-----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, M6NDG1P0mtZUagpPoR9f6FHDewNK61IyCeamFu2CdWJOyakk8RDIpOHMhTNWyM5K kAcl9O70bmglAJVAN7+EUQ== 0000950152-03-009446.txt : 20031107 0000950152-03-009446.hdr.sgml : 20031107 20031107161011 ACCESSION NUMBER: 0000950152-03-009446 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030829 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031107 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24956 FILM NUMBER: 03985350 BUSINESS ADDRESS: STREET 1: 3773 STATE ROAD STREET 2: # CITY: CUYAHOGA FALLS STATE: OH ZIP: 44223 BUSINESS PHONE: 330 929 1811 MAIL ADDRESS: STREET 1: 3773 STATE ROAD STREET 2: # CITY: CUYAHOGA FALLS STATE: OH ZIP: 44223 8-K/A 1 l04037ae8vkza.txt ASSOCIATED MATERIALS INC. 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 August 29, 2003 Date of Report (Date of earliest event reported) ASSOCIATED MATERIALS INCORPORATED (Exact Name of Registrant as Specified in Its Charter) 75-1872487 Delaware 000-24956 (IRS Employer (State or Other Jurisdiction of (Commission File Number) Identification No.) Incorporation)
3773 State Road Cuyahoga Falls, Ohio 44223 (Address of Principal Executive Offices) (330) 929-1811 (Registrant's Telephone Number, Including Area Code) Associated Materials Incorporated ("Associated Materials") hereby amends Item 2 and Item 7 of its current report on Form 8-K filed on September 12, 2003 in their entirety to read as follows: Item 2. ACQUISITION OR DISPOSITION OF ASSETS On August 29, 2003, Associated Materials acquired all of the issued and outstanding shares of capital stock of Gentek Holdings, Inc. ("Gentek Holdings") and repaid all indebtedness of Gentek Holdings and its subsidiaries for an aggregate purchase price of approximately $112.1 million, which includes a working capital adjustment as well as customary transaction fees. As a result of the acquisition of Gentek Holdings, Associated Materials owns 100% of the capital stock of Gentek Holdings. The acquisition was completed pursuant to a Stock Purchase Agreement, dated July 31, 2003, by and between Associated Materials and Gentek Holdings, as amended as of August 29, 2003 (the "Stock Purchase Agreement"). Associated Materials financed the transaction by amending and restating its existing $165 million credit facility, by adding a term loan to borrow up to an additional $113.5 million and expanding its revolving loan facility from $40 million to $70 million, including a new Canadian subfacility of $15 million (USD). UBS, Credit Suisse First Boston and CIBC World Markets arranged the new credit facility on substantially the same terms and conditions as Associated Materials' existing credit facility. At the time of the acquisition, there was no material relationship between Gentek Holdings and Associated Materials, or any of its affiliates, directors, officers or associates. Gentek Holdings is the parent company of Gentek Building Products, Inc. and Gentek Building Products Limited (collectively, "Gentek"). Gentek manufactures and distributes vinyl, aluminum and steel siding and accessories and vinyl windows under the Revere(R) and Gentek(R) brand names. Associated Materials intends to maintain distinct separation of Gentek's brands from Associated Materials' existing Alside brand by continuing to offer differentiated product, sales and marketing support and intends to continue to use Gentek's assets in a similar manner as they were used by Gentek prior to the acquisition. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Businesses Acquired The financial statements of Gentek Holdings as of December 31, 2002 and 2001 and June 30, 2003 and for the three years ended December 31, 2002 and six months ended June 30, 2003 and 2002 are included as Exhibit 99.1 hereto. (b) Pro Forma Financial Information The unaudited pro forma condensed consolidated financial data as of June 28, 2003, for the year ended December 31, 2002 and for the six months ended June 28, 2003 are included as exhibit 99.2 hereto. (c) Exhibits
Exhibit Number Description of Document - ------ ----------------------- 2.1 Stock Purchase Agreement, dated July 31, 2003, by and among Associated Materials Incorporated, Gentek Holdings Inc., Gentek Building Products, Inc., Gentek Building Products Limited, The Sherwin-Williams Claims Trust, Genstar Capital Corporation, Ontario Teachers' Pension Plan Board and other stockholders listed herein (Incorporated by reference to Exhibit 2.1 of the current report on Form 8-K filed on July 31, 2003).
-2- 2.2 Amendment No. 1 to the Stock Purchase Agreement, dated as of August 29, 2003, by and among Associated Materials Incorporated, Gentek Holdings, Inc., Gentek Building Products, Inc., Gentek Building Products Limited, The Sherwin-Williams Claims Trust, Genstar Capital Corporation, Ontario Teachers' Pension Plan Board and other stockholders listed herein (Incorporated by reference to Exhibit 2.2 of the current report on Form 8-K filed on September 12, 2003). 99.1 Financial statements of Gentek Holdings, Inc. as of December 31, 2002 and 2001 and June 30, 2003 and for the three years ended December 31, 2002 and six months ended June 30, 2003 and 2002. 99.2 Unaudited pro forma condensed consolidated financial data as of June 28, 2003, for the year ended December 31, 2002 and for the six months ended June 28, 2003.
-3- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ASSOCIATED MATERIALS INCORPORATED Date: November 7, 2003 By: /s/ D. Keith LaVanway ----------------------------- D. Keith LaVanway Vice President, Chief Financial Officer, Treasurer and Secretary -4- EX-99.1 3 l04037aexv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 GENTEK HOLDINGS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
PAGE ---- Report of Independent Accountants F-2 Consolidated Financial Statements: Consolidated Balance Sheets, June 30, 2003 (unaudited) and December 31, 2002 and 2001 F-3 Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2003 (unaudited) and 2002 (unaudited) and the years ended December 31, 2002, 2001 and 2000 F-4 Consolidated Statements of Stockholders' Equity for the six months ended June 30, 2003 (unaudited) and the years ended December 31, 2002, 2001 and 2000 F-5 Consolidated Statements of Cash Flows for the six months ended June 30, 2003 (unaudited) and 2002 (unaudited) and the years ended December 31, 2002, 2001 and 2000 F-6 Notes to Consolidated Financial Statements F-7 - F-23
Report of Independent Accountants Board of Directors and Stockholders of Gentek Holdings, Inc. and Subsidiaries: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Gentek Holdings, Inc. and its subsidiaries at December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP February 14, 2003 Cleveland, Ohio F-2 GENTEK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) - --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, 2003 2002 2001 ---- ---- ---- (UNAUDITED) ASSETS Current assets: Cash $ 2,794 $ 4,100 $ 1,705 Accounts receivable, net of allowance for doubtful accounts of $1,782 for 2003 (unaudited), $1,664 for 2002 and $1,781 for 2001 44,620 26,689 26,371 Inventories 44,855 34,745 29,598 Other current assets 1,192 600 1,190 --------- --------- --------- Total current assets 93,461 66,134 58,864 Property, plant and equipment, net 29,710 26,413 27,942 Other non-current assets: Deferred charges and other intangible assets, net 2,553 2,523 2,660 Other assets 2,606 2,167 1,519 --------- --------- --------- Total other non-current assets 5,159 4,690 4,179 --------- --------- --------- Total assets $ 128,330 $ 97,237 $ 90,985 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Book overdrafts $ 2,770 $ 3,744 $ 2,273 Current portion of revolving credit agreements 27,993 6,307 4,798 Current portion of notes payable 1,068 915 904 Current portion of accrued warranty 2,313 2,103 2,164 Current portion of other liabilities 1,395 679 648 Accounts payable, trade 23,949 20,322 17,485 Accrued payroll and related taxes 5,671 4,982 5,358 Accrued expenses and other liabilities 4,728 5,350 5,860 --------- --------- --------- Total current liabilities 69,887 44,402 39,490 Long-term liabilities, net of current portions: Revolving credit agreements 8,287 9,147 15,930 Notes payable 5,113 4,843 5,869 Accrued warranty 10,629 8,858 8,856 Pension plans 3,521 4,033 2,204 Other liabilities 2,534 2,093 2,246 --------- --------- --------- Total long-term liabilities, net of current portions 30,084 28,974 35,105 --------- --------- --------- Total liabilities 99,971 73,376 74,595 --------- --------- --------- Commitments and contingencies (Note 11) Stockholders' equity: Common stock: Class A voting, convertible, par value $0.01 per share, 2,000,000 shares authorized, 983,721 shares outstanding 10 10 10 Class B non-voting, par value $0.01 per share, 2,000,000 shares authorized -0- shares outstanding - - - Class C voting, convertible, par value $0.01 per share, 1,000,000 shares authorized, 400,000 shares outstanding 4 4 4 Class D non-voting, par value $0.01 per share, 1,000,000 shares authorized, -0- shares outstanding - - - Additional paid-in capital 29,500 29,500 29,500 Accumulated deficit (1,363) (1,049) (10,219) Accumulated other comprehensive income (loss) 208 (4,604) (2,905) --------- ---------- ---------- Total stockholders' equity 28,359 23,861 16,390 --------- --------- --------- Total liabilities and stockholders' equity $ 128,330 $ 97,237 $ 90,985 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-3 GENTEK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS OF DOLLARS) - --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, -------------- ------------------------ 2003 2002 2002 2001 2000 (UNAUDITED) (UNAUDITED) Net sales $ 132,911 $ 119,456 $260,060 $266,299 $263,144 Cost of sales 116,093 99,690 218,769 230,861 231,133 ------------- ------------- -------- -------- -------- Gross profit 16,818 19,766 41,291 35,438 32,011 Selling, general and administrative expenses 14,723 13,634 26,363 28,629 26,674 ------------- ------------- -------- -------- -------- Income from operations 2,095 6,132 14,928 6,809 5,337 Other expenses (income), net: Interest expense 914 888 1,835 4,022 5,243 Amortization of financing fees 22 87 99 180 307 Foreign currency loss (gain) (239) 331 419 (112) 380 Gain on extinguishment of debt - - - (6,985) - Other, net 141 98 715 (27) (103) ------------- ------------- -------- --------- --------- Total other expenses (income), net 838 1,404 3,068 (2,922) 5,827 ------------- ------------- -------- --------- -------- Income (loss) before provision for income taxes 1,257 4,728 11,860 9,731 (490) Provision for income taxes: Current 1,427 1,506 3,065 2,060 1,117 Deferred 144 (184) (375) (410) 886 ------------- -------------- --------- --------- -------- Total provision for income taxes 1,571 1,322 2,690 1,650 2,003 ------------- ------------- -------- -------- -------- Net income (loss) (314) 3,406 9,170 8,081 (2,493) Other comprehensive income (loss): Foreign currency translation adjustment 4,812 1,167 196 (1,369) (731) Minimum pension liability adjustment - - (1,895) (190) (413) ------------- ------------- --------- --------- --------- Comprehensive income (loss) $ 4,498 $ 4,573 $ 7,471 $ 6,522 $ (3,637) ============= ============= ======== ======== =========
