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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ACT OF 1934
For the quarterly period ended June 28, 2003
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or
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-24956
ASSOCIATED MATERIALS INCORPORATED
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
3773 State Rd. Cuyahoga Falls, Ohio 44223
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (330) 929 -1811
-----------------------------
Not Applicable
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Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
------ -----
As of August 8, 2003, the Registrant had 100 shares of Common Stock
outstanding, all of which is held by an affiliate of the Registrant.
ASSOCIATED MATERIALS INCORPORATED
REPORT FOR THE QUARTER AND SIX MONTHS ENDED JUNE 28, 2003
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets..................................................... 1
June 28, 2003 (Unaudited) and December 31, 2002 - Successor
Statements of Operations (Unaudited)............................... 2
Quarter ended June 28, 2003 - Successor
Seventy-three days ended June 30, 2002 - Successor
Eighteen days ended April 18, 2002 - Predecessor
Six months ended June 28, 2003 - Successor
Seventy-three days ended June 30, 2002 - Successor
One hundred eight days ended April 18, 2002 - Predecessor
Statements of Cash Flows (Unaudited)............................... 3
Six months ended June 28, 2003 - Successor
Seventy-three days ended June 30, 2002 - Successor
One hundred eight days
ended April 18, 2002 - Predecessor
Notes to Financial Statements (Unaudited)............................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 16
Item 4. Controls and Procedures........................................ 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 17
Item 6. Exhibits and Reports on Form 8-K............................... 17
SIGNATURES............................................................. 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(In thousands)
(Unaudited)
June 28, December 31,
2003 2002
----------- ------------
Successor
---------------------------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 2,016 $ 13,022
Accounts receivable, net ....................... 87,079 67,861
Inventory ...................................... 70,779 60,369
Income taxes receivable ........................ 1,034 4,675
Deferred income taxes .......................... 3,653 3,653
Other current assets ........................... 4,882 4,604
-------- --------
Total current assets ......................... 169,443 154,184
Property, plant and equipment, net ................ 100,563 99,113
Goodwill .......................................... 197,461 197,461
Trademarks and trade names, net ................... 96,712 97,504
Patents, net ...................................... 5,854 6,186
Other assets ...................................... 10,635 11,089
-------- --------
Total assets ............................. $580,668 $565,537
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ............................... $ 42,650 $ 31,319
Accrued liabilities ............................ 33,502 34,319
-------- --------
Total current liabilities .................... 76,152 65,638
Deferred income taxes ............................. 58,976 58,976
Other liabilities ................................. 20,987 20,746
Long-term debt .................................... 241,500 242,408
Stockholder's equity .............................. 183,053 177,769
-------- --------
Total liabilities and stockholder's equity $580,668 $565,537
======== ========
See accompanying notes.
-1-
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Seventy- Eighteen Seventy- One Hundred
Three Months Three Days Days Six Months Three Eight Days
Ended Ended Ended Ended Days Ended Ended
June 28, June 30, April 18, June 28, June 30, April 18,
2003 2002 2002 2003 2002 2002
----------- ---------- ----------- ---------- ---------- -----------
Successor Successor Predecessor Successor Successor Predecessor
----------- ---------- ----------- ---------- ---------- -----------
Net sales ................................. $180,363 $ 113,960 $ 57,032 $291,307 $ 113,960 $ 180,230
Cost of sales ............................. 123,563 79,291 39,573 206,339 79,291 130,351
-------- --------- -------- -------- --------- ---------
Gross profit .............................. 56,800 34,669 17,459 84,968 34,669 49,879
Selling, general and administrative expense 33,704 21,667 12,053 65,014 21,667 43,272
-------- --------- -------- -------- --------- ---------
Income from operations .................... 23,096 13,002 5,406 19,954 13,002 6,607
Interest expense, net ..................... 5,483 4,981 399 10,921 4,981 2,068
Merger transaction costs .................. -- -- 7,317 -- -- 9,319
Debt extinguishment costs ................. -- 7,579 -- -- 7,579 --
-------- --------- -------- -------- --------- ---------
Income (loss) from continuing operations
before income taxes .................... 17,613 442 (2,310) 9,033 442 (4,780)
Income taxes .............................. 7,309 183 1,928 3,749 183 977
-------- --------- -------- -------- --------- ---------
Income (loss) from continuing operations .. 10,304 259 (4,238) 5,284 259 (5,757)
Loss from discontinued operations ......... -- (521) -- -- (521) --
-------- --------- -------- -------- --------- ---------
Net income (loss) ......................... $ 10,304 $ (262) $ (4,238) $ 5,284 $ (262) $ (5,757)
======== ========= ======== ======== ========= =========
See accompanying notes.
