News Release
| Associated Materials and AMH Holdings Report Third Quarter Results |
CUYAHOGA FALLS, Ohio, Oct. 26 /PRNewswire/ -- Associated Materials (the "Company") today announced results for its third quarter ended October 3, 2009. Financial highlights are as follows:
Tom Chieffe, President and Chief Executive Officer, commented, "Although the ongoing weakness in the housing markets impacted our sales negatively for the third quarter, the year over year impact was considerably less than felt in the first two quarters of the year. Our pricing disciplines, cost reduction initiatives, operational efficiency improvements and working capital management have resulted in improved margins, profitability and operating cash flow. As we move forward, we are continuing our focus on quality, delivery, controlling costs, purchasing savings, lean manufacturing practices, scrap reduction, cash management and improving business and operating systems. While we have seen some improvement in key industry indicators, we intend to be cautiously optimistic and operate our business with continued lower volume expectations." Management will announce the date and time of its third quarter earnings conference call at a later date. The conference call information will be provided in a separate news release.
ASSOCIATED MATERIALS, LLC
AMH HOLDINGS, LLC
Condensed Consolidating Statement of Operations
(Unaudited)
Quarter Ended October 3, 2009
(in thousands)
Associated AMH
Materials AMH Eliminations Consolidated
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
October 3, October 3, October 3, October 3,
2009 2009 2009 2009
---------- ---------- ------------ ------------
Net sales $324,807 $- $- $324,807
Gross profit 97,809 - - 97,809
Selling, general and
administrative expense 53,323 - - 53,323
-------- -------- -------- --------
Income from operations 44,486 - - 44,486
Interest expense, net 5,999 12,380 - 18,379
Foreign currency loss 112 - - 112
-------- -------- -------- --------
Income (loss) before income
taxes 38,375 (12,380) - 25,995
Income taxes (benefit) 15,444 (14,386) - 1,058
-------- -------- -------- --------
Income before equity income
from subsidiaries 22,931 2,006 - 24,937
Equity income from
subsidiaries - 22,931 (22,931) -
-------- -------- -------- --------
Net income $22,931 $24,937 $(22,931) $24,937
======== ======== ======== ========
Other Data:
-----------
EBITDA (a) $50,008
Adjusted EBITDA (a) 52,191
ASSOCIATED MATERIALS, LLC
AMH HOLDINGS, LLC
Condensed Consolidating Statement of Operations
(Unaudited)
Quarter Ended September 27, 2008
(in thousands)
Associated AMH
Materials AMH Eliminations Consolidated
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Sept. 27, Sept. 27, Sept. 27, Sept. 27,
2008 2008 2008 2008
---------- --------- ------------ ------------
Net sales $342,678 $- $- $342,678
Gross profit 86,586 - - 86,586
Selling, general
and administrative
expense 55,898 - - 55,898
------- ------- ------- -------
Income from operations 30,688 - - 30,688
Interest expense,
net 5,594 11,717 - 17,311
Foreign currency loss 238 - - 238
------- ------- ------- -------
Income (loss) before
income taxes 24,856 (11,717) - 13,139
Income taxes 9,366 4,844 - 14,210
------- ------- ------- -------
Income (loss) before
equity income from
subsidiaries 15,490 (16,561) - (1,071)
Equity income from
subsidiaries - 15,490 (15,490) -
------- ------- ------- -------
Net income (loss) $15,490 $(1,071) $(15,490) $(1,071)
======= ======= ======= =======
Other Data:
-----------
EBITDA (a) $36,171
Adjusted EBITDA (a) 36,296
ASSOCIATED MATERIALS, LLC
AMH HOLDINGS, LLC
Condensed Consolidating Statement of Operations
(Unaudited)
Nine Months Ended October 3, 2009
(in thousands)
Associated AMH
Materials AMH Eliminations Consolidated
Nine Months Nine Months Nine Months Nine Months
Ended Ended Ended Ended
October 3, October 3, October 3, October 3,
2009 2009 2009 2009
----------- ----------- ------------ ------------
Net sales $772,108 $- $- $772,108
Gross profit 206,043 - - 206,043
Selling, general
and administrative
expense 153,118 153,118
Gain on debt
extinguishment - 8,897 8,897
Manufacturing
restructuring costs 5,255 - - 5,255
------- ------- ------- -------