Income tax (expense) benefit related to the minimum pension liability adjustment component of other comprehensive income (loss) was $(17) in 2002, $202 in 2001 and $294 in 2000. The accompanying notes are an integral part of these consolidated financial statements. F-4 GENTEK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS OF DOLLARS) - --------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) --------------------------- ADDITIONAL FOREIGN MINIMUM COMMON STOCK PAID-IN ACCUMULATED CURRENCY PENSION ---------------- CLASS A CLASS B CAPITAL DEFICIT TRANSLATION LIABILITY TOTAL Balances at December 31, 1999 $ 10 $ 4 $ 29,500 $ (15,807) $ 305 $ (507) $ 13,505 Net loss - - - (2,493) - - (2,493) Foreign currency translation adjustment - - - - (731) - (731) Minimum pension liability adjustment - - - - - (413) (413) ------ ----- --------- --------- --------- ---------- ---------- Balances at December 31, 2000 10 4 29,500 (18,300) (426) (920) 9,868 Net income - - - 8,081 - - 8,081 Foreign currency translation adjustment - - - - (1,369) - (1,369) Minimum pension liability adjustment - - - - - (190) (190) ------ ----- --------- --------- --------- ---------- ---------- Balances at December 31, 2001 10 4 29,500 (10,219) (1,795) (1,110) 16,390 Net income - - - 9,170 - - 9,170 Foreign currency translation adjustment - - - - 196 - 196 Minimum pension liability adjustment - - - - - (1,895) (1,895) ------ ----- --------- --------- --------- ---------- ---------- Balances at December 31, 2002 10 4 29,500 (1,049) (1,599) (3,005) 23,861 Net loss (unaudited) - - - (314) - - (314) Foreign currency translation adjustment (unaudited) - - - - 4,812 - 4,812 ------ ----- --------- --------- --------- --------- --------- Balances at June 30, 2003 (unaudited) $ 10 $ 4 $ 29,500 $ (1,363) $ 3,213 $ (3,005) $ 28,359 ====== ===== ========= ========== ========= ========== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 GENTEK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) - --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, -------------- ------------------------ 2003 2002 2002 2001 2000 (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (314) $ 3,406 $ 9,170 $ 8,081 $ (2,493) ---------- --------- --------- --------- ---------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 2,665 2,379 4,843 4,819 4,480 Amortization 108 169 260 2,150 803 Loss on disposal of property - - 528 - - Gain on extinguishment of debt - - - (6,985) - Non-cash other post employment benefits (440) (302) (765) (681) (1,085) Deferred income taxes 144 (184) (375) (410) 886 Changes in assets and liabilities: Accounts receivable (15,632) (11,176) (205) (4,254) 3,991 Inventories (6,540) (8,154) (4,878) 1,705 (11) Other current assets (537) 108 595 (704) 998 Accounts payable 1,615 1,482 2,709 3,650 (1,529) Accrued payroll and related taxes 322 (342) (399) 2,107 (1,326) Accrued warranty 1,570 (357) (84) 3,812 708 Pension plans (233) (186) 1,863 (293) 438 Other assets and liabilities, net (594) (1,136) (1,857) (3,269) 820 Accrued expenses and other liabilities 1,025 2,931 (151) 706 (1,063) --------- --------- ---------- --------- ---------- Total adjustments (16,527) (14,768) 2,084 2,353 8,110 ---------- ---------- --------- --------- --------- Cash provided by (used in) operating activities (16,841) (11,362) 11,254 10,434 5,617 ---------- ---------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (2,839) (1,644) (3,606) (2,035) (3,709) ---------- ---------- ---------- ---------- ---------- Cash used in investing activities (2,839) (1,644) (3,606) (2,035) (3,709) ---------- ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Book overdrafts (974) 3,978 1,471 2,273 - Lines of credit borrowings 142,546 146,299 293,187 331,578 295,157 Lines of credit payments (122,729) (134,959) (298,672) (331,551) (295,337) Repayment of notes payable (500) (611) (1,101) (10,191) (1,282) Payments of financing fees (1) (20) (113) (710) (94) ---------- ---------- ---------- ---------- ---------- Cash provided by (used in) financing activities 18,342 14,687 (5,228) (8,601) (1,556) --------- --------- ---------- ---------- ---------- Effect of exchange rate changes on cash 32 (92) (25) 5 (62) --------- ---------- ---------- --------- ---------- Increase (decrease) in cash (1,306) 1,589 2,395 (197) 290 Cash, beginning of period 4,100 1,705 1,705 1,902 1,612 --------- --------- --------- --------- --------- Cash, end of period $ 2,794 $ 3,294 $ 4,100 $ 1,705 $ 1,902 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-6 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounts policies used in preparation of the consolidated financial statements are as follows: BUSINESS AND ORGANIZATION Gentek Holdings, Inc. ("Holdings") was incorporated on July 8, 1997. Holdings has a wholly-owned subsidiary, Gentek Building Products, Inc. ("GBPI"), which has a wholly-owned subsidiary Gentek Building Products Limited ("GBPL"). Holdings, GBPI and GBPL are the successors to their respective predecessor companies (after a restructuring as a result of a stock purchase agreement in July 1997 with Amerimax Fabricated Products, Inc. - "Amerimax") which acquired in June 1994 certain assets and assumed certain liabilities of the Building Products Divisions of Alcan Aluminum Corporation and Alcan Aluminium Limited ("Alcan"). GBPI and GBPL design, manufacture and distribute a broad variety of aluminum, vinyl and steel siding, soffit and trim; vinyl windows; and coated aluminum and steel coil. Two manufacturing facilities and thirteen distribution centers are located in the United States and three manufacturing facilities and twenty distribution centers are located in Canada. Manufactured products fall into two basic categories of (1) vinyl, aluminum and steel siding and related products for residential and light commercial applications and (2) vinyl windows. GBPI and GBPL also coat aluminum and steel coil for use by third parties. GBPI and GBPL distribution centers sell both its manufactured and vendor purchased resale products. Because most products are intended for exterior use, sales tend to be lower during periods of inclement weather, especially in northern markets which usually results in significantly less net sales in the first and fourth quarters than any other periods of the year. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it was incurred. The amount recorded as a liability will be capitalized by increasing the carrying amount of the related long-lived asset, which is then depreciated over its useful life. The Company adopted SFAS No. 143 on January 1, 2003 and adoption had no impact on its results of operations, financial position or liquidity. The FASB has issued Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 requires disclosures by guarantors about the nature of, and maximum potential payments under, contracts that contingently require the guarantor to make payments to the guaranteed party under certain circumstances (such as financial guarantees and product warranties). FIN No. 45 also requires the recognition by guarantors of a liability, at fair value, for the obligation to stand ready to perform under the terms of the contract. The recognition provisions of FIN No. 45 do not apply to product warranties. The disclosure provisions of FIN No. 45 are effective for periods ending after December 15, 2002. The recognition provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has an indemnification clause within a facility lease agreement which is considered to be a guarantee within the scope of FIN 45. The Company also guarantees certain employee mortgage loans (Note 5). The Company does not consider these guarantees to be material to its results of operations, financial position or liquidity. The Company has adopted the disclosure provisions of FIN No. 45 (Note 1) and does not expect the adoption of the recognition provisions of FIN No. 45 to have a material impact on its results of operations, financial position or liquidity. In June of 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. It nullifies the guidance of the F-7 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- Emerging Issues Task Force ("EITF") in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In SFAS No. 146, the Board acknowledges that an entity's commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for the initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. There has been no material impact related to the implementation of this recently issued statement on the Company's results of operations, financial position or liquidity. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires prominent disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation in both annual and interim financial statements. The disclosure requirements of SFAS No. 148 have been adopted in these financial statements. The transition requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The Company has adopted SFAS No. 148 (see the Stock-Based Compensation policy disclosure in this note) and the adoption did not have an impact on the Company's financial position or on its results of operations or liquidity. On January 15, 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." The objective of this interpretation is to improve financial reporting by enterprises involved with variable interest entities. This interpretation applies to variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company has no variable interest entities. