SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
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 September 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
-------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by 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 November 13, 2001:
6,737,004
ASSOCIATED MATERIALS INCORPORATED
FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001
<Table>
<Caption>
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets................................................................................ 1
September 30, 2001 (Unaudited) and December 31, 2000
Statements of Operations (Unaudited).......................................................... 2
Quarter and nine months ended September 30, 2001 and 2000
Statements of Cash Flows (Unaudited).......................................................... 3
Nine months ended September 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............................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................... 12
SIGNATURES.......................................................................................... 13
</Table>
Part I. Financial Information
Item 1. Financial Statements
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
<Table>
<Caption>
September 30, December 31,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 13,224 $ 15,879
Short-term investment ....................................... -- 5,019
Accounts receivable, net .................................... 79,791 50,853
Inventories ................................................. 80,411 74,429
Income taxes receivable ..................................... -- 453
Other current assets ........................................ 3,972 4,213
------------ ------------
Total current assets ........................................... 177,398 150,846
Property, plant and equipment, net ............................. 78,135 73,917
Investment in Amercord Inc. .................................... -- 2,393
Other assets ................................................... 4,098 3,985
------------ ------------
Total assets ................................................... $ 259,631 $ 231,141
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 41,117 $ 19,273
Accrued liabilities ......................................... 30,316 29,509
Income taxes payable ........................................ 8,647 --
------------ ------------
Total current liabilities ...................................... 80,080 48,782
Deferred income taxes .......................................... 5,585 3,927
Other liabilities .............................................. 5,136 5,442
Long-term debt ................................................. 75,000 75,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 100,000 at September 30, 2001 and
December 31, 2000
Issued shares - 0 at September 30, 2001 and
December 31, 2000 ..................................... -- --
Common stock, $.0025 par value:
Authorized shares - 15,000,000
Issued shares - 7,787,480 at September 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
September 30, 2001 and 1,550,000 at
December 31, 2000 ................. -- 4
Less: Treasury stock, at cost - 1,078,476 shares at
September 30, 2001 and 955,170 at December 31, 2000 ... (14,476) (12,425)
Capital in excess of par ................................. 16,344 14,862
Retained earnings ........................................ 91,943 95,531
------------ ------------
Total stockholders' equity ............................... 93,830 97,990
------------ ------------
Total liabilities and stockholders' equity ..................... $ 259,631 $ 231,141
============ ============
</Table>
-1-
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<Table>
<Caption>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net sales............................................... $ 168,664 $ 134,811 $ 436,020 $ 372,611
Cost of sales........................................... 119,072 94,534 311,965 264,008
---------- ---------- ---------- ----------
49,592 40,277 124,055 108,603
Selling, general and administrative expense............. 30,450 27,122 88,849 78,423
---------- ---------- ---------- ----------
Income from operations.................................. 19,142 13,155 35,206 30,180
Interest expense, net................................... 1,721 1,305 5,154 4,753
---------- ---------- ---------- ----------
17,421 11,850 30,052 25,427
Loss on the write-down of Amercord Inc.................. - - (2,393) -
Gain on sale of UltraCraft.............................. - (336) - 8,012
---------- ---------- ---------- ----------
Income before income taxes.............................. 17,421 11,514 27,659 33,439
Income tax expense ..................................... 6,707 5,547 10,649 13,987
---------- ---------- ---------- ----------
Net income.............................................. $ 10,714 $ 5,967 $ 17,010 $ 19,452
========== ========== ========== ==========
Earnings Per Common Share - Basic:
Net income per common share............................. $ 1.59 $ 0.74 $ 2.39 $ 2.42
========== ========== ========== ==========
Earnings Per Common Share - Assuming Dilution:
Net income per common share............................. $ 1.52 $ 0.71 $ 2.29 $ 2.34
========== ========== ========== ==========
Dividends per common share.............................. $ 0.05 $ - $ 0.15 $ 0.10
=========== =========== ========== ==========
</Table>
-2-
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<Table>
<Caption>
Nine Months Ended
September 30,
--------------------------------
2001 2000
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OPERATING ACTIVITIES