-2-
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Seventy- One Hundred
Six Months Three Days Eight Days
Ended Ended Ended
June 28, June 30, April 18,
2003 2002 2002
--------- ---------- ------------
Successor Successor Predecessor
--------- ---------- ------------
OPERATING ACTIVITIES
Income (loss) from continuing operations .................... $ 5,284 $ 259 $ (5,757)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization .......................... 5,512 1,397 3,969
Tax benefit from stock option exercise ................. -- -- 113
Cost of sales expense related to an inventory fair value
purchase accounting adjustment ....................... -- 1,891 --
Debt extinguishment costs .............................. -- 7,579 --
Amortization of deferred financing costs ............... 689 309 --
Changes in operating assets and liabilities:
Accounts receivable, net ............................. (19,218) (12,958) (6,246)
Inventories .......................................... (10,410) (3,225) (5,170)
Income taxes ......................................... 3,641 (187) (616)
Accounts payable and accrued liabilities ............. 10,514 18,761 (4,326)
Other ................................................ (269) (204) (225)
-------- --------- --------
Net cash provided by (used in) operating activities ......... (4,257) 13,622 (18,258)
INVESTING ACTIVITIES
Acquisition of Predecessor's equity ......................... -- (377,796) --
Proceeds from sale of AmerCable ............................. -- 28,332 --
Proceeds from sale of assets ................................ -- -- 220
Additions to property, plant and equipment .................. (5,841) (3,260) (3,817)
-------- --------- --------
Net cash used in investing activities ....................... (5,841) (352,724) (3,597)
FINANCING ACTIVITIES
Equity contribution from Associated Materials Holdings Inc. . -- 164,807 --
Proceeds from issuance of 9 3/4% Senior Subordinated Notes .. -- 165,000 --
Proceeds from borrowings under term loan .................... -- 125,000 --
Repayments of term loan ..................................... -- (28,500) --
Redemption of 9 1/4% senior subordinated notes .............. (908) (74,092) --
Debt extinguishment costs ................................... -- (7,579) --
Dividends paid .............................................. -- -- (339)
Stock options ............................................... -- -- 94
-------- --------- --------
Net cash provided by (used in) financing activities ......... (908) 344,636 (245)
-------- --------- --------
Net increase (decrease) in cash from continuing operations .. (11,006) 5,534 (22,100)
Net cash used in discontinued operations .................... -- (1,076) --
Cash at beginning of period ................................. 13,022 6,769 28,869
-------- --------- --------
Cash at end of period ....................................... $ 2,016 $ 11,227 $ 6,769
======== ========= ========
Supplemental information:
Cash paid for interest ...................................... $ 9,240 $ 1,756 $ 4,479
======== ========= ========
Cash paid for income taxes .................................. $ 108 $ 252 $ 2,254
======== ========= ========
See accompanying notes.
-3-
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 28, 2003
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated
(the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial reporting, the
instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in its annual report
on form 10-K for the year ended December 31, 2002. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the interim financial information have been
included.
The Company elected to change its fiscal year from a calendar year
ending on December 31st to a 52 / 53 week fiscal year that ends on the Saturday
closest to December 31st. The second quarter of fiscal 2003 began on March 30,
2003 and ended on June 28, 2003. The Company's 2003 fiscal year end will be
January 3, 2004.
The Company's results of operations prior to the date of the merger
transaction (see Note 2) are presented as the results of the Predecessor. The
results of operations, including the merger transaction and results thereafter,
are presented as the results of the Successor. In addition, the Company
completed the sale of its AmerCable division on June 24, 2002. AmerCable's
results through April 18, 2002 are included in the results of continuing
operations of the Predecessor. Subsequent to April 18, 2002, AmerCable's results
are presented as discontinued operations of the Successor as it was the
Successor's decision to divest this division.
The Company is a manufacturer of exterior residential building
products, which are distributed through 91 company-owned Supply Centers across
the United States. The Company produces a broad range of vinyl siding and vinyl
window product lines as well as vinyl fencing, vinyl decking and vinyl garage
doors. Because most of the Company's building products are intended for exterior
use, the Company's sales and operating profits tend to be lower during periods
of inclement weather. Therefore, the results of operations for any interim
period are not necessarily indicative of the results of operations for a full
year. The Company's net income (loss) and comprehensive income (loss) are the
same for all periods presented.
NOTE 2 - PRO FORMA INFORMATION
On April 19, 2002, a cash tender offer for the Company's then
outstanding common stock for $50 per share and a cash tender offer for
approximately $74.0 million of the Company's then outstanding 9 1/4% notes were
completed. As a result, the Company became a privately held, wholly-owned
subsidiary of Associated Materials Holdings Inc. ("Holdings"), which is
controlled by affiliates of Harvest Partners, Inc. The merger was accounted for
using the purchase method of accounting. The total consideration of $379.5
million (including amounts paid after June 30, 2002) was allocated to tangible
and intangible assets acquired and liabilities assumed based on fair values at
the date of the acquisition based on valuation estimates and certain
assumptions. The purchase consideration of $379.5 million, tender offer of the
$74.0 million of 9 1/4% notes and debt extinguishment costs of $7.6 million were
financed through: (1) the issuance of $165 million of 9 3/4% senior subordinated
notes due 2012 ("9 3/4% notes"), (2) $125 million from a new $165 million credit
facility ("credit facility"), (3) $164.8 million cash contribution from Holdings
and (4) cash of approximately $6.3 million, representing a portion of the
Company's total cash of $6.8 million on hand at the time of the acquisition.
On June 24, 2002, the Company completed the sale of its AmerCable
division to AmerCable Incorporated, a newly formed entity controlled by Wingate
Partners III, L.P. and members of AmerCable's management for net proceeds of
approximately $28.3 million and the assumption of certain liabilities pursuant
to an asset purchase agreement. The Company used the net proceeds to repay a
portion of its credit facility.
-4-
The following pro forma information for the quarter and six months
ended June 30, 2002 was prepared as if the merger transaction and the sale of
AmerCable occurred as of the beginning of each period presented. On a pro forma
basis, the Company would have had (in thousands):
Quarter Six Months
Ended Ended
June 30, June 30,
2002 2002
-------- ----------
Net sales ....... $164,857 $275,919
Net income ...... $ 2,511 $ (95)
The pro forma information is not necessarily indicative of the results
that would have occurred had the merger transaction and sale of AmerCable
occurred at the beginning of the periods presented, nor is it necessarily
indicative of future results. The pro forma results of operations for both
periods presented include a $1.9 million expense related to an inventory fair
value adjustment recorded at the time of the merger transaction.