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS No. 150 requires that those instruments be classified as liabilities in statements of financial position. This statement is effective for interim periods beginning after June 15, 2003. On October 29, 2003, the FASB deferred the provisions of paragraphs 9 and 10 and related guidance in the appendices of this pronouncement as they apply to mandatorily redeemable preferred shares. The Company is currently assessing what impact the adoption of SFAS No. 150 would have upon its financial position, results of operations and liquidity. PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION The accompanying consolidated financial statements include the accounts of Holdings and its subsidiaries GBPI and GBPL (collectively, the "Company") and are prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions have been eliminated. The assets and liabilities of GBPL are denominated in Canadian currency and have been translated in U.S. dollars using exchange rates in effect at the balance sheet date. Revenue and expense items are translated at the average exchange rate for the period. Translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss). The net effect of currency gains and losses realized on business transactions is included in other expenses (income) within the Consolidated Statement of Operations and Comprehensive Income (Loss). F-8 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- UNAUDITED INTERIM INFORMATION The unaudited interim financial statements as of June 30, 2003 and for the six months ended June 30, 2003 and 2002, included herein, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. The interim financial statements are not necessarily indicative of operating results for an entire year. CONCENTRATIONS OF CREDIT RISK GBPI and GBPL sell their products throughout the U.S. and Canada, and to a lesser extent, to overseas markets. In 2002 and 2000, no customer represented 10% or more of total net sales. During 2001 net sales to the Company's largest customer represented approximately 10% of total net sales. GBPI and GBPL perform ongoing credit evaluations of their customers and generally do not require collateral. GBPI and GBPL monitor potential credit losses and such losses have been within management's expectations. DERIVATIVE FINANCIAL INSTRUMENTS The Company does not have any derivative financial instruments and hedging activities as defined by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and does not enter into derivative financial instruments or hedging activities for speculative or trading purposes. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. There were no cash equivalents at December 31, 2002 or 2001. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's cash and cash equivalents, receivables, payables, and accrued expenses approximate fair value due to the short-term maturities of these assets and liabilities. The carrying amounts of the Company's credit facilities and term note payable approximate fair value due to the variable, floating interest rate structure of the notes. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined under the average cost method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Significant additions and improvements are capitalized while expenditures for maintenance and repairs are charged to operations as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from accounts in the year of disposal. Gains and losses resulting from disposals are included in operations. Depreciation is computed using the straight-line method based on the following ranges of estimated useful lives: Buildings and improvements 10-40 years Leasehold improvements Life of lease or 40 years Machinery and equipment 5-10 years Tooling and dies 2-5 years Furniture, fixture and office equipment 5-7 years
F-9 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- The Company reviews for impairment whenever events or changes in circumstances indicate that the carrying amount of property, plant and equipment may not be recoverable. If it is determined that an impairment loss has occurred based on expected future cash flows, the loss is recognized in the Consolidated Statement of Operations. The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective January 1, 2002. SFAS No. 144 superseded SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 144 retains the fundamental recognition and measurement provisions of SFAS No. 121 for assets to be held and used and assets to be disposed of by sales, but the standard develops a single accounting model for long-lived assets to be disposed of and for certain obligations associated with a disposal activity. The adoption of SFAS No. 144 had no effect on the consolidated financial statements. DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS Deferred charges and other intangible assets consist of deferred financing charges and costs assigned to various technology, patent and trademark agreements and rights. The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" effective January 1, 2002. Goodwill is recorded when the cost of acquired business exceeds the fair value of the identifiable net assets acquired. Goodwill and intangible assets with an indefinite useful life are tested for impairment annually or when events or circumstances indicate that impairment may have occurred. The Company has elected to perform the impairment test annually as of December 31. If considered impaired, the intangible asset is written down to fair value. SFAS No. 142 also required the Company to reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly. The Company did not cease amortization related to any of its intangible assets or change the useful lives as a result of this reassessment. The Company had no goodwill or indefinite useful life intangibles recorded as of January 1, 2002. Prior to 2002, the Company reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of intangibles may not be recoverable. If it was determined that an impairment loss occurred based on a market value approach, the loss was recognized in the Consolidated Statement of Operations (Note 4). These items are being amortized using the straight-line method over the respective useful lives as follows: Financing charges 3 years Technology license agreements 30 years Patents and trademarks 17 and 30 years
INCOME TAXES The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is provided for deferred taxes if it is more likely than not that these items will expire before the Company is able to realize their benefit, or that future deductibility is uncertain. Holdings files a consolidated U.S. federal income tax return with GBPI. GBPL files a separate federal income tax return in Canada. F-10 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- REVENUE RECOGNITION Revenues are recognized when finished products are shipped to unaffiliated customers and both title and the risk and rewards of ownership are transferred. Revenues include both direct sales as well as toll processing revenue. Toll processing revenues result from the Company performing steel and aluminum processing operations without acquiring ownership for the material and is recorded on a net basis in net sales. Toll processing revenues were $3,768, $3,185, and $3,491 for the years ended December 31, 2002, 2001 and 2000, respectively. Sales incentives given to customers are recorded as a reduction of revenue when the corresponding revenues are recorded in the Consolidated Statements of Operations. PRODUCT WARRANTY COSTS AND SERVICE RETURNS Consistent with industry practice, the Company provides to homeowners limited warranties on certain products, primarily related to siding and window product categories. Warranties are of varying lengths of time from the date of purchase including up to lifetime. Warranties cover product failures such as peeling, chipping, cracking and fading, hail damage as well as manufacturing defects. Window product warranties also cover failures such as glass seals and breakage, mechanical parts and frame integrity. 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 homeownership. Liabilities for future warranty costs are provided annually based on management's estimates of such future costs using historical trends and sales of products to which such costs relate. Certain metal coating suppliers provide material warranties to the Company that may mitigate the costs incurred by the Company. Warranty reserves are based on past claims experience, sales history and other factors. An independent actuary assists the Company to determine reserve amounts related to significant product failures (Note 11). Reconciliation of warranty reserve activity is as follows for the six months ended June 30, 2003 and the year ended December 31, 2002:
JUNE 30, DECEMBER 31, 2003 2002 (UNAUDITED) Balance at the beginning of the period $ 10,961 $ 11,020 Provision for warranties issued 1,390 2,084 Provision for pre-existing warranties 2,404 702 Settlements made during the period (1,813) (2,845) ---------- ---------- Balance at the end of the period $ 12,942 $ 10,961 ========= =========
STOCK-BASED COMPENSATION At December 31, 2002, the Company has a stock-based employee compensation plan, which is described more fully in Note 10. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". No stock-based employee compensation cost is reflected in net income, as all options are granted at an exercise price equal to the market value of the underlying common stock on the date of grant. The fair value of each option grant is estimated on the date of grant, most recently during 2000, using a present value calculation with the following weighted average assumptions: risk free interest rate 5.10%; 0% dividend yield; 0% volatility and an expected life of ten years. The following table illustrates the effect on net income (loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation. F-11 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, -------------- ------------------------ 2003 2002 2002 2001 2000 (UNAUDITED) (UNAUDITED) Net income (loss), as reported $ (314) $ 3,406 $ 9,170 $ 8,081 $ (2,493) Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (10) (16) (27) (149) (179) ---------- ---------- ---------- ---------- ---------- Pro forma net income (loss) $ (324) $ 3,390 $ 9,143 $ 7,932 $ (2,672) ========== ========= ========= ========= ==========
COMPREHENSIVE INCOME (LOSS) SFAS No. 130, "Reporting Comprehensive Income", establishes standards for reporting and display of comprehensive income (loss) and its components in financial statements. It requires that all items that are required to be recognized under accounting standards as components of comprehensive income (loss) be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income (loss) consists of foreign currency translation transactions and minimum pension liability adjustments, and is presented in the Consolidated Statements of Operations and Comprehensive Income (Loss). USE OF SIGNIFICANT ACCOUNTING ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 2. INVENTORIES Inventories consist of the following at June 30, 2003, December 31, 2002 and 2001:
