-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MvpiiEBUMqDhL2OfeVsLkizDvCSOsez16YsN3cr4HYjITYviuQAr0CqWHb6cdmfp iSogPh3dZahNexvc72x/yA== 0000950152-03-007539.txt : 20030812 0000950152-03-007539.hdr.sgml : 20030812 20030812103722 ACCESSION NUMBER: 0000950152-03-007539 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030628 FILED AS OF DATE: 20030812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASSOCIATED MATERIALS INC CENTRAL INDEX KEY: 0000802967 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 751872487 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24956 FILM NUMBER: 03836244 BUSINESS ADDRESS: STREET 1: 2200 ROSS AVE STE 4100 E CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2142204600 MAIL ADDRESS: STREET 1: 2200 ROSS AVENUE STREET 2: SUITE 4100 EAST CITY: DALLAS STATE: TX ZIP: 75201 10-Q 1 l01945ae10vq.txt ASSOCIATED MATERIALS INCORPORATED | FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - - ACT OF 1934 For the quarterly period ended June 28, 2003 ------------------------------------------- or __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ------------------- Commission file number: 000-24956 ASSOCIATED MATERIALS INCORPORATED - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 75-1872487 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation of Organization) Identification No.) 3773 State Rd. Cuyahoga Falls, Ohio 44223 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (330) 929 -1811 ----------------------------- Not Applicable - -------------------------------------------------------------------------------- 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 X No ----- ----- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X ------ ----- As of August 8, 2003, the Registrant had 100 shares of Common Stock outstanding, all of which is held by an affiliate of the Registrant. ASSOCIATED MATERIALS INCORPORATED REPORT FOR THE QUARTER AND SIX MONTHS ENDED JUNE 28, 2003 Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets..................................................... 1 June 28, 2003 (Unaudited) and December 31, 2002 - Successor Statements of Operations (Unaudited)............................... 2 Quarter ended June 28, 2003 - Successor Seventy-three days ended June 30, 2002 - Successor Eighteen days ended April 18, 2002 - Predecessor Six months ended June 28, 2003 - Successor Seventy-three days ended June 30, 2002 - Successor One hundred eight days ended April 18, 2002 - Predecessor Statements of Cash Flows (Unaudited)............................... 3 Six months ended June 28, 2003 - Successor Seventy-three days ended June 30, 2002 - Successor One hundred eight days ended April 18, 2002 - Predecessor Notes to Financial Statements (Unaudited)............................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 16 Item 4. Controls and Procedures........................................ 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 17 Item 6. Exhibits and Reports on Form 8-K............................... 17 SIGNATURES............................................................. 18 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ASSOCIATED MATERIALS INCORPORATED BALANCE SHEETS (In thousands)
(Unaudited) June 28, December 31, 2003 2002 ----------- ------------ Successor --------------------------- ASSETS Current assets: Cash and cash equivalents ...................... $ 2,016 $ 13,022 Accounts receivable, net ....................... 87,079 67,861 Inventory ...................................... 70,779 60,369 Income taxes receivable ........................ 1,034 4,675 Deferred income taxes .......................... 3,653 3,653 Other current assets ........................... 4,882 4,604 -------- -------- Total current assets ......................... 169,443 154,184 Property, plant and equipment, net ................ 100,563 99,113 Goodwill .......................................... 197,461 197,461 Trademarks and trade names, net ................... 96,712 97,504 Patents, net ...................................... 5,854 6,186 Other assets ...................................... 10,635 11,089 -------- -------- Total assets ............................. $580,668 $565,537 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ............................... $ 42,650 $ 31,319 Accrued liabilities ............................ 33,502 34,319 -------- -------- Total current liabilities .................... 76,152 65,638 Deferred income taxes ............................. 58,976 58,976 Other liabilities ................................. 20,987 20,746 Long-term debt .................................... 241,500 242,408 Stockholder's equity .............................. 183,053 177,769 -------- -------- Total liabilities and stockholder's equity $580,668 $565,537 ======== ========
See accompanying notes. -1- ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
Seventy- Eighteen Seventy- One Hundred Three Months Three Days Days Six Months Three Eight Days Ended Ended Ended Ended Days Ended Ended June 28, June 30, April 18, June 28, June 30, April 18, 2003 2002 2002 2003 2002 2002 ----------- ---------- ----------- ---------- ---------- ----------- Successor Successor Predecessor Successor Successor Predecessor ----------- ---------- ----------- ---------- ---------- ----------- Net sales ................................. $180,363 $ 113,960 $ 57,032 $291,307 $ 113,960 $ 180,230 Cost of sales ............................. 123,563 79,291 39,573 206,339 79,291 130,351 -------- --------- -------- -------- --------- --------- Gross profit .............................. 56,800 34,669 17,459 84,968 34,669 49,879 Selling, general and administrative expense 33,704 21,667 12,053 65,014 21,667 43,272 -------- --------- -------- -------- --------- --------- Income from operations .................... 23,096 13,002 5,406 19,954 13,002 6,607 Interest expense, net ..................... 5,483 4,981 399 10,921 4,981 2,068 Merger transaction costs .................. -- -- 7,317 -- -- 9,319 Debt extinguishment costs ................. -- 7,579 -- -- 7,579 -- -------- --------- -------- -------- --------- --------- Income (loss) from continuing operations before income taxes .................... 17,613 442 (2,310) 9,033 442 (4,780) Income taxes .............................. 7,309 183 1,928 3,749 183 977 -------- --------- -------- -------- --------- --------- Income (loss) from continuing operations .. 10,304 259 (4,238) 5,284 259 (5,757) Loss from discontinued operations ......... -- (521) -- -- (521) -- -------- --------- -------- -------- --------- --------- Net income (loss) ......................... $ 10,304 $ (262) $ (4,238) $ 5,284 $ (262) $ (5,757) ======== ========= ======== ======== ========= =========
