
Gross profit 7,399 19.4 5,783 18.3
Selling, general and
administrative expense 3,605 9.5 3,083 9.7
--------------- --------------- --------------- ---------------
Income from operations $ 3,794 9.9% $ 2,700 8.6%
=============== =============== =============== ===============
</Table>
(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 $2,946,000 and $2,045,000 for the six-month periods ended June
30, 2001 and 2000, respectively.
Overview
The Company's net sales increased 12.4% to $267.4 million for the six
months ended June 30, 2001 as compared to $237.8 million for the same period in
2000 due to higher sales volume at both Alside and AmerCable. Income from
operations decreased 5.6% to $16.1 million for the six months ended June 30,
2001 as compared to $17.0 million for the 2000 period. The Company's net income
decreased to $6.3 million or $0.83 per share for the six months ended June 30,
2001 as compared to $13.5 million or $1.63 per share for the same period in 2000
due to the $2.4 million loss on the write-down of the Company's investment in
Amercord in the first quarter of 2001 and the sale of the Company's UltraCraft
operation in June 2000, which resulted in a pre-tax gain of $8.3 million.
Exclusive of the write-down of the Company's Amercord investment in the first
quarter of 2001 and the gain on the sale of UltraCraft in June 2000, net income
and earnings per share were $7.8 million or $1.02 per share and $8.4 million or
$1.01 per share, respectively, for the six months ended June 30, 2001 and 2000.
ALSIDE. Alside's net sales increased 11.1% to $229.1 million for the
six months ended June 30, 2001 as compared to $206.3 million for the same period
in 2000 due primarily to increased vinyl window sales. Unit sales of vinyl
siding increased 3.9%. The Company believes that the vinyl siding industry as a
whole decreased 10.9% in the six months ended June 30, 2001. Gross profit as a
percentage of net sales decreased to 29.3% for the six
-8-
11
months ended June 30, 2001 as compared to 30.4% for the same period in 2000 due
to the shift in product mix to lower margin vinyl windows, the loss of profits
generated by the UltraCraft cabinet operation and the losses from the start-up
of the Northwest window plant, which were incurred primarily during the first
quarter of 2001. Selling, general and administrative expense increased to $51.8
million for the six-month period ended June 30, 2001 as compared to $46.2
million for the 2000 period due primarily to higher personnel costs and lease
expense including costs associated with the expansion of Alside's Supply Center
network. Since January 1, 2000, Alside has opened 10 new locations bringing the
total number of locations to 80. In addition, selling, general and
administrative expense for 2000 included an $850,000 gain on the demutualization
of an insurance company. Income from operations decreased to $15.2 million for
the six months ended June 30, 2001 as compared to $16.4 million for the same
period in 2000. The 2000 period included operating income of $1.3 million
generated by the Company's UltraCraft cabinet operation which was sold in June
2000 and the 2001 period included $1.1 million in losses from the Company's
Northwest window plant which was purchased from Alpine Industries in October
2000.
AMERCABLE. AmerCable's net sales increased 21.2% to $38.2 million for
the six months ended June 30, 2001 as compared to $31.5 million in the 2000
period due primarily to higher sales volume of marine and telecommunications
products. AmerCable does not anticipate any significant sales of power cable for
the telecommunications industry for the second half of 2001 as infrastructure
expenditures in telecommunications have declined dramatically. Gross profit
increased 27.9% to $7.4 million for the six months ended June 30, 2001 as
compared to $5.8 million for the same period in 2000 due to higher sales volume
and improved fixed cost absorption. Selling, general and administrative expenses
increased to $3.6 million due primarily to higher personnel costs and higher
marketing expenditures. Income from operations increased $1.1 million to $3.8
million for the six months ended 2001 as compared to $2.7 million for the same
period in 2000 as higher sales volume and improved fixed cost absorption was
partially offset by higher selling, general and administrative expense.
OTHER. Net interest expense remained constant at $3.4 million for the
six months ended June 30, 2001 and 2000 as higher interest expense during the
second quarter of 2001 due to higher short-term borrowings was offset by
increased interest income in the first quarter of 2001. The Company recorded
interest income of $216,000 for the six months ended June 30, 2001.
