SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended    June 25, 2004
OR
o	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: 333-05978

 

EURAMAX INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		58-2502320
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
5445 Triangle Parkway, Suite 350, Norcross, Georgia		30092
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code: 770-449-7066

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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.

 

ý Yes  o No

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Rule 12b-2).

 

o Yes  ý No

 

As of August 9, 2004, Registrant had 322,815.17 shares of Class A common stock outstanding and no shares of Class B common stock outstanding.

 

 

Part I - Financial Information

 

Item 1.  Financial Statements

 

Euramax International, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(Thousands of U.S. Dollars)

(Unaudited)

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Net sales		$	250,487		$	114,457		$	77,194		$	445,890		$	260,615		$	77,194
Costs and expenses:
Cost of goods sold		193,723			90,854			63,904			350,606			208,420			63,904
Selling and general		21,399			10,563			8,159			41,275			26,153			8,159
Depreciation and amortization		3,850			2,531			1,571			8,965			6,276			1,571
Earnings from operations		31,515			10,509			3,560			45,044			19,766			3,560
Interest expense, net		(6,022		)	(3,678		)	(1,843		)	(11,779		)	(9,126		)	(1,843		)
Other income (expense), net		585			292			(26		)	1,356			506			(26		)
Earnings before income taxes		26,078			7,123			1,691			34,621			11,146			1,691
Provision for income taxes		9,319			2,673			562			12,263			4,254			562
Net earnings		$	16,759		$	4,450		$	1,129		$	22,358		$	6,892		$	1,129

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

Euramax International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Thousands of U.S. Dollars)

(Unaudited)

 

		Successor
		June 25, 2004			December 26, 2003
ASSETS
Current assets:
Cash and cash equivalents		$	35,802		$	48,227
Accounts receivable, net		151,061			121,689
Inventories		117,729			89,543
Other current assets		10,320			8,188
Total current assets		314,912			267,647
Property, plant and equipment, net		155,644			141,437
Goodwill, net		137,613			176,394
Intangible assets, net		45,930			2,492
Deferred income taxes		5,361			3,595
Other assets		15,735			17,264
		$	675,195		$	608,829
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Cash overdrafts		$	2,285		$	436
Accounts payable		112,015			91,689
Accrued expenses and other current liabilities		61,081			51,239
Current maturities of long-term debt		8,769			7,487
Total current liabilities		184,150			150,851
Long-term debt, less current maturities		289,270			231,807
Deferred income taxes		51,630			29,282
Other liabilities		30,006			26,939
Total liabilities		555,056			438,879
Shareholders’ equity:
Common stock		500			500
Additional paid-in capital		155,495			155,495
Treasury stock		(69,836		)	(1,964		)
Restricted stock		(2,999		)	(3,381		)
Retained earnings		37,114			14,756
Accumulated other comprehensive (loss) income		(135		)	4,544
Total shareholders’ equity		120,139			169,950
		$	675,195		$	608,829

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

Euramax International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Thousands of U.S. Dollars)

(Unaudited)

 

		Successor			Predecessor			Successor
		Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Net cash provided by (used in) operating activities		$	1,376		$	(12,045	)	$	11,924
Cash flows from investing activities:
Proceeds from sales of assets		1,043			35			44
Purchases of businesses		(1,172		)	—			—
Capital expenditures		(3,654		)	(4,944		)	(789		)
Net cash used in investing activities		(3,783		)	(4,909		)	(745		)
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit facility		61,663			18,264			(11,153		)
Repayment of long-term debt		(2,898		)	—			—
Changes in cash overdrafts		1,850			2,603			(2,995		)
Expenses relating to the 2003 Stock Transaction		(554		)	—			—
Issuance of common stock from shares held in treasury		—			—			353
Purchase of treasury stock		(67,872		)	(2,556		)	(80		)
Deferred finance fees		(889		)	(116		)	(242		)
Net cash (used in) provided by financing activities		(8,700		)	18,195			(14,117		)
Effect of exchange rate changes on cash		(1,318		)	778			191
Net (decrease) increase in cash and cash equivalents		(12,425		)	2,019			(2,747		)
Cash and cash equivalents at beginning of period		48,227			11,646			13,665
Cash and cash equivalents at end of period		$	35,802		$	13,665		$	10,918

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

 

Euramax International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Thousands of U.S. Dollars)

(Unaudited)

 

1.   Basis of Presentation:

 

For purposes of this report the “Company” and “Euramax” refers to Euramax International, Inc. and subsidiaries, collectively.

 

The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of the management of the Company, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All adjustments are of a normal recurring nature, except for the 2003 Stock Transaction described in Note 2, unless otherwise disclosed. Management believes that the disclosures made are adequate for a fair presentation of results of operations, financial position and cash flows. These condensed consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2003.

 

The Company’s sales are somewhat seasonal, with the second and third quarters typically accounting for the highest sales volumes. Operating results for the period ended June 25, 2004, are not necessarily indicative of future results that may be expected for the year ending December 31, 2004.

 

Per share data has not been presented since such data provides no useful information, as the shares of the Company are closely held.

 

Certain 2003 amounts have been reclassified to conform to current year presentation.

 

2.  2003 Stock Transaction:

 

On April 15, 2003, Citigroup Venture Capital Equity Partners, L.P. (“CVCEP”) and Citigroup Venture Capital Ltd. (“CVC”), entered into a definitive purchase agreement with CVC European Equity Partners, L.P. and CVC European Equity Partners (Jersey), L.P. (collectively “CVC Europe”), BNP Paribas, independent directors and certain members of management to purchase, for approximately $106.0 million, all of the shares of the Company held by CVC Europe and BNP Paribas, and a portion of the shares held by independent directors and management (“2003 Stock Transaction”). The 2003 Stock Transaction was completed on June 12, 2003, with CVCEP purchasing 265,762.48 shares of the Company’s Class A common stock. For accounting purposes, the Company has used May 23, 2003, its May month-end, as the transaction date. After the completion of this transaction CVCEP and CVC collectively owned approximately 88.5% of the issued and outstanding shares of the Company, with management of CVCEP and directors and management of the Company holding the remaining shares. Prior to the 2003 Stock Transaction, CVC owned approximately 34.5% of the issued and outstanding shares of the Company. CVCEP is ultimately controlled by Citigroup, Inc. through limited and general partnership interests owned by its subsidiaries. CVC Europe is a group of limited partnerships in which Citigroup, Inc. owns a minority interest, but does not have management or control rights.

 

5

 

The change in ownership, together with the Company’s subsequent issuance of senior subordinated notes, required that the purchase price paid in excess of the book value of the Company’s equity acquired be allocated under the purchase method of accounting to the assets and liabilities of the Company based upon a percentage of their fair values proportional to the percentage of the ownership change. The preliminary allocation was based upon estimates by management of the fair market values of identifiable assets and liabilities, with the remainder allocated to goodwill. The liabilities assumed included approximately $3.8 million of fees related to the transaction, which were paid by the Company on behalf of its shareholders. During the three months ended June 25, 2004, the Company finalized its estimate of the fair market values of its property, plant and equipment and intangible assets as of the transaction date.  The Company revised its preliminary allocation based upon this final valuation. The preliminary and final allocation of the purchase price is detailed below. The goodwill generated from this transaction is not deductible for income tax purposes.

 

Purchase price		$	105,981
Less: Company equity acquired		53,628
Increase in basis		$	52,353

 

		Preliminary Allocation			Final Allocation
Record fair value of inventories		$	4,000		$	4,000
Record fair value of property, plant and equipment		16,000			28,112
Record fair value of senior subordinated notes		(2,040		)	(2,040		)
Record fair value of deferred financing fees		(1,000		)	(1,000		)
Record fair value of patent (15 year life)		2,500			714
Record fair value of customer relationships (12 year life)		—			42,869
Transaction fees		(3,835		)	(3,835		)
Record income taxes for effect of step-up in basis of assets and transaction fees		(6,270		)	(26,050		)
Increase to goodwill, net		42,998			9,583
		$	52,353		$	52,353

 

Adjustments to reflect changes from the preliminary allocation to the final allocation were recorded in the three months ended June 25, 2004. Such adjustments included recording $5.8 million of amortization of the customer relationships intangible asset and a $5.7 million reduction of depreciation expense. The reduction in depreciation expense resulted from differences in the estimates of fair values and remaining useful lives of property, plant and equipment between the preliminary and final valuations. Such adjustments did not have a material affect on the Company’s financial position as of June 25, 2004 or its results of operations for the three and six months ended June 25, 2004.

 

The following unaudited pro-forma information presents the results of operations of the Company as if the 2003 Stock Transaction had occurred as of the beginning of the period presented. The pro-forma information is not necessarily indicative of what would have occurred had the 2003 Stock Transaction been completed at that time, nor is it indicative of future results of operations. The pro-forma amounts give effect to appropriate adjustments for the fair value of the assets acquired, liabilities assumed, amortization of property, plant and equipment, intangibles and restricted stock, incurrence of the advisory fees owed to CVC Management and income taxes.

 

6

 

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Pro-forma net sales		$	250,487		$	114,457		$	77,194		$	445,890		$	260,615		$	77,194
Pro-forma net earnings		16,759			4,262			1,129			22,358			6,421			1,129

 

3.  Summary of Significant Accounting Policies:

 

For information regarding significant accounting policies, see Note 2 to the consolidated financial statements of the Company for the year ended December 26, 2003, set forth in the Company’s annual report on Form 10-K.

 

Property, Plant and Equipment

In connection with the Company's finalization of the fair market values of its property, plant and equipment, the Company reevaluated the useful lives over which its assets are to be depreciated.  The estimated useful lives of these assets was determined to range from 2 to 13 years for equipment and from 17 to 20 years for buildings.

 

Intangible Assets

The Company records intangible assets acquired in business combinations or in the 2003 Stock Transaction at fair value on the date of the transaction. The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, effective December 29, 2001. Under SFAS No. 142, indefinite lived intangible assets are not amortized, but are reviewed at least annually for impairment.  The Company reviews its indefinite lived intangible assets for impairment on the first day of its fiscal fourth quarter. The Company amortizes its intangible assets with finite lives over their useful lives based upon the pattern in which the economic benefits of the intangible asset are recognized. If that pattern cannot be determined, a straight-line amortization method is used.  Intangible assets with finite lives are not tested for impairment annually, but when indicators exist that the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

 

Stock Based Compensation

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, the Company has elected to apply APB No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for stock options issued under its equity compensation plan. Had compensation expense related to these stock options been determined based upon the fair value method under SFAS No. 123, net income would have been impacted as follows:

 

7

 

			Successor			Predecessor			Successor			Successor			Predecessor			Successor
			Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Net income, as reported			$	16,759		$	4,450		$	1,129		$	22,358		$	6,892		$	1,129
Add:	Stock-based employee compensation
	cost included in reported net income,
	net of related tax effects		—			—			143			—			—			143
Less:	Total stock-based employee compensation
	expense determined under fair value method
	for all awards, net of related tax effects		(46		)	—			(159		)	(92		)	—			(159		)
Pro forma net income			$	16,713		$	4,450		$	1,113		$	22,266		$	6,892		$	1,113

 

The fair value of each option was estimated using the Black-Scholes option-pricing model using a risk free interest rate of 3.20%, an expected option life of 5 years, no volatility and no dividends.