See accompanying notes. -2- ASSOCIATED MATERIALS INCORPORATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Seventy- One Hundred Six Months Three Days Eight Days Ended Ended Ended June 28, June 30, April 18, 2003 2002 2002 --------- ---------- ------------ Successor Successor Predecessor --------- ---------- ------------ OPERATING ACTIVITIES Income (loss) from continuing operations .................... $ 5,284 $ 259 $ (5,757) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization .......................... 5,512 1,397 3,969 Tax benefit from stock option exercise ................. -- -- 113 Cost of sales expense related to an inventory fair value purchase accounting adjustment ....................... -- 1,891 -- Debt extinguishment costs .............................. -- 7,579 -- Amortization of deferred financing costs ............... 689 309 -- Changes in operating assets and liabilities: Accounts receivable, net ............................. (19,218) (12,958) (6,246) Inventories .......................................... (10,410) (3,225) (5,170) Income taxes ......................................... 3,641 (187) (616) Accounts payable and accrued liabilities ............. 10,514 18,761 (4,326) Other ................................................ (269) (204) (225) -------- --------- -------- Net cash provided by (used in) operating activities ......... (4,257) 13,622 (18,258) INVESTING ACTIVITIES Acquisition of Predecessor's equity ......................... -- (377,796) -- Proceeds from sale of AmerCable ............................. -- 28,332 -- Proceeds from sale of assets ................................ -- -- 220 Additions to property, plant and equipment .................. (5,841) (3,260) (3,817) -------- --------- -------- Net cash used in investing activities ....................... (5,841) (352,724) (3,597) FINANCING ACTIVITIES Equity contribution from Associated Materials Holdings Inc. . -- 164,807 -- Proceeds from issuance of 9 3/4% Senior Subordinated Notes .. -- 165,000 -- Proceeds from borrowings under term loan .................... -- 125,000 -- Repayments of term loan ..................................... -- (28,500) -- Redemption of 9 1/4% senior subordinated notes .............. (908) (74,092) -- Debt extinguishment costs ................................... -- (7,579) -- Dividends paid .............................................. -- -- (339) Stock options ............................................... -- -- 94 -------- --------- -------- Net cash provided by (used in) financing activities ......... (908) 344,636 (245) -------- --------- -------- Net increase (decrease) in cash from continuing operations .. (11,006) 5,534 (22,100) Net cash used in discontinued operations .................... -- (1,076) -- Cash at beginning of period ................................. 13,022 6,769 28,869 -------- --------- -------- Cash at end of period ....................................... $ 2,016 $ 11,227 $ 6,769 ======== ========= ======== Supplemental information: Cash paid for interest ...................................... $ 9,240 $ 1,756 $ 4,479 ======== ========= ======== Cash paid for income taxes .................................. $ 108 $ 252 $ 2,254 ======== ========= ========
See accompanying notes. -3- ASSOCIATED MATERIALS INCORPORATED NOTES TO FINANCIAL STATEMENTS FOR THE QUARTER AND SIX MONTHS ENDED JUNE 28, 2003 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The unaudited financial statements of Associated Materials Incorporated (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements. These financial statements should be read in conjunction with the Company's financial statements and notes thereto included in its annual report on form 10-K for the year ended December 31, 2002. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The Company elected to change its fiscal year from a calendar year ending on December 31st to a 52 / 53 week fiscal year that ends on the Saturday closest to December 31st. The second quarter of fiscal 2003 began on March 30, 2003 and ended on June 28, 2003. The Company's 2003 fiscal year end will be January 3, 2004. The Company's results of operations prior to the date of the merger transaction (see Note 2) are presented as the results of the Predecessor. The results of operations, including the merger transaction and results thereafter, are presented as the results of the Successor. In addition, the Company completed the sale of its AmerCable division on June 24, 2002. AmerCable's results through April 18, 2002 are included in the results of continuing operations of the Predecessor. Subsequent to April 18, 2002, AmerCable's results are presented as discontinued operations of the Successor as it was the Successor's decision to divest this division. The Company is a manufacturer of exterior residential building products, which are distributed through 91 company-owned Supply Centers across the United States. The Company produces a broad range of vinyl siding and vinyl window product lines as well as vinyl fencing, vinyl decking and vinyl garage doors. Because most of the Company's building products are intended for exterior use, the Company's 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. The Company's net income (loss) and comprehensive income (loss) are the same for all periods presented. NOTE 2 - PRO FORMA INFORMATION On April 19, 2002, a cash tender offer for the Company's then outstanding common stock for $50 per share and a cash tender offer for approximately $74.0 million of the Company's then outstanding 9 1/4% notes were completed. As a result, the Company became a privately held, wholly-owned subsidiary of Associated Materials Holdings Inc. ("Holdings"), which is controlled by affiliates of Harvest Partners, Inc. The merger was accounted for using the purchase method of accounting. The total consideration of $379.5 million (including amounts paid after June 30, 2002) was allocated to tangible and intangible assets acquired and liabilities assumed based on fair values at the date of the acquisition based on valuation estimates and certain assumptions. The purchase consideration of $379.5 million, tender offer of the $74.0 million of 9 1/4% notes and debt extinguishment costs of $7.6 million were financed through: (1) the issuance of $165 million of 9 3/4% senior subordinated notes due 2012 ("9 3/4% notes"), (2) $125 million from a new $165 million credit facility ("credit facility"), (3) $164.8 million cash contribution from Holdings and (4) cash of approximately $6.3 million, representing a portion of the Company's total cash of $6.8 million on hand at the time of the acquisition. On June 24, 2002, the Company completed the sale of its AmerCable division to AmerCable Incorporated, a newly formed entity controlled by Wingate Partners III, L.P. and members of AmerCable's management for net proceeds of approximately $28.3 million and the assumption of certain liabilities pursuant to an asset purchase agreement. The Company used the net proceeds to repay a portion of its credit facility. -4- The following pro forma information for the quarter and six months ended June 30, 2002 was prepared as if the merger transaction and the sale of AmerCable occurred as of the beginning of each period presented. On a pro forma basis, the Company would have had (in thousands): Quarter Six Months Ended Ended June 30, June 30, 2002 2002 -------- ---------- Net sales ....... $164,857 $275,919 Net income ...... $ 2,511 $ (95) The pro forma information is not necessarily indicative of the results that would have occurred had the merger transaction and sale of AmerCable occurred at the beginning of the periods presented, nor is it necessarily indicative of future results. The pro forma results of operations for both periods presented include a $1.9 million expense related to an inventory fair value adjustment recorded at the time of the merger transaction. NOTE 3 - INVENTORIES Inventories are valued at the lower of cost (first in, first out) or market. Inventories consisted of the following (in thousands): June 28, December 31, 2003 2002 --------- ------------ Raw materials.............................. $ 13,322 $ 13,545 Work-in-process............................ 6,036 3,928 Finished goods and purchased stock......... 