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
Borrowing under the Company's existing credit facility were $8.4 million
at June 30, 2001, excluding outstanding letters of credit totaling $2.1 million
securing various insurance letters of credit. At June 30, 2001, the Company had
available borrowing capacity of approximately $39.5 million. At June 30, 2001,
the Company had cash and cash equivalents of $3.4 million.
Net cash provided by operations was $4.4 million in the six months ended
June 30, 2001 compared with $3.1 million in the same period in 2000. The
increase in cash provided by operations for the 2001 period was due primarily to
lower working capital requirements.
Capital expenditures totaled $9.8 million for the six months ended June
30, 2001 compared with $6.9 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 $2.6 million for the six months ended
June 30, 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 up to $1.5
million. 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.
-9-
12
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. Following the
purchase, Prudential and PCG converted the remaining 550,000 shares of Class B
Common Stock into 550,000 shares of common stock. The Company has retired all
1,550,000 previously authorized shares of Class B Common Stock.
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 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.
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 quarter or six months ended June 30, 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 4. Submission of Matters to a Vote of Security Holders.
The 2001 Annual Meeting of Stockholders of the Company was held on May
24, 2001. The stockholders voted upon and approved the amendment of the
Company's certificate of incorporation to provide that all members of the
Company's Board of Directors be elected each year.
<Table>
<Caption>
For Against Abstain
--------- ------- -------
6,234,783 2,200 1,950
</Table>
The following nominees for director were elected to serve as directors
until the 2002 Annual Meeting of Stockholders:
<Table>
<Caption>
Withhold
For Authority
--------- ---------
William W. Winspear 5,248,773 101,000
Michael Caporale, Jr. 5,247,705 102,068
Richard I. Galland 5,248,873 100,900
John T. Gray 5,248,873 100,900
James F. Leary 5,248,873 100,900
Alan B. Lerner 5,248,873 100,900
A. A. Meitz 5,248,873 100,900
</Table>
The stockholders also voted upon and approved the amendment of the
Associated Materials Stock Incentive Plan to increase the number of shares
authorized to be issued under the plan.
<Table>
<Caption>
Broker
For Against Abstain Non-vote
--------- ------- ------- --------
4,354,064 305,069 29,800 660,840
</Table>
The stockholders also voted upon and approved the amendment of the
Associated Materials Employee Stock Purchase Plan to increase the number of
shares authorized to be issued under the plan.
<Table>
<Caption>
Broker
For Against Abstain Non-vote
--------- ------- ------- --------
4,649,693 10,340 28,900 660,840
</Table>
The stockholders also voted upon and ratified the appointment of Ernst &
Young LLP as the independent auditors of the Company for the fiscal year 2001.
<Table>
<Caption>
For Against Abstain
--------- ------- -------
5,340,497 7,153 2,123
</Table>
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14
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 - Restated Certificate of Incorporation, as amended, of Associated
Materials Incorporated.
4.2 - Restated Bylaws of Associated Materials Incorporated.
10.1 - Amended and Restated 1994 Stock Incentive Plan.
10.2 - Associated Materials Incorporated Employee Stock Purchase Plan.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated April 29, 2001,
under Item 5 - Other Events. The report related to the Company's
repurchase of 1,000,000 shares of Class B Common Stock from The
Prudential Insurance Company of America and its wholly owned
subsidiary, PCG Finance Company II, LLC. The purchase price was $19.50
per Class B share, or $19,500,000 in the aggregate.
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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: August 13, 2001 By: \s\ Robert L. Winspear
------------------------------------------
Robert L. Winspear
Vice President and Chief Financial Officer
Date: August 13, 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
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 - Restated Certificate of Incorporation, as amended, of Associated
Materials Incorporated.
4.2 - Restated Bylaws of Associated Materials Incorporated.
10.1 - Amended and Restated 1994 Stock Incentive Plan.
10.2 - Associated Materials Incorporated Employee Stock Purchase Plan.
</Table>
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