 

4.  Acquisitions

 

On November 18, 2003, pursuant to a tender offer, Amerimax Pennsylvania, Inc., a wholly owned subsidiary of Euramax, acquired 93% of Berger Holdings’ outstanding common shares for $3.90 per share. The acquisition of Berger Holdings was completed on November 25, 2003 by the merger of Amerimax Pennsylvania, Inc. into Berger Holdings, with Berger Holdings as the survivor corporation. As a result of the merger, each common share of Berger Holdings not owned by Euramax was converted into the right to receive $3.90 per share in cash, subject to dissenters’ rights. The total purchase price of this acquisition was approximately $36.8 million. The Company preliminarily allocated the purchase price in excess of the net assets acquired to Berger Holdings’ assets and liabilities under the purchase method of accounting based on estimates by management of fair market values of identifiable assets and liabilities, with the remainder allocated to goodwill. During the three months ended June 25, 2004, the Company revised the allocation of the purchase price to reflect final asset and liability valuations. The adjustments to record the final asset and liability valuations did not have a material affect on the Company’s financial position as of June 25, 2004 or its results of operations for the three and six months ended June 25, 2004. Berger Holdings manufactures metal roof drainage products and roofing accessories as well as residential and commercial snow guards and is included in our U.S. Fabrication Roof Drainage segment. The results of operations of Berger Holdings are included in the Company’s consolidated statement of earnings from the acquisition date.

 

5.  Inventories:

 

Inventories were comprised of:

 

8

 

		Successor
		June 25, 2004			December 26, 2003
Raw materials		$	80,583		$	61,832
Work in process		8,706			8,075
Finished products		28,440			19,636
		$	117,729		$	89,543

 

Inventories are net of related reserves totaling $3.3 million at June 25, 2004 and $3.6 million at December 26, 2003.

 

6.  Long-Term Obligations:

 

Long-term obligations consisted of the following:

 

		Successor
		June 25, 2004			December 26, 2003
Senior Secured Credit Facility:
Revolving Credit Facility		$	60,519		$	—
Term Loans		35,004			36,559
8.50% Senior Subordinated Notes due 2011		200,000			200,000
Mortgage Note Payable		2,168			2,252
Capital Lease Obligations		348			483
		298,039			239,294
Less current maturities		(8,769		)	(7,487		)
		$	289,270		$	231,807

 

As of June 25, 2004, an undrawn amount of $49.5 million was available under the revolving credit facility.

 

7.  Goodwill:

 

A summary of changes in the Company’s goodwill by segment for the six months ended June 25, 2004 is as follows:

 

9

 

		U.S. Fabrication Roof Drainage			U.S. Fabrication Building Materials			European Roll Coating			European Fabrication			Total
Successor balance at December 26, 2003		$	78,479		$	48,977		$	36,969		$	11,969		$	176,394
Adjustment for final allocation relating to the 2003 Stock Transaction		(11,587		)	(15,592		)	(6,693		)	457			(33,415		)
Adjustment for final allocation relating to acquisition of Berger Holdings		(4,838		)	—			—			—			(4,838		)
Foreign exchange translation		—			—			(842		)	314			(528		)
Successor balance at June 25, 2004		$	62,054		$	33,385		$	29,434		$	12,740		$	137,613

 

8.  Commitments and Contingencies:

 

Raw Material Commitments

 

To assure continuity of supply, the Company negotiates contracts for minimum annual purchases of aluminum from several suppliers. Commitments for minimum annual purchases are typically at an agreed upon cost to convert aluminum ingot into coil. In addition, to ensure a margin on specific sales, the Company may commit to purchase aluminum ingot or coil at a fixed market price for future delivery. For further discussion of the Company’s raw material commitments, see Note 14 to the consolidated financial statements of the Company for the year ended December 26, 2003, set forth in the Company’s annual report on Form 10-K.

 

Litigation

 

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of business.  Although occasional adverse decisions or settlements may occur, it is the opinion of the Company’s management, based upon information available at this time, that the expected outcome of these matters is not estimable individually or in the aggregate, but would not reasonably be expected to have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company and its subsidiaries taken as a whole.

 

Environmental Matters

 

The Company’s operations are subject to federal, state, local and European environmental laws and regulations concerning the management of pollution and hazardous substances.

 

The Company has been named as a potentially responsible party in state and Federal administrative and judicial proceedings seeking contribution for costs associated with the investigation, analysis, correction and remediation of environmental conditions at various hazardous waste disposal sites. The Company continues to monitor these actions and proceedings and to vigorously defend both its own interests as well as the interests of its affiliates. The Company’s ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation, and the financial viability and

 

10

 

participation of the other entities that also sent waste to the site. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes or adjusts its reserve for its projected share of these costs. Based upon current law and information known to the Company concerning the size of the sites known to it, anticipated costs, their years of operations and the number of other potentially responsible parties, management believes that the Company’s potential share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses are not material. In addition, the Company establishes reserves for remedial measures required from time to time at its own facilities.  Management believes that the reasonably probable outcomes of these matters will not be material. The Company’s reserves, expenditures and expenses for all environmental exposures were not significant for any of the dates or periods presented.

 

In connection with the acquisition of the Company from Alumax Inc. (which has since been acquired by Aluminum Company of America in May 1998, and hereafter referred to as “Alumax”) on September 25, 1996, the Company was indemnified by Alumax for substantially all of its costs, if any, related to specifically identified environmental matters arising prior to the closing date of the acquisition during the period of time it was owned directly or indirectly by Alumax. Such indemnification includes costs that may ultimately be incurred to contribute to the remediation of certain specified existing National Priorities List (“NPL”) sites for which the Company had been named a potentially responsible party under the federal Comprehensive Environmental Response, Compensation, and Liability Information System (“CERCLA”) as of the closing date of the acquisition, as well as certain potential costs for sites listed on state hazardous cleanup lists. The Company does not believe that it has any significant probable liability for environmental claims. Further, the Company believes it to be unlikely that the Company would be required to bear environmental costs in excess of its pro rata share of such costs as a potentially responsible party at any site.

 

The facility that Berger Bros Company (“Berger”), an operating subsidiary acquired as part of the Berger Holdings acquisition, leases in Ivyland, Pennsylvania has contaminated groundwater resulting from the migration of contaminants from an adjacent property which was formerly the Naval Air Warfare Center, currently an NPL site under CERCLA. The United States Navy is conducting a clean-up of the Naval Air Warfare Center NPL site under the Environmental Protection Agency’s supervision. The owner/landlord of the Berger property obtained liability protection under Pennsylvania’s Brownfield Law by demonstrating to the Commonwealth of Pennsylvania that the contamination is from an off-site source, and under Pennsylvania law that protection benefits the tenant as well. Moreover, under Berger’s lease, the landlord retained any liability for this contamination. Accordingly, although the facility leased by Berger is on an NPL site, the effects of this contamination would not reasonably be expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

 

Product Warranties

 

The Company provides warranties on certain products. The warranty periods differ depending on the product, but generally range from one year to limited lifetime warranties. The Company provides accruals for warranties based on historical experience and expectations of future occurrence. A summary of the changes in the product warranty accrual follows:

 

11

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Beginning balance		$	3,972		$	3,045		$	3,394		$	3,993		$	2,809		$	3,394
Payments made or service provided		(710		)	(257		)	(240		)	(1,439		)	(720		)	(240		)
Warranty expense		571			447			429			1,299			1,119			429
Change related to changes in foreign currency exchange rates		10			159			(47		)	(10		)	186			(47		)
Ending balance		$	3,843		$	3,394		$	3,536		$	3,843		$	3,394		$	3,536

 

9.  Comprehensive Income:

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Net earnings		$	16,759		$	4,450		$	1,129		$	22,358		$	6,892		$	1,129
Other comprehensive earnings (loss):
Foreign currency translation adjustment		232			5,000			(2,638		)	(1,671		)	6,922			(2,638		)
Gain (loss) on derivative instruments, net:
Net changes in fair value of derivatives		(1,574		)	(627		)	(228		)	(2,571		)	(324		)	(228		)
Net gains reclassified from OCI into earnings		61			759			136			(437		)	423			136
Comprehensive income (loss)		$	15,478		$	9,582		$	(1,601	)	$	17,679		$	13,913		$	(1,601	)

 

10.  Income Taxes:

 

The income tax provision for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003, is computed at the effective rate expected to be applicable in each respective full year using the statutory rates on a country by country basis, adjusted for changes in valuation allowances relating to the Company’s state NOL carryforwards and capital loss carryforwards.

 

11.  Employee Retirement Plans:

 

Net periodic pension costs for the Company’s non-contributory defined benefit pension plan covering substantially all U.S. hourly employees include the following components:

 

12

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Components of net periodic pension cost
Service cost		$	94		$	57		$	29		$	196		$	143		$	29
Interest cost		59			30			15			113			76			15
Expected return on assets		(63		)	(31		)	(16		)	(118		)	(77		)	(16		)
Amortization of prior service cost		1			4			—			1			10			—
Recognized actuarial net loss		—			14			—			—			34			—
Net periodic pension cost		$	91		$	74		$	28		$	192		$	186		$	28

 

Net periodic pension costs for the Company’s single employee pension plan covering the employees of Euramax Coated Products Limited and Ellbee Limited include the following components:

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Components of net periodic pension cost
Service cost		$	271		$	137		$	68		$	546		$	342		$	68
Interest cost		454			243			121			916			608			121
Expected return on assets		(345		)	(156		)	(78		)	(695		)	(390		)	(78		)
Recognized actuarial net loss		—			110			—			—			274			—
Net periodic pension cost		$	380		$	334		$	111		$	767		$	834		$	111

 

12.  Segment Information:

 

The Company’s acquisition of Berger Holdings, Ltd. on November 25, 2003 led to an assessment of operating segments that resulted in the Company’s identification of the U.S. Fabrication Roof Drainage operating segment. The business activities included in the U.S. Fabrication Roof Drainage operating segment were previously included in the U.S. Fabrication segment. Accordingly, prior period segment information has been revised to conform to the Company’s revised segments. The Company’s reportable segments are as follows:

 

European Roll Coating – The European Roll Coating segment facilities primarily roll coat aluminum and steel sheet and coil for RV, transportation and building panel manufacturers.

 

U.S. Fabrication Roof Drainage – The U.S. Fabrication Roof Drainage segment facilities primarily fabricate coated aluminum and steel coil to produce gutters, downspouts, soffit, fascia, gutter accessories and other products. Such products are primarily sold to home centers, distributors and home improvement contractors.

