e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 2, 2011
or
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o |
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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: 000-24956
Associated Materials, LLC
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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75-1872487 |
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(State or Other Jurisdiction of Incorporation of Organization)
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(I.R.S. Employer Identification No.) |
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3773 State Rd. Cuyahoga Falls, Ohio
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44223 |
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(Address of Principal Executive Offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code (330) 929 -1811
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of May 13, 2011, all of the registrants membership interests outstanding were held by an
affiliate of the Registrant.
ASSOCIATED MATERIALS, LLC
REPORT FOR THE QUARTER ENDED APRIL 2, 2011
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
ASSOCIATED MATERIALS, LLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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April 2, |
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January 1, |
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2011 |
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2011 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
5,682 |
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$ |
13,789 |
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Accounts receivable, net of allowance for
doubtful accounts of $9,863 at April 2, 2011
and $9,203 at January 1, 2011 |
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111,745 |
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118,408 |
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Inventories |
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175,248 |
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146,215 |
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Income taxes receivable |
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3,291 |
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Prepaid expenses |
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9,372 |
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8,995 |
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Total current assets |
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302,047 |
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290,698 |
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Property, plant and equipment, net |
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135,709 |
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137,862 |
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Goodwill |
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572,755 |
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566,423 |
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Other intangible assets, net |
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730,760 |
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731,014 |
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Other assets |
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29,024 |
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29,907 |
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Total assets |
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$ |
1,770,295 |
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$ |
1,755,904 |
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Liabilities and Members Equity |
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Current liabilities: |
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Accounts payable |
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$ |
101,879 |
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$ |
90,190 |
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Accrued liabilities |
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76,029 |
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79,319 |
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Deferred income taxes |
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13,951 |
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19,989 |
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Income taxes payable |
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2,244 |
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2,506 |
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Total current liabilities |
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194,103 |
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192,004 |
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Deferred income taxes |
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144,668 |
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144,668 |
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Other liabilities |
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132,989 |
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132,755 |
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Long-term debt |
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824,185 |
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788,000 |
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Members equity |
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474,350 |
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498,477 |
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Total liabilities and members equity |
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$ |
1,770,295 |
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$ |
1,755,904 |
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See accompanying notes to unaudited condensed consolidated financial statements.
1
ASSOCIATED MATERIALS, LLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
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Quarters Ended |
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April 2, |
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April 3, |
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2011 |
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2010 |
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Successor |
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Predecessor |
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Net sales |
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$ |
196,736 |
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$ |
204,237 |
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Cost of sales |
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156,657 |
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155,798 |
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Gross profit |
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40,079 |
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48,439 |
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Selling, general and administrative expenses |
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58,916 |
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47,481 |
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(Loss) income from operations |
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(18,837 |
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958 |
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Interest expense, net |
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18,700 |
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18,694 |
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Foreign currency (gain) |
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(30 |
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(122 |
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Loss before income taxes |
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(37,507 |
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(17,614 |
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Income taxes (benefit) provision |
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(389 |
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1,078 |
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Net loss |
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$ |
(37,118 |
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$ |
(18,692 |
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See accompanying notes to unaudited condensed consolidated financial statements.
2
ASSOCIATED MATERIALS, LLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Quarters Ended |
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April 2, |
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April 3, |
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2011 |
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2010 |
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Successor |
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Predecessor |
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Operating Activities |
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Net loss |
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$ |
(37,118 |
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$ |
(18,692 |
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Adjustments to reconcile net loss to net cash used in
operating activities: |
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Depreciation and amortization |
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12,657 |
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5,633 |
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Amortization of deferred financing costs |
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1,102 |
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1,007 |
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Amortization of net liabilities recorded in purchase
accounting for the fair value of leased facilities
and warranty liabilities |
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(299 |
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Deferred income taxes |
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(301 |
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1,078 |
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Provision for losses on accounts receivable |
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872 |
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1,000 |
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Debt accretion |
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63 |
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Loss on sale or disposal of assets other than by sale |
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84 |
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14 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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6,535 |
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(9,498 |
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Inventories |
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(27,730 |
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(22,176 |
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Accounts payable and accrued liabilities |
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7,716 |
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(712 |
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Income taxes receivable / payable |
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(4,610 |
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(2,967 |
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Other |
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(871 |
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133 |
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Net cash used in operating activities |
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(41,963 |
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(45,117 |
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Investing Activities |
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Capital expenditures |
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(2,400 |
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(5,050 |
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Net cash used in investing activities |
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(2,400 |
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(5,050 |
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Financing Activities |
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Net borrowings under ABL facilities |
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36,185 |
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Net borrowings under prior ABL Facility |
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18,000 |
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Financing costs |
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(36 |
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Net cash provided by financing activities |
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36,149 |
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18,000 |
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Effect of exchange rate changes on cash and cash equivalents |
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107 |
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(56 |
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Net decrease in cash and cash equivalents |
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(8,107 |
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(32,223 |
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Cash and cash equivalents at beginning of period |
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13,789 |
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55,905 |
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Cash and cash equivalents at end of period |
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$ |
5,682 |
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$ |
23,682 |
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Supplemental information: |
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Cash paid for interest |
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$ |
673 |
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$ |
24,714 |
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Cash paid for income taxes |
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$ |
4,540 |
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$ |
2,966 |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
ASSOCIATED MATERIALS, LLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED APRIL 2, 2011
Note 1 Basis of Presentation
On October 13, 2010, AMH Holdings II, Inc. (AMH II), the then indirect parent company of
Associated Materials, LLC, completed its merger (the Acquisition Merger) with Carey Acquisition
Corp. (Merger Sub), pursuant to the terms of the Agreement and Plan of Merger, dated as of
September 8, 2010 (the Merger Agreement), among Carey Investment Holdings Corp. (now known as AMH
Investment Holdings Corp.) (Parent), Carey Intermediate Holdings Corp. (now known as AMH
Intermediate Holdings Corp.), a wholly-owned direct subsidiary of Parent (Holdings), Merger Sub,
a wholly-owned direct subsidiary of Holdings, and AMH II, with AMH II surviving such merger as a
wholly-owned direct subsidiary of Holdings. After a series of additional mergers (together with the
Acquisition Merger, the Merger), AMH II merged with and into Associated Materials, LLC, with
Associated Materials, LLC surviving such merger as a wholly-owned direct subsidiary of Holdings. As
a result of the Merger, Associated Materials, LLC (the Company) is now an indirect wholly-owned
subsidiary of Parent. Approximately 98% of the capital stock of Parent is owned by investment funds
affiliated with Hellman & Friedman LLC (H&F).
The financial statements for the period ended April 3, 2010 have been presented to reflect the
financial results of the Company and its former direct and indirect parent companies, Associated
Materials Holdings, LLC, AMH and AMH II (together, the Predecessor). The financial statements for
the period ended April 2, 2011 have been presented to reflect the financial results of the Company
subsequent to the Merger (the Successor). The Companys financial position, results of operations
and cash flows prior to the date of the Merger include the activity and results of its former
direct and indirect parent companies, which principally consisted of borrowings and related
interest expense, and are presented as the results of the Predecessor. The results of operations,
including the Merger and results thereafter, are presented as the results of the Successor.
The unaudited condensed consolidated financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles for interim financial reporting, the
instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, these interim condensed consolidated
financial statements contain all of the normal recurring accruals and adjustments considered
necessary for a fair presentation of the unaudited results for the quarters ended April 2, 2011 and
April 3, 2010. These financial statements should be read in conjunction with the Companys audited
financial statements and notes thereto included in its Annual Report on Form 10-K for the year
ended January 1, 2011. A detailed description of the Companys significant accounting policies and
management judgments is located in the audited financial statements for the year ended January 1,
2011, included in the Companys Form 10-K filed with the Securities and Exchange Commission.
The Company is a leading, vertically integrated manufacturer and distributor of exterior
residential building products in the United States and Canada. The Company produces a
comprehensive offering of exterior building products, including vinyl windows, vinyl siding,
aluminum trim coil and aluminum and steel siding and accessories, which are produced at the
Companys 11 manufacturing facilities. The Company also sells complementary products that are
manufactured by third parties, such as roofing materials, insulation, exterior doors, vinyl siding
in a shake and scallop design and installation equipment and tools. Because most of the Companys
building products are intended for exterior use, the Companys sales and operating profits tend to
be lower during periods of inclement weather. Therefore, the results of operations for any interim
period are not necessarily indicative of the results of operations for a full year.
Recent Accounting Pronouncements
Accounting Standards Update (ASU) No. 2010-29, Business Combinations (Topic 805)Disclosure
of Supplementary Pro Forma Information for Business Combinations, (ASU 2010-29) provides
clarification regarding the acquisition date that should be used for reporting the pro forma
financial information disclosures required by Topic 805 when comparative financial statements are
presented. ASU 2010-29 also requires entities to provide a description of the nature and amount of
material, nonrecurring pro forma adjustments that are directly attributable to the business
combination. ASU 2010-29 is effective for the Company prospectively for business combinations
occurring after December 31, 2010.