JUNE 30, DECEMBER 31, -------------------- 2003 2002 2001 (UNAUDITED) Raw materials and supplies $ 17,758 $ 14,870 $ 11,265 Finished products 27,097 19,875 18,333 --------- --------- --------- Total $ 44,855 $ 34,745 $ 29,598 ========= ========= =========
F-12 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at December 31, 2002 and 2001:
DECEMBER 31, ------------ 2002 2001 Land and improvements $ 2,129 $ 2,103 Buildings and improvements 9,452 9,279 Machinery, equipment, tooling and dies 39,370 38,497 Furniture, fixtures and office equipment 2,863 2,448 Construction in progress 1,452 624 --------- --------- 55,266 52,951 Less: accumulated depreciation and amortization (28,853) (25,009) ---------- ---------- Total $ 26,413 $ 27,942 ========= =========
4. DEFERRED CHARGES AND OTHER INTANGIBLE ASSETS Deferred charges and other intangible assets consist of the following at December 31, 2002 and 2001:
DECEMBER 31, ------------ 2002 2001 Financing charges $ 113 $ 286 Technology agreement licenses 1,194 1,194 Patents and trademarks 2,527 2,508 --------- --------- 3,834 3,988 Less: accumulated amortization (1,311) (1,328) ---------- ---------- Total $ 2,523 $ 2,660 ========= =========
At December 31, 2002, amortization expense of definite lived intangibles for the next five years will be as follows: 2003, $217; 2004, $199; 2005, $170; 2006, $162; 2007, $162. During 2001, the Company wrote-off its remaining goodwill from acquisitions after reviewing recent events and circumstances. The Company recorded an impairment charge of $1,511. This impairment charge is included in selling, general and administrative expenses in the 2001 Consolidated Statement of Operations. Goodwill amortization expense included in the Company's results of operations during 2000 was $67. 5. EMPLOYEE LOANS The Company has made interest free mortgage loans to employees upon relocation aggregating $126 and $201 which are included in other assets on the Company's consolidated balance sheets at December 31, 2002 and 2001, respectively. Repayment terms range from 5 to 25 years and the mortgages are generally collateralized by the value of the underlying assets. Mortgage loans taken F-13 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- out personally by employees of GBPL, as a result of relocation, are guaranteed by Holdings and aggregate $17 and $29 at December 31, 2002 and 2001, respectively. The Company has agreed to pay the interest expense related to these loans on behalf of the employees. 6. FINANCING ARRANGEMENTS Balances outstanding on financing agreements consist of the following at December 31, 2002 and 2001:
DECEMBER 31, 2002 2001 GBPI Revolving Credit Facility $ 13,223 $ 6,408 GBPL Revolving Credit Facility 2,231 14,320 GBPL Term Loan 5,758 6,773 --------- --------- 21,212 27,501 Less: current portions (7,222) (5,702) ---------- ---------- Long-term portions $ 13,990 $ 21,799 ========= =========
Aggregate maturities of financing arrangements at December 31, 2002 are as follows: 2003 $ 7,222 2004 915 2005 13,075 --------- Total $21,212 =========
Total interest paid on the above financing arrangements totaled $2,371, $4,609 and $5,010 in 2002, 2001 and 2000, respectively. At December 31, 2002 and 2001, management intended to finance future accounts receivable and inventories for more than one year, and estimated that the amount of borrowings under its revolving credit facilities classified as long-term which amounts would not exceed the eligible collateral at any time during the period. The credit agreements contain various covenants that, among other things, limit the Company's ability to incur debt, pay dividends and exceed a capital expenditure level of $5,500; specifies minimum levels of consolidated adjusted tangible net worth on a monthly basis ($16,000 at December 31, 2002) and a fixed charge coverage ratio of 1.1 to 1.0. The credit agreements are subject to early termination fees. GBPI Revolving Credit Facility The facility provides up to $30 million on the revolving credit facility and extends through April 2005. Borrowings under this commitment contain interest pricing options of prime plus 0.25% (prime 4.25% at December 31, 2002) or LIBOR plus 2.50% (LIBOR 1.38% at December 31, 2002). The Company is obligated to pay a commitment fee of 0.375% per annum on the sum of the average daily unused portion of the revolving credit commitment. The weighted average interest rate paid on this facility during 2002 was 5.34%. GBPI may borrow revolving credit loans from time to time in an aggregate amount not to exceed the lesser of: (a) $30 million or (b) the sum of 85% of all F-14 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- eligible accounts receivable and the value of 60% of all eligible inventories of GBPI calculated from time to time as provided therein and subjected to certain limitations. The revolving credit facility allows for issuance of letters of credit which are also attributable to the same collateral base. At December 31, 2002 and 2001, the Company had letters of credit outstanding of $1,236 and $1,122, respectively. At December 31, 2002, there was $6,437 of unused revolving credit commitment available. The GBPI Credit Agreement is collateralized by a pledge of 65% of the outstanding stock of GBPL and substantially all the assets of GBPI and is guaranteed by Holdings. GBPL Credit Facility GBPL has a credit agreement with the same financial institution as GBPI. The terms of the credit facility are as follows: Revolving Credit Facility - This commitment of $28.6 million extends through April 2005. Borrowings under this commitment contain interest pricing options of Canadian prime plus 0.75% (Canadian prime 4.50% at December 31, 2002) and Bankers Acceptance Note Rate plus 2.50% (Bankers Acceptance Note Rate 2.83% at December 31, 2002). The Company is obligated to pay a commitment fee of 0.375% per annum on the sum of the average daily unused portion of the revolving credit commitment. The weighted average interest rate paid on this facility during 2002 was 5.49%. GBPL was able to borrow revolving credit loans from time to time in an aggregate amount not to exceed the lesser of (a) $28.6 million or (b) the sum of 85% of all eligible accounts receivable and the value of 65% of all eligible inventories of GBPL calculated from time to time as provided therein and subject to certain limitations. At December 31, 2002, there was $16,780 of unused revolving credit commitment available. Term Loan - Principal was payable in monthly installments of $77 plus interest through April 2005 with the balance due at that time. Borrowings under the term loan contain interest pricing options of Canadian prime plus 1.0% and Bankers Acceptance Note Rate plus 3.0%. GBPL had available an additional term facility not to exceed $3.2 million to finance capital expenditures. No amounts have been borrowed on this facility to date. The GBPL Credit Agreement is collateralized by the pledge of 35% of the outstanding stock of GBPL as well as substantially all the assets of GBPL and is guaranteed by GBPI and Holdings. Subordinated Note Payable GBPI maintained a $15 million note agreement with Alcan ("Alcan Note") that was due on July 17, 2002. On December 21, 2001, the Company entered into a payoff agreement with Alcan for a lump-sum settlement of the outstanding note and all remaining accrued interest. As a result of this lump-sum settlement, the Company recognized a gain on the extinguishment of the debt in the amount of $6,985 net of fees of $515. In April, 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" which required the Company to record the extinguishment of debt as income from continuing operations. In accordance with SFAS 145, this gain on the extinguishment of debt was reclassified on the 2001 consolidated statement of operations and comprehensive income (loss) to conform to the new pronouncement. 7. EMPLOYEE BENEFIT PLANS Pension The Company has contributory and noncontributory defined benefit pension eligible employees. The Company maintains a number of hourly retirement plans resulting from collective bargaining F-15 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- agreements covering active and retired employees associated with the respective bargaining agreements. In addition, the Company maintains a plan for salaried and non-union hourly employees in Canada ("Canadian Pension Plan"). Benefits under the hourly plans are generally based on various monthly amounts for each year of credited service. Under the Canadian Pension Plan, benefits are generally based on the employee's compensation during the three years prior to retirement. In general, the Company's policy is to fund these plans based on legal requirements, tax considerations, local practices and investment opportunities. The components of pension expense for all defined benefit plans are as follows for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000 ---- ---- ---- Benefit cost $ 916 $ 522 $ 195 Employer contributions 1,153 784 657 Benefits paid 621 978 372
Significant plan assumptions for 2002, 2001 and 2000 include the following: (1) the discount rates used for plans in 2002 was 6.75%, ranged from 7.40% to 7.00% in 2001 and ranged from 7.75% to 7.2% in 2000; (2) the expected long-term rate of return ranged from 9.0% to 8.75%; and (3) the expected rate of salaried compensation increases for all plans was 3.5%. Plan assets consist primarily of listed common stocks and corporate and government bonds. The following table sets forth the plans' combined funded status accounted for using SFAS No. 87, "Employers Accounting for Pensions" and the amounts recognized in the Company's Consolidated Financial Statements at December 31, 2002 and 2001:
2002 2001 ---- ---- Plan assets at fair value $ 18,529 $ 19,315 Projected benefit obligation 25,039 21,566 --------- --------- Net pension liability $ (6,510) $ (2,251) ========== ==========