 

U.S. Fabrication Building Materials – The U.S. Fabrication Building Materials segment facilities primarily fabricate coated aluminum and steel coil to produce roofing and siding panels, doors, windows, vehicle sidewalls and other products. Such products are primarily sold to RV manufacturers, rural contractors, home improvement contractors, industrial and architectural contractors and manufactured housing producers.

 

European Fabrication – The European Fabrication segment facilities primarily fabricate aluminum extrusions and glass to produce windows, doors, shower enclosures, sunroofs and other products. Such products are primarily sold to transportation manufacturers, distributors, home centers and industrial and architectural contractors.

 

The accounting policies of the segments are the same as those described in Note 2 to the consolidated financial statements of the Company for the year ended December 26, 2003, set forth in the Company’s Annual Report on Form 10-K. Segment data includes intersegment revenues. The Company evaluates the performance of its segments and allocates resources to them based primarily on EBITDA.

 

13

 

The Company is organized primarily on the basis of seven operating segments. Certain operating segments with similar economic characteristics have been aggregated according to similarity of products, nature of production processes, types of customers and product distribution methods. Two European subsidiaries have been aggregated into the European Roll Coating segment, two U.S. subsidiaries have been aggregated into the U.S. Fabrication Building Materials segment and two European subsidiaries have been aggregated into the European Fabrication segment. The U.S. Fabrication Roof Drainage operating segment is reported separately. The table below presents information about reported segments for the periods indicated. Expenses, income and assets that are not segment specific relate to holding company and business development activities conducted for the overall benefit of the Company and, accordingly, are not attributable to the Company’s segments.

 

		Successor			Predecessor			Successor			Successor			Predecessor			Successor
		Three months ended June 25,			Two months ended May 23,			One month ended June 27,			Six months ended June 25,			Five months ended May 23,			One month ended June 27,
		2004			2003			2003			2004			2003			2003
Sales
U.S. Fabrication Roof Drainage		$	67,441		$	27,402		$	20,317		$	110,780		$	54,415		$	20,317
U.S. Fabrication Building Materials		102,501			48,046			32,148			173,634			107,617			32,148
European Roll Coating		51,425			24,056			15,660			100,947			60,719			15,660
European Fabrication		30,366			15,797			9,723			63,223			39,913			9,723
Total segment sales		251,733			115,301			77,848			448,584			262,664			77,848
Eliminations		(1,246		)	(844		)	(654		)	(2,694		)	(2,049		)	(654		)
Consolidated net sales		$	250,487		$	114,457		$	77,194		$	445,890		$	260,615		$	77,194
EBITDA
U.S. Fabrication Roof Drainage		$	12,117		$	4,366		$	3,017		$	14,276		$	5,901		$	3,017
U.S. Fabrication Building Materials		11,293			3,417			1,381			14,384			5,860			1,381
European Roll Coating		8,659			3,389			1,487			17,455			9,508			1,487
European Fabrication		4,374			1,643			1,140			8,506			4,489			1,140
Total EBITDA for reportable segments		36,443			12,815			7,025			54,621			25,758			7,025
(Expense) income that is not segment specific		(493		)	517			(1,920		)	744			790			(1,920		)
Depreciation and amortization		(3,850		)	(2,531		)	(1,571		)	(8,965		)	(6,276		)	(1,571		)
Interest expense, net		(6,022		)	(3,678		)	(1,843		)	(11,779		)	(9,126		)	(1,843		)
Consolidated net earnings before income taxes		$	26,078		$	7,123		$	1,691		$	34,621		$	11,146		$	1,691

 

14

 

		Successor
		June 25, 2004			December 26, 2003
Assets
U.S. Fabrication Roof Drainage		$	191,717		$	163,870
U.S. Fabrication Building Materials		184,001			153,513
European Roll Coating		168,656			153,921
European Fabrication		106,940			96,107
Assets that are not segment specific		23,881			41,418
Total assets		$	675,195		$	608,829

 

15

 

The following table reflects revenues from external customers by markets for the periods indicated. Revenues from external customers by groups of similar products have not been provided as it is impracticable for the Company to do so.

 

				Successor			Predecessor			Successor			Successor			Predecessor			Successor
Customers/Markets		Primary Products		Three months ended June 25, 2004			Two months ended May 23, 2003			One month ended June 27, 2003			Six months ended June 25, 2004			Five months ended May 23, 2003			One month ended June 27, 2003
Original Equipment Manufacturers (“OEMs”)		Painted aluminum sheet and coil; fabricated painted aluminum, laminated and fiberglass panels; RV doors, windows and roofing; and composite building panels		$	97,478		$	47,552		$	29,649		$	190,233		$	120,289		$	29,649
Rural Contractors		Steel and aluminum roofing and siding		41,746			18,892			12,796			67,020			38,980			12,796
Home Centers		Raincarrying systems, roofing accessories, windows and doors		47,501			23,964			17,995			74,593			46,499			17,995
Manufactured Housing		Steel siding and trim components		6,650			3,526			3,076			11,885			8,031			3,076
Distributors		Metal coils, raincarrying systems, roofing accessories and shower enclosures		26,541			7,531			4,693			47,962			16,714			4,693
Industrial and Architectural Contractors		Standing seam panels and siding and roofing accessories		8,399			3,886			2,822			15,650			9,183			2,822
Home Improvement Contractors		Vinyl replacement windows; metal coils, raincarrying systems; metal roofing and insulated roofing panels; shower, patio and entrance doors; and awnings		22,172			9,106			6,163			38,547			20,919			6,163
				$	250,487		$	114,457		$	77,194		$	445,890		$	260,615		$	77,194

 

16

 

13.  Common Stock:

 

On March 31, 2004, the Company repurchased 55% of its outstanding common stock held by Court Square Capital Limited, or 93,324.34 shares, for an aggregate repurchase price of approximately $37.3 million. On April 30, 2004, the Company repurchased the remaining 45% of its outstanding common stock held by Court Square Capital Limited, or 76,356.28 shares, for an aggregate repurchase price of approximately $30.5 million. These repurchases were funded with borrowings under the Company’s revolving credit facility. After completing these repurchases, the Company had 322,815.17 shares of Class A common stock outstanding.

 

14.   Supplemental Condensed Consolidating Financial Statements:

 

On August 6, 2003, Euramax International, Inc. and Euramax International Holdings B.V. (each a “Co-Obligor”) issued $200.0 million of 8.50% senior subordinated notes due 2011, which were subsequently exchanged for new notes with substantially identical terms. Each of the domestic restricted subsidiaries, as defined in the related bond indenture (the “Guarantor Subsidiaries”), fully and unconditionally guarantee the obligations of the Co-Obligors. The following supplemental condensed consolidating financial statements as of June 25, 2004 and December 26, 2003 and for the three and six months ended June 25, 2004, the two and five months ended May 23, 2003 and the one month ended June 27, 2003, reflect the financial position, results of operations, and cash flows of each of the Co-Obligors, and such combined information of the Guarantor Subsidiaries and the non-guarantor subsidiaries (the “Non-Guarantor Subsidiaries”), as if the guarantor structure of the $200.0 million of 8.50% senior subordinated notes due 2011 had been outstanding for each period. Euramax International Holdings B.V. was not acquired until July 17, 2003, had no assets or liabilities until August 6, 2003 and has no operations other than equity interests in consolidated subsidiaries that were acquired on March 16, 2004.

 

17

 

		Successor three months ended June 25, 2004
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net sales		$	—		$	—		$	168,946		$	81,548		$	(7	)	$	250,487
Costs and expenses:
Cost of goods sold		—			—			130,778			62,952			(7		)	193,723
Selling and general		(388		)	3			15,494			6,290			—			21,399
Depreciation and amortization		—			—			4,063			(213		)	—			3,850
Earnings (loss) from operations		388			(3		)	18,611			12,519			—			31,515
Equity in earnings of subsidiaries		18,952			5,299			—			6			(24,257		)	—
Interest expense, net		(3,126		)	(1,474		)	(844		)	(578		)	—			(6,022		)
Internal interest income (expense), net		430			21			(1,576		)	1,125			—			—
Other (expense) income, net		(1,288		)	20			519			1,334			—			585
Earnings before income taxes		15,356			3,863			16,710			14,406			(24,257		)	26,078
(Benefit) provision for income taxes		(1,403		)	(495		)	6,492			4,725			—			9,319
Net earnings		$	16,759		$	4,358		$	10,218		$	9,681		$	(24,257	)	$	16,759

 

18

 

		Predecessor two months ended May 23, 2003
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net sales		$	—		$	—		$	75,108		$	39,561		$	(212	)	$	114,457
Costs and expenses:
Cost of goods sold		—			—			59,641			31,425			(212		)	90,854
Selling and general		156			—			7,221			3,186			—			10,563
Depreciation and amortization		—			—			1,326			1,205			—			2,531
(Loss) earnings from operations		(156		)	—			6,920			3,745			—			10,509
Equity in earnings of subsidiaries		5,364			—			—			(68		)	(5,296		)	—
Interest expense, net		(699		)	—			(620		)	(2,359		)	—			(3,678		)
Internal interest (expense) income, net		(642		)	—			(1,367		)	2,009			—			—
Other income, net		—			—			43			249			—			292
Earnings before income taxes		3,867			—			4,976			3,576			(5,296		)	7,123
(Benefit) provision for income taxes		(583		)	—			2,025			1,231			—			2,673
Net earnings		$	4,450		$	—		$	2,951		$	2,345		$	(5,296	)	$	4,450

 

19

 

		Successor one month ended June 27, 2003
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net sales		$	—		$	—		$	52,237		$	25,140		$	(183	)	$	77,194
Costs and expenses:
Cost of goods sold		—			—			43,178			20,909			(183		)	63,904
Selling and general		463			—			5,963			1,733			—			8,159
Depreciation and amortization		—			—			726			845			—			1,571
(Loss) earnings from operations		(463		)	—			2,370			1,653			—			3,560
Equity in earnings of subsidiaries		2,190			—			—			108			(2,298		)	—
Interest expense, net		(349		)	—			(276		)	(1,218		)	—			(1,843		)
Internal interest (expense) income, net		(463		)	—			(608		)	1,071			—			—
Other income (expense), net		—			—			22			(48		)	—			(26		)
Earnings before income taxes		915			—			1,508			1,566			(2,298		)	1,691
(Benefit) provision for income taxes		(214		)	—			186			590			—			562
Net earnings		$	1,129		$	—		$	1,322		$	976		$	(2,298	)	$	1,129

 

20

 