51,421 42,896 --------- --------- $ 70,779 $ 60,369 ========= ========= NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill of $197.5 million consists of the purchase price for the merger transaction in excess of the fair value of the tangible and intangible net assets acquired. Other intangible assets consist of the Company's trademarks and trade name of $98.7 million and patents of approximately $6.8 million. The Company has determined one trademark and the Alside trade name totaling $74.7 million have indefinite useful lives. The remaining $24.0 million of trademarks are being amortized on a straight-line basis over their estimated remaining useful lives of 15 years. Patents are being amortized on a straight-line basis over their estimated remaining useful lives of 10 years. Amortization expense related to trademarks and patents was approximately $0.4 million and $0.2 million, respectively for the quarter ended June 28, 2003. Amortization expense related to patents was approximately $0.2 million for the 73 days ended June 30, 2002. Amortization expense related to trademarks and patents was approximately $0.8 million and $0.3 million, respectively for the six months ended June 28, 2003. Accumulated amortization related to trademarks and patents was approximately $2.0 million and $0.9 million, respectively as of June 28, 2003 and approximately $1.2 million and $0.6 million, respectively as of December 31, 2002. NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following (in thousands): June 28, December 31, 2003 2002 -------- ------------ 9 3/4% notes.............................. $165,000 $ 165,000 Term loan under credit facility........... 76,500 76,500 9 1/4% notes.............................. -- 908 -------- ---------- $241,500 $ 242,408 ======== ========== The Company's $165 million of 9 3/4% notes due in 2012 pay interest semi-annually in April and October. The Company's credit facility includes term loans due through 2009 that bear interest at the London Interbank -5- Offered Rate (LIBOR) plus 3.50%, payable quarterly at the end of each calendar quarter, and up to $40 million of available borrowings provided by revolving loans, which expire in 2007. The credit facility and the indenture governing the 9 3/4% notes contain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, invest in capital expenditures, sell its assets or declare dividends. In addition, under the credit facility the Company is required to achieve certain financial ratios relating to leverage, coverage of fixed charges and coverage of interest expense. The Company was in compliance with its covenants as of June 28, 2003. On an annual basis, the Company is required to make principal payments on the term loan under its credit facility based on a percentage of excess cash flows as defined in the credit facility. The payments on the term loan in 2002 were sufficient such that no additional principal payments were required in 2003 under the excess cash flow provision. The Company records as a current liability those principal payments that are estimated to be due within 12 months under the excess cash flow provision of the credit facility when the likelihood of those payments becomes probable. The Company has one subsidiary, which is a wholly owned subsidiary having no assets, liabilities or operations. This subsidiary fully and unconditionally guarantees the Company's 9 3/4% notes. NOTE 6 - STOCK PLANS The Company measures stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 - "Accounting for Stock Issued to Employees." The Company follows the disclosure provisions required under Financial Accounting Standard Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123 - "Accounting for Stock Based Compensation." Pro forma information regarding net income is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options under the fair value method of that statement using a minimum value approach for companies with private equity. FASB SFAS No. 148 - "Accounting for Stock-Based Compensation" requires this information to be disclosed on a quarterly basis. The pro forma effect on net loss for the quarter and six months ended June 28, 2003, seventy-three days ended June 30, 2002 and eighteen and 108 days ended April 18, 2002 would have been (in thousands):
Seventy- Eighteen Six Seventy- One Hundred Quarter Three Days Days Months Three Days Eight Days Ended Ended Ended Ended Ended Ended June 28, June 30, April 18, June 28, June 30, April 18, 2003 2002 2002 2003 2002 2002 -------- --------- ----------- --------- --------- ----------- Successor Successor Predecessor Successor Successor Predecessor -------- --------- ----------- --------- --------- ----------- Net income (loss) as reported ..... $ 10,304 $(262) $(4,238) $ 5,284 $(262) $(5,757) Pro forma stock based employee..... compensation cost, net of tax... (33) (172) (7) (65) (172) (65) -------- ----- ------- ------- ----- ------- Pro forma net income (loss) ....... $ 10,271 $(434) $(4,245) $ 5,219 $(434) $(5,822) ======== ===== ======= ======= ===== =======
NOTE 7 - INCOME TAXES As a result of relocating the Company's corporate office from Texas to Ohio in April 2002, the Successor's state and local income tax rate increased, raising the Company's total effective tax rate to 41.5% from 38.5%. In addition, the Predecessor's tax provision included an estimate for merger transaction costs that were not deductible for income tax purposes. NOTE 8 - RECENTLY ADOPTED ACCOUNTING STANDARDS On January 1, 2003, the Company adopted the provisions of FASB Statement of Financial Accounting Standards No. 145,- "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 require that any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods be reclassified and no longer be presented as an extraordinary item. As a result of adopting this standard, the Company reclassified debt extinguishment costs recorded in the second quarter of 2002. The debt extinguishment costs include $4.9 million for the premium paid to extinguish substantially all of the Successor's assumed 9 1/4% notes and $2.7 million for the financing fees related to an interim credit facility utilized for the merger transaction, which was repaid shortly thereafter. -6- In January 2003, the FASB issued FASB Interpretation No. 46, ("FIN 46") - - "Consolidation of Variable Interest Entities." Companies were required to adopt the provisions of this interpretation immediately for all new variable interest entities and in the interim period beginning after June 15, 2003 for all variable interest entities in which an enterprise acquired an interest in that entity before February 1, 2003. As the Company does not have an interest in any variable interest entities, the adoption of this interpretation did not have a material effect on the Company's financial position, results of operations or cash flows. NOTE 9 - SUBSEQUENT EVENT On July 31, 2003, the Company announced that it has signed a definitive agreement to acquire all of the issued and outstanding shares of capital stock of Gentek Holdings, Inc. ("Gentek Holdings") and to repay all of the indebtedness of Gentek Holdings and its subsidiaries for an aggregate purchase price of approximately $118 million in cash, which includes an estimated working capital adjustment of approximately $13 million. The purchase price is subject to certain other adjustments as well as customary transaction fees. Gentek Holdings, which is privately held, is the parent of Gentek Building Products, Inc. and Gentek Building Products Limited (collectively, "Gentek"). Gentek