Net income ................................................................. $ 17,010 $ 19,452
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization......................................... 8,146 7,040
Deferred income taxes................................................. 1,658 2,593
Loss on the write-down of Amercord Inc................................ 2,393 -
Loss on sale of assets................................................ 39 18
Gain on sale of UltraCraft............................................ - (8,012)
Changes in operating assets and liabilities:
Accounts receivable, net........................................... (28,938) (14,689)
Inventories........................................................ (5,982) (10,023)
Income taxes receivable/payable.................................... 8,927 4,398
Accounts payable and accrued liabilities........................... 22,651 11,555
Other assets and liabilities....................................... (210) (1,408)
---------- ----------
Net cash provided by operating activities................................... 25,694 10,924
INVESTING ACTIVITIES
Proceeds from sale of short-term investment................................. 5,019 -
Proceeds from sale of assets................................................ 114 64
Proceeds from sale of UltraCraft............................................ - 18,885
Additions to property, plant and equipment.................................. (12,312) (8,998)
---------- ----------
Net cash provided by (used by) investing activities......................... (7,179) 9,951
FINANCING ACTIVITIES
Net proceeds from issuance of common stock.................................. 487 488
Repurchase of Class B shares................................................ (19,500) -
Dividends paid.............................................................. (1,101) (801)
Treasury stock acquired..................................................... (2,051) (924)
Stock options............................................................... 995 557
---------- ----------
Net cash used by financing activities....................................... (21,170) (680)
Net increase (decrease) in cash............................................. (2,655) 20,195
Cash at beginning of period................................................. 15,879 3,432
---------- ----------
Cash at end of period....................................................... $ 13,224 $ 23,627
========== ==========
Supplemental information:
Cash paid for interest...................................................... $ 7,150 $ 7,147
========== ==========
Net cash paid for income taxes.............................................. $ 1,144 $ 7,628
========== ==========
</Table>
-3-
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated (the
"Company") for the quarter and nine months ended September 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>
September 30, December 31,
2001 2000
------------ ------------
Raw materials.................................................................. $ 22,698 $ 23,229
Work in process................................................................ 5,695 5,101
Finished goods and purchased stock............................................. 52,018 46,099
---------- ----------
$ 80,411 $ 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
repurchased 12,900 shares under this program during the third quarter of 2001.
For the nine months ended September 30, 2001, the Company repurchased 123,306
shares of its common stock at a cost of $2.1 million. At September 30, 2001,
1,037,080 shares have been repurchased since the program's inception. 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 held by these entities into 550,000 shares of
common stock pursuant to the terms of the Company's certificate of
incorporation. 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
-4-
operating results and financial position deteriorated during the first quarter
2001 and Amercord ceased operations in the second 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.
NOTE 5 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<Table>
<Caption>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Numerator:
Numerator for basic and diluted earnings per
common share - net income .......................... $ 10,714 $ 5,967 $17,010 $19,452
Denominator:
Denominator for basic earnings per common
share - weighted-average shares..................... 6,721 8,065 7,122 8,035
Effect of dilutive securities:
Employee stock options.............................. 323 286 293 263
--------- --------- --------- ---------
Denominator for diluted earnings per common
share - adjusted weighted-average shares............ 7,044 8,351 7,415 8,298
Basic earnings per common share .......................... $ 1.59 $ 0.74 $ 2.39 $ 2.42
========= ========= ========= =========
Diluted earnings per common share......................... $ 1.52 $ 0.71 $ 2.29 $ 2.34
========= ========= ========= =========
</Table>
For the nine months ended September 30, 2000 options to purchase 40,000 shares
of common stock 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 - DIVIDENDS
During the third quarter of 2001, the Company's Board of Directors declared a
cash dividend of $0.05 per share. The Company presently intends to pay a regular
quarterly cash dividend of $0.05 per share. However, the Company's ability to
make restricted payments, such as dividend payments, is restricted by covenants
in its existing bank credit agreement and the Indenture pursuant to which the
Company's 9 1/4% Senior Subordinated Notes were issued. At September 30, 2001,
the Company had the ability to make restricted payments of up to $11.0 million
under the more restrictive provision of these agreements.