		Successor six months ended June 25, 2004
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net sales		$	—		$	—		$	282,784		$	163,216		$	(110	)	$	445,890
Costs and expenses:
Cost of goods sold		—			—			225,149			125,567			(110		)	350,606
Selling and general		245			3			28,469			12,558			—			41,275
Depreciation and amortization		—			—			6,764			2,201			—			8,965
(Loss) earnings from operations		(245		)	(3		)	22,402			22,890			—			45,044
Equity in earnings of subsidiaries		26,533			7,451			—			6			(33,990		)	—
Interest expense, net		(6,469		)	(2,974		)	(1,118		)	(1,218		)	—			(11,779		)
Internal interest income (expense), net		439			1,043			(3,164		)	1,682			—			—
Other (expense) income, net		(570		)	7			1,262			657			—			1,356
Earnings before income taxes		19,688			5,524			19,382			24,017			(33,990		)	34,621
(Benefit) provision for income taxes		(2,670		)	(664		)	7,563			8,034			—			12,263
Net earnings		$	22,358		$	6,188		$	11,819		$	15,983		$	(33,990	)	$	22,358

 

21

 

		Predecessor five months ended May 23, 2003
		Euramax International Inc.			Euramax International Holdings BV			Non- Guarantor			Guarantor						Consolidated
		(Co-Obligor)			(Co-Obligor)			Subsidiaries			Subsidiaries			Eliminations			Totals
Net sales		$	—		$	—		$	161,065		$	99,851		$	(301	)	$	260,615
Costs and expenses:
Cost of goods sold		—			—			130,949			77,772			(301		)	208,420
Selling and general		393			—			17,473			8,287			—			26,153
Depreciation and amortization		—			—			3,307			2,969			—			6,276
(Loss) earnings from operations		(393		)	—			9,336			10,823			—			19,766
Equity in earnings of subsidiaries		8,980			—			—			(53		)	(8,927		)	—
Interest expense, net		(1,745		)	—			(1,466		)	(5,915		)	—			(9,126		)
Internal interest (expense) income, net		(1,120		)	—			(2,931		)	4,051			—			—
Other income, net		—			—			103			403			—			506
Earnings before income taxes		5,722			—			5,042			9,309			(8,927		)	11,146
(Benefit) provision for income taxes		(1,170		)	—			2,253			3,171			—			4,254
Net earnings		$	6,892		$	—		$	2,789		$	6,138		$	(8,927	)	$	6,892

 

22

 

		Successor as of June 25, 2004
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
ASSETS
Current assets:
Cash and cash equivalents		$	1		$	19		$	999		$	34,783		$	—		$	35,802
Accounts receivable, net		—			—			80,684			70,377			—			151,061
Inventories		—			—			86,464			31,265			—			117,729
Other current assets		111			—			8,567			1,642			—			10,320
Total current assets		112			19			176,714			138,067			—			314,912
Property, plant and equipment, net		—			—			74,815			80,829			—			155,644
Amounts due from affiliates		120,752			1,384			82,790			77,522			(282,448		)	—
Goodwill, net		—			—			95,439			42,174			—			137,613
Intangible assets, net		—			—			30,571			15,359			—			45,930
Investment in consolidated subsidiaries		266,937			94,090			—			1,116			(362,143		)	—
Deferred income taxes		74			1,564			96			3,627			—			5,361
Other assets		5,831			2,831			5,595			1,478			—			15,735
		$	393,706		$	99,888		$	466,020		$	360,172		$	(644,591	)	$	675,195
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Cash overdrafts		$	—		$	—		$	2,285		$	—		$	—		$	2,285
Accounts payable		—			—			66,716			45,299			—			112,015
Accrued expenses and other current liabilities		(2,014		)	1,310			37,032			24,753			—			61,081
Current maturities of long-term debt		—			—			422			8,347			—			8,769
Total current liabilities		(2,014		)	1,310			106,455			78,399			—			184,150
Long-term debt, less current maturities		137,255			62,745			62,613			26,657			—			289,270
Amounts due to affiliates		138,510			237			116,912			26,789			(282,448		)	—
Deferred income taxes		58			389			29,916			21,267			—			51,630
Other liabilities		—			3,961			3,715			22,330			—			30,006
Total liabilities		273,809			68,642			319,611			175,442			(282,448		)	555,056
Shareholders’equity:
Common stock		500			21			1			35,023			(35,045		)	500
Additional paid-in capital		155,866			29,170			119,166			110,673			(259,380		)	155,495
Treasury stock		(69,836		)	—			—			—			—			(69,836		)
Restricted stock		(2,999		)	—			—			—			—			(2,999		)
Retained earnings		37,114			6,789			27,287			15,537			(49,613		)	37,114
Accumulated other comprehensive (loss) income		(748		)	(4,734		)	(45		)	23,497			(18,105		)	(135		)
Total shareholders’ equity		119,897			31,246			146,409			184,730			(362,143		)	120,139
		$	393,706		$	99,888		$	466,020		$	360,172		$	(644,591	)	$	675,195

 

23

 

		Successor as of December 26, 2003
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
ASSETS
Current assets:
Cash and cash equivalents		$	—		$	21		$	19,408		$	28,798		$	—		$	48,227
Accounts receivable, net		—			—			56,753			64,936			—			121,689
Inventories		—			—			59,249			30,294			—			89,543
Other current assets		111			—			7,204			873			—			8,188
Total current assets		111			21			142,614			124,901			—			267,647
Property, plant and equipment, net		—			—			64,865			76,572			—			141,437
Amounts due from affiliates		144,695			62,932			21,792			37,924			(267,343		)	—
Goodwill, net		—			—			127,457			48,937			—			176,394
Intangible assets, net		—			—			2,492			—			—			2,492
Investment in consolidated subsidiaries		277,405			—			—			1,110			(278,515		)	—
Deferred income taxes		75			—			3			3,517			—			3,595
Other assets		5,723			2,866			6,986			1,689			—			17,264
		$	428,009		$	65,819		$	366,209		$	294,650		$	(545,858	)	$	608,829
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Cash overdrafts		$	—		$	—		$	436		$	—		$	—		$	436
Accounts payable		—			—			49,817			41,872			—			91,689
Accrued expenses and other current liabilities		539			2,021			29,912			18,767			—			51,239
Current maturities of long-term debt		—			—			436			7,051			—			7,487
Total current liabilities		539			2,021			80,601			67,690			—			150,851
Long-term debt, less current maturities		137,255			62,745			2,299			29,508			—			231,807
Amounts due to affiliates		121,004			2			122,504			23,833			(267,343		)	—
Deferred income taxes		—			398			14,308			14,576			—			29,282
Other liabilities		—			—			5,355			21,584			—			26,939
Total liabilities		258,798			65,166			225,067			157,191			(267,343		)	438,879
Shareholders’equity:
Common stock		500			21			1			35,000			(35,022		)	500
Additional paid-in capital		155,866			—			125,681			78,066			(204,118		)	155,495
Treasury stock		(1,964		)	—			—			—			—			(1,964		)
Restricted stock		(3,381		)	—			—			—			—			(3,381		)
Retained earnings		14,756			601			15,468			10,266			(26,335		)	14,756
Accumulated other comprehensive income (loss)		3,434			31			(8		)	14,127			(13,040		)	4,544
Total shareholders’ equity		169,211			653			141,142			137,459			(278,515		)	169,950
		$	428,009		$	65,819		$	366,209		$	294,650		$	(545,858	)	$	608,829

 

24

 

		Successor six months ended June 25, 2004
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net cash provided by (used in) operating activities		$	56,380		$	(2,262	)	$	(10,973	)	$	19,312		$	(61,081	)	$	1,376
Cash flows from investing activities:
Proceeds from sales of assets		—			—			34			1,009			—			1,043
Purchases of businesses		—			—			(1,172		)	—			—			(1,172		)
Contributed capital to subsidiaries		(28,262		)	—			—			—			28,262			—
Transfer of businesses between affiliates		—			(88,262		)	—			88,262			—			—
Capital expenditures		—			—			(2,120		)	(1,534		)	—			(3,654		)
Net cash (used in) provided by investing activities		(28,262		)	(88,262		)	(3,258		)	87,737			28,262			(3,783		)
Cash flows from financing activities:
Net borrowings on revolving credit facility		—			—			61,584			79			—			61,663
Repayment of long-term debt		—			—			(220		)	(2,678		)	—			(2,898		)
Change in cash overdrafts		—			—			1,850			—			—			1,850
Dividends paid		—			—			—			(61,081		)	61,081			—
Expenses relating to the 2003 Stock Transaction		(554		)	—			—			—			—			(554		)
Purchase of treasury stock		(67,872		)	—			—			—			—			(67,872		)
Deferred finance fees		(555		)	(249		)	(61		)	(24		)	—			(889		)
Contributed capital from parent		—			28,262			—			—			(28,262		)	—
Due to/from affiliates		40,864			61,046			(66,747		)	(35,163		)	—			—
Net cash (used in) provided by financing activities		(28,117		)	89,059			(3,594		)	(98,867		)	32,819			(8,700		)
Effect of exchange rate changes on cash		—			1,463			(584		)	(2,197		)	—			(1,318		)
Net increase (decrease) in cash and cash equivalents		1			(2		)	(18,409		)	5,985			—			(12,425		)
Cash and cash equivalents at beginning of period		—			21			19,408			28,798			—			48,227
Cash and cash equivalents at end of period		$	1		$	19		$	999		$	34,783		$	—		$	35,802

 

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		Predecessor five months ended May 23, 2003
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net cash (used in) provided by operating activities		$	(3,596	)	$	—		$	(9,557	)	$	63,361		$	(62,253	)	$	(12,045	)
Cash flows from investing activities:
Proceeds from sales of assets		—			—			7			28			—			35
Capital expenditures		—			—			(2,283		)	(2,661		)	—			(4,944		)
Net cash used in investing activities		—			—			(2,276		)	(2,633		)	—			(4,909		)
Cash flows from financing activities:
Net borrowings on revolving credit facility		—			—			16,800			1,464			—			18,264
Change in cash overdrafts		—			—			2,603			—			—			2,603
Purchase of treasury stock		(2,556		)	—			—			—			—			(2,556		)
Deferred finance fees		—			—			(71		)	(45		)	—			(116		)
Dividend paid		—			—			(62,253		)	—			62,253			—
Due to/from affiliates		6,152			—			54,864			(61,016		)	—			—
Net cash provided by (used in) financing activities		3,596			—			11,943			(59,597		)	62,253			18,195
Effect of exchange rate changes on cash		—			—			—			778			—			778
Net increase in cash and cash equivalents		—			—			110			1,909			—			2,019
Cash and cash equivalents at beginning of period		—			—			560			11,086			—			11,646
Cash and cash equivalents at end of period		$	—		$	—		$	670		$	12,995		$	—		$	13,665

 

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		Successor one month ended June 27, 2003
		Euramax International Inc. (Co-Obligor)			Euramax International Holdings BV (Co-Obligor)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated Totals
Net cash (used in) provided by operating activities		$	(920	)	$	—		$	2,798		$	10,046		$	—		$	11,924
Cash flows from investing activities:
Proceeds from sales of assets		—			—			24			20			—			44
Capital expenditures		—			—			(306		)	(483		)	—			(789		)
Net cash used in investing activities		—			—			(282		)	(463		)	—			(745		)
Cash flows from financing activities:
Net repayments on revolving credit facility		—			—			(1,500		)	(9,653		)	—			(11,153		)
Change in cash overdrafts		—			—			(2,995		)	—			—			(2,995		)
Issuance of common stock from shares held in treasury		353			—			—			—			—			353
Purchase of treasury stock		(80		)	—			—			—			—			(80		)
Deferred finance fees		—			—			(148		)	(94		)	—			(242		)
Due to/from affiliates		647			—			2,304			(2,951		)	—			—
Net cash provided by (used in) financing activities		920			—			(2,339		)	(12,698		)	—			(14,117		)
Effect of exchange rate changes on cash		—			—			—			191			—			191
Net increase (decrease) in cash and cash equivalents		—			—			177			(2,924		)	—			(2,747		)
Cash and cash equivalents at beginning of period		—			—			670			12,995			—			13,665
Cash and cash equivalents at end of period		$	—		$	—		$	847		$	10,071		$	—		$	10,918

 

27

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Business Overview

 

The following discussion should be read in conjunction with the condensed consolidated financial statements included elsewhere in this document, as well as the year-end consolidated financial statements and management’s discussion and analysis included in the Company’s annual report on Form 10-K for the year ended December 26, 2003.