4
Note 2 Business Combination
Unaudited pro forma operating results of the Company giving effect to the Merger on January 3,
2010 is summarized as follows (in thousands):
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Quarter Ended |
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April 3, |
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2010 |
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Net sales |
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$ |
204,237 |
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Net loss |
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(22,035 |
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Note 3 Inventories
Inventories are valued at the lower of cost (first in, first out) or market. Inventories
consist of the following (in thousands):
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April 2, |
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January 1, |
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2011 |
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2011 |
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Raw materials |
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$ |
39,077 |
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$ |
39,729 |
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Work-in-progress |
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12,655 |
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10,746 |
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Finished goods and purchased products |
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123,516 |
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95,740 |
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$ |
175,248 |
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$ |
146,215 |
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Note 4 Goodwill and Other Intangible Assets
The Merger was accounted for using the acquisition method of accounting. The total purchase
price was allocated to the tangible and intangible assets acquired and liabilities assumed based
upon their estimated fair values. The excess of the cost of the Merger over the fair value of the
assets acquired and liabilities assumed resulted in goodwill. Total goodwill was approximately
$572.8 million and $566.4 million as of April 2, 2011 and January 1, 2011, respectively. The
Company did not recognize any impairment losses of its goodwill during any of the periods
presented. The impact of foreign currency translation increased the carrying value of goodwill by
$6.4 million for the quarter ended April 2, 2011. None of the Companys goodwill is deductible for
income tax purposes.
The Companys other intangible assets consist of the following (in thousands):
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April 2, 2011 |
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January 1, 2011 |
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Average |
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Average |
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Amortization |
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Net |
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Amortization |
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Net |
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Period |
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Accumulated |
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Carrying |
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Period |
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Accumulated |
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Carrying |
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(In Years) |
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Cost |
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Amortization |
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Value |
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(In Years) |
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Cost |
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Amortization |
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Value |
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Amortized customer
bases |
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13 |
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$ |
333,111 |
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$ |
12,087 |
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$ |
321,024 |
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13 |
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$ |
330,915 |
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$ |
5,453 |
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$ |
325,462 |
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Non-amortized
trade names |
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409,736 |
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409,736 |
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|
405,552 |
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405,552 |
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Total intangible assets |
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$ |
742,847 |
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$ |
12,087 |
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$ |
730,760 |
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$ |
736,467 |
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$ |
5,453 |
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$ |
731,014 |
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The Companys non-amortized intangible assets consist of the Alside®,
Revere® and Gentek® trade names and are tested for impairment at least
annually at the beginning of the fourth quarter.
Finite-lived intangible assets are amortized on a straight-line basis over their estimated
useful lives. Amortization expense related to intangible assets was approximately $6.6 million and
$0.7 million for the quarters ended April 2, 2011 and April 3, 2010, respectively. The foreign
currency translation impact on accumulated amortization of intangibles was less than $0.1 million
for the quarter ended April 2, 2011. Amortization expense is expected to be approximately $19.5
million for the remainder of fiscal 2011. Amortization expense is estimated to be $26.1 million
per year for fiscal years 2012, 2013, 2014 and 2015.
5
Note 5 Long-Term Debt
Long-term debt consists of the following (in thousands):
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April 2, |
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January 1, |
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2011 |
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2011 |
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9.125% notes |
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$ |
730,000 |
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$ |
730,000 |
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Borrowings under the ABL facilities |
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94,185 |
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58,000 |
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Total long-term debt |
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$ |
824,185 |
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$ |
788,000 |
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9.125% Senior Secured Notes due 2017
In October 2010, in connection with the consummation of the Merger, the Company and AMH New
Finance, Inc. (collectively, the Issuers) issued and sold $730.0 million of 9.125% Senior Secured
Notes due 2017 (the 9.125% notes). The notes bear interest at a rate of 9.125% per annum and are
unconditionally guaranteed, jointly and severally, by each of the Issuers direct and indirect
domestic subsidiaries that guarantees our obligations under the senior secured asset-based
revolving credit facilities (the ABL facilities). The first semi-annual interest payment was made
on April 29, 2011.
As the Company has not yet completed its offer to exchange all of its outstanding privately
placed 9.125% notes for newly registered 9.125% notes as of the date of this filing, the fair value
of the 9.125% notes at April 2, 2011 and January 1, 2011 was estimated to be $730.0 million based
upon the pricing determined in the private offering of the 9.125% notes at the time of issuance in
October 2010.
ABL Facilities
In October 2010, in connection with the consummation of the Merger, the Company entered into
the ABL facilities in the amount of $225.0 million (comprised of a $150.0 million U.S. facility and
a $75.0 million Canadian facility) pursuant to a revolving credit agreement maturing in 2015 (the
Revolving Credit Agreement). The revolving credit loans under the Revolving Credit Agreement bear
interest at the rate of (1) LIBOR (for eurodollar loans under the U.S. facility) or CDOR (for loans
under the Canadian facility), plus an applicable margin of 2.75% as of April 2, 2011, (2) the
alternate base rate (which is the highest of a prime rate, the Federal Funds Effective Rate plus
0.50% and a one-month LIBOR rate plus 1.0% per annum), plus an applicable margin of 1.75% as of
April 2, 2011, or (3) the alternate Canadian base rate (which is the higher of a Canadian prime
rate and the 30-day CDOR Rate plus 1.0%), plus an applicable margin of 1.75% as of April 2, 2011.
As of April 2, 2011, there was $94.2 million drawn under the Companys ABL facilities and
$36.5 million available for additional borrowings. As of April 2, 2011, the per annum interest
rate applicable to borrowings under the U.S. portion of the ABL facilities was 3.4%. As of April
2, 2011, the per annum interest rates applicable to borrowings under the Canadian portion of the
ABL facilities were in the range of 3.0% to 4.8%. The weighted average interest rate for borrowings
under the ABL facilities was 3.9% for the quarter ended April 2, 2011. As of April 2, 2011, the
Company had letters of credit outstanding of $7.3 million primarily securing deductibles of various
insurance policies.
Note 6 Comprehensive Loss
Comprehensive loss differs from net loss due to the reclassification of actuarial gains or
losses and prior service costs associated with the Companys pension and other postretirement plans
and foreign currency translation adjustments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Net loss |
|
$ |
(37,118 |
) |
|
|
$ |
(18,692 |
) |
Unrecognized prior service cost and net loss, net of tax |
|
|
|
|
|
|
|
242 |
|
Foreign currency translation adjustments |
|
|
12,965 |
|
|
|
|
2,864 |
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(24,153 |
) |
|
|
$ |
(15,586 |
) |
|
|
|
|
|
|
|
|
6
Note 7 Retirement Plans
The Companys Alside division sponsors a defined benefit pension plan which covers hourly
workers at its plant in West Salem, Ohio and a defined benefit retirement plan covering salaried
employees, which was frozen in 1998 and subsequently replaced with a defined contribution plan. The
Companys Gentek subsidiary sponsors a defined benefit pension plan for hourly union employees at
its Woodbridge, New Jersey plant (together with the Alside sponsored defined benefit plans, the
Domestic Plans) as well as a defined benefit pension plan covering Gentek Canadian salaried
employees and hourly union employees at the Lambeth, Ontario plant, a defined benefit pension plan
for the hourly union employees at its Burlington, Ontario plant and a defined benefit pension plan
for the hourly union employees at its Pointe Claire, Quebec plant (the Foreign Plans). Accrued
pension liabilities are included in accrued and other long-term liabilities in the accompanying
balance sheets. The actuarial valuation measurement date for the defined benefit pension plans is
December 31st. Components of defined benefit pension plan costs are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, 2011 |
|
|
|
April 3, 2010 |
|
|
|
Domestic |
|
|
Foreign |
|
|
|
Domestic |
|
|
Foreign |
|
|
|
Plans |
|
|
Plans |
|
|
|
Plans |
|
|
Plans |
|
|
|
Successor |
|
|
|
Predecessor |
|
Net periodic pension cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
186 |
|
|
$ |
648 |
|
|
|
$ |
155 |
|
|
$ |
604 |
|
Interest cost |
|
|
772 |
|
|
|
955 |
|
|
|
|
778 |
|
|
|
903 |
|
Expected return on assets |
|
|
(845 |
) |
|
|
(1,004 |
) |
|
|
|
(760 |
) |
|
|
(867 |
) |
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
11 |
|
Cumulative net loss |
|
|
|
|
|
|
|
|
|
|
|
303 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
113 |
|
|
$ |
599 |
|
|
|
$ |
483 |
|
|
$ |
699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2010, the President signed into law the Patient Protection and Affordable Care Act
(PPACA) and the Health Care and Education Reconciliation Act of 2010 (Reconciliation Act). The
PPACA and Reconciliation Act include provisions that will reduce the tax benefits available to
employers that receive Medicare Part D subsidies. During the first quarter of 2010, the Company
recognized a $0.1 million impact on its deferred tax asset as a result of the reduced deductibility
of the subsidy.