Income from operations 47,670 8,897 - 56,567
Interest expense, net 16,581 37,499 - 54,080
Foreign currency gain 110 - - 110
------- ------- ------- -------
Income (loss) before
income taxes 31,199 (28,602) - 2,597
Income taxes
(benefit) 12,660 (9,348) - 3,312
------- ------- ------- -------
Income (loss) before
equity income from
subsidiaries 18,539 (19,254) - (715)
Equity income from
subsidiaries - 18,539 (18,539) -
------- ------- ------- -------
Net income (loss) $18,539 $(715) $(18,539) $(715)
======= ======= ======= =======
Other Data:
-----------
EBITDA (a) $64,359
Adjusted EBITDA (a) 72,128
ASSOCIATED MATERIALS, LLC
AMH HOLDINGS, LLC
Condensed Consolidating Statement of Operations
(Unaudited)
Nine Months Ended September 27, 2008
(in thousands)
Associated AMH
Materials AMH Eliminations Consolidated
Nine Months Nine Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 27, Sept. 27, Sept. 27, Sept. 27,
2008 2008 2008 2008
----------- ----------- ------------ ------------
Net sales $858,368 $- $ - $858,368
Gross profit 210,191 - - 210,191
Selling, general and
administrative expense 158,888 - - 158,888
Manufacturing
restructuring costs 1,783 - - 1,783
------- ------- ------- -------
Income from operations 49,520 - - 49,520
Interest expense, net 17,376 34,331 - 51,707
Foreign currency loss 328 - - 328
------- ------- ------- -------
Income (loss) before
income taxes 31,816 (34,331) - (2,515)
Income taxes (benefit) 12,038 (12,934) - (896)
------- ------- ------- -------
Income (loss) before
equity income from
subsidiaries 19,778 (21,397) - (1,619)
Equity income from
subsidiaries - 19,778 (19,778) -
------- ------- ------- -------
Net income (loss) $19,778 $(1,619) $(19,778) $(1,619)
Other Data:
-----------
EBITDA (a) $66,311
Adjusted EBITDA (a) 71,132
(a) EBITDA is calculated as net income plus interest, taxes, depreciation
and amortization. Adjusted EBITDA excludes certain items. The Company
considers adjusted EBITDA to be an important indicator of its
operational strength and performance of its business. The Company has
included adjusted EBITDA because it is a key financial measure used by
management to (i) assess the Company's ability to service its debt and
/ or incur debt and meet the Company's capital expenditure
requirements; (ii) internally measure the Company's operating
performance; and (iii) determine the Company's incentive compensation
programs. In addition, the Company's ABL Facility has certain
covenants that apply ratios utilizing this measure of adjusted EBITDA.
EBITDA and adjusted EBITDA have not been prepared in accordance with
U.S. generally accepted accounting principles ("GAAP"). Adjusted
EBITDA as presented by the Company may not be comparable to similarly
titled measures reported by other companies. EBITDA and adjusted
EBITDA are not measures determined in accordance with GAAP and should
not be considered as an alternative to, or more meaningful than, net
income (as determined in accordance with GAAP) as a measure of the
Company's operating results or cash flows from operations (as
determined in accordance with GAAP) as a measure of the Company's
liquidity.
The reconciliation of the Company's net income to EBITDA and adjusted
EBITDA is as follows (in thousands):
Quarters Ended Nine Months Ended
--------------------- ---------------------
October 3, Sept. 27, October 3, Sept. 27,
2009 2008 2009 2008
---------- --------- ---------- ---------
Net income (loss) $22,931 $15,490 $18,539 $19,778
Interest expense, net 5,999 5,594 16,581 17,376
Income taxes 15,444 9,366 12,660 12,038
Depreciation and amortization 5,634 5,721 16,579 17,119
------- ------- ------- -------
EBITDA 50,008 36,171 64,359 66,311
Amortization of management
fee (b) 125 125 375 375
Manufacturing restructuring
costs (c) - - 5,255 2,642
Bank audit fees (d) 37 - 118 -
Loss upon disposal of assets
other than by sale (e) - - - 1,804
Tax restructuring costs (f) 306 - 306 -
Employee termination costs (g) 1,715 - 1,715 -
------- ------- ------- -------
Adjusted EBITDA (h) $52,191 $36,296 $72,128 $71,132
======= ======= ======= =======
(b) Represents amortization of a prepaid management fee paid to Investcorp
International Inc. in connection with the December 2004
recapitalization transaction.