manufacturers and distributes vinyl siding and accessories, aluminum and steel siding and accessories and vinyl windows under the Revere(R) and Gentek(R) brand names. Gentek markets its products to professional contractors on a wholesale basis through thirteen company owned distribution centers in the mid-Atlantic region of the United States, twenty company owned distribution centers in Canada and independent distributors in the United States. The proposed acquisition is expected to close by the end of August 2003 and is subject to customary conditions including receipt of regulatory approvals and the Company's receipt of financing. In connection with the acquisition, the Company expects to amend its existing credit facility by adding a term loan facility to borrow up to an approximate additional $113.5 million and expanding its revolving facility from $40 million to $70 million, including a new Canadian subfacility of $15 million. The Company expects the amended credit facility to be arranged on an uncommitted basis on substantially the same terms as the existing credit facility. The Company's 9 3/4% notes will continue to remain outstanding. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS On July 31, 2003, the Company announced that it has signed a definitive agreement to acquire all of the issued and outstanding shares of capital stock of Gentek Holdings, Inc. ("Gentek Holdings") and to repay all of the indebtedness of Gentek Holdings and its subsidiaries for an aggregate purchase price of approximately $118 million in cash, which includes an estimated working capital adjustment of approximately $13 million. The purchase price is subject to certain other adjustments as well as customary transaction fees. Gentek Holdings, which is privately held, is the parent of Gentek Building Products, Inc. and Gentek Building Products Limited (collectively, "Gentek"). Gentek manufacturers and distributes vinyl siding and accessories, aluminum and steel siding and accessories and vinyl windows under the Revere(R) and Gentek(R) brand names. Gentek markets its products to professional contractors on a wholesale basis through thirteen company owned distribution centers in the mid-Atlantic region of the United States, twenty company owned distribution centers in Canada and independent distributors in the United States. The proposed acquisition is expected to close by the end of August 2003 and is subject to customary conditions including receipt of regulatory approvals and the Company's receipt of financing. In connection with the acquisition, the Company expects to amend its existing credit facility by adding a term loan facility to borrow up to an approximate additional $113.5 million and expanding its revolving facility from $40 million to $70 million, including a new Canadian subfacility of $15 million. The Company expects the amended credit facility to be arranged on an uncommitted basis on substantially the same terms as the existing credit facility. The Company's 9 3/4% notes will continue to remain outstanding. There can be no assurance that the acquisition will be consummated on the terms contemplated or at all. RESULTS OF OPERATIONS On April 19, 2002, a cash tender offer for the Company's then outstanding common stock for $50 per share and a cash tender offer for approximately $74.0 million of the Company's then outstanding 9 1/4% notes were completed. As a result, the Company became a privately held, wholly owned subsidiary of Associated Materials Holdings Inc., which is controlled by affiliates of Harvest Partners, Inc. The Company's results of operations prior to the date of the merger transaction are presented as the results of the Predecessor. The results of operations, including the merger transaction and results thereafter, are presented as the results of the Successor. In addition, the Company completed the sale of its AmerCable division on June 24, 2002. AmerCable's results through April 18, 2002 are included in the continuing operations of the Predecessor. Subsequent to April 18, 2002, AmerCable's results are presented as discontinued operations of the Successor as it was the Successor's decision to divest the division. The Company has changed the way it describes its historical financial performance in connection with the adoption by the SEC of rules affecting the use and disclosure of non-GAAP financial measures. Accordingly, EBITDA as used in this report has not been adjusted for items that may impact its comparability to prior periods, including items such as AmerCable's results of operations, merger transaction costs, debt extinguishment costs and a cost of sales expense relating to an inventory fair value adjustment recorded at the time of the merger. A reconciliation of EBITDA to net income (loss) is included in the table below. The following table sets forth for the periods indicated the results of the Company's operations by segment: -8- ASSOCIATED MATERIALS INCORPORATED CONDENSED PREDECESSOR / SUCCESSOR STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
One Hundred Seventy- Eight Seventy- Three Three Three Six Days Three Six Months Eighteen Days Months Months Ended Days Months Ended Days Ended Ended Ended Ended April Ended Ended June 28, April 18, June 30, June 30, June 28, 18, June 30, June 30, 2003 2002 2002 2002 2003 2002 2002 2002 --------- ----------- --------- -------- --------- ----------- --------- --------- SUCCESSOR PREDECESSOR SUCCESSOR COMBINED SUCCESSOR PREDECESSOR SUCCESSOR COMBINED --------- ----------- --------- -------- --------- ----------- --------- --------- Net sales Alside................................. $180,363 $50,897 $113,960 $164,857 $291,307 $161,959 $113,960 $275,919 AmerCable.............................. - 6,135 - 6,135 - 18,271 - 18,271 -------- ------- -------- -------- -------- -------- -------- -------- Total.............................. 180,363 57,032 113,960 170,992 291,307 180,230 113,960 294,190 Gross profit Alside................................. 56,800 16,411 34,669 51,080 84,968 47,102 34,669 81,771 AmerCable.............................. - 1,048 - 1,048 - 2,777 - 2,777 -------- ------- -------- -------- -------- -------- -------- -------- Total.............................. 56,800 17,459 34,669 52,128 84,968 49,879 34,669 84,548 Selling, general and administrative expense Alside................................. 33,704 11,508 21,667 33,175 65,014 41,080 21,667 62,747 AmerCable.............................. - 545 - 545 - 2,192 - 2,192 -------- ------- -------- -------- -------- -------- -------- -------- Total.............................. 33,704 12,053 21,667 33,720 65,014 43,272 21,667 64,939 Income from operations Alside................................. 23,096 4,903 13,002 17,905 19,954 6,022 13,002 19,024 AmerCable.............................. - 503 - 503 - 585 - 585 -------- ------- -------- -------- -------- -------- -------- -------- Total.............................. 23,096 5,406 13,002 18,408 19,954 6,607 13,002 19,609 Interest, net............................... 5,483 399 4,981 5,380 10,921 2,068 4,981 7,049 -------- ------- -------- -------- -------- -------- -------- -------- Income from continuing operations before other non-operating expenses and income taxes....................................... 17,613 5,007 8,021 13,028 9,033 4,539 8,021 12,560 Merger transaction costs (a)................ - 7,317 - 7,317 - 9,319 - 9,319 Debt extinguishment costs (b)............... - - 7,579 7,579 - - 7,579 7,579 -------- ------- -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes......................... 17,613 (2,310) 442 (1,868) 9,033 (4,780) 442 (4,338) Income taxes................................ 