Although changes in market conditions, current pension law and uncertainties regarding
significant assumptions used in the actuarial valuations may have a material impact on future
required contributions to the Companys pension plans, the Company currently does not expect
funding requirements to have a material adverse impact on current or future liquidity.
The actuarial valuations require significant estimates and assumptions to be made by
management, primarily the funding interest rate, discount rate and expected long-term return on
plan assets. These assumptions are all susceptible to changes in market conditions. The funding
interest rate and discount rate are based on representative bond yield curves maintained and
monitored by independent third parties. In determining the expected long-term rate of return on
plan assets, the Company considers historical market and portfolio rates of return, asset
allocations and expectations of future rates of return.
Note 8 Business Segments
The Company is in the single business of manufacturing and distributing exterior residential
building products. The following table sets forth for the periods presented a summary of net sales
by principal product offering (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Vinyl windows |
|
$ |
71,709 |
|
|
|
$ |
76,337 |
|
Vinyl siding products |
|
|
37,160 |
|
|
|
|
39,356 |
|
Metal products |
|
|
36,369 |
|
|
|
|
36,375 |
|
Third-party manufactured products |
|
|
37,120 |
|
|
|
|
37,563 |
|
Other products and services |
|
|
14,378 |
|
|
|
|
14,606 |
|
|
|
|
|
|
|
|
|
|
|
$ |
196,736 |
|
|
|
$ |
204,237 |
|
|
|
|
|
|
|
|
|
7
Note 9 Product Warranty Costs and Service Returns
Consistent with industry practice, the Company provides to homeowners limited warranties on
certain products, primarily related to window and siding product categories. Warranties are of
varying lengths of time from the date of purchase up to and including lifetime. Warranties cover
product failures such as stress cracks and seal failures for windows and fading and peeling for
siding products, as well as manufacturing defects. The Company has various options for remedying
product warranty claims including repair, refinishing or replacement and directly incurs the cost
of these remedies. Warranties also become reduced under certain conditions of time and change in
ownership. Certain metal coating suppliers provide warranties on materials sold to the Company that
mitigate the costs incurred by the Company. Reserves for future warranty costs are provided based
on managements estimates of such future costs using historical trends of claims experience, sales
history of products to which such costs relate, and other factors. An independent actuary assists
the Company in determining reserve amounts related to significant product failures.
As a result of the Merger and the application of purchase accounting, the Company adjusted its
warranty reserves to represent an estimate of the fair value of the liability as of the closing
date of the Merger. The estimated fair value of the liability was based on an actuarial calculation
performed by an independent actuary which projected future remedy costs using historical data
trends of claims incurred, claims payments and sales history of products to which such costs
relate. The fair value of the expected future remedy costs related to products sold prior to the
Merger was based on the actuarially determined estimates of expected future remedy costs and other
factors and assumptions the Company believes market participants would use in valuing the warranty
reserves. These other factors and assumptions included inputs for claims administration costs,
confidence adjustments for uncertainty in the estimates of expected future remedy costs and a
discount factor to arrive at the estimated fair value of the liability at the date of the Merger.
The excess of the estimated fair value over the expected future remedy costs, which was included in
the Companys warranty reserve at the date of the Merger, is being amortized as a reduction of
warranty expense over the expected term such warranty claims will be satisfied. The provision for
warranties is reported within cost of sales in the consolidated statements of operations.
A reconciliation of the warranty reserve activity is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Balance at the beginning of the period |
|
$ |
94,712 |
|
|
|
$ |
33,016 |
|
Provision for warranties issued and changes in estimates for pre-existing warranties |
|
|
1,372 |
|
|
|
|
1,540 |
|
Claims paid |
|
|
(628 |
) |
|
|
|
(1,237 |
) |
Foreign currency translation |
|
|
477 |
|
|
|
|
263 |
|
|
|
|
|
|
|
|
|
Balance at the end of the period |
|
$ |
95,933 |
|
|
|
$ |
33,582 |
|
|
|
|
|
|
|
|
|
Note 10 Manufacturing Restructuring Costs
The following is a reconciliation of the manufacturing restructuring liability of the
warehouse facility adjacent to the Ennis manufacturing plant related to the discontinued use (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Beginning liability |
|
$ |
4,583 |
|
|
|
$ |
5,036 |
|
Accretion of related lease obligations |
|
|
138 |
|
|
|
|
91 |
|
Payments |
|
|
(423 |
) |
|
|
|
(397 |
) |
|
|
|
|
|
|
|
|
Ending liability |
|
$ |
4,298 |
|
|
|
$ |
4,730 |
|
|
|
|
|
|
|
|
|
Of the remaining restructuring liability at April 2, 2011, approximately $0.8 million is
expected to be paid during the remainder of 2011. Amounts related to the ongoing facility
obligations will continue to be paid over the lease term, which ends April 2020.
8
Note 11 Subsidiary Guarantors
The Companys payment obligations under its 9.125% notes are fully and unconditionally
guaranteed, jointly and severally, on a senior basis, by its domestic wholly owned subsidiaries,
Gentek Holdings, LLC and Gentek Building Products, Inc. AMH New Finance, Inc. (formerly Carey New
Finance, Inc.) is a co-issuer of the 9.125% notes and is a domestic wholly owned subsidiary of the
Company having no operations, revenues or cash flows for the periods presented.
Associated Materials Canada Limited, Gentek Canada Holdings Limited and Gentek Buildings
Products Limited Partnership are Canadian companies and do not guarantee the Companys 9.125%
notes. In the opinion of management, separate financial statements of the respective Subsidiary
Guarantors would not provide additional material information that would be useful in assessing the
financial composition of the Subsidiary Guarantors.
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
April 2, 2011 (Successor)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Company |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,040 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,642 |
|
|
$ |
|
|
|
$ |
5,682 |
|
Accounts receivable, net |
|
|
70,621 |
|
|
|
|
|
|
|
10,624 |
|
|
|
30,500 |
|
|
|
|
|
|
|
111,745 |
|
Intercompany receivables |
|
|
387,641 |
|
|
|
|
|
|
|
12,094 |
|
|
|
2,265 |
|
|
|
(402,000 |
) |
|
|
|
|
Inventories |
|
|
121,119 |
|
|
|
|
|
|
|
12,281 |
|
|
|
41,848 |
|
|
|
|
|
|
|
175,248 |
|
Income taxes receivable |
|
|
19,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,995 |
) |
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
1,634 |
|
|
|
|
|
|
|
(1,634 |
) |
|
|
|
|
Prepaid expenses |
|
|
6,414 |
|
|
|
|
|
|
|
1,095 |
|
|
|
1,863 |
|
|
|
|
|
|
|
9,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
609,830 |
|
|
|
|
|
|
|
37,728 |
|
|
|
78,118 |
|
|
|
(423,629 |
) |
|
|
302,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
83,916 |
|
|
|
|
|
|
|
3,739 |
|
|
|
48,054 |
|
|
|
|
|
|
|
135,709 |
|
Goodwill |
|
|
353,432 |
|
|
|
|
|
|
|
28,978 |
|
|
|
190,345 |
|
|
|
|
|
|
|
572,755 |
|
Other intangible assets, net |
|
|
490,870 |
|
|
|
|
|
|
|
50,894 |
|
|
|
188,996 |
|
|
|
|
|
|
|
730,760 |
|
Investment in subsidiaries |
|
|
17,002 |
|
|
|
|
|
|
|
(30,332 |
) |
|
|
|
|
|
|
13,330 |
|
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
730,000 |
|
|
|
|
|
|
|
|
|
|
|
(730,000 |
) |
|
|
|
|
Other assets |
|
|
25,768 |
|
|
|
|
|
|
|
10 |
|
|
|
3,246 |
|
|
|
|
|
|
|
29,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,580,818 |
|
|
$ |
730,000 |
|
|
$ |
91,017 |
|
|
$ |
508,759 |
|
|
$ |
(1,140,299 |
) |
|
$ |
1,770,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities And Members Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
65,509 |
|
|
$ |
|
|
|
$ |
11,166 |
|
|
$ |
25,204 |
|
|
$ |
|
|
|
$ |
101,879 |
|
Intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
402,000 |
|
|
|
(402,000 |
) |
|
|
|
|
Accrued liabilities |
|
|
63,212 |
|
|
|
|
|
|
|
4,925 |
|
|
|
7,892 |
|
|
|
|
|
|
|
76,029 |
|
Deferred taxes |
|
|
11,407 |
|
|
|
|
|
|
|
|
|
|
|
4,178 |
|
|
|
(1,634 |
) |
|
|
13,951 |
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
16,438 |
|
|
|
5,801 |
|
|
|
(19,995 |
) |
|
|
2,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
140,128 |
|
|
|
|
|
|
|
32,529 |
|
|
|
445,075 |
|
|
|
(423,629 |
) |
|
|
194,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
85,191 |
|
|
|
|
|
|
|
14,661 |
|
|
|
44,816 |
|
|
|
|
|
|
|
144,668 |
|
Other liabilities |
|
|
78,145 |
|
|
|
|
|
|
|
26,825 |
|
|
|
28,019 |
|
|
|
|
|
|
|
132,989 |
|
Long-term debt |
|
|
803,000 |
|
|
|
730,000 |
|
|
|
|
|
|
|
21,185 |
|
|
|
(730,000 |
) |
|
|
824,185 |
|
Members equity |
|
|
474,350 |
|
|
|
|
|
|
|
17,002 |
|
|
|
(30,332 |
) |
|
|
13,330 |
|
|
|