In accordance with SFAS No. 87, the Company recorded in 2002 and 2001 a minimum pension liability for plans where the accumulated benefit obligation exceeded the fair value of plan assets. Additional liabilities of $3,413 and $1,010 were reflected in other liabilities at December 31, 2002 and 2001 respectively. Corresponding amounts of $1,119 and $364 related to unrecognized prior service costs were also reflected as prepaid assets at December 31, 2002 and 2001, respectively. Reductions to shareholders' equity, net of income tax effects, of $1,895, $190 and $413 were recorded in 2002, 2001 and 2000, respectively, as a result of the additional minimum liability adjustments. The Company has contributory incentive savings plans covering all full-time salaried and non-union hourly employees. Under the plans, U.S. participants may make voluntary contributions from 1% to 16% of annual compensation and Canadian participants can make unlimited contributions. The Company contributes fifty to seventy cents, depending on the participant's level of continuous service, for each dollar of participant contribution up to 6% in the U.S. and up to 4% in Canada, of employee compensation. Company contributions are subject to statutory limitations in the U.S. During 2002, 2001 and 2000, GBPI and GBPL contributed $469, $407 and $509, respectively, in the form of matching contributions to these plans. GBPI committed to fund additional voluntary contributions of $357, $471 and $145 during 2002, 2001 and 2000, respectively. Additional voluntary contributions are funded in the following year. F-16 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- Other Post Employment Benefits The Company provides postretirement medical and life insurance benefits to certain retirees and eligible dependents for U.S. employees of the Company. GBPL has similar plans for retirees; however, most retirees are covered by government-sponsored programs. The medical plan is contributory, with retiree contributions adjusted periodically. The plans are not funded and pay reasonable and customary charges for medically necessary expenses incurred by retirees, after stated deductibles have been met. The Company has reserved the right to change or eliminate these benefit plans. In 1999, the GBPI Plan was amended to cancel benefits to certain classes of former employees. A gain of $1.6 million resulted which is being amortized over 5.5 years. Postretirement benefit costs include the following components for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000 ---- ---- ---- Benefit income $ (395) $ (297) $ (344) Employer contributions (121) (117) (114) Employee contributions (28) (32) (27) Benefits paid 149 149 141
The following reconciles the Company's combined funded status to amounts recognized in the Company's Consolidated Balance Sheet at December 31, 2002 and 2001:
2002 2001 Accumulated postretirement benefit $ 1,177 $ 1,691 Plan assets at fair value - - --------- -------- Accrued post retirement benefit costs $ 1,177 $ 1,691 ========= =========
For measurement purposes, a graded 4.85% annual rate of increase in the general inflation of covered benefits (i.e., health care cost trend rate) was assumed for 2002 and 2001. The health care cost trend rate assumption has a significant effect on the amount reported. To illustrate, increasing the assumed health care cost trend rate by 1% each year would increase the accumulated postretirement benefit obligation as of December 31, 2002 by $2 and the aggregate of the services and interest cost components of net periodic postretirement benefit cost by an immaterial amount. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 6.75% and 7.4% at December 31, 2002 and 2001, respectively. F-17 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- 8. LEASES The Company leases various facilities, machinery and equipment and vehicles under noncancelable operating lease agreements. Several of these leases are subject to renewal options under various terms. Minimum rental commitments are summarized under the agreement and are as follows: 2003 $ 5,783 2004 4,892 2005 3,940 2006 2,890 2007 2,396 Thereafter 5,930 --------- Total minimum payments $ 25,831 =========
Operating lease payments aggregated $6,846, $6,764 and $6,492 in 2002, 2001 and 2000, respectively. 9. INCOME TAXES The Company's income tax expense (benefit) consists of the following components for the years ended December 31:
2002 2001 2000 Current income tax expense: U.S.: Federal $ (200) $ 200 $ - State - - - Canada 3,265 1,860 1,117 --------- --------- --------- 3,065 2,060 1,117 Deferred income tax benefit: U.S.: Federal - - - State - - - Canada (375) (410) 886 --------- --------- --------- (375) (410) 886 --------- --------- --------- $ 2,690 $ 1,650 $ 2,003 ========= ========= =========
F-18 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- A reconciliation of the income tax expense (benefit) compared with the U.S. statutory tax rate of 34% for the years ended December 31, is as follows:
2002 2001 2000 Tax provision at U.S. Statutory Rate $ 4,033 $ 3,309 $ (167) State and local taxes, net of Federal benefit 151 224 (127) Deferred tax valuation allowance (1,565) (1,934) 1,982 Foreign rate differential (26) (75) 189 Nondeductible expenses 97 126 126 --------- --------- --------- Income tax expense (benefit) $ 2,690 $ 1,650 $ 2,003 ========= ========= =========
For the six months ended June 30, 2003 and 2002 the actual income tax expense is different than the expected income tax expense (based on the Federal U.S. tax rate of 34%) due to differences in foreign and provisional rates and no income tax expense (benefit) being recorded for U.S. purposes due to the full valuation allowance recorded against the net U.S. deferred tax asset. At December 31, 2002, Holdings has consolidated U.S. operating loss carryforwards of approximately $11,787, which are available to offset future taxable income. The income tax carryforwards begin to expire in 2012. During 2000, the Company utilized the remaining foreign operating loss carryforwards related to GBPL. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and the benefits of existing operating loss carryforwards. F-19 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- At December 31, 2002 and 2001, the components of the net deferred tax assets (liabilities) are as follows:
2002 2001 Deferred tax assets: Accounts receivable $ 493 $ 565 Inventory 216 233 Pension 726 138 Post retirement benefits 437 642 Product warranty 4,055 4,140 Accrued expenses 391 406 Employee benefits 511 649 Operating loss carryforwards 3,931 5,503 Deferred tax valuation allowance (7,906) (9,471) ---------- ---------- Total deferred tax assets 2,854 2,805 --------- --------- Deferred tax liabilities: Property, plant and equipment 3,271 3,767 Intangibles 879 932 --------- --------- Total deferred tax liabilities 4,150 4,699 --------- --------- Net deferred tax liability $ 1,296 $ 1,894 ========= =========
At December 31, 2002 and 2001, GBPI has recorded a valuation allowance of $7,906 and $9,471 respectively, related to all of its U.S. net deferred tax assets as it has been deemed more likely than not based on the weight of available evidence that these U.S. net deferred tax assets will not be realized. Income taxes paid for the year ended December 31, 2002, 2001 and 2000 totaled $2,661, $1,515 and $727, respectively. 10. STOCKHOLDERS' EQUITY The Class A common shares which are fully paid can be converted to Class B common shares on a one-to-one basis and/or Class C common shares which are fully paid can be converted to Class D common shares on a one-to-one basis, except that conversions are not allowable if no respective shares of Class A and/or Class C shares would be issued and outstanding after the conversion. Authorized and unissued shares of Class B and Class D common shares are required to be reserved sufficient to effect the respective conversions and any Class A and/or Class C common shares. Converted shares must be canceled and may not be reissued. Subject to the Company's credit facilities (Note 6), dividends are permitted as long as equal dividends are declared and paid for each class. In connection with the formation of predecessor Holdings, certain management investors, subscribed for 31,543 Class A common shares of Holdings for $631 and subscribed for 2,178 Class A restricted common shares of Holdings and options to purchase 4,532 Class A restricted common shares which were accepted by Holdings. Holdings committed to and contributed the proceeds from the sale of these Class A common shares, restricted shares and options to predecessor GBPI F-20 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- in the form of an additional capital contribution upon the receipt of the proceeds from the management investors. All classes of Common Stock are subject to the terms of a Stockholder Agreement as well as a Management Investors Agreement and an Institutional Investor Agreement, as appropriate. These Agreements contain certain covenants and restrict the transfer of the different classes of common stock to varying degrees. In the event an employee ceases to be employed by the Company, or desires to sell his/her common shares, the Company has the option to purchase the shares subject to certain rights of first refusal. In 1997 the Board of Directors approved the establishment of the 1997 Amended and Restated Equity Incentive Plan ("Incentive Plan"). Under the Incentive Plan, 111,670 shares of the Company's Class A or Class B common shares are available for issuance under the Company's stock option agreements. The Company also agreed to assume certain stock option agreements of predecessor Holdings, which aggregated 26,230 shares of Class A common shares. These predecessor options, to the extent they expire or are forfeited, increase the number of options available under the Incentive Plan. Incentive options outstanding were granted at then fair market value and vest over five-year periods. Options expire ten-years from their date of grant subject to earlier termination in certain events related to termination of employment. Upon the sale of the Company, all options vest (Note 12). The following summarizes the changes in the number of Class A common shares under option for the years ended December 31, 2002, 2001 and 2000:
2002 2001 2000 ---- ---- ---- AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF PRICE OF PRICE OF PRICE OPTIONS (WHOLE OPTIONS (WHOLE OPTIONS (WHOLE DOLLARS) DOLLARS) DOLLARS) Options outstanding, beginning of year 141,097 $ 9.68 141,097 $ 9.68 141,981 $ 9.68 Options granted during the year -- $ -- -- $ -- 250 $ 10.00 Options canceled during the year (1,851) $ 10.00 -- $ -- (1,134) $ 10.00 ------- ------- ------- Options outstanding, end of the year 139,246 $ 9.67 141,097 $ 9.68 141,097 $ 9.68 ======= ======= ======= Options exercisable, end of the year 123,766 $ 9.63 105,657 $ 9.57 75,656 $ 9.41 ======= ======= ======= Options available for grant, end of the year 3,186 1,335 1,335 ======= ======= =======