7,309 1,928 183 2,111 3,749 977 183 1,160 -------- ------- -------- -------- -------- -------- -------- -------- Net income (loss) from continuing operations 10,304 (4,238) 259 (3,979) 5,284 (5,757) 259 (5,498) Loss from discontinued operations .......... - - (521) (521) - - (521) (521) -------- ------- -------- -------- -------- -------- -------- -------- Net income (loss)........................... $10,304 $(4,238) $ (262) $ (4,500) $ 5,284 $ (5,757) $ (262) $ (6,019) ======== ======= ======== ======== ======== ======== ======== ======== Reconciliation of net income (loss) to - -------------------------------------- EBITDA (c) (d): - --------------- Net income (loss) .......................... 10,304 $(4,238) $ (262) $ (4,500) $ 5,284 $ (5,757) $ (262) $ (6,019) Interest - Continuing operations............ 5,483 399 4,981 5,380 10,921 2,068 4,981 7,049 - Discontinued operations (e)...... - - 1,213 1,213 - - 1,213 1,213 Taxes - Continuing operations............ 7,309 1,928 183 2,111 3,749 977 183 1,160 - Discontinued operations.......... - - (370) (370) - - (370) (370) Depreciation and Amortization - Continuing operations............ 2,795 990 1,397 2,387 5,512 3,969 1,397 5,366 - Discontinued operations.......... - - 318 318 - - 318 318 -------- ------- -------- -------- -------- -------- -------- -------- EBITDA ..................................... $ 25,891 $ (921) $ 7,460 $ 6,539 $ 25,466 $ 1,257 $ 7,460 $ 8,717 ======== ======= ======== ======== ======== ======== ======== ========
(a) Merger transaction costs include investment banking and legal fees incurred by the Predecessor in conjunction with the strategic review process and subsequent merger transaction with Harvest Partners. (b) Debt extinguishment costs include $4.9 million for the extinguishment of substantially all of the Successor's assumed 9 1/4% senior subordinated notes and $2.7 million for the expense of financing fees related to an interim credit facility utilized for the merger, which was repaid shortly thereafter. (c) EBITDA is calculated as net income (loss) plus interest, taxes, depreciation and amortization. The Company considers EBITDA to be an important indicator of its operational strength and performance of its business. The Company has included EBITDA because it believes it is used by certain investors as one measure of a company's ability to service its debt. EBITDA should be considered in addition to, not as a substitute for the Company's net income or loss or to cash flows as well as other measures of financial performance in accordance with accounting principles generally accepted in the United States. EBITDA has not been prepared in accordance with accounting principles generally accepted in the United States. Therefore, EBITDA as presented by the Company, may not be comparable to similarly titled measures reported by other companies. -9- (d) AmerCable's EBITDA is calculated as its net income (loss) plus interest, taxes, depreciation and amortization. For the 2002 periods presented above, AmerCable's EBITDA is calculated as follows:
One Eighteen Seventy- Three Hundred Seventy- Days Three Days Months Eight Days Three Days Six Months Ended Ended Ended Ended Ended Ended April 18, June 30, June 30, April 18, June 30, June 30, 2002 2002 2002 2002 2002 2002 ----------- ---------- --------- ----------- ---------- ---------- PREDECESSOR SUCCESSOR COMBINED PREDECESSOR SUCCESSOR COMBINED ----------- ---------- --------- ----------- ---------- ---------- Reconciliation of net income (loss) to EBITDA: - ---------------------------------------------- Net income (loss) ............................. $ 309 $ (521) $ (212) $ 359 $ (521) $ (162) Interest - Discontinued operations (e)......... - 1,213 1,213 - 1,213 1,213 Taxes - Continuing operations............... 194 - 194 226 - 226 - Discontinued operations............. - (370) (370) - (370) (370) Depreciation and Amortization - Continuing operations............... 158 - 158 635 - 635 - Discontinued operations............. - 318 318 - 318 318 ----- ------ ------ ------ ------ ------ EBITDA ........................................ $ 661 $ 640 $1,301 $1,220 $ 640 $1,860 ===== ====== ====== ====== ====== ======
(e) Includes accelerated amortization of $0.8 million of debt issuance costs as a result of using the proceeds from the sale of AmerCable to permanently reduce the credit facility. -10- Quarter Ended June 28, 2003 Compared to Quarter Ended June 30, 2002 - ------------------------------------------------------------------- Subsequent to the merger transaction and sale of AmerCable, Alside represents the ongoing operations of the Company. Net sales were $180.4 million for the quarter ended June 28, 2003, a 9.4% increase over $164.9 million for the same period in 2002. The increase in sales was primarily driven by an increase in window sales, partially offset by a decrease in vinyl siding sales. The Company believes vinyl siding sales will be flat for the third and fourth quarters of 2003 compared to the same periods in 2002. Gross profit for the quarter ended June 28, 2003 was $56.8 million, or 31.5% of net sales, compared to $51.1 million, or 31.0% of net sales, for the same period in 2002. Included in the gross profit margin for the quarter ended June 30, 2002 was a cost of sales expense of $1.9 million relating to an inventory fair value adjustment recorded at the time of the merger. Excluding this adjustment, gross profit margin percentage decreased primarily as a result of window sales comprising a larger proportion of total sales in 2003 compared to the same period in 2002. Selling, general and administrative expense increased to $33.7 million, or 18.7% of net sales, for the quarter ended June 28, 2003 compared to $33.2 million, or 20.1% of net sales, for the same period in 2002. The increase in selling, general and administrative expense is primarily a result of three new supply centers added in 2003 along with seven new supply centers added in 2002, which had three full months of expense in 2003. Income from operations was $23.1 million for the quarter ended June 28, 2003 compared to $17.9 million for the same period in 2002. EBITDA for the quarter ended June 28, 2003 was $25.9 million compared to $6.5 million for the same period in 2002. EBITDA for the quarter ended June 30, 2002 includes $1.3 million of EBITDA relating to the AmerCable division, merger transaction costs of $7.3 million, debt extinguishment costs of $7.6 million and a cost of sales expense of $1.9 million relating to an inventory fair value adjustment recorded at the time of the merger. Successor and Predecessor Results The Successor had net sales and net income of $180.4 million and $10.3 million, respectively, for the quarter ended June 28, 2003. Interest expense during this period was $5.5 million and consisted primarily of interest on the 9 3/4% notes, term loan and revolving loans under the credit facility and amortization of deferred financing costs. As a result of relocating the Company's corporate office from Texas to Ohio, the Successor's state and local income tax rate increased, raising the Company's total effective tax rate to 41.5% from 38.5%. The Successor recorded an income tax provision of $7.3 million, representing the 41.5% effective tax rate. The Successor had net sales and a net loss of $114.0 million and $0.3 million, respectively, for the period from April 19, 2002 to June 