474,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
1,580,814 |
|
|
$ |
730,000 |
|
|
$ |
91,017 |
|
|
$ |
508,763 |
|
|
$ |
(1,140,299 |
) |
|
$ |
1,770,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Quarter Ended April 2, 2011 (Successor)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Company |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
144,212 |
|
|
$ |
|
|
|
$ |
34,168 |
|
|
$ |
51,065 |
|
|
$ |
(32,709 |
) |
|
$ |
196,736 |
|
Cost of sales |
|
|
115,133 |
|
|
|
|
|
|
|
33,335 |
|
|
|
40,898 |
|
|
|
(32,709 |
) |
|
|
156,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
29,079 |
|
|
|
|
|
|
|
833 |
|
|
|
10,167 |
|
|
|
|
|
|
|
40,079 |
|
Selling, general and
administrative expenses |
|
|
46,641 |
|
|
|
|
|
|
|
1,042 |
|
|
|
11,233 |
|
|
|
|
|
|
|
58,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(17,562 |
) |
|
|
|
|
|
|
(209 |
) |
|
|
(1,066 |
) |
|
|
|
|
|
|
(18,837 |
) |
Interest expense, net |
|
|
18,339 |
|
|
|
|
|
|
|
|
|
|
|
361 |
|
|
|
|
|
|
|
18,700 |
|
Foreign currency (gain) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(35,901 |
) |
|
|
|
|
|
|
(209 |
) |
|
|
(1,397 |
) |
|
|
|
|
|
|
(37,507 |
) |
Income taxes (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(389 |
) |
|
|
|
|
|
|
(389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity loss from
subsidiaries |
|
|
(35,901 |
) |
|
|
|
|
|
|
(209 |
) |
|
|
(1,008 |
) |
|
|
|
|
|
|
(37,118 |
) |
Equity loss from subsidiaries |
|
|
(1,217 |
) |
|
|
|
|
|
|
(1,008 |
) |
|
|
|
|
|
|
2,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(37,118 |
) |
|
$ |
|
|
|
$ |
(1,217 |
) |
|
$ |
(1,008 |
) |
|
$ |
2,225 |
|
|
$ |
(37,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended April 2, 2011 (Successor)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
|
|
|
|
Company |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash (used in) provided by operating activities |
|
$ |
(33,874 |
) |
|
$ |
|
|
|
$ |
2,851 |
|
|
$ |
(10,940 |
) |
|
$ |
(41,963 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,630 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
(757 |
) |
|
|
(2,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,630 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
(757 |
) |
|
|
(2,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under ABL facilities |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
21,185 |
|
|
|
36,185 |
|
Intercompany transactions |
|
|
18,669 |
|
|
|
|
|
|
|
(2,838 |
) |
|
|
(15,831 |
) |
|
|
|
|
Financing costs |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
33,633 |
|
|
|
|
|
|
|
(2,838 |
) |
|
|
5,354 |
|
|
|
36,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,871 |
) |
|
|
|
|
|
|
|
|
|
|
(6,236 |
) |
|
|
(8,107 |
) |
Cash and cash equivalents at beginning of period |
|
|
5,911 |
|
|
|
|
|
|
|
|
|
|
|
7,878 |
|
|
|
13,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,040 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,642 |
|
|
$ |
5,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
January 1, 2011 (Successor)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Company |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,911 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,878 |
|
|
$ |
|
|
|
$ |
13,789 |
|
Accounts receivable, net |
|
|
85,496 |
|
|
|
|
|
|
|
11,107 |
|
|
|
21,805 |
|
|
|
|
|
|
|
118,408 |
|
Intercompany receivables |
|
|
406,309 |
|
|
|
|
|
|
|
9,257 |
|
|
|
2,264 |
|
|
|
(417,830 |
) |
|
|
|
|
Inventories |
|
|
99,228 |
|
|
|
|
|
|
|
10,870 |
|
|
|
36,117 |
|
|
|
|
|
|
|
146,215 |
|
Income taxes receivable |
|
|
19,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,440 |
) |
|
|
3,291 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
1,629 |
|
|
|
|
|
|
|
(1,629 |
) |
|
|
|
|
Prepaid expenses |
|
|
6,622 |
|
|
|
|
|
|
|
1,174 |
|
|
|
1,199 |
|
|
|
|
|
|
|
8,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
623,297 |
|
|
|
|
|
|
|
34,037 |
|
|
|
69,263 |
|
|
|
(435,899 |
) |
|
|
290,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
86,636 |
|
|
|
|
|
|
|
4,014 |
|
|
|
47,212 |
|
|
|
|
|
|
|
137,862 |
|
Goodwill |
|
|
353,434 |
|
|
|
|
|
|
|
28,978 |
|
|
|
184,011 |
|
|
|
|
|
|
|
566,423 |
|
Other intangible assets, net |
|
|
495,850 |
|
|
|
|
|
|
|
51,006 |
|
|
|
184,158 |
|
|
|
|
|
|
|
731,014 |
|
Investment in subsidiaries |
|
|
5,256 |
|
|
|
|
|
|
|
(42,289 |
) |
|
|
|
|
|
|
37,033 |
|
|
|
|
|
Intercompany receivable |
|
|
|
|
|
|
788,000 |
|
|
|
|
|
|
|
|
|
|
|
(788,000 |
) |
|
|
|
|
Other assets |
|
|
26,662 |
|
|
|
|
|
|
|
(1 |
) |
|
|
3,246 |
|
|
|
|
|
|
|
29,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,591,135 |
|
|
$ |
788,000 |
|
|
$ |
75,745 |
|
|
$ |
487,890 |
|
|
$ |
(1,186,866 |
) |
|
$ |
1,755,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities And Members Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
66,087 |
|
|
$ |
|
|
|
$ |
5,761 |
|
|
$ |
18,342 |
|
|
$ |
|
|
|
$ |
90,190 |
|
Intercompany payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
417,830 |
|
|
|
(417,830 |
) |
|
|
|
|
Accrued liabilities |
|
|
63,116 |
|
|
|
|
|
|
|
7,057 |
|
|
|
9,146 |
|
|
|
|
|
|
|
79,319 |
|
Deferred income taxes |
|
|
11,454 |
|
|
|
|
|
|
|
|
|
|
|
10,164 |
|
|
|
(1,629 |
) |
|
|
19,989 |
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
16,440 |
|
|
|
2,506 |
|
|
|
(16,440 |
) |
|
|
2,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
140,657 |
|
|
|
|
|
|
|
29,258 |
|
|
|
457,988 |
|
|
|
(435,899 |
) |
|
|
192,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
85,191 |
|
|
|
|
|
|
|
14,661 |
|
|
|
44,816 |
|
|
|
|
|
|
|
144,668 |
|
Other liabilities |
|
|
78,810 |
|
|
|
|
|
|
|
26,570 |
|
|
|
27,375 |
|
|
|
|
|
|
|
132,755 |
|
Long-term debt |
|
|
788,000 |
|
|
|
788,000 |
|
|
|
|
|
|
|
|
|
|
|
(788,000 |
) |
|
|
788,000 |
|
Members equity |
|
|
498,477 |
|
|
|
|
|
|
|
5,256 |
|
|
|
(42,289 |
) |
|
|
37,033 |
|
|
|
498,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
1,591,135 |
|
|
$ |
788,000 |
|
|
$ |
75,745 |
|
|
$ |
487,890 |
|
|
$ |
(1,186,866 |
) |
|
$ |
1,755,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended April 3, 2010 (Predecessor)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Company |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
145,891 |
|
|
$ |
|
|
|
$ |
29,561 |
|
|
$ |
57,981 |
|
|
$ |
(29,196 |
) |
|
$ |
204,237 |
|
Cost of sales |
|
|
112,476 |
|
|
|
|
|
|
|
27,512 |
|
|
|
45,006 |
|
|
|
(29,196 |
) |
|
|
155,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
33,415 |
|
|
|
|
|
|
|
2,049 |
|
|
|
12,975 |
|
|
|
|
|
|
|
48,439 |
|
Selling, general and
administrative expenses |
|
|
37,405 |
|
|
|
|
|
|
|
808 |
|
|
|
9,268 |
|
|
|
|
|
|
|
47,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(3,990 |
) |
|
|
|
|
|
|
1,241 |
|
|
|
3,707 |
|
|
|
|
|
|
|
958 |
|
Interest expense, net |
|
|
18,445 |
|
|
|
|
|
|
|
2 |
|
|
|
247 |
|
|
|
|
|
|
|
18,694 |
|
Foreign currency (gain) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122 |
) |
|
|
|
|
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(22,435 |
) |
|
|
|
|
|
|
1,239 |
|
|
|
3,582 |
|
|
|
|
|
|
|
(17,614 |
) |
Income taxes (benefit) |
|
|
(936 |
) |
|
|
|
|
|
|
936 |
|
|
|
1,078 |
|
|
|
|
|
|
|
1,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before equity
income from subsidiaries |
|
|
(21,499 |
) |
|
|
|
|
|
|
303 |
|
|
|
2,504 |
|
|
|
|
|
|
|
(18,692 |
) |
Equity income from subsidiaries |
|
|
2,807 |
|
|
|
|
|
|
|
2,504 |
|
|
|
|
|
|
|
(5,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(18,692 |
) |
|
$ |
|
|
|
$ |
2,807 |
|
|
$ |
2,504 |
|
|
$ |
(5,311 |
) |
|
$ |
(18,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended April 3, 2010 (Predecessor)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
|
|
|
|
Company |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash used in operating activities |
|
$ |
(36,727 |
) |
|
$ |
|
|
|
$ |
(2,000 |
) |
|
$ |
(6,390 |
) |
|
$ |
(45,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(4,133 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
(907 |
) |
|
|
(5,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,133 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
(907 |
) |
|
|
(5,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under prior ABL Facility |
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
Dividends from non-guarantor subsidiary |
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
(20,000 |
) |
|
|
|
|
Intercompany transactions |
|
|
20,612 |
|
|
|
|
|
|
|
(17,996 |
) |
|
|
(2,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
38,612 |
|
|
|
|
|
|
|
2,004 |
|
|
|
(22,616 |
) |
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,248 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
(29,969 |
) |
|
|
(32,223 |
) |
Cash and cash equivalents at beginning of period |
|
|
5,917 |
|
|
|
|
|
|
|
82 |
|
|
|
49,906 |
|
|
|
55,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
3,669 |
|
|
$ |
|
|
|
$ |
76 |
|
|
$ |
19,937 |
|
|
$ |
23,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Overview
We are a leading, vertically integrated manufacturer and distributor of exterior residential
building products in the United States and Canada. Our core products are vinyl windows, vinyl
siding, aluminum trim coil and aluminum and steel siding and accessories. In addition, we
distribute third-party manufactured products primarily through our company-operated supply centers.