NOTE 3 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or
market. Inventories consisted of the following (in thousands):
June 28, December 31,
2003 2002
--------- ------------
Raw materials.............................. $ 13,322 $ 13,545
Work-in-process............................ 6,036 3,928
Finished goods and purchased stock......... 51,421 42,896
--------- ---------
$ 70,779 $ 60,369
========= =========
NOTE 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill of $197.5 million consists of the purchase price for the
merger transaction in excess of the fair value of the tangible and intangible
net assets acquired. Other intangible assets consist of the Company's trademarks
and trade name of $98.7 million and patents of approximately $6.8 million. The
Company has determined one trademark and the Alside trade name totaling $74.7
million have indefinite useful lives. The remaining $24.0 million of trademarks
are being amortized on a straight-line basis over their estimated remaining
useful lives of 15 years. Patents are being amortized on a straight-line basis
over their estimated remaining useful lives of 10 years. Amortization expense
related to trademarks and patents was approximately $0.4 million and $0.2
million, respectively for the quarter ended June 28, 2003. Amortization expense
related to patents was approximately $0.2 million for the 73 days ended June 30,
2002. Amortization expense related to trademarks and patents was approximately
$0.8 million and $0.3 million, respectively for the six months ended June 28,
2003. Accumulated amortization related to trademarks and patents was
approximately $2.0 million and $0.9 million, respectively as of June 28, 2003
and approximately $1.2 million and $0.6 million, respectively as of December 31,
2002.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
June 28, December 31,
2003 2002
-------- ------------
9 3/4% notes.............................. $165,000 $ 165,000
Term loan under credit facility........... 76,500 76,500
9 1/4% notes.............................. -- 908
-------- ----------
$241,500 $ 242,408
======== ==========
The Company's $165 million of 9 3/4% notes due in 2012 pay interest
semi-annually in April and October. The Company's credit facility includes term
loans due through 2009 that bear interest at the London Interbank
-5-
Offered Rate (LIBOR) plus 3.50%, payable quarterly at the end of each calendar
quarter, and up to $40 million of available borrowings provided by revolving
loans, which expire in 2007.
The credit facility and the indenture governing the 9 3/4% notes
contain restrictive covenants that, among other things, limit the Company's
ability to incur additional indebtedness, make loans or advances to subsidiaries
and other entities, invest in capital expenditures, sell its assets or declare
dividends. In addition, under the credit facility the Company is required to
achieve certain financial ratios relating to leverage, coverage of fixed charges
and coverage of interest expense. The Company was in compliance with its
covenants as of June 28, 2003. On an annual basis, the Company is required to
make principal payments on the term loan under its credit facility based on a
percentage of excess cash flows as defined in the credit facility. The payments
on the term loan in 2002 were sufficient such that no additional principal
payments were required in 2003 under the excess cash flow provision. The Company
records as a current liability those principal payments that are estimated to be
due within 12 months under the excess cash flow provision of the credit facility
when the likelihood of those payments becomes probable.
The Company has one subsidiary, which is a wholly owned subsidiary
having no assets, liabilities or operations. This subsidiary fully and
unconditionally guarantees the Company's 9 3/4% notes.
NOTE 6 - STOCK PLANS
The Company measures stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 -
"Accounting for Stock Issued to Employees." The Company follows the disclosure
provisions required under Financial Accounting Standard Board ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 123 - "Accounting for Stock Based
Compensation." Pro forma information regarding net income is required by SFAS
No. 123, and has been determined as if the Company had accounted for its stock
options under the fair value method of that statement using a minimum value
approach for companies with private equity. FASB SFAS No. 148 - "Accounting for
Stock-Based Compensation" requires this information to be disclosed on a
quarterly basis. The pro forma effect on net loss for the quarter and six months
ended June 28, 2003, seventy-three days ended June 30, 2002 and eighteen and 108
days ended April 18, 2002 would have been (in thousands):
Seventy- Eighteen Six Seventy- One Hundred
Quarter Three Days Days Months Three Days Eight Days
Ended Ended Ended Ended Ended Ended
June 28, June 30, April 18, June 28, June 30, April 18,
2003 2002 2002 2003 2002 2002
-------- --------- ----------- --------- --------- -----------
Successor Successor Predecessor Successor Successor Predecessor
-------- --------- ----------- --------- --------- -----------
Net income (loss) as reported ..... $ 10,304 $(262) $(4,238) $ 5,284 $(262) $(5,757)
Pro forma stock based employee.....
compensation cost, net of tax... (33) (172) (7) (65) (172) (65)
-------- ----- ------- ------- ----- -------
Pro forma net income (loss) ....... $ 10,271 $(434) $(4,245) $ 5,219 $(434) $(5,822)
======== ===== ======= ======= ===== =======
NOTE 7 - INCOME TAXES
As a result of relocating the Company's corporate office from Texas to
Ohio in April 2002, the Successor's state and local income tax rate increased,
raising the Company's total effective tax rate to 41.5% from 38.5%. In addition,
the Predecessor's tax provision included an estimate for merger transaction
costs that were not deductible for income tax purposes.
NOTE 8 - RECENTLY ADOPTED ACCOUNTING STANDARDS
On January 1, 2003, the Company adopted the provisions of FASB
Statement of Financial Accounting Standards No. 145,- "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The provisions of SFAS No. 145 related to the rescission of SFAS
No. 4 require that any gain or loss on extinguishment of debt that was
classified as an extraordinary item in prior periods be reclassified and no
longer be presented as an extraordinary item. As a result of adopting this
standard, the Company reclassified debt extinguishment costs recorded in the
second quarter of 2002. The debt extinguishment costs include $4.9 million for
the premium paid to extinguish substantially all of the Successor's assumed 9
1/4% notes and $2.7 million for the financing fees related to an interim credit
facility utilized for the merger transaction, which was repaid shortly
thereafter.
-6-
In January 2003, the FASB issued FASB Interpretation No. 46, ("FIN 46")
- - "Consolidation of Variable Interest Entities." Companies were required to
adopt the provisions of this interpretation immediately for all new variable
interest entities and in the interim period beginning after June 15, 2003 for
all variable interest entities in which an enterprise acquired an interest in
that entity before February 1, 2003. As the Company does not have an interest in
any variable interest entities, the adoption of this interpretation did not have
a material effect on the Company's financial position, results of operations or
cash flows.