30, 2002. Interest expense during this period was $5.0 million and consisted primarily of interest on the 9 3/4% notes, term loan and revolving loans under the credit facility, an interim credit facility temporarily utilized for the merger transaction and amortization of deferred financing costs. The Successor recorded an income tax provision of $0.2 million, representing the 41.5% effective tax rate. The Successor's results include debt extinguishment costs of $7.6 million, including $4.9 million for the premium paid to extinguish $74.0 million of the Successor's assumed 9 1/4% notes and $2.7 million for financing fees related to an interim credit facility utilized for the merger transaction, which was repaid shortly thereafter and loss from discontinued operations of $0.5 million, net of tax, for the Company's AmerCable division. The Predecessor had net sales and a net loss of $57.0 million and $4.2 million for the period from April 1, 2002 to April 18, 2002. Interest expense was $0.4 million and consisted primarily of interest on the Company's 9 1/4% notes for the time period from April 1, 2002 to April 18, 2002. The Predecessor's results include $7.3 million of transaction costs consisting of investment banking and legal fees associated with the merger transaction. The Predecessor recorded an income tax provision of $1.9 million. In addition to recording income taxes at an effective rate of 38.5%, the Predecessor's tax provision for 2002 included an estimate for merger transaction costs that were not deductible for income tax purposes. -11- Six Months Ended June 28, 2003 Compared to Six Months Ended June 30, 2002 - ------------------------------------------------------------------------- Net sales were $291.3 million for the six months ended June 28, 2003, a 5.6% increase over $275.9 million for the same period in 2002. The increase in sales was primarily driven by an increase in window sales, partially offset by a decrease in vinyl siding sales. Gross profit increased to $85.0 million, or 29.2% of net sales, for the six months ended June 28, 2003 compared to $81.8 million, or 29.6% of net sales, for the same period in 2002. The decrease in gross profit margin percentage was primarily a result of window sales comprising a larger proportion of total sales in 2003 compared to the same period in 2002. SG&A expense increased to $65.0 million, or 22.3% of net sales, for the six months ended June 28, 2003 versus $62.7 million, or 22.7% of net sales, for the same period in 2002. SG&A expense increased for the year-to-date period as a result of the three new supply centers added in 2003 along with the seven new supply centers added in 2002, which had six full months of expense in 2003. Income from operations was $20.0 million for the six months ended June 28, 2003 compared to $19.0 million for the same period in 2002. EBITDA for the six months ended June 28, 2003 was $25.5 million compared to $8.7 million for the same period in 2002. EBITDA for the six months ended June 30, 2002 includes $1.9 million of EBITDA relating to the AmerCable division, merger transaction costs of $9.3 million, debt extinguishment costs of $7.6 million and a cost of sales expense of $1.9 million relating to an inventory fair value adjustment recorded at the time of the merger. Successor and Predecessor Results The Successor had net sales and net income of $291.3 million and $5.3 million, respectively, for the six months ended June 28, 2003. Interest expense during this period was $10.9 million and consisted primarily of interest on the 9 3/4% notes, term loan and revolving loans under the credit facility and amortization of deferred financing costs. The Successor recorded an income tax provision of $3.7 million, representing the 41.5% effective tax rate. The Successor's results of operations for the period from April 19, 2002 to June 30, 2002 are discussed above in the quarter comparison of results. The Predecessor had net sales and a net loss of $180.2 million and $5.8 million for the period from January 1, 2002 to April 18, 2002. Interest expense was $2.1 million and consisted primarily of interest on the Company's 9 1/4% notes for the time period from January 1, 2002 to April 18, 2002. The Predecessor's results include $9.3 million of transaction costs consisting of investment banking and legal fees associated with the merger transaction. The Predecessor recorded an income tax provision of $1.0 million, representing the 38.5% effective rate and an estimate for merger transaction costs that were not deductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES At June 28, 2003, the Company had cash and cash equivalents of $2.0 million and available borrowing capacity of approximately $36.6 million under the revolving portion of its credit facility. Outstanding letters of credit against the credit facility as of June 28, 2003, totaled $3.4 million securing various insurance letters of credit. The Company had additional letters of credit that were issued outside of the credit facility as of June 28, 2003 totaling $1.4 million also securing various insurance letters of credit. Net cash used in operations was $4.3 million for the six months ended June 28, 2003 primarily reflecting the operating results for the period, the seasonal increases of accounts receivable and inventory during the summer selling period, partially offset by a seasonal increase in accounts payable. For the seventy-three days ended June 30, 2002 net cash provided by operations of the Successor was $13.6 million. For the one hundred eight days ended April 18, 2002, net cash used in operations of the Predecessor was $18.3 million. Cash flows from operations of the Predecessor also include the working capital needs of AmerCable for the period from January 1, 2002 to April 18, 2002. AmerCable's cash flows for the period from April 19, 2002 to June 24, 2002 are shown as net cash used in discontinued operations. The net $4.7 million use of cash from operations ($13.6 million of cash provided by the Successor less $18.3 million of cash used by the Predecessor) for the six months ended June 30, 2002 primarily reflects the operating results for the period, the seasonal increases of accounts receivable and inventory during the summer selling period, partially offset by a seasonal increase in accounts payable. -12- Capital expenditures totaled $5.8 million for the six months ended June 28, 2003 and were primarily to replace vinyl siding extrusion and handling equipment at the Company's Ennis, Texas manufacturing location and expenditures related to opening three new supply centers. For the seventy-three days ended June 30, 2002, capital expenditures of the Successor totaled $3.3 million. For the one hundred eight days ended April 18, 2002, capital expenditures of the Predecessor totaled $3.8 million, which includes AmerCable's capital expenditures of $1.9 million. The combined capital expenditures of the Successor and Predecessor, excluding AmerCable, totaled $5.2 million for the six months ended June 30, 2002. Capital expenditures in the 2002 period were primarily for the production of new casement window tooling, related production line expenditures and leasehold improvements for the opening of seven new supply centers. Cash flows from the Successor's investing activities also include the merger transaction for $377.8 million and net proceeds from the sale of AmerCable totaling $28.3 million. Cash flows from financing activities for the six months ended June 28, 2003 include the redemption of the remaining