Vinyl windows, vinyl siding, metal products and third-party manufactured products comprised
approximately 36%, 19%, 18% and 19%, respectively, of our net sales for quarter ended April 2,
2011. These products are generally marketed under our brand names, such as Alside®, Revere® and
Gentek®, and are ultimately sold on a wholesale basis to approximately 50,000 professional exterior
contractors (who we refer to as our contractor customers) engaged in home remodeling and new home
construction, primarily through our extensive dual-distribution network, consisting of 120
company-operated supply centers, through which we sell directly to our contractor customers, and
our direct sales channel, through which we sell to approximately 250 independent distributors and
dealers, who then sell to their customers. We estimate that, for the quarter ended April 2, 2011,
approximately 70% of our net sales were generated in the residential repair and remodeling market
and approximately 30% of our net sales were generated in the residential new construction market.
Our supply centers provide one-stop shopping to our contractor customers by carrying the
products, accessories and tools necessary to complete their projects. In addition, our supply
centers augment the customer experience by offering product support and enhanced customer service
from the point of sale to installation and warranty service. During the quarter ended April 2,
2011, approximately 70% of our net sales were generated through our network of company-operated
supply centers.
Because our exterior residential building products are consumer durable goods, our sales are
impacted by, among other things, the availability of consumer credit, consumer interest rates,
employment trends, changes in levels of consumer confidence, weather, government incentives and
national and regional trends in the housing market. Our sales are also affected by changes in
consumer preferences with respect to types of building products. Overall, we believe the long-term
fundamentals for the building products industry remain strong, as homes continue to get older,
household formation is expected to be strong, demand for energy efficiency products continues and
vinyl remains an optimal material for exterior window and siding solutions, all of which we believe
bodes well for the demand for our products in the future. In the short term, however, the building
products industry continues to be negatively impacted by a weak housing market. Since 2006, sales
of existing single-family homes have decreased from peak levels previously experienced, the
inventory of existing homes available for sale has increased, and in many areas, home values have
declined significantly. In addition, the pace of new home construction has slowed dramatically, as
evidenced by declines in 2006 through 2010 in single-family housing starts and announcements from
home builders of significant decreases in their orders. Increased delinquencies on sub-prime and
other mortgages, increased foreclosure rates and tightening consumer credit markets over the same
time period have further hampered the housing market. Our sales volumes are dependent on the
strength in the housing market, including both residential remodeling and new residential
construction activity. Reduced levels of existing homes sales and housing price depreciation have
had a significant negative impact on our remodeling sales over the past few years. In addition, a
reduced number of new housing starts has had a negative impact on our new construction sales. As a
result of the prolonged housing market downturn, competition in the building products market may
intensify, which could result in lower sales volumes and reduced selling prices for our products
and lower gross margins. In the event that our expectations regarding the outlook for the housing
market result in a reduction in forecasted sales and operating income, and related growth rates, we
may be required to record an impairment of certain of our assets, including goodwill and intangible
assets. Moreover, a prolonged downturn in the housing market and the general economy may have other
consequences to our business, including accounts receivable write-offs due to financial distress of
customers and lower of cost or market reserves related to our inventories.
The principal raw materials used by us are vinyl resin, aluminum, steel, resin stabilizers and
pigments, glass, window hardware and packaging materials, all of which have historically been
subject to price changes. Raw material pricing on certain of our key commodities has fluctuated
significantly over the past several years. In response, we have announced price increases over the
past several years on certain of our product offerings to offset inflation in raw material pricing
and continually monitor market conditions for price changes as warranted. Our ability to maintain
gross margin levels on our products during periods of rising raw material costs depends on our
ability to obtain selling price increases. Furthermore, the results of operations for individual
quarters can and have been negatively impacted by a delay between the timing of raw material cost
increases and price increases on our products. There can be no assurance that we will be able to
maintain the selling price increases already implemented or achieve any future price increases.
Recently, due to industry-wide shortages of ethylene and other inputs to the vinyl resin
manufacturing process, our vinyl resin supplier has invoked a force majeure clause in its supply
contract with us, and it has informed us that it will need to reduce its supply commitments with
its customers. We use vinyl resin in manufacturing of our vinyl siding and windows. Our supplier
has indicated that it expects this shortage to continue for the next few months. Based on our
current inventory levels, and the expected reduction in vinyl resin from our supplier, we do not
believe that the reduced supply will have a significant impact on
our business. However,
should the level of supply further contract or continue beyond a few months, or should our
supply requirements increase above our current expectations, we may be forced to acquire vinyl
resin from other suppliers at higher prices, or we may unable to meet sales demand, which would
consequently have a negative impact on our results of operations.
13
We operate with significant operating and financial leverage. Significant portions of our
manufacturing, selling, general and administrative expenses are fixed costs that neither increase
nor decrease proportionately with sales. In addition, a significant portion of our interest expense
is fixed. There can be no assurance that we will be able to reduce our fixed costs in response to a
decline in our net sales. As a result, a decline in our net sales could result in a higher
percentage decline in our income from operations. Also, our gross margins and gross margin
percentages may not be comparable to other companies, as some companies include all of the costs of
their distribution network in cost of sales, whereas we include the operating costs of our supply
centers in selling, general and administrative expenses.
Because most of our building products are intended for exterior use, sales tend to be lower
during periods of inclement weather. Weather conditions in the first quarter of each calendar year
usually result in that quarter producing significantly less net sales and net cash flows from
operations than in any other period of the year. Consequently, we have historically had small
profits or losses in the first quarter and reduced profits from operations in the fourth quarter of
each calendar year. To meet seasonal cash flow needs during the periods of reduced sales and net
cash flows from operations, we have typically utilized our revolving credit facilities and repay
such borrowings in periods of higher cash flow. We typically generate the majority of our cash flow
in the third and fourth quarters.
We seek to distinguish ourselves from other suppliers of residential building products and to
sustain our profitability through a business strategy focused on increasing sales at existing
supply centers, selectively expanding our supply center network, increasing sales through
independent specialty distributor customers, developing innovative new products, expanding sales of
third-party manufactured products through our supply center network and driving operational
excellence by reducing costs and increasing customer service levels. We continually analyze new and
existing markets for the selection of new supply center locations.