NOTE 7 - RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
-5-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Quarter Ended September 30, 2001 Compared to Quarter Ended September 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 September 30,
---------------------------------------------------------------------
2001 2000
------------------------------- ------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
--------- --------------- --------- ---------------
Total Company:
Net sales - Alside (1).................... $150,942 89.5% $ 118,715 88.1%
Net sales - AmerCable (1)................. 17,722 10.5 16,096 11.9
--------- ------- --------- -------
Total net sales........................ 168,664 100.0 134,811 100.0
Gross profit.............................. 49,592 29.4 40,277 29.9
Selling, general and
administrative expense (2)............. 30,450 18.1 27,122 20.1
--------- ------- --------- -------
Income from operations.................... $ 19,142 11.3% $ 13,155 9.8%
========= ======= ========= =======
Alside:
Net sales (1)............................. $ 150,942 100.0% $ 118,715 100.0%
Gross profit.............................. 46,075 30.5 36,925 31.1
Selling, general and
Administrative expense................. 27,565 18.3 24,405 20.6
--------- ------- --------- -------
Income from operations.................... $ 18,510 12.2% $ 12,520 10.5%
========= ======= ========= =======
AmerCable:
Net sales (1)............................. $ 17,722 100.0% $ 16,096 100.0%
Gross profit.............................. 3,517 19.8 3,352 20.8
Selling, general and
Administrative expense................. 1,843 10.4 1,677 10.4
--------- ------- --------- -------
Income from operations.................... $ 1,674 9.4% $ 1,675 10.4%
========= ======= ========= =======
</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 $1,042,000 and $1,040,000 for the quarters ended September 30,
2001 and 2000, respectively.
Overview
The Company's net sales increased 25.1% to $168.7 million for the
quarter ended September 30, 2001 compared to $134.8 million for the same period
in 2000 due to higher sales volume at both the Company's Alside and AmerCable
divisions. Income from operations increased 45.5% to $19.1 million for the third
quarter 2001 compared to $13.2 million for the same period in 2000 due primarily
to higher operating profits at Alside. The Company's net income was $10.7
million, or $1.52 per share, for the third quarter of 2001 compared to $6.0
million, or $0.71 per share, for the same period in 2000. During the third
quarter 2000, the Company recorded $1.1 million of additional income tax expense
due to an adjustment to a deferred tax asset and a $336,000 decrease ($207,000
after tax) in the gain on the sale of UltraCraft due to a purchase price
adjustment. Exclusive of these items, the Company's 2000 net income and earnings
per share were $7.3 million and $0.87, respectively.
-6-
ALSIDE. Alside's net sales increased 27.1% to $150.9 million for the
quarter ended September 30, 2001 as compared to $118.7 million for the same
period in 2000 due primarily to higher sales volume of vinyl siding and vinyl
windows. Alside's unit sales of vinyl siding increased 14.7% for the third
quarter 2001 compared to 9.5% for the vinyl siding industry as a whole. Unit
sales of vinyl windows (exclusive of the Alpine window operations acquired in
October 2000) increased 57.6%. Gross profit as a percentage of sales decreased
to 30.5% for the 2001 period compared to 31.1% for the 2000 period due to
changes in Alside's product mix to lower margin vinyl windows. Selling, general
and administrative expense increased to $27.6 million in 2001 compared to $24.4
million for the 2000 period, but decreased as a percentage of sales from 20.6%
to 18.3%. The increase in SG&A expense is due to higher personnel cost
(including incentive compensation), an increase in the number of salaried
personnel with the addition of the Alpine window facility and increased
expenditures to open new Supply Centers and support growth at existing
locations. Income from operations increased 47.8% to $18.5 million for the third
quarter 2001 compared to $12.5 million for the 2000 period and increased as a
percentage of sales to 12.2% for the 2001 period from 10.5% in the 2000 period.
AMERCABLE. AmerCable's net sales increased to $17.7 million for the
third quarter of 2001 as compared with $16.1 million for the same period in 2000
due primarily to higher sales volume of marine and mining cable products. As
anticipated, sales of telecommunication power cable were soft during the third
quarter 2001 due to reduced infrastructure expenditures by the
telecommunications industry. The telecommunications cable market is anticipated
to remain soft into 2002. Gross profit as a percentage of sales decreased to
19.8% for the 2001 period as compared to 20.8% for the 2000 period due to higher
operating costs. Selling, general and administrative expense increased to $1.8
million for the 2001 period compared to $1.7 million for the same period in 2000
due to higher personnel costs. Income from operations remained consistent at
$1.7 million for the third quarter 2001 as higher sales volume was offset by
lower gross profits and higher selling, general and administrative expense.