outstanding 9 1/4% notes of $0.9 million. The $0.9 million of 9 1/4% notes were redeemed at 104.625% of the principal amount of such notes plus accrued and unpaid interest through the date of redemption. Cash flows from the Successor's financing activities for the 73 days ended June 30, 2002 include: (1) the issuance of $165 million of 9 3/4% notes due 2012, (2) $125 million from a new $165 million credit facility, (3) $164.8 million cash contribution from Associated Materials Holdings Inc. and (4) cash of approximately $4.6 million, representing a portion of the Company's total cash on hand of $6.8 million to finance the merger transaction of $377.8 million, tender offer of the 9 1/4% notes of $74.0 million and debt extinguishment costs of $7.6 million. The tender offer premium paid for the 9 1/4% notes was approximately $7.3 million, of which $4.9 million is included as debt extinguishment costs representing the portion of the premium in excess of the fair market value of the 9 1/4% notes. Upon completion of the merger transaction, the Company was then obligated to make a change of control offer for the approximate $1.0 million of remaining outstanding 9 1/4% notes at a price of 101% of the principal amount thereof, plus accrued and unpaid interest. The change of control offer was completed on June 21, 2002 with an additional approximate $0.1 million of the 9 1/4% notes being tendered. Net proceeds from the sale of AmerCable were subsequently used to permanently reduce borrowings under the term loan by $28.5 million. For the 108 days ended April 18, 2002, cash flows from financing activities include the payment of dividends of $0.3 million partially offset by cash received from stock option exercises of $0.1 million. The Company's 9 3/4% notes pay interest semi-annually in April and October. The Company's credit facility includes $76.5 million of outstanding term loans due through 2009 that bear interest at the London Interbank Offered Rate (LIBOR) plus 3.50%, payable quarterly at the end of each calendar quarter, and up to $40 million of available borrowings provided by revolving loans, which expire in 2007. The credit facility and the indenture governing the 9 3/4% notes contain restrictive covenants that, among other things, limit the Company's ability to incur additional indebtedness, make loans or advances to subsidiaries and other entities, invest in capital expenditures, sell its assets or declare dividends. In addition, under the credit facility the Company is required to achieve certain financial ratios relating to leverage, coverage of fixed charges and coverage of interest expense. The Company was in compliance with these covenants as of June 28, 2003. On an annual basis, the Company is required to make principal payments on the term loan under its credit facility based on a percentage of excess cash flows as defined in the credit facility. The payments on the term loan in 2002 were sufficient such that no additional principal payments were required in 2003 under the excess cash flow provision. The Company records as a current liability those principal payments that are estimated to be due within twelve months under the excess cash flow provision of the credit facility when the likelihood of those payments becomes probable. The Company expects to amend its existing credit facility to finance the acquisition of Gentek Holdings Inc. by adding a term loan facility to borrow up to an approximate additional $113.5 million and expanding the availability under the revolving portion of its credit facility from $40 million to $70 million, including a new Canadian subfacility of $15 million. There can be no assurance that the acquisition will be consummated on the terms contemplated or at all. The Company guaranteed $3.0 million of a secured note in connection with the sale of a portion of its ownership interest in Amercord, Inc. Ivaco, Inc., pursuant to the terms of the note, agreed to indemnify the Company for 50% of any loss under the guarantee. The guarantee was exercised by Amercord's lender, and the Company has settled with this lender for its portion of the liability for approximately $1.2 million, which was fully paid -13- in April 2003. The Company retains a right to any collateral proceeds that secure the note; however, the Company believes that the value of such collateral is not sufficient to cover any significant portion of the Company's liability. The Company believes that for the foreseeable future cash flows from operations and its borrowing capacity under its credit facility will be sufficient to satisfy its obligations to pay principal and interest on its outstanding debt, maintain current operations, and provide sufficient capital for presently anticipated capital expenditures. In addition, the Company believes that should the acquisition of Gentek and related financing be consummated on the terms contemplated, the future cash flows from operations and the Company's anticipated borrowing capacity under the amended credit facility will also be sufficient for the purposes mentioned above. There can be no assurances, however, that the cash generated by the Company will be sufficient for these purposes. EFFECTS OF INFLATION The Company believes that the effects of inflation have not been material to its operating results for each of the past three years, including interim periods. The Company's principal raw material, vinyl resin, has been subject to rapid price changes. Through price increases, the Company has historically been able to pass on significant resin cost increases. The results of operations for individual quarters can and have been negatively impacted by a delay between the time of vinyl resin cost increases and price increases in the Company's products. However, over longer periods of time, the impact of the cost increases in vinyl resin has historically not been material. Resin prices have continued to increase in 2003. The Company increased prices for its vinyl siding and vinyl windows in April 2003 to offset the increase in resin costs. While the Company expects that any additional significant resin cost increases in 2003 will be offset by price increases to its customers, there can be no assurances that the Company will be able to pass on any future price increases. CERTAIN FORWARD-LOOKING STATEMENTS All statements other than statements of historical facts included in this report regarding the prospects of the industry and the Company's 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," "will," "should," "expect," "intend," "estimate," "anticipate," "believe," "predict," "potential" or "continue" or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it does not assure that these expectations will prove to be correct. The following factors are among those that may cause actual results to differ materially from the forward-looking statements: - changes in home building industry, economic, interest rates and other conditions; - changes in availability of consumer credit, employment trends, levels of consumer confidence and consumer preferences; - changes in raw material costs and availability; - the consummation of the Gentek Holdings acquisition on the anticipated financing terms or at all and realization of expected synergies; - changes in national and regional trends in new housing starts; - changes in weather conditions; - the Company's ability to comply with certain financial covenants in the loan documents; - increases in competition from other manufacturers of vinyl building products