On October 13, 2010, AMH Holdings II, Inc. (AMH II), the then indirect parent company of
Associated Materials, LLC, completed its merger (the Acquisition Merger) with Carey Acquisition
Corp. (Merger Sub), pursuant to the terms of the Agreement and Plan of Merger, dated as of
September 8, 2010 (the Merger Agreement), among Carey Investment Holdings Corp. (now known as AMH
Investment Holdings Corp.) (Parent), Carey Intermediate Holdings Corp. (now known as AMH
Intermediate Holdings Corp.), a wholly-owned direct subsidiary of Parent (Holdings), Merger Sub,
a wholly-owned direct subsidiary of Holdings, and AMH II, with AMH II surviving such merger as a
wholly-owned direct subsidiary of Holdings. After a series of additional mergers (together with the
Acquisition Merger, the Merger), AMH II merged with and into Associated Materials, LLC, with
Associated Materials, LLC surviving such merger as a wholly-owned direct subsidiary of Holdings. As
a result of the Merger, Associated Materials, LLC is now an indirect wholly-owned subsidiary of
Parent. Approximately 98% of the capital stock of Parent is owned by investment funds affiliated
with Hellman & Friedman LLC (H&F).
Results of Operations
Our results of operations, along with the results of our then existing direct and indirect
parent companies, Associated Materials Holdings, LLC, AMH and AMH II, prior to the date of the
Merger are presented as the results of the predecessor (the Predecessor). The results of
operations, including the Merger and results thereafter, are presented as the results of the
successor (the Successor).
The following table sets forth for the periods indicated our results of operations (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
196,736 |
|
|
|
$ |
204,237 |
|
Cost of sales |
|
|
156,657 |
|
|
|
|
155,798 |
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
40,079 |
|
|
|
|
48,439 |
|
Selling, general and administrative expenses |
|
|
58,916 |
|
|
|
|
47,481 |
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(18,837 |
) |
|
|
|
958 |
|
Interest expense, net |
|
|
18,700 |
|
|
|
|
18,694 |
|
Foreign currency (gain) |
|
|
(30 |
) |
|
|
|
(122 |
) |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(37,507 |
) |
|
|
|
(17,614 |
) |
Income taxes (benefit) provision |
|
|
(389 |
) |
|
|
|
1,078 |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(37,118 |
) |
|
|
$ |
(18,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
EBITDA (1) |
|
$ |
(6,150 |
) |
|
|
$ |
6,713 |
|
Adjusted EBITDA (1) |
|
|
(4,194 |
) |
|
|
|
8,789 |
|
14
|
|
|
(1) |
|
EBITDA is calculated as net income plus interest, taxes, depreciation and amortization.
Adjusted EBITDA is defined as EBITDA adjusted to reflect certain adjustments that are used in
calculating covenant compliance under our revolving credit agreement and the indenture
governing the 9.125% Senior Secured Notes due 2017 (the 9.125% notes). We consider EBITDA
and Adjusted EBITDA to be important indicators of our operational strength and performance of
our business. We have included Adjusted EBITDA because it is a key financial measure used by
our management to (i) assess our ability to service our debt or incur debt and meet our
capital expenditure requirements; (ii) internally measure our operating performance; and (iii)
determine our incentive compensation programs. In addition, our senior secured asset-based
revolving credit facilities (the ABL facilities) and the indenture governing the 9.125%
notes have certain covenants that apply ratios utilizing this measure of Adjusted EBITDA.
EBITDA and Adjusted EBITDA have not been prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Adjusted EBITDA as presented by us may not be comparable to
similarly titled measures reported by other companies. EBITDA and Adjusted EBITDA are not
measures determined in accordance with GAAP and should not be considered as an alternative to,
or more meaningful than, net income (as determined in accordance with GAAP) as a measure of
our operating results or net cash provided by operating activities (as determined in
accordance with GAAP) as a measure of our liquidity. |
|
|
|
Prior year Adjusted EBITDA amounts are presented to conform to the current years presentation
of the computation of Adjusted EBITDA, which is in conformity with the Adjusted EBITDA as
defined in our revolving credit agreement and the indenture governing the 9.125% notes. |
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Net loss |
|
$ |
(37,118 |
) |
|
|
$ |
(18,692 |
) |
Interest expense, net |
|
|
18,700 |
|
|
|
|
18,694 |
|
Income taxes (benefit) provision |
|
|
(389 |
) |
|
|
|
1,078 |
|
Depreciation and amortization |
|
|
12,657 |
|
|
|
|
5,633 |
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
(6,150 |
) |
|
|
|
6,713 |
|
Merger costs (a) |
|
|
489 |
|
|
|
|
|
|
Purchase accounting related adjustments (b) |
|
|
(976 |
) |
|
|
|
|
|
Management fees (c) |
|
|
|
|
|
|
|
220 |
|
Tax restructuring costs (d) |
|
|
|
|
|
|
|
88 |
|
Write-offs of assets other than by sale |
|
|
84 |
|
|
|
|
14 |
|
Bank fees (e) |
|
|
|
|
|
|
|
15 |
|
Stock compensation expense (f) |
|
|
27 |
|
|
|
|
|
|
Other normalizing and unusual items (g) |
|
|
2,362 |
|
|
|
|
1,258 |
|
Foreign currency (gain) (h) |
|
|
(30 |
) |
|
|
|
(122 |
) |
Pro forma cost savings (i) |
|
|
|
|
|
|
|
603 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
(4,194 |
) |
|
|
$ |
8,789 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents professional fees incurred in connection with the Merger. |
|
(b) |
|
Represents the elimination of the impact of adjustments related to purchase accounting
recorded as a result of the Merger, which include the following: $0.7 million of reduced
pension expense as a result of purchase accounting adjustments and amortization related to
net liabilities recorded in purchase accounting for the fair value of certain of our leased
facilities and warranty liabilities of $0.1 million and $0.2 million, respectively. |
|
(c) |
|
Represents annual management fees paid to Harvest Partners, L.P. (one of our sponsors prior
to the Merger). |
|
(d) |
|
Represents legal and accounting fees incurred in connection with tax restructuring
projects. |
|
(e) |
|
Represents bank audit fees incurred under our prior ABL Facility and our ABL facilities. |
|
(f) |
|
Represents stock compensation related to restricted share units issued to certain board
members. |
15
|
|
|
(g) |
|
Represents the following (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Professional fees (i) |
|
$ |
1,805 |
|
|
|
$ |
880 |
|
Accretion on lease liability (ii) |
|
|
138 |
|
|
|
|
91 |
|
Excess severance costs (iii) |
|
|
198 |
|
|
|
|
287 |
|
Excess legal expense (iv) |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,362 |
|
|
|
$ |
1,258 |
|
|
|
|
|
|
|
|
|
|
(i) |
|
Represents managements estimate of unusual or non-recurring
consulting fees primarily associated with cost savings initiatives. |
|
|
(ii) |
|
Represents accretion on the liability recorded at present value
for future lease costs in connection with our warehouse facility adjacent to the
Ennis manufacturing, which we discontinued using during 2009. |
|
|
(iii) |
|
Represents managements estimates for excess severance expense
primarily due to unusual changes within senior management. |
|
|
(iv) |
|
Represents managements estimate of excess legal expense incurred
in connection with the defense of certain warranty related claims. |
|
|
|
(h) |
|
Represents currency transaction/translation (gains)/losses, including on currency exchange
hedging agreements. |
|
(i) |
|
For the quarter ended April 3, 2010, the amounts represent managements estimates of cost
savings that could have resulted from producing glass in-house at our Cuyahoga Falls, Ohio
window facility had such production started on January 4, 2009 of $0.5 million and cost
savings that could have resulted from entering into our leveraged procurement program with an
outside consulting firm had such program been entered into on January 4, 2009 of $0.1
million. |
The following table sets forth for the periods presented a summary of net sales by principal
product offering (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Vinyl windows |
|
$ |
71,709 |
|
|
|
$ |
76,337 |
|
Vinyl siding products |
|
|
37,160 |
|
|
|
|
39,356 |
|
Metal products |
|
|
36,369 |
|
|
|
|
36,375 |
|
Third-party manufactured products |
|
|
37,120 |
|
|
|
|
37,563 |
|
Other products and services |
|
|
14,378 |
|
|
|
|
14,606 |
|
|
|
|
|
|
|
|
|
|
|
$ |
196,736 |
|
|
|
$ |
204,237 |
|
|
|
|
|
|
|
|
|
Quarter Ended April 2, 2011 Compared to Quarter Ended April 3, 2010
Net sales decreased 3.7% to $196.7 million for the first quarter of 2011 compared to $204.2
million for the same period in 2010. The decrease in sales is primarily due to vinyl siding and
vinyl window unit volume decreases of 10% and 5%, respectively, partially offset by the impact of
the stronger Canadian dollar in 2011.
Gross profit in the first quarter of 2011 was $40.1 million, or 20.4% of net sales, compared
to gross profit of $48.4 million, or 23.7% of net sales, for the same period in 2010. The decrease
in gross margin was primarily the result of lower volumes, an increase in the cost of certain
commodities used in manufacturing processes, increased freight costs and a negative impact from
product mix, partially offset by our continued implementation of cost reduction initiatives.