11. COMMITMENTS AND CONTINGENCIES General Various claims, lawsuits, and complaints arising in the ordinary course of business have been filed or are pending against the Company or may arise in the future involving allegations of negligence, product defects, and breach of warranty, among other allegations. Some of the foregoing matters involve or may involve compensatory or punitive damages in large amounts. Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance, and it is possible that some of the foregoing matters could be decided unfavorably to the Company. Although the liability, if any, associated with these matters was not determinable at December 31, 2002, it is the opinion of management of the Company that all such matters are either indemnified by the predecessor companies or adequately accrued for or are adequately covered by insurance F-21 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- or, if not so covered, are without merit or are of such kind, or involved such amounts, as would not have a significant effect on the consolidated financial position, results of the operations or cash flows of the Company if disposed of unfavorably. Management Advisory Agreement Genstar Investment Corporation ("GIC"), a stockholders representation group, entered into a management advisory agreement with Holdings and GBPI whereby GIC was retained as a management and corporate consultant. Fees under the agreement are $500 per annum, and may only be paid if the Company's fixed charge coverage, as defined in its bank financing agreement (Note 6), is at least 1:1. In May 2001, the bank allowed a one-time payment of accrued fees in the amount of $1,250 in 2001. At December 31, 2002 and 2001, $125 of such fees were accrued and unpaid. Amounts not paid when due bear interest at 10% per annum. This agreement is through December 15, 2004 (Note 12). Indemnification Agreement In conjunction with a stock purchase agreement ("Stock Purchase Agreement") with Amerimax to sell the Fabral Division (a previous division of the Company) in 1997, Holdings and GBPI have agreed to jointly and severally indemnify Amerimax with respect to liabilities and related matters resulting from or arising out of (1) any transfer of assets or liabilities, (2) certain product warranty obligations of predecessor GBPI or (3) breach or misrepresentation of certain responsibilities and warranties in the Stock Purchase Agreement. Subject to certain conditions, the product warranty indemnification excludes de-minimus claims and the first four claims under $25. The breach of certain representations and warranties are only indemnified to the extent claims for such breach exceeds $25 for any single claim and $300 in the aggregate. Other Agreement The Company has, subject to certain restrictions, and covenants, 30 year royalty-free, non-exclusive and non-transferable technology licenses to use the Alcan direct coater and strip deburring unit to manufacture, sell and distribute products in the United States and Canada with restrictions for export usage. Warranty Matters As discussed in Note 1, the Company provides various warranties to end-use consumers of its manufactured products. During 2000, the Company incurred a significantly higher incidence of steel siding warranty claims and costs. These claims were primarily the result of failures related to certain colors of polyvinyl-coated steel siding products which occurred in areas exposed to a combination of high heat and solar radiation conditions and which to date have been isolated to a certain period of production years. Based on extensive laboratory analysis and investigations, management feels it has significant evidence to support that the coating failures relate to improperly formulated materials provided by its coating supplier. Annually, management examines existing claims data and determines, with the assistance of an independent actuary, the amount of the estimated liability necessary to cover these estimated future claims. At December 31, 2002, the estimated future costs ranged from $3,200 to $9,800. Charges to operations aggregated $2,414 (unaudited) for the six months ended June 30, 2003 and $546, $4,200, and $1,400 for the years ended December 31, 2002, 2001 and 2000, respectively. Liabilities of $3,200 and $4,200 were recorded at December 31, 2002 and 2001, respectively. Through June 30, 2003, total claims costs of $5,753 (unaudited) have been paid. During 2001, management attempted to negotiate a financial resolution with its coating supplier without success. As a result, the Company filed suit against the supplier. The matter is in discovery stages. While management believes that the facts it has accumulated support the position that the warranty claims being incurred are a direct result of the faulty poly-vinyl coatings provided by the Company's supplier, no gains have been recorded due to the uncertainty of the F-22 GENTEK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- outcome of the litigation. The Company incurred expenses of $435 (unaudited) for the six months ended June 30, 2003 and $492, $360 and $0 for the year ended December 31, 2002, 2001 and 2000, respectively related to investigation of the coating failures and litigation. Other At December 31, 2002, the Company is obligated to purchase certain machinery at a cost of $1,248, net of deposits made of $647. The Company enters into arrangements with key material producers for the supply of certain raw materials used in production. These arrangements provide for purchasing terms and conditions and include variable pricing formulas which are generally tied to published market indexes. Durations for these arrangements range from one to three years. 12. SUBSEQUENT EVENTS (UNAUDITED) On August 29, 2003, Associated Materials Incorporated ("Associated Materials") acquired all of the issued and outstanding shares of capital stock and repaid the credit facilities and term note of Holdings for an aggregate purchase price of approximately $112.1 million in cash, which includes a working capital adjustment. All of the Company's stock options (Note 10) vested upon the closing of the acquisition and each option holder's options were exchanged for the option's then fair value, the equivalent value of an outstanding share of capital stock at the time of the transaction. The GIC management advisory agreement (Note 11) was terminated in conjunction with the acquisition. F-23 EX-99.2 4 l04037aexv99w2.txt EXHIBIT 99.2 Exhibit 99.2 Unaudited Pro Forma Condensed Consolidated Financial Data The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2002 and the six months ended June 28, 2003 and the unaudited pro forma condensed consolidated balance sheet as of June 28, 2003 are based on the historical financial statements of Associated Materials Incorporated ("Associated Materials" or the "Company") and the historical unaudited consolidated financial statements of Gentek Holdings, Inc. ("Gentek Holdings") and on the assumptions and adjustments described in the notes to the unaudited pro forma condensed consolidated financial data, including assumptions relating to the consideration paid for Gentek Holdings and to the assets and liabilities acquired, based on preliminary estimates of their respective fair values. The acquisition of Gentek Holdings was completed effective August 29, 2003. The acquisition of Gentek Holdings has been accounted for using the purchase method of accounting. The total purchase price of the acquisition has been allocated to the tangible and intangible assets and liabilities acquired based upon their estimated fair values. The purchase price allocation is preliminary, based on facts currently known to Associated Materials and is subject to adjustment as the final valuation for the fair value of the acquired tangible property, plant and equipment, intangible assets and warranty liability related to certain steel siding has not been completed. As a result, the actual allocation is subject to the completion of these valuations and therefore may differ. The purchase consideration of the Gentek Holdings acquisition was $112.1 million. In addition, Associated Materials paid $5.6 of financing costs, repaid $76.5 million of existing Company term loans and $0.6 million of accrued interest under the Company's existing credit facility. The Gentek Holdings purchase consideration, financing costs and the repayment of term loans and accrued interest were financed by borrowing $190.0 million under term loans and $10.2 million of revolving loans under the amended and restated credit facility and resulted in the Company receiving approximately $5.4 million in cash. On March 16, 2002, Associated Materials entered into a merger agreement ("Merger Agreement") with Associated Materials Holdings Inc. ("Holdings") and its wholly owned subsidiary, Simon Acquisition Corp. The Merger Agreement provided for the acquisition of all shares of the Company's then outstanding common stock by Simon Acquisition Corp. through a cash tender offer of $50.00 per share. The Merger Agreement also required that the Company commence a tender offer to purchase all of its then outstanding 9-1/4% notes. On April 19, 2002, the cash tender offer for the Company's then outstanding common stock and the cash tender offer for approximately $74.0 million of the Company's then outstanding 9-1/4% notes was completed. Simon Acquisition Corp. was then merged with and into the Company with the Company continuing as a privately held, wholly owned subsidiary of Holdings. The completion of the aforementioned transactions constitute the merger transaction. Holdings is controlled by affiliates of Harvest Partners, Inc. ("Harvest Partners"). The purchase consideration of $379.5 million, tender offer of $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 members of AmerCable's management and Wingate Partners III, L.P., for cash proceeds of approximately $28.3 million and the assumption of certain liabilities pursuant to an asset purchase agreement dated as of the same date. The Company used the net proceeds to repay a portion of its credit facility. AmerCable is a leading manufacturer of specialty electrical cable products primarily used in the mining, marine and offshore drilling industries. In 2001, AmerCable accounted for approximately 12% of the Company's total net sales. The unaudited pro forma balance sheet data has been presented as if the acquisition of Gentek Holdings had occurred as of June 28, 2003, and the pro forma condensed consolidated statements of operations data has been prepared as if the acquisition had occurred as of the beginning of 2002. The unaudited 1 pro forma condensed consolidated statement of operations for the year ended December 31, 2002 consists of the historical financial statements of Associated Materials for its Predecessor period from January 1st to April 18th and its Successor period from April 19th to December 31st. In addition, the pro forma condensed consolidated statement of operations for the year ended December 31, 2002 contemplates that the merger transaction with Harvest Partners and sale of AmerCable occurred as of the beginning of 2002. However, this statement excludes the effect of non-recurring expenses of Company deferred financing fees of $3.9 million, net of a tax benefit of $1.6 million. 2 Associated Materials Incorporated Unaudited Pro Forma Condensed Consolidated Balance Sheet June 28, 2003 (in thousands)