 

Euramax is an international producer of value-added aluminum, steel, vinyl and fiberglass fabricated products, with facilities located in all major regions of the United States (“U.S.”), as well as the United Kingdom (“U.K.”), The Netherlands and France. Our manufacturing and distribution network consists of 43 strategically located facilities, of which 37 are located in the U.S. and 6 are located in Europe. We sell our products principally to two markets, the building and construction market and the transportation market. Our core products include specialty coated coils, aluminum recreational vehicle (“RV”) sidewalls, RV doors, farm and agricultural panels, roofing accessories, metal and vinyl raincarrying systems, soffit and fascia systems, and vinyl replacement windows. In addition, we sell an extensive line of accessory products, including roofing and siding hardware, trim parts and roof drainage accessories. Our customers include original equipment manufacturers (“OEMs”) such as RV, commercial panel and transportation industry manufacturers; rural contractors; home centers; home improvement contractors; distributors; industrial and architectural contractors; and manufactured housing producers.

 

Our condensed consolidated statements of earnings and condensed consolidated statements of cash flows present our results for the three and six months ended June 25, 2004, the two and five months ended May 23, 2003 and the one month ended June 27, 2003. Our 2003 results are presented divided into the predecessor period and successor period as a result of the 2003 Stock Transaction described in Note 2 to the condensed consolidated financial statements. The discussion of the results of operations below combines the predecessor two months ended May 23, 2003 and the successor one month ended June 27, 2003 for comparison to the successor three months ended June 25, 2004, and combines the predecessor five months ended May 23, 2003 and the successor one month ended June 27, 2003 for comparison to the successor six months ended June 25, 2004, for purposes of discussing net sales and cost of goods sold. All other items are separated into the predecessor and successor periods for discussion purposes.

 

In connection with the 2003 Stock Transaction and subsequent issuance of senior subordinated notes, accounting principles generally accepted in the U.S. required that the purchase price paid in excess of the book value of our equity acquired be allocated to our assets and liabilities based upon estimates of their fair values. This application of purchase accounting resulted in increasing the value of inventory at the time of the 2003 Stock Transaction by $4.0 million. This inventory was sold in June 2003 and accordingly $4.0 million was recorded as cost of goods sold. This amount does not reflect costs incurred or amounts paid by us to prepare inventory for sale and accordingly had no affect on our cash flows from operations.

 

Aluminum and steel raw material purchase prices increased significantly during the first six months of 2004. Rising aluminum and steel prices are evidenced by an increase in the average aluminum London Metal Exchange price from $0.63/lb. in the first six months of 2003 to an average of $0.75/lb. in the first six months of 2004, and widely publicized increases in steel prices resulting from strengthening world demand and industry consolidation in the U.S. While we have obtained selling price increases and announced future price increases, we do not have agreements with our customers who purchase aluminum or steel products from us that obligates them to pay higher prices when the cost of aluminum

 

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or steel rises. Therefore, if aluminum or steel prices continue to rise and we are unable to pass any or all of these increases through to our customers, our gross profit will be adversely affected.

 

Results of Operations

 

Three Months Ended June 25, 2004 as Compared to Three Months Ended June 27, 2003

 

The following table sets forth the Company’s Statements of Earnings Data expressed as a percentage of net sales:

 

		Successor three months ended June 25, 2004		Predecessor two months ended May 23, 2003		Successor one month ended June 27, 2003
Statements of Earnings Data:
Net sales		100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of goods sold		77.3		79.4		82.8	(1)
Selling and general		8.6		9.2		10.6
Depreciation and amortization		1.5		2.2		2.0
Earnings from operations		12.6		9.2		4.6
Interest expense, net		(2.4	)	(3.2	)	(2.4	)
Other income, net		0.2		0.2		—
Earnings before income taxes		10.4		6.2		2.2
Provision for income taxes		3.7		2.3		0.7
Net earnings		6.7	%	3.9	%	1.5	%

 

		Net Sales									Earnings from Operations
		Successor			Predecessor			Successor			Successor			Predecessor			Successor
In thousands		three months ended June 25, 2004			two months ended May 23, 2003			one month ended June 27, 2003 (1)			three months ended June 25, 2004			two months ended May 23, 2003			one month ended June 27, 2003 (1)
U.S. Fabrication Roof Drainage		$	66,707		$	27,078		$	20,089		$	9,688		$	3,908		$	2,233
U.S. Fabrication Building Materials		102,239			48,030			32,148			9,348			2,708			155
European Roll Coating		51,175			23,552			15,234			8,285			2,637			656
European Fabrication		30,366			15,797			9,723			4,194			1,256			516
Totals		$	250,487		$	114,457		$	77,194		$	31,515		$	10,509		$	3,560

 

(1)   In connection with the 2003 Stock Transaction (see Note 2 to the condensed consolidated financial statements)  and subsequent issuance of senior subordinated notes, accounting principles generally accepted in the U.S. required that the purchase price paid in excess of the book value of the Company’s equity acquired be allocated to the assets and liabilities of the Company based upon estimates of their fair values. This application of purchase accounting resulted in increasing the value of inventory at the time of the 2003 Stock Transaction by $4.0 million. This inventory was sold in June 2003 and accordingly $4.0 million was recorded as cost of goods sold. This amount does not reflect  costs incurred or amounts paid by the Company to prepare inventory for sale and accordingly had no affect on the cash flows from operations of the Company for the one month ended June 27, 2003.

 

Net Sales. For the three months ended June 25, 2004, net sales were $250.5 million compared to $191.7 million for the three months ended June 27, 2003, an increase of $58.8 million or 30.7%. Net sales in the

 

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U.S. increased 32.7% to $168.9 million for the three months ended June 25, 2004, from $127.3 million for the three months ended June 27, 2003. This increase in net sales in the U.S. includes an increase in the U.S. Fabrication Roof Drainage segment of $19.5 million or 41.4% and an increase in the U.S. Fabrication Building Materials segment of $22.1 million or 27.5%. Net sales in the U.S. Fabrication Roof Drainage segment increased primarily as a result of the acquisition of Berger Holdings in November 2003, together with higher sales volumes of raincarrying products to distributors, home centers and home improvement contractors, and higher selling prices resulting from rising aluminum and steel costs.  Net sales in the U.S. Fabrication Building Materials segment increased primarily as a result of higher sales volumes of fabricated aluminum and steel roofing and siding to rural contractors, industrial and architectural contractors and home centers, higher sales volumes of aluminum doors, roofing and siding to U.S. RV manufacturers and higher sales volumes of patio awning products to home improvement contractors, together with higher selling prices resulting from rising aluminum and steel costs.

 

Net sales in Europe increased 26.8% to $81.5 million for the three months ended June 25, 2004, from $64.3 million for the three months ended June 27, 2003. This increase in net sales in Europe includes an increase in the European Roll Coating segment of $12.4 million or 31.9%, and an increase in the European Fabrication segment of $4.8 million or 19.0%. Approximately $3.7 million and $2.4 million of the increase in the European Roll Coating segment and the European Fabrication segment, respectively, were a result of the strengthening of the Euro and British Pound against the U.S. Dollar. The balance of the increase in the European Roll Coating segment primarily resulted from higher sales volumes of painted aluminum and steel coil to European OEMs, including European RV manufacturers. The balance of the increase in the European Fabrication segment resulted primarily from higher sales volumes to the European automotive industry, together with higher sales volumes of fabricated doors and windows to European RV manufacturers.

 

Cost of goods sold. Cost of goods sold, as a percentage of net sales, were 77.3% for the three months ended June 25, 2004, compared to 80.7% for the three months ended June 27, 2003. The decrease as a percentage of net sales is largely attributable to the $4.0 million increase in inventories resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction (see Note 2 to our condensed consolidated financial statements). The $4.0 million increase was recognized in cost of goods sold in June 2003. The remaining decrease is primarily the result of higher sales volumes. Higher aluminum and steel costs in the three months ended June 25, 2004 have largely been offset by higher selling prices on products manufactured from aluminum and steel.

 

Selling and general. Selling and general expenses, as a percentage of net sales, were 8.6%, 9.2% and 10.6% for the three months ended June 25, 2004, the two months ended May 23, 2003 and the one month ended June 27, 2003, respectively. Selling and general expenses increased to $21.4 million in the three months ended June 25, 2004, from $10.6 million in the two months ended May 23, 2003 and $8.2 million in the one month ended June 27, 2003. This increase resulted primarily from the acquisition of Berger Holdings in November 2003, together with higher selling expenses due to the increase in sales volume, higher employee compensation expense and a higher cost of employee benefits. Additionally, a stronger Euro and British Pound against the U.S. Dollar in the three months ended June 25, 2004, used in converting local currency into U.S. Dollars, resulted in higher selling and general expense in the three months ended June 25, 2004. Partially offsetting these items were lower product warranty costs in the three months ended June 25, 2004. Selling and general expenses in the one month ended June 27, 2003 include $1.4 million in compensation expense resulting from bonus payments associated with the 2003 Stock Transaction.  The three months ended June 25, 2004 and the one month ended June 27, 2003 include advisory fees payable to CVC Management LLC of $0.3 million and $0.4 million, respectively. Prior to the 2003 Stock Transaction and the establishment of the advisory agreement with CVC Management LLC, there were no advisory fees paid to CVC Management LLC.