NOTE 9 - SUBSEQUENT EVENT
On July 31, 2003, the Company announced that it has signed a definitive
agreement to acquire all of the issued and outstanding shares of capital stock
of Gentek Holdings, Inc. ("Gentek Holdings") and to repay all of the
indebtedness of Gentek Holdings and its subsidiaries for an aggregate purchase
price of approximately $118 million in cash, which includes an estimated working
capital adjustment of approximately $13 million. The purchase price is subject
to certain other adjustments as well as customary transaction fees.
Gentek Holdings, which is privately held, is the parent of Gentek
Building Products, Inc. and Gentek Building Products Limited (collectively,
"Gentek"). Gentek manufacturers and distributes vinyl siding and accessories,
aluminum and steel siding and accessories and vinyl windows under the Revere(R)
and Gentek(R) brand names. Gentek markets its products to professional
contractors on a wholesale basis through thirteen company owned distribution
centers in the mid-Atlantic region of the United States, twenty company owned
distribution centers in Canada and independent distributors in the United
States.
The proposed acquisition is expected to close by the end of August 2003
and is subject to customary conditions including receipt of regulatory approvals
and the Company's receipt of financing. In connection with the acquisition, the
Company expects to amend its existing credit facility by adding a term loan
facility to borrow up to an approximate additional $113.5 million and expanding
its revolving facility from $40 million to $70 million, including a new Canadian
subfacility of $15 million. The Company expects the amended credit facility to
be arranged on an uncommitted basis on substantially the same terms as the
existing credit facility. The Company's 9 3/4% notes will continue to remain
outstanding.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
On July 31, 2003, the Company announced that it has signed a definitive
agreement to acquire all of the issued and outstanding shares of capital stock
of Gentek Holdings, Inc. ("Gentek Holdings") and to repay all of the
indebtedness of Gentek Holdings and its subsidiaries for an aggregate purchase
price of approximately $118 million in cash, which includes an estimated working
capital adjustment of approximately $13 million. The purchase price is subject
to certain other adjustments as well as customary transaction fees.
Gentek Holdings, which is privately held, is the parent of Gentek
Building Products, Inc. and Gentek Building Products Limited (collectively,
"Gentek"). Gentek manufacturers and distributes vinyl siding and accessories,
aluminum and steel siding and accessories and vinyl windows under the Revere(R)
and Gentek(R) brand names. Gentek markets its products to professional
contractors on a wholesale basis through thirteen company owned distribution
centers in the mid-Atlantic region of the United States, twenty company owned
distribution centers in Canada and independent distributors in the United
States.
The proposed acquisition is expected to close by the end of August 2003
and is subject to customary conditions including receipt of regulatory approvals
and the Company's receipt of financing. In connection with the acquisition, the
Company expects to amend its existing credit facility by adding a term loan
facility to borrow up to an approximate additional $113.5 million and expanding
its revolving facility from $40 million to $70 million, including a new Canadian
subfacility of $15 million. The Company expects the amended credit facility to
be arranged on an uncommitted basis on substantially the same terms as the
existing credit facility. The Company's 9 3/4% notes will continue to remain
outstanding. There can be no assurance that the acquisition will be consummated
on the terms contemplated or at all.
RESULTS OF OPERATIONS
On April 19, 2002, a cash tender offer for the Company's then
outstanding common stock for $50 per share and a cash tender offer for
approximately $74.0 million of the Company's then outstanding 9 1/4% notes were
completed. As a result, the Company became a privately held, wholly owned
subsidiary of Associated Materials Holdings Inc., which is controlled by
affiliates of Harvest Partners, Inc.
The Company's results of operations prior to the date of the merger
transaction are presented as the results of the Predecessor. The results of
operations, including the merger transaction and results thereafter, are
presented as the results of the Successor. In addition, the Company completed
the sale of its AmerCable division on June 24, 2002. AmerCable's results through
April 18, 2002 are included in the continuing operations of the Predecessor.
Subsequent to April 18, 2002, AmerCable's results are presented as discontinued
operations of the Successor as it was the Successor's decision to divest the
division.
The Company has changed the way it describes its historical financial
performance in connection with the adoption by the SEC of rules affecting the
use and disclosure of non-GAAP financial measures. Accordingly, EBITDA as used
in this report has not been adjusted for items that may impact its comparability
to prior periods, including items such as AmerCable's results of operations,
merger transaction costs, debt extinguishment costs and a cost of sales expense
relating to an inventory fair value adjustment recorded at the time of the
merger. A reconciliation of EBITDA to net income (loss) is included in the table
below.