Historical ------------------------ Associated Gentek Pro Forma Pro Forma Materials Holdings Adjustments Combined --------- -------- ----------- -------- ASSETS Current assets: Cash and cash equivalents $ 2,016 $ 2,794 $ -- $ 4,810 Accounts receivable, net 87,079 44,620 (860)(a) 130,839 Inventory 70,779 44,855 1,402 (b) 117,036 Income taxes receivable 1,034 -- 1,626 (c) 2,660 Deferred income taxes 3,653 -- -- 3,653 Other current assets 4,882 1,192 -- 6,074 --------- --------- --------- --------- Total current assets 169,443 93,461 2,168 265,072 Property, plant and equipment, net 100,563 29,710 -- 130,273 Goodwill 197,461 -- 37,422 (b) 234,883 Trademarks and trade names, net 96,712 1,615 -- 98,327 Patents, net 5,854 860 -- 6,714 Other assets 10,635 2,684 (79)(b) 14,891 (1,829)(c) 3,480 (d),(f) --------- --------- --------- --------- Total assets $ 580,668 $ 128,330 $ 41,162 $ 750,160 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 42,650 $ 26,719 $ -- $ 69,369 Accrued liabilities 33,502 13,403 (1,030)(e),(f) 45,875 Income taxes payable -- 704 -- 704 Current portion of long-term debt -- 29,061 (29,061)(f) -- --------- --------- --------- --------- Total current liabilities 76,152 69,887 (30,091) 115,948 Deferred income taxes 58,976 1,670 (7,906)(b) 49,883 (2,857)(b) Other liabilities 20,987 15,014 (860)(a) 43,349 (264)(b) 8,472 (b) Long-term debt 241,500 13,400 190,000 (f) 360,220 5,220 (f) (76,500)(f) (13,400)(f) Stockholders' equity 183,053 28,359 (2,293)(c) 180,760 (28,359)(g) --------- --------- --------- --------- Total liabilities and stockholders' equity $ 580,668 $ 128,330 $ 41,162 $ 750,160 ========= ========= ========= =========
3 Associated Materials Incorporated Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet June 28, 2003 (Amounts in thousands) (a) Elimination of receivables/payables between the Company and Gentek Holdings at June 28, 2003 related to warranty claims owed to the Company by Gentek Holdings. (b) Represents the purchase price allocated to fair value of net assets acquired in connection with the Gentek Holdings acquisition as follows: Acquisition price of Gentek Holdings .......................................................... $111,745 Fees related to the acquisition ............................................................... 375 -------- Total purchase consideration .................................................................. 112,120 Less: historical Gentek debt not assumed by the Company ...................................... (42,461) Less: historical net book value of assets acquired ........................................... (28,359) -------- Purchase price in excess of historical net book value of assets acquired ...................... 41,300 Adjustments to reflect fair market value: Inventory ............................................................................... (1,402) Elimination of Gentek Holdings' deferred financing costs ................................ 79 Increase in pension liability ........................................................... 8,472 Reduction of postretirement benefit obligation .......................................... (264) Elimination of Gentek Holdings' valuation allowance on deferred tax assets .............. (7,906) Deferred tax asset as a result of the acquisition ....................................... (2,857) -------- Preliminary goodwill and intangible assets as a result of the acquisition ..................... $ 37,422 ========
(c) Expense of Company deferred financing fees of $3,919 (including $1,829 of historical Company fees and $2,090 of fees paid to finance the Gentek Holdings acquisition), net of a tax benefit of $1,626. In connection with the acquisition of Gentek Holdings, the Company substantially modified its term loan facility. As a result, the Company has expensed certain debt issuance costs in connection with the substantial modification, which occurred directly as a result of the acquisition of Gentek Holdings. (d) Deferred financing costs paid in connection with obtaining financing for the Gentek Holdings acquisition. (e) Payment of accrued interest, assuming repayment of existing Company loans under the credit facility as the facility was modified in connection with the acquisition of Gentek Holdings. 4 (f) Represents the sources and uses of the acquisition of Gentek Holdings as follows: Sources: Credit facility - term loan ............................................ $190,000 Credit facility - revolver ............................................. 5,220 -------- $195,220 ======== Uses: Acquisition price of Gentek Holdings' equity ........................... $ 69,284 Fees related to the acquisition ........................................ 375 Current portion of Gentek Holdings' debt repaid in connection with the acquisition ...................................................... 29,061 Long-term portion of Gentek Holdings' debt repaid in connection with the acquisition ...................................................... 13,400 -------- Total Gentek Holdings acquisition price ................................ 112,120 Capitalized deferred financing fees related to the acquisition ......... 3,480 Financing fees related to the acquisition that were expensed due to significant modification of the Company's term loans ............. 2,090 Repayment of existing Company term loans ............................... 76,500 Accrued interest on existing Company term loans ........................ 1,030 -------- $195,220 ========
(g) Elimination of historical equity of Gentek Holdings. 5 Associated Materials Incorporated Unaudited Pro Forma Condensed Consolidated Statement of Operations For The Year Ended December 31, 2002 (in thousands)
Historical ---------------------------- Associated Associated Associated Materials Materials Materials 108 Days 257 Days Pro Forma Ended April Ended AmerCable Merger Year 18, December 31, Pro Forma Transaction Ended 2002 2002 Adjustments Pro Forma December 31, Predecessor Successor (a) Adjustments 2002 ----------- --------- --- ----------- ---- Net sales ........................ $ 180,230 $ 449,324 $ (18,271) $ -- $ 611,283 Cost of sales .................... 130,351 317,077 (15,494) (383) (b) 431,551 --------- --------- --------- --------- --------- Gross profit ..................... 49,879 132,247 (2,777) 383 179,732 Selling, general and administrative expense ..... 43,272 86,097 (2,192) 326 (b) 127,503 --------- --------- --------- --------- --------- Income from operations ........... 6,607 46,150 (585) 57 52,229 Interest expense, net ............ 2,068 16,850 -- 5,371 (c) 24,289 Foreign currency loss ............ -- -- -- -- -- Other expense, net ............... -- -- -- -- -- Merger transaction costs ......... 9,319 -- -- (9,319) (d) -- Debt extinguishment costs ........ -- 7,579 -- -- 7,579 --------- --------- --------- --------- --------- Income (loss) from continuing operations before income taxes (4,780) 21,721 (585) 4,005 20,361 Income taxes ..................... 977 9,016 (225) (1,318) (e) 8,450 --------- --------- --------- --------- --------- Net income (loss) ................ $ (5,757) $ 12,705 $ (360) $ 5,323 $ 11,911 ========= ========= ========= ========= =========
Historical ------------ Gentek Pro Forma Holdings Gentek Combined Year Holdings Year Ended Acquisition Ended December 31, Pro Forma December 31, 2002 Adjustments 2002 ---- ----------- ---- Net sales ........................ $ 260,060 $ (4,068) (f) $ 867,275 Cost of sales .................... 218,769 (4,068) (f) 633,428 (12,824) (g) --------- ------- --------- Gross profit ..................... 41,291 12,824 233,847 Selling, general and administrative expense ..... 26,363 13,726 (g) 167,592 --------- --------- --------- Income from operations ........... 14,928 (902) 66,255 Interest expense, net ............ 1,934 854 (h) 27,077 Foreign currency loss ............ 419 -- 419 Other expense, net ............... 715 -- 715 Merger transaction costs ......... -- -- -- Debt extinguishment costs ........ -- -- 7,579 --------- --------- --------- Income (loss) from continuing operations before income taxes 11,860 (1,756) 30,465 Income taxes ..................... 2,690 1,503 (i) 12,643 --------- --------- --------- Net income (loss) ................ $ 9,170 $(3,259) $ 17,822 ========= ========= =========
6 Associated Materials Incorporated Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year Ended December 31, 2002 (Amounts in thousands) (a) These pro forma adjustments reflect Associated Materials' sale of the AmerCable division, which was completed on June 24, 2002 and the resulting elimination of AmerCable's results of operations from January 1, 2002 through April 18, 2002. From April 19, 2002, through the date of its sale, AmerCable's results of operations were presented as results of discontinued operations as it was the Successor's decision to divest this division. (b) Details of the pro forma adjustments to cost of sales and selling, general and administrative expenses reflect the following: (i) the elimination of compensation expense related to the corporate chief executive officer ("CEO") and the corporate chief financial officer ("CFO"), who were terminated upon consummation of the merger transaction with Harvest Partners, (ii) incremental depreciation and amortization of tangible and intangible assets recorded in conjunction with the merger transaction with Harvest Partners, (iii) the annual management services fee payable to Harvest Partners for services including those historically provided by the CEO and CFO and (iv) elimination of historical amortization of deferred financing costs. Cost of sales: Net decrease in depreciation and amortization ............................................ $(383) ===== Selling, general and administrative expenses: CEO and CFO compensation ................................................................. $(252) Increase in depreciation and amortization ................................................ 459 Management services fee .................................................................. 188 Amortization of historical deferred financing costs ...................................... (69) ----- $ 326 =====