 

30

 

Depreciation and amortization. Depreciation and amortization was $3.9 million for the three months ended June 25, 2004, compared to $2.5 million for the two months ended May 23, 2003 and $1.6 million for the one month ended June 27, 2003. Depreciation and amortization expense for the three months ended June 25, 2004 includes an adjustment increasing expense by $0.2 million relating to the final allocation of the purchase price associated with the 2003 Stock Transaction and the acquisition of Berger Holdings.  See Note 2 to the condensed consolidated financial statements for further discussion on the adjustments relating to the 2003 Stock Transaction.  Additionally, Berger Holdings' results are included in the three months ended June 25, 2004.

 

Earnings from operations. Earnings from operations were $31.5 million for the three months ended June 25, 2004, compared to $10.5 million for the two months ended May 23, 2003 and $3.6 million for the one month ended June 27, 2003. Operating margins were 12.6% for the three months ended June 25, 2004, compared to 9.2% for the two months ended May 23, 2003 and 4.6% for the one month ended June 27, 2003. In the one month ended June 27, 2003, earnings from operations reflect $4.0 million charged to expense resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction.

 

Earnings from operations in the U.S. Fabrication Roof Drainage segment were $9.7 million for the three months ended June 25, 2004, compared to $3.9 million for the two months ended May 23, 2003 and $2.2 million for the one month ended June 27, 2003. Operating margins were 14.5% for the three months ended June 25, 2004, compared to 14.4% for the two months ended May 23, 2003 and 11.1% for the one month ended June 27, 2003. Earnings from operations in the U.S. Fabrication Roof Drainage segment include $1.0 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the three months ended June 25, 2004, partially offset by higher depreciation and amortization expense, resulted in higher operating margins. Higher aluminum and steel costs in the three months ended June 25, 2004 have largely been offset by higher selling prices on products manufactured from aluminum and steel. Berger Holdings' results are included in the three months ended June 25, 2004.

 

Earnings from operations in the U.S. Fabrication Building Materials segment were $9.3 million for the three months ended June 25, 2004, compared to $2.7 million for the two months ended May 23, 2003 and $0.2 million for the one month ended June 27, 2003. Operating margins were 9.1% for the three months ended June 25, 2004, compared to 5.6% for the two months ended May 23, 2003 and 0.5% for the one month ended June 27, 2003. Earnings from operations in the U.S. Fabrication Building Materials segment include $1.7 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the three months ended June 25, 2004, partially offset by higher depreciation and amortization expense, resulted in higher operating margins. Higher aluminum and steel costs in the three months ended June 25, 2004, have largely been offset by higher selling prices on products manufactured from aluminum and steel.

 

Earnings from operations in the European Roll Coating segment were $8.3 million for the three months ended June 25, 2004, compared to $2.6 million for the two months ended May 23, 2003 and $0.7 million for the one month ended June 27, 2003. Operating margins were 16.2% for the three months ended June 25, 2004, compared to 11.2% for the two months ended May 23, 2003 and 4.3% for the one month ended June 27, 2003. Earnings from operations in the European Roll Coating segment include $0.9 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the three months ended June 25, 2004, together with lower depreciation and amortization expense,

 

31

 

resulted in higher operating margins. The strengthening of the Euro and British Pound against the U.S. Dollar increased the European Roll Coating segment’s earnings from operations by $0.6 million.

 

Earnings from operations in the European Fabrication segment were $4.2 million for the three months ended June 25, 2004, compared to $1.3 million for the two months ended May 23, 2003 and $0.5 million for the one month ended June 27, 2003. Operating margins were 13.8% for the three months ended June 25, 2004, compared to 8.0% for the two months ended May 23, 2003 and 5.3% for the one month ended June 27, 2003. Earnings from operations in the European Fabrication segment include $0.4 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the three months ended June 25, 2004, together with a more profitable product mix and lower depreciation and amortization expense, resulted in higher operating margins. The strengthening of the Euro and British Pound against the U.S. Dollar increased the European Fabrication segment’s earnings from operations by $0.3 million.

 

Interest expense, net. Net interest expense was $6.0 million, $3.7 million and $1.8 million for the three months ended June 25, 2004, the two months ended May 23, 2003 and the one month ended June 27, 2003, respectively. The increase in net interest expense in 2004 is primarily the result of a higher outstanding average debt balance during the three months ended June 25, 2004, together with higher deferred finance fee amortization expense in the three months ended June 25, 2004. On August 6, 2003 we issued $200.0 million 8.50% senior subordinated notes. The proceeds from this issuance were used to purchase our outstanding $135.0 million 11.25% senior subordinated notes. The average outstanding balance under our senior secured credit facility was $95.0 million at an average interest rate of 5.2% for the three months ended June 25, 2004, compared to $84.3 million at an average interest rate of 5.3% for the three months ended June 27, 2003.

 

Other income, net. Other income was $0.6 million and $0.3 million for the three months ended June 25, 2004 and the two months ended May 23, 2003, respectively, and was insignificant for the one month ended June 27, 2003. The three months ended June 25, 2004 include a gain on the sale of non-core assets from our operation in France of $0.5 million. The remaining other income, net in both periods primarily resulted from foreign exchange gains on unhedged assets and liabilities remeasured into the local currency.

 

Provision for income taxes. The income tax provision for the period is based on the effective tax rate expected to be applicable for the full year. The effective rate for the provision for income taxes was 35.7% for the three months ended June 25, 2004, compared to 37.5% for the two months ended May 23, 2003 and 33.2% for the one month ended June 27, 2003.  The change in the effective tax rate from 2003 to 2004 is primarily due to a greater expected proportion of earnings in fiscal year 2004 in Europe, where the Company has a lower effective tax rate, together with a higher valuation allowance in 2003 due to the uncertainty of the future benefit of U.S. state net operating loss carryforwards.

 

Six Months Ended June 25, 2004 as Compared to Six Months Ended June 27, 2003

 

The following table sets forth the Company’s Statements of Earnings Data expressed as a percentage of net sales:

 

32

 

		Successor six months ended June 25, 2004		Predecessor five months ended May 23, 2003		Successor one month ended June 27, 2003
Statements of Earnings Data:
Net sales		100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of goods sold		78.6		80.0		82.8	(1)
Selling and general		9.3		10.0		10.6
Depreciation and amortization		2.0		2.4		2.0
Earnings from operations		10.1		7.6		4.6
Interest expense, net		(2.6	)	(3.5	)	(2.4	)
Other income, net		0.3		0.2		—
Earnings before income taxes		7.8		4.3		2.2
Provision for income taxes		2.8		1.6		0.7
Net earnings		5.0	%	2.7	%	1.5	%

 

		Net Sales									Earnings from Operations
In thousands		Successor six months ended June 25, 2004			Predecessor five months ended May 23, 2003			Successor one month ended June 27, 2003			Successor six months ended June 25, 2004			Predecessor five months ended May 23, 2003			Successor one month ended June 27, 2003(1)
U.S. Fabrication Roof Drainage		$	109,425		$	53,464		$	20,089		$	10,586		$	4,669		$	2,233
U.S. Fabrication Building Materials		173,345			107,586			32,148			11,289			3,988			155
European Roll Coating		99,897			59,653			15,234			15,672			7,577			656
European Fabrication		63,223			39,912			9,723			7,497			3,532			516
Totals		$	445,890		$	260,615		$	77,194		$	45,044		$	19,766		$	3,560

 

(1)          In connection with the 2003 Stock Transaction (see Note 2 to the condensed consolidated financial statements) and subsequent issuance of senior subordinated notes, accounting principles generally accepted in the U.S. required that the purchase price paid in excess of the book value of the Company’s equity acquired be allocated to the assets and liabilities of the Company based upon estimates of their fair values. This application of purchase accounting resulted in increasing the value of inventory at the time of the 2003 Stock Transaction by $4.0 million. This inventory was sold in June 2003 and accordingly $4.0 million was recorded as cost of goods sold. This amount does not reflect costs incurred or amounts paid by the Company to prepare inventory for sale and accordingly had no affect on the cash flows from operations of the Company for the one month ended June 27, 2003.

 

Net Sales. For the six months ended June 25, 2004, net sales were $445.9 million compared to $337.8 million for the six months ended June 27, 2003, an increase of $108.1 million or 32.0%. Net sales in the U.S. increased 32.6% to $282.8 million for the six months ended June 25, 2004, from $213.3 million for the six months ended June 27, 2003. This increase in net sales in the U.S. includes an increase in the U.S. Fabrication Roof Drainage segment of $35.9 million or 48.8% and an increase in the U.S. Fabrication Building Materials segment of $33.6 million or 24.1%. Net sales in the U.S. Fabrication Roof Drainage segment increased primarily as a result of the acquisition of Berger Holdings in November 2003, together with higher sales volumes of raincarrying products to distributors, home centers and home improvement contractors and higher selling prices resulting from rising aluminum and steel costs. Net sales in the U.S. Fabrication Building Materials segment increased primarily as a result of higher sales volumes of fabricated aluminum and steel roofing and siding to rural contractors, industrial and architectural

 

33

 

contractors and home centers, higher sales volumes of aluminum doors, roofing and siding to U.S. RV manufacturers and higher sales volumes of patio awning products to home improvement contractors, together with higher selling prices on products manufactured from aluminum and steel resulting from rising aluminum and steel costs.

 

Net sales in Europe increased 31.0% to $163.1 million for the six months ended June 25, 2004, from $124.5 million for the six months ended June 27, 2003. This increase in net sales in Europe includes an increase in the European Roll Coating segment of $25.0 million or 33.4%, and an increase in the European Fabrication segment of $13.6 million or 27.4%. Approximately $10.4 million and $6.9 million of the increase in the European Roll Coating segment and the European Fabrication segment, respectively, were a result of the strengthening of the Euro and British Pound against the U.S. Dollar. The balance of the increase in the European Roll Coating segment primarily resulted from higher sales volumes of painted aluminum and steel coil to European OEMs, including European RV manufacturers. The balance of the increase in the European Fabrication segment resulted primarily from higher sales volumes to the European automotive industry, together with higher sales volumes of fabricated doors and windows to European RV manufacturers.

 

Cost of goods sold. Cost of goods sold, as a percentage of net sales, were 78.6% for the six months ended June 25, 2004, compared to 80.6% for the six months ended June 27, 2003. The decrease as a percentage of net sales is primarily attributable to the $4.0 million increase in inventories resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction (see Note 2 to the condensed consolidated financial statements). The $4.0 million increase was recognized in cost of goods sold in June 2003. The remaining decrease is primarily the result of higher sales volumes.