OTHER. Net interest expense increased $416,000 for the third quarter of
2001 compared with the same period in 2000 due primarily to a decrease in the
Company's investment income as a result of lower cash and investment balances.
The Company recorded interest income of $44,000 for the quarter ended September
30, 2001 as compared to $460,000 for the same period in 2000.
-7-
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000.
The table below sets forth for the periods indicated certain items of the
Company's financial statements by segments.
<Table>
<Caption>
Nine Months Ended September 30,
--------------------------------------------------------------------------
2001 2000
------------------------------------ -----------------------------------
Percentage of Percentage of
Amount Total Net Sales Amount Total Net Sales
----------- --------------- ----------- ---------------
Total Company:
Net sales - Alside (1).................... $ 380,087 87.2% $ 324,991 87.2%
Net sales - AmerCable (1)................. 55,933 12.8 47,620 12.8
----------- ------- ----------- -------
Total net sales........................ 436,020 100.0 372,611 100.0
Gross profit.............................. 124,055 28.5 108,603 29.1
Selling, general and
administrative expense (2)............. 88,849 20.4 78,423 21.0
----------- ------- ----------- -------
Income from operations.................... $ 35,206 8.1% $ 30,180 8.1%
=========== ======= =========== =======
Alside:
Net sales (1)............................. $ 380,087 100.0% $ 324,991 100.0%
Gross profit.............................. 113,139 29.8 99,468 30.6
Selling, general and
Administrative expense................. 79,413 20.9 70,578 21.7
----------- ------- ----------- -------
Income from operations.................... $ 33,726 8.9% $ 28,890 8.9%
=========== ======= =========== =======
AmerCable:
Net sales (1)............................. $ 55,933 100.0% $ 47,620 100.0%
Gross profit.............................. 10,916 19.5 9,135 19.2
Selling, general and
Administrative expense................. 5,448 9.7 4,760 10.0
----------- ------- ----------- -------
Income from operations.................... $ 5,468 9.8% $ 4,375 9.2%
=========== ======= =========== =======
</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 $3,988,000 and $3,085,000 for the nine-month periods ended
September 30, 2001 and 2000, respectively.
Overview
The Company's net sales increased 17.0% to $436.0 million for the nine
months ended September 30, 2001 as compared to $372.6 million for the same
period in 2000 as sales increased at both Alside and AmerCable. Income from
operations increased to $35.2 million for the 2001 period compared to $30.2
million for the 2000 period due to higher operating profits at both Alside and
AmerCable. The Company's net income was $17.0 million, or $2.29 per share for
the nine months ended September 30, 2001 compared to $19.5 million, or $2.34 per
share for the 2000 period. The Company's 2001 results include the writedown of
the Company's Amercord investment, while the 2000 results include an $8.0
million gain ($4.9 million after tax) on the sale of UltraCraft and $1.1 million
in additional income tax expense recorded due to an adjustment to a deferred tax
asset. Exclusive of these items net income was $18.5 million ($2.49 per share)
and $15.6 million ($1.88 per share) for the nine months ended September 30, 2001
and 2000, respectively.
ALSIDE. Alside's net sales for the nine months ended September 30, 2001
increased 17.0% to $380.1 million compared to $325.0 million for the same period
in 2000 due to higher sales volume of both vinyl siding and vinyl windows. For
the nine months ended September 30, 2001, unit sales of vinyl siding and vinyl
windows (exclusive of the Alpine operations acquired in October 2000) increased
7.9% and 47.8%, respectively compared to the 2000 period. Gross profit as a
percentage of sales decreased to 29.8% for the 2001 period compared to 30.6% for
the 2000 period due to a shift in product mix to lower margin vinyl windows.
Selling, general and administrative expense increased to $79.4 million for the
2001 period
-8-
compared to $70.6 million for the same period in 2000 due to higher personnel
costs and increased Supply Center expenditures. Income from operations increased
16.7% to $33.7 million for the nine months ended September 30, 2001 compared to
$28.9 million for the 2000 period.