(c) During the first quarter of 2008, the Company committed to, and
subsequently completed, relocating a portion of its vinyl siding
production from Ennis, Texas to its vinyl manufacturing facilities in
West Salem, Ohio and Burlington, Ontario. In addition, during 2008,
the Company transitioned the majority of distribution of its U.S.
vinyl siding products to a center located in Ashtabula, Ohio and
committed to a plan to discontinue use of its warehouse facility
adjacent to its Ennis, Texas vinyl manufacturing facility. For the
nine months ended September 27, 2008, the amounts recorded represent
asset impairment costs, inventory markdown costs, and costs incurred
to relocate manufacturing equipment. Inventory markdown costs of $0.9
million are included in cost of sales in the statement of operations
for the nine months ended September 27, 2008. The Company
discontinued its use of the warehouse facility adjacent to the Ennis
manufacturing plant during the second quarter of 2009. As a result,
the related lease costs associated with the discontinued use of the
warehouse facility were recorded as a restructuring charge of
approximately $5.3 million for the nine months ended October 3, 2009.
(d) Represents bank audit fees incurred under the Company's ABL Facility.
(e) As part of the Company's ongoing efforts to improve its internal
controls, the Company enhanced its controls surrounding the physical
verification of property, plant and equipment during the second
quarter of 2008. For the nine months ended September 27, 2008, the
amounts recorded represent the loss upon disposal of assets other than
by sale as a result of executing these enhanced controls.
(f) Represents legal and accounting fees incurred in connection with a tax
restructuring project.
(g) During the third quarter of 2009, the Company recorded one-time
employee termination costs resulting from workforce reductions in
connection with the Company's overall cost reduction initiatives.
(h) Prior year adjusted EBITDA amounts have been reclassified to conform
to the current year's presentation, which, in conformity with the
computation of adjusted EBITDA under the Company's current credit
facility, excludes any adjustment for foreign currency gain or loss.
Results of Operations Net sales decreased 5.2% to $324.8 million for the third quarter of 2009 compared to $342.7 million for the same period in 2008 primarily due to decreased unit volumes, principally in vinyl siding and metal products, and the impact of the weaker Canadian dollar in 2009. During the third quarter of 2009 compared to the same period in 2008, vinyl siding unit volumes decreased by approximately 15%, while vinyl window unit volumes increased approximately 2%. Gross profit in the third quarter of 2009 was $97.8 million, or 30.1% of net sales, compared to gross profit of $86.6 million, or 25.3% of net sales, for the same period in 2008. The increase in gross profit as a percentage of net sales was primarily a result of cost reduction initiatives, improved operational efficiencies and procurement savings. Selling, general and administrative expense decreased to $53.3 million, or 16.4% of net sales, for the third quarter of 2009 versus $55.9 million, or 16.3% of net sales, for the same period in 2008. Selling, general and administrative expense for the quarter ended October 3, 2009 includes employee termination costs of $1.7 million and tax restructuring costs of $0.3 million. Excluding these items, selling, general and administrative expense for the quarter ended October 3, 2009 decreased $4.6 million compared to the same period in 2008. The decrease in selling, general and administrative expense was primarily due to higher bad debt expense in the third quarter of 2008 as a result of the poor economic conditions experienced in the prior year. In addition, the decrease in selling, general and administrative expense was also due to decreased personnel costs as a result of reduced headcount, decreased product delivery costs in the Company's supply center network and the translation impact on Canadian expenses as a result of the weaker Canadian dollar in 2009, partially offset by increased EBITDA-based incentive compensation programs and other sales-related accruals. Net sales decreased 10.0% to $772.1 million for the nine months ended October 3, 2009 compared to $858.4 million for the same period in 2008 primarily due to decreased unit volumes across all product categories, principally in vinyl siding, vinyl windows and metal products, and the impact of the weaker Canadian dollar in 2009. For the nine months ended October 3, 2009 compared to the same period in 2008, vinyl siding unit volumes decreased by approximately 18% and vinyl window unit volumes decreased by approximately 4%. Gross profit for the nine months ended October 3, 2009 was $206.0 million, or 26.7% of net sales, compared to gross profit of $210.2 million, or 24.5% of net sales, for the same period in 2008. The increase in gross profit as a percentage of net sales was primarily a result of cost reduction initiatives, improved operational efficiencies and procurement savings. Selling, general and administrative expense decreased to $153.1 million, or 19.8% of net sales, for the nine months ended October 3, 2009 versus $158.9 million, or 18.5% of net sales, for the same period in 2008. Selling, general and administrative expense for the nine months