16
Selling, general and administrative expenses were approximately $58.9 million, or 29.9% of net
sales, for the first quarter of 2010 versus $47.5 million, or 23.2% of net sales, for the same
period in 2010. Selling, general and administrative expenses for
the quarter ended April 2, 2011 included professional fees associated with the Merger and cost
savings initiatives of approximately $2.3 million, employee termination costs and excess severance
of approximately $0.2 million, excess legal expenses incurred in connection with the defense of
certain warranty related claims of approximately $0.2 million and reduced pension expense as a
result of purchase accounting adjustments of approximately $0.5 million, while selling, general and
administrative expenses for the quarter ended April 3, 2010 included professional fees associated
with cost savings initiatives of approximately $0.9 million, employee termination costs and excess
severance of approximately $0.3 million and management fees of approximately $0.2 million.
Excluding these costs, selling, general and administrative expenses for the quarter ended April 2,
2011 increased approximately $10.6 million when compared to the same period in 2010. The increase
in selling, general and administrative expenses was primarily due to increased depreciation of
fixed assets and amortization of intangible assets of approximately $6.4 million as a result of the
revaluation of certain assets as part of the application of the purchase accounting fair value
adjustments in 2010, increased salaries and wages of approximately $1.8 million as a result of
increased headcount and the translation impact on Canadian expenses as a result of a stronger
Canadian dollar in 2011 of approximately $0.6 million.
Loss from operations was approximately $18.8 million for the quarter ended April 2, 2011
compared to income from operations of approximately $1.0 million for the same period in 2010.
Interest expense recorded for the quarter ended April 2, 2011 of approximately $18.7 million
remained consistent with the same period in 2010. Interest expense for the quarter ended April 2,
2011 relates to interest on the 9.125% notes and borrowings under our ABL facilities, while
interest expense for the same period in 2010 relates to interest on the then outstanding 9.875%
notes, 11.25% notes, 20% notes and borrowings under the prior ABL Facility.
The income tax provision for the first quarter of 2011 reflects an effective income tax rate
of 1.0%, compared to an effective income tax rate of (6.1)% for the same period in 2010. The change
in the tax rate was primarily the result of foreign losses in the first quarter of 2011 compared to
foreign income in the same period in 2010. No tax benefit was taken for U.S. losses in either
period.
Net loss for the quarter ended April 2, 2011 was $37.1 million compared to a net loss of $18.7
million for the same period in 2010.
Recent Accounting Pronouncements
On January 1, 2011, we adopted Accounting Standards Update (ASU) 2010-29, Disclosure of
Supplementary Pro Forma Information for Business Combinations, (ASU 2010-29), which is codified
in ASC Topic 805, Business Combinations. This pronouncement provides guidance on pro forma revenue
and earnings disclosure requirements for business combinations. Adoption of ASU 2010-29 did not
have a material effect on our consolidated financial statements.
Liquidity and Capital Resources
The following sets forth a summary of our cash flows for the quarters ended April 2, 2011 and
April 3, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
April 2, |
|
|
|
April 3, |
|
|
|
2011 |
|
|
|
2010 |
|
|
|
Successor |
|
|
|
Predecessor |
|
Net cash used in operating activities |
|
$ |
(41,963 |
) |
|
|
$ |
(45,117 |
) |
Net cash used in investing activities |
|
|
(2,400 |
) |
|
|
|
(5,050 |
) |
Net cash provided by financing activities |
|
|
36,149 |
|
|
|
|
18,000 |
|
Cash Flows
At April 2, 2011, we had cash and cash equivalents of $5.7 million and available borrowing
capacity of approximately $36.5 million under our ABL facilities. Outstanding letters of credit as
of April 2, 2011 totaled approximately $7.3 million primarily securing deductibles of various
insurance policies.
17
Cash Flows from Operating Activities
Net cash used in operating activities was $42.0 million for the three months ended April 2,
2011, compared to $45.1 million for the same period in 2010. The factors typically impacting cash
flows from operating activities during the first three months of the year include the seasonal
increase of inventory levels and use of cash related to payments for accrued liabilities including
payments of incentive compensation and customer sales incentives. Accounts receivable was a source
of cash of $6.5 million for the three months ended April 2, 2011, compared to a use of cash of $9.5
million for the same period in 2010, resulting in a net increase in cash flows of $16.0 million
reflecting the decreased sales in the current year. Inventory was a use of cash of $27.7 million
during the three months ended April 2, 2011, compared to $22.2 million during the same period in
2010, resulting in a net decrease in cash flows of $5.6 million, which was primarily due to
increased inventory levels and rising costs of certain raw materials in the current year. Accounts
payable and accrued liabilities were a source of cash of $7.7 million for the three months ended
April 2, 2011, compared to a use of cash of $0.7 million for the same period in 2010, resulting in
a net increase in cash flows of $8.4 million. Cash flows provided by operating activities for the
three months ended April 2, 2011 includes income tax payments of $4.5 million, compared to $3.0
million of income tax payments for the same period in 2010.
Cash Flows from Investing Activities
During the three months ended April 2, 2011, net cash used in investing activities consisted
of capital expenditures of $2.4 million. Capital expenditures in 2011 were primarily at supply
centers for continued operations, relocations, opening preparations and various enhancements at our
manufacturing facilities. During the three months ended April 3, 2010, net cash used in investing
activities consisted of capital expenditures of $5.1 million. Capital expenditures in 2010 were
primarily at supply centers for continued operations and relocations, the continued development of
our glass insourcing process and various enhancements at plant locations.
Cash Flows from Financing Activities
Net cash provided by financing activities for the three months ended April 2, 2011 included
net borrowings under our ABL facilities of $36.2 million, partially offset by payments of financing
costs of less than $0.1 million. Net cash provided by financing activities for the three months
ended April 3, 2010 included net borrowings under our prior ABL Facility of $18.0 million.
Description of Our Indebtedness
9.125% Senior Secured Notes due 2017
In October 2010, in connection with the consummation of the Merger, Associated Materials, LLC
and AMH New Finance, Inc. (collectively, the Issuers) issued and sold $730.0 million of the
9.125% notes. The notes bear interest at a rate of 9.125% per annum and are unconditionally
guaranteed, jointly and severally, by each of the Issuers direct and indirect domestic
subsidiaries that guarantees our obligations under the ABL facilities. The first semi-annual
interest payment was made on April 29, 2011.
As we have not yet completed our offer to exchange all of our outstanding privately placed
9.125% notes for newly registered 9.125% notes as of the date of this filing, the fair value of the
9.125% notes at April 2, 2011 and January 1, 2011 was estimated to be $730.0 million based upon the
pricing determined in the private offering of the 9.125% notes at the time of issuance in October
2010.
ABL Facilities
In October 2010, in connection with the consummation of the Merger, Associated Materials, LLC
entered into the ABL facilities in the amount of $225.0 million (comprised of a $150.0 million U.S.
facility and a $75.0 million Canadian facility) pursuant to a revolving credit agreement maturing
in 2015 (the Revolving Credit Agreement). The revolving credit loans under the Revolving Credit
Agreement bear interest at the rate of (1) LIBOR (for eurodollar loans under the U.S. facility) or
CDOR (for loans under the Canadian facility), plus an applicable margin of 2.75% as of April 2,
2011, (2) the alternate base rate (which is the highest of a prime rate, the Federal Funds
Effective Rate plus 0.50% and a one-month LIBOR rate plus 1.0% per annum), plus an applicable
margin of 1.75% as of April 2, 2011, or (3) the alternate Canadian base rate (which is the higher
of a Canadian prime rate and the 30-day CDOR Rate plus 1.0%), plus an applicable margin of 1.75% as
of April 2, 2011.
As of April 2, 2011, there was $94.2 million drawn under our ABL facilities and $36.5 million
available for additional borrowings. As of April 2, 2011, the per annum interest rate applicable
to borrowings under the U.S. portion of the ABL facilities was 3.4%. As of April 2, 2011, the per
annum interest rates applicable to borrowings under the Canadian portion of the ABL facilities were
in the range of 3.0% to 4.8%. The weighted average interest rate for borrowings under the ABL
facilities was 3.9% for the quarter ended April 2, 2011. As of April 2, 2011, we had letters of
credit outstanding of $7.3 million primarily securing deductibles of various insurance policies.
18
Covenant Compliance
There are no financial maintenance covenants included in the Revolving Credit Agreement and
the indenture governing the 9.125% notes (Indenture), other than (A) a Consolidated EBITDA (as
defined below) to consolidated fixed charges ratio (the fixed charge coverage ratio) of at least
1.00 to 1.00 under the Revolving Credit Agreement, which is triggered when excess availability is
less than, for a period of five consecutive business days, the greater of $20.0 million and 12.5%
of the sum of (i) the lesser of (x) the aggregate commitments under the U.S. facility at such time
and (y) the then applicable U.S. borrowing base and (ii) the lesser of (x) the aggregate
commitments under the Canadian facility at such time and (y) the then applicable Canadian borrowing
base, and which applies until the 30th consecutive day that excess availability exceeds such
threshold, and (B) as otherwise described below.
In addition to the covenant described above, certain incurrences of debt and investments
require compliance with financial covenants under the Revolving Credit Agreement and the Indenture.
The breach of any of these covenants could result in a default under the Revolving Credit Agreement
and the Indenture, and the lenders or note holders, as applicable, could elect to declare all
amounts borrowed due and payable.