 

Selling and general. Selling and general expenses, as a percentage of net sales, were 9.3%, 10.0% and 10.6% for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003. Selling and general expenses increased to $41.3 million in the six months ended June 25, 2004, from $26.2 million in the five months ended May 23, 2003 and $8.2 million in the one month ended June 27, 2003. The increase for the six months ended June 25, 2004, resulted primarily from the acquisition of Berger Holdings in November 2003, together with higher selling expenses due to the increase in sales volume, higher employee compensation expense, higher cost of employee benefits, and higher legal and professional fees. Additionally, a stronger Euro and British Pound against the U.S. Dollar in the six months ended June 25, 2004, used in converting local currency into U.S. Dollars resulted in higher selling and general expenses in the six months ended June 25, 2004.  Selling and general expenses in the one month ended June 27, 2003 include $1.4 million in compensation expense resulting from bonus payments associated with the 2003 Stock Transaction. The six months ended June 25, 2004 and the one month ended June 27, 2003 include advisory fees payable to CVC Management LLC of $0.5 million and $0.4 million, respectively. Prior to the 2003 Stock Transaction and the establishment of the advisory agreement with CVC Management LLC, there were no advisory fees paid to CVC Management LLC. The six months ended June 25, 2004 and the one month ended June 27, 2003 include amortization of restricted stock awards of $0.4 million and $0.1 million, respectively. The restricted stock awards were issued in June 2003 at the time of the 2003 Stock Transaction.

 

Depreciation and amortization. Depreciation and amortization was $9.0 million for the six months ended June 25, 2004, compared to $6.3 million for the two months ended May 23, 2003 and $1.6 million for the one month ended June 27, 2003. Depreciation and amortization expense for the six months ended June 25, 2004 includes an adjustment increasing expense by $0.2 million relating to the final allocation of the purchase price associated with the 2003 Stock Transaction and the acquisition of Berger Holdings.  See Note 2 to the condensed consolidated financial statements for further discussion on the adjustments relating to the 2003 Stock Transaction.  Additionally, Berger Holdings' results are included in the six months ended June 25, 2004.

 

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Earnings from operations. Earnings from operations were $45.0 million for the six months ended June 25, 2004, compared to $19.8 million for the five months ended May 23, 2003 and $3.6 million for the one month ended June 27, 2003. Operating margins were 10.1% for the six months ended June 25, 2004, compared to 7.6% for the five months ended May 23, 2003 and 4.6% for the one month ended June 27, 2003. In the one month ended June 27, 2003, earnings from operations reflect $4.0 million charged to expense resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction.

 

Earnings from operations in the U.S. Fabrication Roof Drainage segment were $10.6 million for the six months ended June 25, 2004, compared to $4.7 million for the five months ended May 23, 2003 and $2.2 million for the one month ended June 27, 2003. Operating margins were 9.7% for the six months ended June 25, 2004, compared to 8.7% for the five months ended May 23, 2003 and 11.1% for the one month ended June 27, 2003. Earnings from operations in the U.S. Fabrication Roof Drainage segment include $1.0 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the three months ended June 25, 2004, partially offset by lower margins on aluminum products and higher depreciation and amortization expense, resulted in higher operating margins. Lower margins on aluminum products primarily resulted from higher aluminum costs, partially offset by higher aluminum selling prices. Berger Holdings' results are included in the six months ended June 25, 2004.

 

Earnings from operations in the U.S. Fabrication Building Materials segment were $11.3 million for the six months ended June 25, 2004, compared to $4.0 million for the five months ended May 23, 2003 and $0.2 million for the one month ended June 27, 2003. Operating margins were 6.5% for the six months ended June 25, 2004, compared to 3.7% for the five months ended May 23, 2003 and 0.5% for the one month ended June 27, 2003. Earnings from operations in the U.S. Fabrication Building Materials segment include $1.7 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the six months ended June 25, 2004, partially offset by higher depreciation and amortization expense, resulted in higher operating margins. Higher aluminum and steel costs in the six months ended June 25, 2004, have largely been offset by higher selling prices on products manufactured from aluminum and steel

 

Earnings from operations in the European Roll Coating segment were $15.7 million for the six months ended June 25, 2004, compared to $7.6 million for the five months ended May 23, 2003 and $0.7 million for the one month ended June 27, 2003. Operating margins were 15.7% for the six months ended June 25, 2004, compared to 12.7% for the five months ended May 23, 2003 and 4.3% for the one month ended June 27, 2003. Earnings from operations in the European Roll Coating segment include $0.9 million of the $4.0 million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the six months ended June 25, 2004, together with operational improvements at our Corby, England paintline and lower depreciation and amortization expense, resulted in higher operating margins. The strengthening of the Euro and British Pound against the U.S. Dollar increased the European Roll Coating segment’s earnings from operations by $1.7 million.

 

Earnings from operations in the European Fabrication segment were $7.5 million for the six months ended June 25, 2004, compared to $3.5 million for the five months ended May 23, 2003 and $0.5 million for the one month ended June 27, 2003. Operating margins were 11.9% for the six months ended June 25, 2004, compared to 8.8% for the five months ended May 23, 2003 and 5.3% for the one month ended June 27, 2003. Earnings from operations in the European Fabrication segment include $0.4 million of the $4.0

 

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million increase in inventories charged to expense in June 2003 resulting from the application of the purchase method of accounting associated with the 2003 Stock Transaction. Higher sales volumes in the six months ended June 25, 2004, together with a more profitable product mix and lower depreciation and amortization expense, resulted in higher operating margins. The strengthening of the Euro and British Pound against the U.S. Dollar increased the European Fabrication segment’s earnings from operations by $0.8 million.

 

Interest expense, net. Net interest expense was $11.8 million, $9.1 million and $1.8 million for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003, respectively. The increase in net interest expense is a result of a higher outstanding average debt balance during the six months ended June 25, 2004, together with higher deferred finance fee amortization expense in the six months ended June 25, 2004. On August 6, 2003 we issued $200.0 million 8.50% senior subordinated notes. The proceeds from this issuance were used to purchase our outstanding $135.0 million 11.25% senior subordinated notes. The average outstanding balance under our senior secured credit facility was $70.3 million at an average interest rate of 5.6% for the six months ended June 25, 2004, compared to $78.9 million at an average interest rate of 5.4% for the six months ended June 27, 2003.

 

Other income, net. Other income was $1.4 million and $0.5 million for the six months ended June 25, 2004 and five months ended May 23, 2003, respectively, and was insignificant for the one month ended June 27, 2003. The six months ended June 25, 2004 includes a gain on the sale of non-core assets from our operation in France of $0.5 million.  The remaining other income, net in both periods primarily resulted from foreign exchange gains on unhedged assets and liabilities remeasured into the local currency.

 

Provision for income taxes. The income tax provision for the period is based on the effective tax rate expected to be applicable for the full year. The effective rate for the provision for income taxes was 35.4% for the six months ended June 25, 2004 compared to 38.2% for the five months ended May 23, 2003 and 33.2% for the one month ended June 27, 2003.  The change in the effective tax rate from 2003 to 2004 is primarily due to a greater expected proportion of earnings in fiscal year 2004 in Europe, where the Company has a lower effective tax rate, together with a higher valuation allowance in 2003 due to the uncertainty of the future benefit of U.S. state net operating loss carryforwards.

 

Liquidity and Capital Resources

 

Liquidity. Our primary liquidity needs arise from debt service and the funding of capital expenditures. Our liquidity sources at June 25, 2004 include $35.8 million in cash and cash equivalents and an undrawn amount of $49.5 million under our revolving credit facility, subject to borrowing base limitations. At June 25, 2004, the entire $49.5 million of the undrawn amount was available.

 

On March 31, 2004, we repurchased 55% of our outstanding common stock held by Court Square Capital Limited, or 93,324.34 shares, for an aggregate repurchase price of approximately $37.3 million. On April 30, 2004, we repurchased the remaining 45% of our outstanding common stock held by Court Square Capital Limited, or 76,356.28 shares, for an aggregate repurchase price of $30.5 million. These repurchases were funded with borrowings under our revolving credit facility.

 

Our leveraged financial position requires that a substantial portion of our cash flow from operations be used to pay interest on the senior subordinated notes, principal and interest under our senior secured credit facility and other indebtedness. Significant increases in the floating interest rates on borrowings under our senior secured credit facility would result in increased debt service requirements, which may

 

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reduce the funds available for capital expenditures and other operational needs. In addition, our leveraged position may impede our ability to obtain financing in the future for working capital, capital expenditures and general corporate purposes. Further, our leveraged position may make us more vulnerable to economic downturns, may limit our ability to withstand competitive pressures, and may limit our ability to comply with restrictive financial covenants required under our senior secured credit facility.

 

Our primary source of liquidity is funds generated from operations, which are supplemented by borrowings under our senior secured credit facility. Net cash provided by (used in) operating activities for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003 were $1.4 million, $(12.0) million and $11.9 million, respectively. In addition to cash generated from earnings, key components of our cash flow from operations are changes in our working capital accounts. The six months ended June 25, 2004 include a use of cash resulting from an increase in accounts receivable and inventories of $29.2 million and $27.9 million, respectively. Partially offsetting this use of cash was cash provided by an increase in accounts payable, accrued liabilities and other current liabilities of $32.1 million. The five months ended May 23, 2003 include a use of cash resulting from an increase in accounts receivable and inventories of $22.8 million and $13.0 million, respectively. Partially offsetting this use of cash was cash provided by an increase in accounts payable, accrued liabilities and other current liabilities of $12.9 million. The one month ended June 27, 2003 includes cash provided by an increase in accounts payable, accrued expenses and other current liabilities of $8.0 million, together with a decrease in inventories of $3.0 million. Partially offsetting these items was a use of cash resulting from an increase in accounts receivable of $6.1 million. See discussion of working capital below.

 

Net cash used in investing activities for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003 were $3.8 million, $4.9 million and $0.7 million, respectively. The six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003 include a use of cash resulting from capital expenditures of $3.7 million, $4.9 million and $0.8 million, respectively. See discussion of capital expenditures below. The six months ended June 25, 2004 include cash provided by the sale of non-core assets from our operation in France of $1.0 million and a use of cash for costs associated with the acquisition of Berger Holdings of $1.2 million.

 

Net cash (used in) provided by financing activities for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003 were $(8.7) million, $18.2 million and $(14.1) million, respectively. The six months ended June 25, 2004 include borrowings under our revolving credit facility of $61.7 million to fund the repurchase of 55% of our outstanding common stock held by Court Square Capital Limited for an aggregate purchase price of $67.9 million. Additionally, we repaid $2.9 million of our outstanding long-term debt in the six months ended June 25, 2004. The five months ended May 23, 2003 include borrowings under our revolving credit facility of $18.3 million to fund our increase in working capital, together with the repurchase of $2.6 million of our outstanding common stock in connection with the retirement of key employees. The one month ended June 27, 2003 includes repayments under our revolving credit facility of $11.2 million.

 

The above-noted sources are expected to provide the liquidity required, if necessary, to supplement cash from operations, although no assurance to that effect can be given.