ended October 3, 2009 includes employee termination costs of $1.7 million, tax restructuring costs of $0.3 million and bank audit fees of $0.1 million, while selling, general and administrative expense for the nine months ended September 27, 2008 includes a loss upon the disposal of assets other than by sale of $1.8 million. Excluding these items, selling, general and administrative expense for the nine months ended October 3, 2009 decreased $6.1 million compared to the same period in 2008. The decrease in selling, general and administrative expense was primarily due to the translation impact on Canadian expenses as a result of the weaker Canadian dollar in 2009, decreased personnel costs as a result of reduced headcount, and decreased product delivery costs in the Company's supply center network, partially offset by increased bad debt expense recorded during 2009 as a result of current economic conditions. Throughout 2009, the Company initiated certain restructuring activities designed to achieve operational efficiencies by reducing the Company's overall cost structure. These activities included reducing the Company's workforce. During the third quarter ended October 3, 2009, the Company determined the headcount reductions made over the past several months will be permanent. As a result, the Company recorded a one-time restructuring charge of $1.7 million in employee termination costs within selling, general and administrative expense for the quarter and nine months ended October 3, 2009. During the nine months ended September 27, 2008, the Company incurred costs of $1.8 million related to relocating a portion of its vinyl siding production and distribution. These costs were comprised of asset impairment costs, costs incurred to relocate manufacturing equipment and costs associated with the transition of distribution operations. In addition, the Company recorded $0.9 million of inventory markdown costs associated with these restructuring efforts within cost of goods sold for the nine months ended September 27, 2008. The Company discontinued its use of the warehouse facility adjacent to the Ennis manufacturing plant during the second quarter of 2009. As a result, the related lease costs associated with the discontinued use of the warehouse facility were recorded as a restructuring charge of approximately $5.3 million for the nine months ended October 3, 2009. The consolidating financial information included herein for the quarter and nine months ended October 3, 2009 and September 27, 2008 includes the Company and its indirect parent company, AMH Holdings, LLC ("AMH"), which conducts all of its operating activities through the Company. For the quarter and nine months ended October 3, 2009, AMH reported consolidated net income of $24.9 million and a consolidated net loss of $0.7 million, respectively, compared to a consolidated net loss of $1.1 million and $1.6 million for the same periods in 2008, respectively. AMH's results for the nine months ended October 3, 2009 included a gain on debt extinguishment, interest expense, which included first quarter accretion of AMH's 11 1/4% senior discount notes, and AMH's equity income from its subsidiaries. AMH's results for the same periods in 2008 included interest expense, which primarily consisted of the accretion on AMH's 11 1/4% senior discount notes, and AMH's equity income from its subsidiaries. In connection with the December 2004 recapitalization transaction, AMH's parent company AMH Holdings II, Inc. ("AMH II") was formed, and AMH II subsequently issued $75 million of 13 5/8% senior notes due 2014. In June 2009, AMH II entered into an exchange agreement pursuant to which it paid $20.0 million in cash and issued $13.066 million original principal amount of its 20% senior notes due 2014 in exchange for all of its outstanding 13 5/8% senior notes due 2014. In conjunction with the AMH II note exchange, Associated Materials entered into a purchase agreement pursuant to which it issued $20.0 million of its 15% senior subordinated notes due 2012 in a private placement to certain institutional investors of AMH II and capitalized the related transaction costs. In addition to the $8.9 million gain on debt extinguishment recorded by AMH for the nine months ended October 3, 2009, AMH II recorded a gain on debt restructuring of $19.2 million for the same period. As AMH II is a holding company with no operations, it must receive distributions, payments or loans from its subsidiaries to satisfy its obligations on its debt. As of October 3, 2009, total AMH II debt, including that of its consolidated subsidiaries, was approximately $685.3 million. Company Description Associated Materials is a leading manufacturer of exterior residential building products, which are distributed through company operated distribution centers and independent distributors across North America. The Company produces a broad range of vinyl windows, vinyl siding, aluminum trim coil, aluminum and steel siding and accessories, as well as vinyl fencing and railing. Associated Materials is a privately held, wholly owned subsidiary of Associated Materials Holdings, which is a wholly owned subsidiary of AMH, which is a wholly owned subsidiary of AMH II, which is controlled by affiliates of Investcorp S.A. ("Investcorp") and Harvest Partners, Inc. ("Harvest Partners"). For more information, please visit the Company's