as well as alternative building products; - increases in the Company's indebtedness; - increases in costs of environmental compliance; and - the other factors discussed under the heading "Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, 2002 and elsewhere in this report. -14- All forward-looking statements attributable to the Company or persons acting on its 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. The Company does not intend to update these statements unless the securities laws require it to do so. -15- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK The Company has outstanding borrowings under the term loan portion of its credit facility. Interest under the credit facility is based on the variable London Interbank Offered Rate (LIBOR). At June 28, 2003, the Company had borrowings of $76.5 million under the term loan. The effect of a 1/8% increase or decrease in interest rates would increase or decrease total interest expense for the six months ended June 28, 2003 by less than $0.1 million. FOREIGN CURRENCY EXCHANGE RISK The Company's revenues are primarily from domestic customers and are realized in U.S. dollars. Accordingly, the Company believes its direct foreign currency exchange risk is not material. In the past, the Company has hedged against foreign currency exchange rate fluctuations on specific sales or equipment purchasing contracts. At June 28, 2003, the Company had no currency hedges in place. COMMODITY PRICE RISK See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Effects of Inflation" for a discussion of the market risk related to the Company's principal raw material, vinyl resin. ITEM 4 CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days before the filing of this quarterly report (the "Evaluation Date"). Based on their evaluation as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods. (b) Changes in internal controls. The Company maintains a system of internal accounting controls that are designed to provide reasonable assurance that the Company's books and records accurately reflect the Company's transactions and that the Company's established policies and procedures are followed. There were no significant changes to the Company's internal controls or other factors that could significantly affect its internal controls subsequent to their evaluation as of the Evaluation Date, including any corrective actions with regard to significant deficiencies and material weaknesses. -16- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved from time to time in litigation arising in the ordinary course of business, none of which, after giving effect to the Company's existing insurance coverage, is expected to have a material adverse effect on the Company. From time to time, the Company is involved in a number of proceedings and potential proceedings relating to environmental and product liability matters. The Company handles these claims in the ordinary course of business and maintains product liability insurance covering certain types of claims. Although it is difficult to estimate the Company's potential exposure to these matters, the Company believes that the resolution of these matters will not have a material adverse effect on the Company's financial position, results of operations or liquidity. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - ------------ Exhibit Number Description - ------- ----------- 99.1 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 99.2 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 (b) Reports on Form 8-K - ----------------------- Report Date Description - ----------- ----------- April 2, 2003 The Company filed a current report on Form 8-K to report a change in its fiscal year end from December 31st to a 52/53 week fiscal year that ends on the Saturday closest to December 31st (Item 8). May 2, 2003 The Company furnished a current report on Form 8-K to report its financial results for the first quarter ended March 29, 2003 (Items 7 and 9). July 31, 2003 The Company submitted a current report on Form 8-K filing under Items 7 and 9 a copy of the Stock Purchase Agreement, dated July 31, 2003, by and between the Company and Gentek Holdings, Inc. and furnishing under Item 9 a copy of the press release announcing that the Company had entered into a definitive agreement to acquire Gentek Holdings, Inc. (Items 7 and 9). August 1, 2003 The Company furnished a current report on Form 8-K to report its financial results for the second quarter ended June 28, 2003 (Items 7, 9 and 12). August 1, 2003 The Company furnished a current report on Form 8-K to report certain disclosures made during its second quarter earnings conference call, which was held on August 1, 2003 (Item 9). -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASSOCIATED MATERIALS INCORPORATED --------------------------------- (Registrant) Date: August 12, 2003 By: /s/ Michael Caporale, Jr. ---------------------------------------- Michael Caporale, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) By: /s/ D. Keith LaVanway ---------------------------------------- D. Keith LaVanway Vice President, Chief Financial Officer Treasurer and Secretary (Principal Financial and Accounting Officer) -18- Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael Caporale, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Associated Materials Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 12, 2003 By: /s/ Michael Caporale, Jr. ------------------------------------------ Michael Caporale, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, D. Keith LaVanway, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Associated Materials Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 12, 2003 By: /s/ D. Keith LaVanway ----------------------------------------- D. Keith LaVanway Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) EXHIBIT INDEX Exhibit Number Description - ------- ----------- 99.1 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 99.2 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 -19- EX-99.1 3 l01945aexv99w1.txt EX-99.1 SECTION 906 CERTIFICATE OF THE CEO Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Form 10-Q of Associated Materials Incorporated (the "Company") for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Caporale, Jr., President, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 12, 2003 By: /s/ Michael Caporale, Jr. ----------------------------------------- Michael Caporale, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) A signed original of this written statement required by Section 906 has been provided to Associated Materials Incorporated and will be retained by Associated Materials Incorporated and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.2 4 l01945aexv99w2.txt EX-99.2 SECTION 906 CERTIFICATE OF THE CFO Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Form 10-Q of Associated Materials Incorporated (the "Company") for the period ended June 28, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, D. Keith LaVanway, Vice President, Chief Financial Officer, Treasurer and Secretary of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 12, 2003 By: /s/ D. Keith LaVanway ----------------------------------------- D. Keith LaVanway Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) A signed original of this written statement required by Section 906 has been provided to Associated Materials Incorporated and will be retained by Associated Materials Incorporated and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----