EBITDA is calculated by reference to net income plus interest and amortization of other
financing costs, provision for income taxes, depreciation and amortization. Consolidated EBITDA, as
defined in the Revolving Credit Agreement and the Indenture, is calculated by adjusting EBITDA to
reflect adjustments permitted in calculating covenant compliance under these agreements.
Consolidated EBITDA will be referred to as Adjusted EBITDA herein. We believe that the inclusion of
supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to
provide additional information to investors to demonstrate our ability to comply with our financial
covenant.
Potential Implications of Current Trends and Conditions in the Building Products Industry on our
Liquidity and Capital Resources
We believe our cash flows from operations and our borrowing capacity under the ABL facilities
will be sufficient to satisfy our obligations to pay principal and interest on our outstanding
debt, maintain current operations and provide sufficient capital for the foreseeable future.
However, as discussed under Overview above, the building products industry continues to be
negatively impacted by a weak housing market, with a number of factors contributing to lower
current demand for our products, including reduced numbers of existing home sales and new housing
starts and depreciation in housing prices. If these trends continue, our ability to generate cash
sufficient to meet our existing indebtedness obligations could be adversely affected, and we could
be required either to find alternate sources of liquidity or to refinance our existing indebtedness
in order to avoid defaulting on our debt obligations.
Our ability to generate sufficient funds to service our debt obligations will be dependent in
large part on the impact of building products industry conditions on our business, profitability
and cash flows and on our ability to refinance our indebtedness. There can be no assurance that we
would be able to obtain any necessary consents or waivers in the event we are unable to service or
were to otherwise default under our debt obligations, or that we would be able to successfully
refinance our indebtedness. The ability to refinance any indebtedness may be made more difficult to
the extent that current building products industry and credit market conditions continue to
persist. Any inability we experience in servicing or refinancing our indebtedness would likely have
a material adverse effect on us.
Effects of Inflation
The principal raw materials used by us are vinyl resin, aluminum, steel, resin stabilizers and
pigments, glass, window hardware, and packaging materials, all of which have historically been
subject to price changes. Raw material pricing on our key commodities has increased significantly
over the past three years. In response, we announced price increases over the past several years on
certain of our product offerings to offset the inflation of raw materials, and continually monitor
market conditions for price changes as warranted. Our ability to maintain gross margin levels on
our products during periods of rising raw material costs depends on our ability to obtain selling
price increases. Furthermore, the results of operations for individual
quarters can and have been negatively impacted by a delay between the timing of raw material
cost increases and price increases on our products. There can be no assurance that we will be able
to maintain the selling price increases already implemented or achieve any future price increases.
At April 2, 2011, we had no raw material hedge contracts in place.
19
Certain Forward-Looking Statements
All statements (other than statements of historical facts) included in this report regarding
the prospects of the industry and our prospects, plans, financial position and business strategy
may constitute forward-looking statements. In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as may, should, expect, intend,
estimate, anticipate, believe, predict, potential or continue or the negatives of these
terms or variations of them or similar terminology. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, it does not assure that these
expectations will prove to be correct. Such statements reflect the current views of our management
with respect to our operations, results of operations and future financial performance. The
following factors are among those that may cause actual results to differ materially from the
forward-looking statements:
|
|
|
our operations and results of operations; |
|
|
|
declines in remodeling and home building industries, economic conditions and changes in
interest rates, foreign currency exchange rates and other conditions; |
|
|
|
deteriorations in availability of consumer credit, employment trends, levels of consumer
confidence and spending and consumer preferences; |
|
|
|
changes in raw material costs and availability of raw materials and finished goods; |
|
|
|
the unavailability, reduction or elimination of government and economic home buying and
remodeling incentives; |
|
|
|
our ability to continuously improve organizational productivity and global supply chain
efficiency and flexibility; |
|
|
|
market acceptance of price increases; |
|
|
|
declines in national and regional trends in home remodeling and new housing starts; |
|
|
|
increases in competition from other manufacturers of vinyl and metal exterior residential
building products as well as alternative building products; |
|
|
|
changes in weather conditions; |
|
|
|
consolidation of our customers; |
|
|
|
our ability to attract and retain qualified personnel; |
|
|
|
our ability to comply with certain financial covenants in the indenture governing the
9.125% notes and our ABL facilities; |
|
|
|
declines in market demand; |
|
|
|
our substantial level of indebtedness; |
|
|
|
increases in our indebtedness; |
|
|
|
increases in costs of environmental compliance or environmental liabilities; |
|
|
|
increases in warranty or product liability claims; |
|
|
|
increases in capital expenditure requirements; and |
|
|
|
the other factors discussed under Item 1A. Risk Factors as filed in our Annual Report
on Form 10-K for the year ended January 1, 2011 and elsewhere in this report. |
All forward-looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements included in this report. These
forward-looking statements speak only as of the date of this report. We do not intend to update or
revise these forward-looking statements, whether as a result of new information, future events or
otherwise, unless the securities laws require us to do so.
20
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
We have outstanding borrowings under our ABL facilities and may incur additional borrowings
from time to time for general corporate purposes, including working capital and capital
expenditures. The interest rate applicable to outstanding loans under the ABL facilities is, at our
option, equal to either a United States or Canadian adjusted base rate plus an applicable margin
ranging from 1.50% to 2.00%, or LIBOR plus an applicable margin ranging from 2.50% to 3.00%, with
the applicable margin in each case depending on our quarterly average excess availability (as
defined). At April 2, 2011, we had borrowings outstanding of $94.2 million under the ABL
facilities. The effect of a 1.00% increase or decrease in interest rates would increase or decrease
total annual interest expense by approximately $0.9 million.
We have $730.0 million aggregate principal at maturity in 2017 of senior secured notes that
bear a fixed interest rate of 9.125%. The fair value of our 9.125% notes is sensitive to changes in
interest rates. In addition, the fair value is affected by our overall credit rating, which could
be impacted by changes in our future operating results. As our offer to exchange all of our
outstanding privately placed 9.125% notes for newly registered 9.125% notes has not been completed
as of the date of this filing, the fair value of our 9.125% notes at April 2, 2011 was estimated to
be $730.0 million based upon the pricing determined in the private offering of the 9.125% notes at
the time of issuance in October 2010.
Foreign Currency Exchange Risk
Our revenues are primarily from domestic customers and are realized in U.S. dollars. However,
we realize revenues from sales made through Genteks Canadian distribution centers in Canadian
dollars. Our Canadian manufacturing facilities acquire raw materials and supplies from U.S.
vendors, which results in foreign currency transactional gains and losses upon settlement of the
obligations. Payment terms among Canadian manufacturing facilities and these vendors are short-term
in nature. We may, from time to time, enter into foreign exchange forward contracts with maturities
of less than three months to reduce our exposure to fluctuations in the Canadian dollar.
At April 2, 2011, we were a party to foreign exchange forward contracts for Canadian dollars,
the value of which was immaterial. A 10% strengthening or weakening from the levels experienced
during the first quarter of 2011 of the U.S. dollar relative to the Canadian dollar would have
resulted in an approximately $0.1 million decrease or increase, respectively, in net income for the
quarter ended April 2, 2011.
Commodity Price Risk
See Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations Effects of Inflation for a discussion of the market risk related to our principal
raw materials vinyl resin, aluminum and steel.
|
|
|
Item 4. |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
During the fiscal period covered by this report, our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the Exchange
Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the fiscal period covered by this report, the disclosure controls
and procedures were effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange Commissions rules and forms and
that such information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures.
21
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting during the quarter
ended April 2, 2011 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
We are involved from time to time in litigation arising in the ordinary course of our business,
none of which, after giving effect to our existing insurance coverage, is expected to have a
material adverse effect on our financial position, results of operations or liquidity. From time to
time, we are also involved in proceedings and potential proceedings relating to environmental and
product liability matters.
There have been no material changes from the risk factors we previously disclosed in our Annual
Report on Form 10-K for the year ended January 1, 2011 filed with the Securities and Exchange
Commission on April 1, 2011.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
None.
|
|
|
Item 4. |
|
(Removed and Reserved) |
|
|
|
Item 5. |
|
Other Information |
None.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
31.1 |
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14
of the Exchange Act, as adopted, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14
of the Exchange Act, as adopted, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.1 |
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
32.2 |
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002* |
|
|
|
* |
|
This document is being furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K and
SEC Release Nos. 33-8238 and 34-47986. |
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
ASSOCIATED MATERIALS, LLC |
|
|
|
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
Date: May 16, 2011
|
|
By:
|
|
/s/ Thomas N. Chieffe
Thomas N. Chieffe
|
|
|
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
Date: May 16, 2011
|
|
By:
|
|
/s/ Stephen E. Graham
Stephen E. Graham
|
|
|
|
|
|
|
Vice President Chief Financial Officer and Secretary |
|
|
|
|
|
|
(Principal Financial Officer and |
|
|
|
|
|
|
Principal Accounting Officer) |
|
|
23