The following table sets forth for the periods indicated the results of
the Company's operations by segment:
-8-
ASSOCIATED MATERIALS INCORPORATED
CONDENSED PREDECESSOR / SUCCESSOR STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
One
Hundred
Seventy- Eight Seventy-
Three Three Three Six Days Three Six
Months Eighteen Days Months Months Ended Days Months
Ended Days Ended Ended Ended Ended April Ended Ended
June 28, April 18, June 30, June 30, June 28, 18, June 30, June 30,
2003 2002 2002 2002 2003 2002 2002 2002
--------- ----------- --------- -------- --------- ----------- --------- ---------
SUCCESSOR PREDECESSOR SUCCESSOR COMBINED SUCCESSOR PREDECESSOR SUCCESSOR COMBINED
--------- ----------- --------- -------- --------- ----------- --------- ---------
Net sales
Alside................................. $180,363 $50,897 $113,960 $164,857 $291,307 $161,959 $113,960 $275,919
AmerCable.............................. - 6,135 - 6,135 - 18,271 - 18,271
-------- ------- -------- -------- -------- -------- -------- --------
Total.............................. 180,363 57,032 113,960 170,992 291,307 180,230 113,960 294,190
Gross profit
Alside................................. 56,800 16,411 34,669 51,080 84,968 47,102 34,669 81,771
AmerCable.............................. - 1,048 - 1,048 - 2,777 - 2,777
-------- ------- -------- -------- -------- -------- -------- --------
Total.............................. 56,800 17,459 34,669 52,128 84,968 49,879 34,669 84,548
Selling, general and administrative expense
Alside................................. 33,704 11,508 21,667 33,175 65,014 41,080 21,667 62,747
AmerCable.............................. - 545 - 545 - 2,192 - 2,192
-------- ------- -------- -------- -------- -------- -------- --------
Total.............................. 33,704 12,053 21,667 33,720 65,014 43,272 21,667 64,939
Income from operations
Alside................................. 23,096 4,903 13,002 17,905 19,954 6,022 13,002 19,024
AmerCable.............................. - 503 - 503 - 585 - 585
-------- ------- -------- -------- -------- -------- -------- --------
Total.............................. 23,096 5,406 13,002 18,408 19,954 6,607 13,002 19,609
Interest, net............................... 5,483 399 4,981 5,380 10,921 2,068 4,981 7,049
-------- ------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
other non-operating expenses and income
taxes....................................... 17,613 5,007 8,021 13,028 9,033 4,539 8,021 12,560
Merger transaction costs (a)................ - 7,317 - 7,317 - 9,319 - 9,319
Debt extinguishment costs (b)............... - - 7,579 7,579 - - 7,579 7,579
-------- ------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes......................... 17,613 (2,310) 442 (1,868) 9,033 (4,780) 442 (4,338)
Income taxes................................ 7,309 1,928 183 2,111 3,749 977 183 1,160
-------- ------- -------- -------- -------- -------- -------- --------
Net income (loss) from continuing operations 10,304 (4,238) 259 (3,979) 5,284 (5,757) 259 (5,498)
Loss from discontinued operations .......... - - (521) (521) - - (521) (521)
-------- ------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... $10,304 $(4,238) $ (262) $ (4,500) $ 5,284 $ (5,757) $ (262) $ (6,019)
======== ======= ======== ======== ======== ======== ======== ========
Reconciliation of net income (loss) to
- --------------------------------------
EBITDA (c) (d):
- ---------------
Net income (loss) .......................... 10,304 $(4,238) $ (262) $ (4,500) $ 5,284 $ (5,757) $ (262) $ (6,019)
Interest - Continuing operations............ 5,483 399 4,981 5,380 10,921 2,068 4,981 7,049
- Discontinued operations (e)...... - - 1,213 1,213 - - 1,213 1,213
Taxes - Continuing operations............ 7,309 1,928 183 2,111 3,749 977 183 1,160
- Discontinued operations.......... - - (370) (370) - - (370) (370)
Depreciation and Amortization
- Continuing operations............ 2,795 990 1,397 2,387 5,512 3,969 1,397 5,366
- Discontinued operations.......... - - 318 318 - - 318 318
-------- ------- -------- -------- -------- -------- -------- --------
EBITDA ..................................... $ 25,891 $ (921) $ 7,460 $ 6,539 $ 25,466 $ 1,257 $ 7,460 $ 8,717
======== ======= ======== ======== ======== ======== ======== ========
(a) Merger transaction costs include investment banking and legal fees incurred
by the Predecessor in conjunction with the strategic review process and
subsequent merger transaction with Harvest Partners.
(b) Debt extinguishment costs include $4.9 million for the extinguishment of
substantially all of the Successor's assumed 9 1/4% senior subordinated
notes and $2.7 million for the expense of financing fees related to an
interim credit facility utilized for the merger, which was repaid shortly
thereafter.
(c) EBITDA is calculated as net income (loss) plus interest, taxes,
depreciation and amortization. The Company considers EBITDA to be an
important indicator of its operational strength and performance of its
business. The Company has included EBITDA because it believes it is used by
certain investors as one measure of a company's ability to service its
debt. EBITDA should be considered in addition to, not as a substitute for
the Company's net income or loss or to cash flows as well as other measures
of financial performance in accordance with accounting principles generally
accepted in the United States. EBITDA has not been prepared in accordance
with accounting principles generally accepted in the United States.
Therefore, EBITDA as presented by the Company, may not be comparable to
similarly titled measures reported by other companies.
-9-
(d) AmerCable's EBITDA is calculated as its net income (loss) plus interest,
taxes, depreciation and amortization. For the 2002 periods presented above,
AmerCable's EBITDA is calculated as follows:
One
Eighteen Seventy- Three Hundred Seventy-
Days Three Days Months Eight Days Three Days Six Months
Ended Ended Ended Ended Ended Ended
April 18, June 30, June 30, April 18, June 30, June 30,
2002 2002 2002 2002 2002 2002
----------- ---------- --------- ----------- ---------- ----------
PREDECESSOR SUCCESSOR COMBINED PREDECESSOR SUCCESSOR COMBINED
----------- ---------- --------- ----------- ---------- ----------
Reconciliation of net income (loss) to EBITDA:
- ----------------------------------------------
Net income (loss) ............................. $ 309 $ (521) $ (212) $ 359 $ (521) $ (162)
Interest - Discontinued operations (e)......... - 1,213 1,213 - 1,213 1,213
Taxes - Continuing operations............... 194 - 194 226 - 226
- Discontinued operations............. - (370) (370) - (370) (370)
Depreciation and Amortization
- Continuing operations............... 158 - 158 635 - 635
- Discontinued operations............. - 318 318 - 318 318
----- ------ ------ ------ ------ ------
EBITDA ........................................ $ 661 $ 640 $1,301 $1,220 $ 640 $1,860
===== ====== ====== ====== ====== ======
(e) Includes accelerated amortization of $0.8 million of debt issuance costs as
a result of using the proceeds from the sale of AmerCable to permanently
reduce the credit facility.
-10-
Quarter Ended June 28, 2003 Compared to Quarter Ended June 30, 2002
- -------------------------------------------------------------------
Subsequent to the merger transaction and sale of AmerCable, Alside
represents the ongoing operations of the Company.