website at http://www.associatedmaterials.com. Founded in 1982, Investcorp is a leading provider and manager of alternative investment products with approximately $12 billion in assets under management. The firm, which has offices in London, New York and Bahrain and is publicly traded on the London Stock Exchange (IVC) and Bahrain Stock Exchange (INVCORP), has five lines of business: private equity, hedge funds, real estate, technology investment and Gulf growth capital. Further information is available at www.investcorp.com. Founded in 1981, Harvest Partners is a leading New York-based private equity investment firm, pursuing management buyouts and growth financings of profitable, medium-sized businesses. Focused on manufacturing, energy, distribution and consumer/retail businesses, Harvest has nearly 30 years of experience investing in domestic as well as multinational companies. Today, Harvest has approximately $1.7 billion of capital under management from its limited partners, which include numerous pension funds, domestic and international industrial corporations and various financial institutions. For more information on Harvest Partners, please visit its website at http://www.harvpart.com. Forward-Looking Statements This press release contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) relating to the Company and AMH that are based on the beliefs of the Company's and AMH's management. When used in this press release, the words "may," "will," "should," "expect," "intend," "estimate," "anticipate," "believe," "predict," "potential" or "continue" or similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties. Such statements reflect the current views of the Company's and AMH's management. The following factors, and others which are discussed in the Company's and AMH's filings with the Securities and Exchange Commission, are among those that may cause actual results to differ materially from the forward-looking statements: changes in the home building and remodeling industries, general economic conditions, interest rates, foreign currency exchange rates, changes in the availability of consumer credit, employment trends, levels of consumer confidence and spending, consumer preferences, changes in raw material costs and availability, market acceptance of price increases, changes in national and regional trends in new housing starts, changes in weather conditions, the Company's ability to comply with certain financial covenants in its ABL Facility and indentures governing its 9 3/4% notes, 15% notes and 11 1/4% notes, increases in levels of competition within its market, availability of alternative building products, increases in its level of indebtedness, increases in costs of environmental compliance, unanticipated warranty or product liability claims, increases in capital expenditure requirements, potential conflict between Alside and Gentek distribution channels and shifts in market demand. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described herein as expected, intended, estimated, anticipated, believed or predicted. For further information, refer to the Company's most recent Annual Report on Form 10-K (particularly the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections) and to any subsequent Quarterly Reports on Form 10-Q, all of which are on file with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Net Sales by Principal Product Offering (Unaudited) (in thousands)
Quarters Ended Nine Months Ended
---------------------- ---------------------
October 3, Sept. 27, October 3, Sept. 27,
2009 2008 2009 2008
---------- --------- ---------- ---------
Vinyl windows $114,686 $108,551 $276,717 $282,174
Vinyl siding products 67,857 82,044 161,113 196,493
Metal products 53,571 65,723 127,017 166,856
Third party manufactured
products 66,885 65,366 158,454 156,486
Other products and services 21,808 20,994 48,807 56,359
-------- -------- -------- --------
$324,807 $342,678 $772,108 $858,368
======== ======== ======== ========
Selected Balance Sheet Data (Unaudited) (in thousands)
October 3, 2009
------------------------------------
Associated AMH
Materials AMH Consolidated
------------------------------------
Cash $31,029 $- $31,029
Accounts receivable, net 160,840 - 160,840
Inventories 133,789 - 133,789
Accounts payable 123,549 - 123,549
Accrued liabilities 70,017 4,041 74,058
Total debt 208,500 431,000 639,500
January 3, 2009
------------------------------------
Associated AMH
Materials AMH Consolidated
------------------------------------
Cash $6,709 $- $6,709
Accounts receivable, net 116,878 - 116,878
Inventories 141,170 - 141,170
Accounts payable 54,520 - 54,520
Accrued liabilities 54,449 - 54,449
Total debt 221,000 438,095 659,095
Selected Cash Flow Data (Unaudited) - Associated Materials
(in thousands)
Nine Months Ended
-------------------------
October 3, September 27,
2009 2008
-------------------------
Net cash provided by operating activities $100,677 $9,007
Capital expenditures 4,243 9,774
Dividend paid to fund semi-annual interest
payment on AMH II's 13 5/8% senior notes 4,269 8,311
Dividend paid to fund semi-annual interest
payment on AMH's 11 1/4% senior notes 24,244 -
Issuance of new senior notes 20,000 -
Net repayments under the Company's ABL Facility 32,500 -
Cash paid for interest 10,338 11,536
Cash paid for income taxes 8,924 15,541
SOURCE: Associated Materials, LLC; AMH Holdings, LLC |