AMERCABLE. AmerCable's net sales increased 17.5% to $55.9 million for
the nine months ended September 30, 2001 as compared to $47.6 million in the
2000 period due to higher sales across all product lines, particularly marine
cable products. Gross profit as a percentage of sales increased to 19.5% for the
2001 period compared to 19.2% for the same period in 2000 due to favorable fixed
cost absorption. Selling, general and administrative expenses increased to $5.4
million for the nine months ended 2001 due to higher personnel costs, but
decreased as a percentage of sales. Income from operations increased to $5.5
million for the nine months ended 2001 as compared to $4.4 million for the same
period in 2000 due to higher sales volume and slightly higher gross profit
margins.
OTHER. Net interest expense increased $401,000 or 8.4% for the nine
months ended September 30, 2001 as compared to the same period in 2000. The
increase was due to a decrease in the Company's investment income. The Company
recorded interest income of $260,000 for the nine months ended September 30,
2001 as compared to $659,000 for the 2000 period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001 the Company had cash and cash equivalents of $13.2
million and available borrowing capacity of approximately $47.9 million under
its existing credit facility. Outstanding letters of credit secured by this
credit facility totaled $2.1 million relating to various insurance letters of
credit.
Net cash provided by operations was $25.7 million in the nine months
ended September 30, 2001 compared with $10.9 million in the same period in 2000.
The increase in cash provided by operations for the 2001 period compared to the
2000 period was due primarily to higher accounts payable and accrued liabilities
due to more aggressive cash management and higher profits which were partially
offset by higher accounts receivable and inventory balances resulting from
increased sales volume.
The Company's accounts receivable, inventories and accounts payable at
September 30, 2001 were significantly higher than the comparable year end
balances primarily due to the seasonal nature of the Company's Alside business.
The Company typically reports its highest sales volume in the third quarter,
whereas fourth quarter sales are significantly lower due to much lower sales
volume in the month of December. Although the accounts receivable balance
increased 56.9% at September 30, 2001 compared to December 31, 2000, accounts
receivable days outstanding were comparable at September 30, 2000 and 2001.
Inventory balances have not increased proportionately with sales due to improved
inventory management and the significant increase in vinyl window sales, which,
due to their custom manufacture, have relatively small amounts of finished goods
inventory. Accounts payable increased to $41.1 million at September 30, 2001
compared to $19.3 million due to the seasonal reasons discussed above as well as
the timing of certain vendor payments.
Capital expenditures totaled $12.3 million for the nine months ended
September 30, 2001, compared with $9.0 million during the same period in 2000.
Alside expenditures for the nine months ended September 30, 2001 were used
primarily to increase window and fence capacity and for a new financial and ERP
system which will be implemented over the next two years at a total cost of
approximately $10.3 million. Expenditures for the new ERP system totaled $3.3
million for 2001 period. Expenditures at AmerCable were used primarily to expand
manufacturing capacity.
In connection with the recapitalization of Amercord in November 1999,
the Company guaranteed a $3.0 million note secured by Amercord's real property.
Amercord ceased operations in the second quarter of 2001. As of the date of this
report, the lender has not requested the Company to make a payment under the
guaranty. Should the guaranty 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 guaranty up to $1.5 million. Based on a
third party appraisal of Amercord's real property, the Company believes that it
is adequately secured under its guaranty of the $3.0 million Amercord note such
that no losses are anticipated with respect to this guaranty.
-9-
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 held by these entities into 550,000 shares of common stock pursuant
to the terms of the Company's certificate of incorporation. The Company has
retired all 1,550,000 previously authorized shares of Class B Common Stock.
During the third quarter of 2001, the Company's Board of Directors
declared a cash dividend of $0.05 per share. The Company presently intends to
pay a regular quarterly cash dividend of $0.05 per share. However, the Company's
ability to make restricted payments, such as dividend payments, is restricted by
covenants in its existing bank credit agreement and the Indenture pursuant to
which the Company's 9 1/4% Senior Subordinated Notes were issued. At September
30, 2001, the Company had the ability to make restricted payments of up to $11.0
million under the more restrictive provision of these agreements.
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 and
spending as a result of the events of September 11, 2001, 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'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. The Company has experienced no significant changes in market
risk during the quarter or nine months ended September 30, 2001.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K
Associated Materials Incorporated did not file any Current Reports on
Form 8-K during the quarter ended September 30, 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: November 13, 2001 By: \s\ Robert L. Winspear
---------------------------------
Robert L. Winspear
Vice President and Chief
Financial Officer
Date: November 13, 2001 \s\ Robert L. Winspear
---------------------------------
Robert L. Winspear
Vice President and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
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