Net sales were $180.4 million for the quarter ended June 28, 2003, a
9.4% increase over $164.9 million for the same period in 2002. The increase in
sales was primarily driven by an increase in window sales, partially offset by a
decrease in vinyl siding sales. The Company believes vinyl siding sales will be
flat for the third and fourth quarters of 2003 compared to the same periods in
2002. Gross profit for the quarter ended June 28, 2003 was $56.8 million, or
31.5% of net sales, compared to $51.1 million, or 31.0% of net sales, for the
same period in 2002. Included in the gross profit margin for the quarter ended
June 30, 2002 was a cost of sales expense of $1.9 million relating to an
inventory fair value adjustment recorded at the time of the merger. Excluding
this adjustment, gross profit margin percentage decreased primarily as a result
of window sales comprising a larger proportion of total sales in 2003 compared
to the same period in 2002. Selling, general and administrative expense
increased to $33.7 million, or 18.7% of net sales, for the quarter ended June
28, 2003 compared to $33.2 million, or 20.1% of net sales, for the same period
in 2002. The increase in selling, general and administrative expense is
primarily a result of three new supply centers added in 2003 along with seven
new supply centers added in 2002, which had three full months of expense in
2003. Income from operations was $23.1 million for the quarter ended June 28,
2003 compared to $17.9 million for the same period in 2002.
EBITDA for the quarter ended June 28, 2003 was $25.9 million compared
to $6.5 million for the same period in 2002. EBITDA for the quarter ended June
30, 2002 includes $1.3 million of EBITDA relating to the AmerCable division,
merger transaction costs of $7.3 million, debt extinguishment costs of $7.6
million and a cost of sales expense of $1.9 million relating to an inventory
fair value adjustment recorded at the time of the merger.
Successor and Predecessor Results
The Successor had net sales and net income of $180.4 million and $10.3
million, respectively, for the quarter ended June 28, 2003. Interest expense
during this period was $5.5 million and consisted primarily of interest on the 9
3/4% notes, term loan and revolving loans under the credit facility and
amortization of deferred financing costs. As a result of relocating the
Company's corporate office from Texas to Ohio, the Successor's state and local
income tax rate increased, raising the Company's total effective tax rate to
41.5% from 38.5%. The Successor recorded an income tax provision of $7.3
million, representing the 41.5% effective tax rate. The Successor had net sales
and a net loss of $114.0 million and $0.3 million, respectively, for the period
from April 19, 2002 to June 30, 2002. Interest expense during this period was
$5.0 million and consisted primarily of interest on the 9 3/4% notes, term loan
and revolving loans under the credit facility, an interim credit facility
temporarily utilized for the merger transaction and amortization of deferred
financing costs. The Successor recorded an income tax provision of $0.2 million,
representing the 41.5% effective tax rate. The Successor's results include debt
extinguishment costs of $7.6 million, including $4.9 million for the premium
paid to extinguish $74.0 million of the Successor's assumed 9 1/4% notes and
$2.7 million for financing fees related to an interim credit facility utilized
for the merger transaction, which was repaid shortly thereafter and loss from
discontinued operations of $0.5 million, net of tax, for the Company's AmerCable
division.
The Predecessor had net sales and a net loss of $57.0 million and $4.2
million for the period from April 1, 2002 to April 18, 2002. Interest expense
was $0.4 million and consisted primarily of interest on the Company's 9 1/4%
notes for the time period from April 1, 2002 to April 18, 2002. The
Predecessor's results include $7.3 million of transaction costs consisting of
investment banking and legal fees associated with the merger transaction. The
Predecessor recorded an income tax provision of $1.9 million. In addition to
recording income taxes at an effective rate of 38.5%, the Predecessor's tax
provision for 2002 included an estimate for merger transaction costs that were
not deductible for income tax purposes.
-11-
Six Months Ended June 28, 2003 Compared to Six Months Ended June 30, 2002
- -------------------------------------------------------------------------
Net sales were $291.3 million for the six months ended June 28, 2003, a
5.6% increase over $275.9 million for the same period in 2002. The increase in
sales was primarily driven by an increase in window sales, partially offset by a
decrease in vinyl siding sales. Gross profit increased to $85.0 million, or
29.2% of net sales, for the six months ended June 28, 2003 compared to $81.8
million, or 29.6% of net sales, for the same period in 2002. The decrease in
gross profit margin percentage was primarily a result of window sales comprising
a larger proportion of total sales in 2003 compared to the same period in 2002.
SG&A expense increased to $65.0 million, or 22.3% of net sales, for the six
months ended June 28, 2003 versus $62.7 million, or 22.7% of net sales, for the
same period in 2002. SG&A expense increased for the year-to-date period as a
result of the three new supply centers added in 2003 along with the seven new
supply centers added in 2002, which had six full months of expense in 2003.
Income from operations was $20.0 million for the six months ended June 28, 2003
compared to $19.0 million for the same period in 2002.
EBITDA for the six months ended June 28, 2003 was $25.5 million
compared to $8.7 million for the same period in 2002. EBITDA for the six months
ended June 30, 2002 includes $1.9 million of EBITDA relating to the AmerCable
division, merger transaction costs of $9.3 million, debt extinguishment costs of
$7.6 million and a cost of sales expense of $1.9 million relating to an
inventory fair value adjustment recorded at the time of the merger.
Successor and Predecessor Results
The Successor had net sales and net income of $291.3 million and $5.3
million, respectively, for the six months ended June 28, 2003. Interest expense
during this period was $10.9 million and consisted primarily of interest on the
9 3/4% notes, term loan and revolving loans under the credit facility and
amortization of deferred financing costs. The Successor recorded an income tax
provision of $3.7 million, representing the 41.5% effective tax rate.
The Successor's results of operations for the period from April 19,
2002 to June 30, 2002 are discussed above in the quarter comparison of results.