 

Capital Expenditures. Our capital expenditures were $3.7 million, $4.9 million and $0.8 million for the six months ended June 25, 2004, the five months ended May 23, 2003 and the one month ended June 27, 2003, respectively. Capital expenditures in 2004 included approximately $0.9 million for improvements to the paintlines in Helena, Arkansas; Corby, England; and Roermond, The Netherlands; and approximately $0.4 million for several projects related to business expansion. Capital expenditures in 2003 included approximately $0.6 million for improvements to the paintlines in Helena, Arkansas; Corby, England; and Roermond, The Netherlands; and approximately $3.4 million for several projects related to business expansion. The balance of capital expenditures in both periods related to purchases and upgrades of fabricating equipment, transportation and material moving equipment, and information systems.

 

We have made and will continue to make capital expenditures to comply with environmental laws. We estimate that our environmental capital expenditures for 2004 will approximate $0.5 million.

 

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Working Capital Management. Working capital was $130.8 million as of June 25, 2004, compared to $116.8 million as of December 26, 2003. This increase in working capital is largely attributable to higher accounts receivable and inventories, partially offset by higher accounts payable and income taxes payable, together with lower cash and cash equivalents as of June 25, 2004. Seasonal demands of the business result in substantial increases from year end in trade accounts receivable, inventories and accounts payable.

 

Accounts receivable of $151.1 million as of June 25, 2004, increased $29.4 million, from $121.7 million as of December 26, 2003. The primary reason for this increase was a 30.7% increase in net sales in the two months ended June 25, 2004, compared to the two months ended December 26, 2003. The majority of outstanding accounts receivable at the end of each period are generated from net sales in the preceding two months. As of June 25, 2004, days sales outstanding in accounts receivable were 54.9 days, compared to 53.9 days as of December 26, 2003 and 57.1 days as of June 27, 2003.

 

Inventories of $117.7 million as of June 25, 2004, increased $28.2 million, from $89.5 million as of December 26, 2003. As of June 25, 2004, days sales in inventories was 61.9 days, compared to 60.6 days as of December 26, 2003 and 53.2 days as of June 27, 2003.  Higher aluminum and steel raw material costs increased inventory balances as of June 25, 2004, compared to June 27, 2003 and December 26, 2003, together with higher volumes of aluminum and steel in inventory as of June 25, 2004.

 

Critical Accounting Policies

 

Business Combinations

 

In accordance with Statement of Financial Accounting Standard No. 141 (“SFAS No. 141”), “Business Combinations”, the Company allocates the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. Certain intangible assets are amortized to expense over time. The Company’s future operating performance will be impacted by the future amortization of identifiable intangible assets and potential impairment charges related to goodwill. Accordingly, the allocation of the purchase price to intangible assets and goodwill has an impact on the Company’s future operating results. The allocation of the purchase price of the acquired companies to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows. Should different conditions prevail, material write-downs of net intangible assets and/or goodwill could occur.

 

The Company was required to recognize certain identifiable intangible assets in connection with the 2003 Stock Transaction and acquired identifiable intangible assets in connection with the acquisition of Berger Holdings. These identifiable intangible assets primarily consist of the value associated with customer relationships, trade names and patents. The valuation of these intangible assets is subjective and requires a great deal of expertise and judgment. The values of the customer relationships were primarily derived using estimates of future cash flows to be generated from the customer relationships. This approach was used since the inherent value of the customer relationship is its ability to generate current and future income. The value of the trade names and patents were determined using an estimate market-based royalty rate applied to projected future revenue. While different amounts would have been reported using different methods or using different assumptions, the Company believes that the methods selected and the assumptions used are the most appropriate for each asset analyzed.

 

Environmental Matters

 

Our exposure to environmental matters has not changed significantly from the year ended December 26, 2003. For detailed information regarding environmental matters, see “Management’s Discussion and Analysis – Risk Management” set forth in our Annual Report on Form 10-K for the year ended December 26, 2003.

 

Note Regarding Forward-Looking Statements:  The Management’s Discussion and Analysis and other sections of this Form 10-Q may contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which we operate, and management’s beliefs and assumptions. Such forward-looking statements include terminology such as “may”, “will”, “should”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “contemplates”, “projects”, “predicts”, “estimates”, or variations of such words and similar expressions regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements in this report include, but are not limited to: (1) statements regarding our expectation that our sources of liquidity will provide the liquidity required, if necessary, to supplement lower cash flows from operations; (2) statements regarding management’s expectation that the outcome of legal proceedings and claims that have arisen in the ordinary course of

 

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business would not reasonably be expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows; (3) statements regarding management’s belief that our potential share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses at various hazardous waste disposal sites in which we have been named as a defendant in lawsuits or as a potentially responsible party are not material and that the reasonably probable outcome of these matters will not materially exceed established reserves and will not have a material impact on our future financial position, net earnings or cash flows; and (4) statements regarding the effect rising aluminum and steel costs may have on gross profit. These forward-looking statements are based on a number of assumptions that could ultimately prove inaccurate, and, therefore, there can be no assurance that they will prove to be accurate. All such forward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Important factors that could cause future financial performance to differ materially and significantly from past results and from those expressed or implied in this document include, without limitation, the risks of acquisition of businesses (including limited knowledge of the businesses acquired and misrepresentations by sellers), changes in business strategy or development plans, the cyclical demand for our products, the supply and/or price of aluminum and other raw materials, currency exchange rate fluctuations, environmental regulations, availability of financing, competition, reliance on key management personnel, ability to manage growth, loss of customers, and a variety of other factors. For further information on these and other risks, see the “Risk Factors” section of Item 1 of our Annual Report on Form 10-K for the year ended December 26, 2003, as well as our other filings with the Securities and Exchange Commission. We assume no obligation to update publicly our forward-looking statements, whether as a result of new information, future events or otherwise.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

The following discussion about the Company’s risk management activities includes forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statement. See “Note Regarding Forward Looking Statements” for additional information regarding the Private Securities Litigation Reform Act. The Company’s management of market risk from changes in interest rates, exchange rates and commodity prices has not changed from the year ended December 26, 2003, except as follows. In March 2004, the Company entered into three Euro swaps (the “Euro Swaps”) with substantially equivalent terms. The terms of the Euro Swaps expire on August 15, 2011, and require the Company to pay approximately 49.3 million Euros with semi-annual payments at a weighted average interest rate of 8.81% in exchange for $60.0 million with semi-annual interest payments of 8.50%. The Euro Swaps were designated as cash flow hedges that effectively converted $60.0 million of the 8.50% senior subordinated notes due 2011 on the books of a Netherlands subsidiary into a fixed-rate Euro loan, which is expected to reduce the impact of foreign exchange rate changes on the principal and interest payments on the loan. For detailed information regarding the Company’s risk management, see “Management’s Discussion and Analysis – Risk Management” and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” set forth in the Company’s Annual Report on Form 10-K for the year ended December 26, 2003.

 

Interest Rate Risk

 

This analysis presents the hypothetical increase in interest expense and increase in other expense related to those financial instruments and derivative instruments held by us at June 25, 2004, that are sensitive to changes in interest rates. A hypothetical 10 percent increase in interest rates for one year on our variable rate financial instruments would increase interest expense by approximately $0.5 million as calculated at June 25, 2004, as compared to a hypothetical increase in interest expense of approximately $0.2 million as calculated at December 26, 2003.

 

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A hypothetical 10 percent decrease in interest rates for one year on our derivative instruments would increase other expense by approximately $0.1 million as calculated at June 25, 2004 and December 26, 2003.

 

Foreign Currency Exchange Risk

 

This analysis presents the hypothetical increase in foreign exchange loss and increase in interest expense related to those financial instruments and derivative instruments held by us at June 25, 2004, that are sensitive to changes in foreign currency exchange risks. A hypothetical 10 percent increase in the British Pound compared to the U.S. Dollar would increase our foreign exchange loss by approximately $3.9 million as calculated at June 25, 2004, compared to a hypothetical increase in foreign exchange loss of approximately $2.1 million as calculated at December 26, 2004. A hypothetical 10 percent increase in the Euro compared to the U.S. Dollar would increase our foreign exchange loss by approximately $3.7 million as calculated at June 25, 2004, compared to a hypothetical decrease in foreign exchange loss of approximately $1.2 million as calculated at December 26, 2003.

 

All other factors remaining unchanged, a hypothetical 10 percent increase in foreign currency exchange rates for one year would increase interest expense by approximately $0.4 million as calculated at June 25, 2004, for those financial instruments and derivative instruments affected by foreign currency exchange fluctuations, as compared to a hypothetical increase in interest expense of approximately $0.2 million as calculated at December 26, 2003.

 

Item 4.  Controls and Procedures

 

As of June 25, 2004, based upon an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that as of the evaluation date, the Company’s disclosure controls and procedures (1) are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s reports that it files or submits under the Securities and Exchange Act of 1934 (the “Exchange Act”) and (2) are adequate to ensure that information required to be disclosed by the Company in the reports filed or submitted by the Company under the Exchange Act is recorded, processed and summarized and reported within the time periods specified in the SEC’s rules and forms. Further, there were no changes in the Company’s internal controls over financial reporting identified in connection with that evaluation that occurred during the quarter ended June 25, 2004, that have materially affected or would be reasonably likely to materially affect the Company’s internal control over financial reporting.

 

Part II - Other Information

 

Item 1.  Legal Proceedings.

 

We are not currently parties to any pending legal procedures other than such proceedings occurring in the ordinary course of business. We believe that such proceedings would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

 

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Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

None.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

Item 4.  Submission of Matters to a Vote of Security Holders.

 

None

 

Item 5.  Other Information.

 

None.

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)                                  Exhibits:

 

The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed or incorporated by reference as part of this Quarterly Report on Form 10-Q.

 

(b)           Reports on Form 8-K:

 

On May 12, 2004, the Company filed a report on Form 8-K relating to its financial information for the quarter ended March 26, as presented in a press release dated May 7, 2004.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, Euramax International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

EURAMAX INTERNATIONAL, INC.

 

Signature		Title		Date
/s/ J. DAVID SMITH		Chairman, Chief Executive Officer		August 9, 2004
J. David Smith		and President
/s/ R. SCOTT VANSANT		Chief Financial Officer and Secretary		August 9, 2004
R. Scott Vansant

 

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Exhibit Index

 

Exhibit Number		Description
3.1		Certificate of Incorporation of Euramax International, Inc. (f/k/a Amerimax Holdings, Inc.). (Incorporated by reference to the Exhibit with the same number in Euramax International, Inc.’s Registrations Statement on Form S-4 (Reg. No. 333-05978) which became effective on February 7, 1997.)
3.2		Bylaws of Euramax International, Inc. (f/k/a Amerimax Holdings, Inc.). (Incorporated by reference to the Exhibit with the same number in Euramax International, Inc.’s Registration Statement on Form S-4 (Ref. No. 333-05978) which became effective on February 7, 1997.)
10.1		First Amendment dated as of May 2004 to the Third Amended and Restated Credit Agreement among Euramax International, Inc. and its subsidiaries, Wachovia Bank, N.A., as agent and lender, and the Lenders named therein
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

 

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