(c) The pro forma adjustments to interest expense reflect the following: Commitment fee on revolving credit facility ......................... $ 200 Term loan ........................................................... 5,869 9-3/4% senior subordinated notes .................................... 16,088 Existing 9-1/4% senior subordinated notes not tendered .............. 84 Amortization of deferred financing costs ............................ 2,048 -------- Pro forma interest expense .......................................... 24,289 -------- Less: historical interest expense, net - Predecessor ......... (2,068) - Successor ........... (16,850) -------- Total adjustment .................................................... $ 5,371 ========
Interest expense was calculated as follows: (i) commitment fee on unused portion of the revolving credit facility of -1/2%; (ii) a rate of 5.29% (average London Interbank Offered Rate ("LIBOR") for the year ended December 31, 2002 of 1.79% + 3.50%) on the credit facility arranged at the time of the merger transaction with Harvest Partners, net of repayment using the proceeds from the sale of AmerCable, including the annual administration fee of $75 on the credit facility; (iii) an interest rate of 9-3/4% on the senior subordinated notes; (iv) an interest rate of 9-1/4% on the 9-1/4% senior subordinated notes not tendered; and (vi) twelve months of amortization of deferred financing costs. 7 The effect of a 1/8% increase or decrease in interest rates would increase or decrease total pro forma interest expense by $0.1 million for the year ended December 31, 2002. (d) Represents the elimination of merger transaction costs including investment banking and legal fees incurred by the Predecessor in conjunction with the merger transaction with Harvest Partners. (e) As a result of relocating the Company's corporate office from Texas to Ohio, the Company's state and local income tax rate increased, raising the Company's total effective tax rate to 41.5%. This amount represents the necessary adjustment to reflect a pro forma income tax provision of 41.5%. (f) Elimination of sales and cost of sales between the Company and Gentek Holdings for the year ended December 31, 2002. Neither the Company nor Gentek had significant quantities of inventory on hand at the end of the period as a result of these transactions. (g) Details of the pro forma adjustments to cost of sales and selling, general and administrative expenses to reflect the following: (i) the reclassification of supply center expenses and certain freight costs from cost of sales to selling, general and administrative expenses to conform to the Company's presentation, (ii) cost of sales expense of an inventory fair value adjustment recorded at the time of the Gentek Holdings' acquisition, and (iii) elimination of the annual management services fee payable to Gentek Holdings' parent company. Cost of sales: Reclassification of certain costs ................ $(14,226) Expense of inventory fair value adjustment ....... 1,402 -------- $(12,824) ======== Selling, general and administrative expenses: Reclassification of certain cost of sales expenses $ 14,226 Management services fee .......................... (500) -------- $ 13,726 ========
8 (h) The pro forma adjustments to interest expense reflect the following: Commitment fee on revolving credit facility ....................... $ 277 Term loan ......................................................... 8,620 Revolving portion of credit facility .............................. 250 9-3/4% senior subordinated notes .................................. 16,088 Existing 9-1/4% senior subordinated notes not tendered ............ 84 Amortization of deferred financing costs .......................... 1,758 -------- Pro forma interest expense ........................................ 27,077 Less: historical interest expense, net: Predecessor ................................................. (2,068) Successor ................................................... (16,850) Gentek Holdings ............................................. (1,934) Merger transaction with Harvest Partners pro forma adjustment (5,371) -------- Total adjustment .................................................. $ 854 ========
Interest expense was calculated as follows: (i) commitment fee on unused portion of the revolving credit facility of 1/2%; (ii) a rate of 4.54% (average London Interbank Offered Rate ("LIBOR") for the year ended December 31, 2002 of 1.79% + 2.75%) on the term loan portion of the credit facility arranged at the time of the acquisition of Gentek Holdings, (iii) a rate of 4.79% (average London Interbank Offered Rate ("LIBOR") for the year ended December 31, 2002 of 1.79% + 3.00%) on the revolving loan portion of the credit facility arranged at the time of the acquisition of Gentek Holdings, (iv) an interest rate of 9-3/4% on the senior subordinated notes; (v) an interest rate of 9-1/4% on the 9-1/4% senior subordinated notes not tendered at the time of the merger transaction with Harvest Partners; and (vi) twelve months of amortization of deferred financing costs. The effect of a 1/8% increase or decrease in interest rates would increase or decrease total pro forma interest expense by $0.2 million for the year ended December 31, 2002. (i) This amount represents the necessary adjustment to reflect a pro forma income tax provision of 41.5%. 9 Associated Materials Incorporated Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six Months Ended June 28, 2003 (in thousands)
Gentek Holdings Historical Acquisition Associated Gentek Pro Forma Pro Forma Materials Holdings Adjustments Combined --------- -------- ----------- -------- Net sales ................................................. $ 291,307 $ 132,911 $ (976) (a) $ 423,242 Cost of sales ............................................. 206,339 116,093 (976) (a) 313,891 (7,565) (b) --------- --------- --------- --------- Gross profit .............................................. 84,968 16,818 7,565 109,351 Selling, general and administrative expense ............... 65,014 14,723 7,315 (b) 87,052 --------- --------- --------- --------- Income from operations .................................... 19,954 2,095 250 22,299 Interest expense, net ..................................... 10,921 936 1,200 (c) 13,057 Foreign currency gain ..................................... -- (239) -- (239) Other ..................................................... -- 141 -- 141 --------- --------- --------- --------- Income (loss) from continuing operations before income taxes .................................................. 9,033 1,257 (950) 9,340 Income taxes .............................................. 3,749 1,571 (1,444) (d) 3,876 --------- --------- --------- --------- Net income (loss) ......................................... $ 5,284 $ (314) $ 494 $ 5,464 ========= ========= ========= =========
10 Associated Materials Incorporated Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six Months Ended June 28, 2003 (Amounts in thousands) (a) Elimination of sales and cost of sales between the Company and Gentek Holdings for the six months ended June 28, 2003. Neither the Company nor Gentek Holdings had significant quantities of inventory on hand at the end of the period as a result of these transactions. (b) Details of the pro forma adjustments to cost of sales and selling, general and administrative expenses to reflect the following: (i) the reclassification of supply center expenses and certain freight costs from cost of sales to selling, general and administrative expenses to conform to the Company's presentation, (ii) elimination of cost of sales for transactions between the Company and Gentek Holdings, and (iii) elimination of the annual management services fee payable to Gentek Holdings' parent company. Cost of sales: Reclassification of certain costs ................ $(7,565) ======= Selling, general and administrative expenses: Reclassification of certain cost of sales expenses $ 7,565 Management services fee .......................... (250) ------- $ 7,315 =======
(c) The pro forma adjustments to interest expense reflect the following: Commitment fee on revolving credit facility .......... $ 138 Term loan ............................................ 3,828 Revolving portion of credit facility ................. 112 9-3/4% senior subordinated notes ..................... 8,044 Existing 9-1/4% senior subordinated notes not tendered 56 Amortization of deferred financing costs ............. 879 -------- Pro forma interest expense ........................... 13,057 -------- Less: historical interest expense, net: Company ........................................ (10,921) Gentek Holdings ................................ (936) -------- Total adjustment ..................................... $ 1,200 ========
Interest expense was calculated as follows: (i) commitment fee on unused portion of the revolving credit facility of 1/2%; (ii) a rate of 4.03% (average London Interbank Offered Rate ("LIBOR") for the six months ended June 28, 2003 of 1.28% + 2.75%) on the term loan portion of the credit facility arranged at the time of the acquisition of Gentek Holdings, (iii) a rate of 4.28% (average London Interbank Offered Rate ("LIBOR") for the six months ended June 28, 2003 of 1.28% + 3.00%) on the revolving loan portion of the credit facility arranged at the time of the acquisition of Gentek Holdings, (iv) an interest rate of 9-3/4% on the senior subordinated notes; (v) an interest rate of 9-1/4% on the 9-1/4% senior subordinated notes not tendered at the time of the merger transaction with Harvest Partners through the date of redemption; and (vi) six months of amortization of deferred financing costs. 11 The effect of a 1/8% increase or decrease in interest rates would increase or decrease total pro forma interest expense by $0.1 million for the six months ended June 28, 2003. (d) This amount represents the necessary adjustment to reflect a pro forma income tax provision of 41.5%. 12 -----END PRIVACY-ENHANCED MESSAGE-----