The Predecessor had net sales and a net loss of $180.2 million and $5.8
million for the period from January 1, 2002 to April 18, 2002. Interest expense
was $2.1 million and consisted primarily of interest on the Company's 9 1/4%
notes for the time period from January 1, 2002 to April 18, 2002. The
Predecessor's results include $9.3 million of transaction costs consisting of
investment banking and legal fees associated with the merger transaction. The
Predecessor recorded an income tax provision of $1.0 million, representing the
38.5% effective rate and an estimate for merger transaction costs that were not
deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 2003, the Company had cash and cash equivalents of $2.0
million and available borrowing capacity of approximately $36.6 million under
the revolving portion of its credit facility. Outstanding letters of credit
against the credit facility as of June 28, 2003, totaled $3.4 million securing
various insurance letters of credit. The Company had additional letters of
credit that were issued outside of the credit facility as of June 28, 2003
totaling $1.4 million also securing various insurance letters of credit.
Net cash used in operations was $4.3 million for the six months ended
June 28, 2003 primarily reflecting the operating results for the period, the
seasonal increases of accounts receivable and inventory during the summer
selling period, partially offset by a seasonal increase in accounts payable.
For the seventy-three days ended June 30, 2002 net cash provided by
operations of the Successor was $13.6 million. For the one hundred eight days
ended April 18, 2002, net cash used in operations of the Predecessor was $18.3
million. Cash flows from operations of the Predecessor also include the working
capital needs of AmerCable for the period from January 1, 2002 to April 18,
2002. AmerCable's cash flows for the period from April 19, 2002 to June 24, 2002
are shown as net cash used in discontinued operations. The net $4.7 million use
of cash from operations ($13.6 million of cash provided by the Successor less
$18.3 million of cash used by the Predecessor) for the six months ended June 30,
2002 primarily reflects the operating results for the period, the seasonal
increases of accounts receivable and inventory during the summer selling period,
partially offset by a seasonal increase in accounts payable.
-12-
Capital expenditures totaled $5.8 million for the six months ended June
28, 2003 and were primarily to replace vinyl siding extrusion and handling
equipment at the Company's Ennis, Texas manufacturing location and expenditures
related to opening three new supply centers.
For the seventy-three days ended June 30, 2002, capital expenditures of
the Successor totaled $3.3 million. For the one hundred eight days ended April
18, 2002, capital expenditures of the Predecessor totaled $3.8 million, which
includes AmerCable's capital expenditures of $1.9 million. The combined capital
expenditures of the Successor and Predecessor, excluding AmerCable, totaled $5.2
million for the six months ended June 30, 2002. Capital expenditures in the 2002
period were primarily for the production of new casement window tooling, related
production line expenditures and leasehold improvements for the opening of seven
new supply centers.
Cash flows from the Successor's investing activities also include the
merger transaction for $377.8 million and net proceeds from the sale of
AmerCable totaling $28.3 million.
Cash flows from financing activities for the six months ended June 28,
2003 include the redemption of the remaining outstanding 9 1/4% notes of $0.9
million. The $0.9 million of 9 1/4% notes were redeemed at 104.625% of the
principal amount of such notes plus accrued and unpaid interest through the date
of redemption.
Cash flows from the Successor's financing activities for the 73 days
ended June 30, 2002 include: (1) the issuance of $165 million of 9 3/4% notes
due 2012, (2) $125 million from a new $165 million credit facility, (3) $164.8
million cash contribution from Associated Materials Holdings Inc. and (4) cash
of approximately $4.6 million, representing a portion of the Company's total
cash on hand of $6.8 million to finance the merger transaction of $377.8
million, tender offer of the 9 1/4% notes of $74.0 million and debt
extinguishment costs of $7.6 million. The tender offer premium paid for the 9
1/4% notes was approximately $7.3 million, of which $4.9 million is included as
debt extinguishment costs representing the portion of the premium in excess of
the fair market value of the 9 1/4% notes. Upon completion of the merger
transaction, the Company was then obligated to make a change of control offer
for the approximate $1.0 million of remaining outstanding 9 1/4% notes at a
price of 101% of the principal amount thereof, plus accrued and unpaid interest.
The change of control offer was completed on June 21, 2002 with an additional
approximate $0.1 million of the 9 1/4% notes being tendered. Net proceeds from
the sale of AmerCable were subsequently used to permanently reduce borrowings
under the term loan by $28.5 million. For the 108 days ended April 18, 2002,
cash flows from financing activities include the payment of dividends of $0.3
million partially offset by cash received from stock option exercises of $0.1
million.
The Company's 9 3/4% notes pay interest semi-annually in April and
October. The Company's credit facility includes $76.5 million of outstanding
term loans due through 2009 that bear interest at the London Interbank Offered
Rate (LIBOR) plus 3.50%, payable quarterly at the end of each calendar quarter,
and up to $40 million of available borrowings provided by revolving loans, which
expire in 2007.
The credit facility and the indenture governing the 9 3/4% notes
contain restrictive covenants that, among other things, limit the Company's
ability to incur additional indebtedness, make loans or advances to subsidiaries
and other entities, invest in capital expenditures, sell its assets or declare
dividends. In addition, under the credit facility the Company is required to
achieve certain financial ratios relating to leverage, coverage of fixed charges
and coverage of interest expense. The Company was in compliance with these
covenants as of June 28, 2003. On an annual basis, the Company is required to
make principal payments on the term loan under its credit facility based on a
percentage of excess cash flows as defined in the credit facility. The payments
on the term loan in 2002 were sufficient such that no additional principal
payments were required in 2003 under the excess cash flow provision. The Company
records as a current liability those principal payments that are estimated to be
due within twelve months under the excess cash flow provision of the credit
facility when the likelihood of those payments becomes probable.
The Company expects to amend its existing credit facility to finance
the acquisition of Gentek Holdings Inc. by adding a term loan facility to borrow
up to an approximate additional $113.5 million and expanding the availability
under the revolving portion of its credit facility from $40 million to $70
million, including a new Canadian subfacility of $15 million. There can be no
assurance that the acquisition will be consummated on the terms contemplated or
at all.
The Company guaranteed $3.0 million of a secured note in connection
with the sale of a portion of its ownership interest in Amercord, Inc. Ivaco,
Inc., pursuant to the terms of the note, agreed to indemnify the Company for 50%
of any loss under the guarantee. The guarantee was exercised by Amercord's
lender, and the Company has settled with this lender for its portion of the
liability for approximately $1.2 million, which was fully paid
-13-
in April 2003. The Company retains a right to any collateral proceeds that
secure the note; however, the Company believes that the value of such collateral
is not sufficient to cover any significant portion of the Company's liability.
The Company believes that for the foreseeable future cash flows from
operations and its borrowing capacity under its credit facility will be
sufficient to satisfy its obligations to pay principal and interest on its
outstanding debt, maintain current operations, and provide sufficient capital
for presently anticipated capital expenditures. In addition, the Company
believes that should the acquisition of Gentek and related financing be
consummated on the terms contemplated, the future cash flows from operations and
the Company's anticipated borrowing capacity under the amended credit facility
will also be sufficient for the purposes mentioned above. There can be no
assurances, however, that the cash generated by the Company will be sufficient
for these purposes.
EFFECTS OF INFLATION
The Company believes that the effects of inflation have not been
material to its operating results for each of the past three years, including
interim periods. The Company's principal raw material, vinyl resin, has been
subject to rapid price changes. Through price increases, the Company has
historically been able to pass on significant resin cost increases. The results
of operations for individual quarters can and have been negatively impacted by a
delay between the time of vinyl resin cost increases and price increases in the
Company's products. However, over longer periods of time, the impact of the cost
increases in vinyl resin has historically not been material. Resin prices have
continued to increase in 2003. The Company increased prices for its vinyl siding
and vinyl windows in April 2003 to offset the increase in resin costs. While the
Company expects that any additional significant resin cost increases in 2003
will be offset by price increases to its customers, there can be no assurances
that the Company will be able to pass on any future price increases.
CERTAIN FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in
this report regarding the prospects of the industry and the Company's prospects,
plans, financial position and business strategy, may constitute forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "intend," "estimate," "anticipate," "believe," "predict," "potential"
or "continue" or the negatives of these terms or variations of them or similar
terminology. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, it does not assure that these
expectations will prove to be correct. The following factors are among those
that may cause actual results to differ materially from the forward-looking
statements:
- changes in home building industry, economic, interest rates and
other conditions;
- changes in availability of consumer credit, employment trends,
levels of consumer confidence and consumer preferences;
- changes in raw material costs and availability;
- the consummation of the Gentek Holdings acquisition on the
anticipated financing terms or at all and realization of expected
synergies;
- changes in national and regional trends in new housing starts;
- changes in weather conditions;
- the Company's ability to comply with certain financial covenants in
the loan documents;
- increases in competition from other manufacturers of vinyl building
products as well as alternative building products;
- increases in the Company's indebtedness;
- increases in costs of environmental compliance; and
- the other factors discussed under the heading "Risk Factors" in the
Company's annual report on Form 10-K for the year ended December 31,
2002 and elsewhere in this report.
-14-
All forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements included in this report. These forward-looking statements speak only
as of the date of this report. The Company does not intend to update these
statements unless the securities laws require it to do so.
-15-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company has outstanding borrowings under the term loan portion of
its credit facility. Interest under the credit facility is based on the variable
London Interbank Offered Rate (LIBOR). At June 28, 2003, the Company had
borrowings of $76.5 million under the term loan. The effect of a 1/8% increase
or decrease in interest rates would increase or decrease total interest expense
for the six months ended June 28, 2003 by less than $0.1 million.
FOREIGN CURRENCY EXCHANGE RISK
The Company's revenues are primarily from domestic customers and are
realized in U.S. dollars. Accordingly, the Company believes its direct foreign
currency exchange risk is not material. In the past, the Company has hedged
against foreign currency exchange rate fluctuations on specific sales or
equipment purchasing contracts. At June 28, 2003, the Company had no currency
hedges in place.
COMMODITY PRICE RISK
See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Effects of Inflation" for a discussion of
the market risk related to the Company's principal raw material, vinyl resin.
ITEM 4 CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days before the filing of this
quarterly report (the "Evaluation Date"). Based on their evaluation as
of the Evaluation Date, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
of the Exchange Act) are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported
within required time periods.
(b) Changes in internal controls.
The Company maintains a system of internal accounting controls that
are designed to provide reasonable assurance that the Company's books
and records accurately reflect the Company's transactions and that the
Company's established policies and procedures are followed. There were
no significant changes to the Company's internal controls or other
factors that could significantly affect its internal controls
subsequent to their evaluation as of the Evaluation Date, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
-16-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which, after giving effect to the Company's
existing insurance coverage, is expected to have a material adverse effect on
the Company.
From time to time, the Company is involved in a number of proceedings
and potential proceedings relating to environmental and product liability
matters. The Company handles these claims in the ordinary course of business and
maintains product liability insurance covering certain types of claims. Although
it is difficult to estimate the Company's potential exposure to these matters,
the Company believes that the resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- ------------
Exhibit
Number Description
- ------- -----------
99.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
- -----------------------
Report Date Description
- ----------- -----------
April 2, 2003 The Company filed a current report on Form 8-K to report a
change in its fiscal year end from December 31st to a 52/53
week fiscal year that ends on the Saturday closest to
December 31st (Item 8).
May 2, 2003 The Company furnished a current report on Form 8-K to report
its financial results for the first quarter ended March 29,
2003 (Items 7 and 9).
July 31, 2003 The Company submitted a current report on Form 8-K filing
under Items 7 and 9 a copy of the Stock Purchase Agreement,
dated July 31, 2003, by and between the Company and Gentek
Holdings, Inc. and furnishing under Item 9 a copy of the
press release announcing that the Company had entered into a
definitive agreement to acquire Gentek Holdings, Inc. (Items
7 and 9).
August 1, 2003 The Company furnished a current report on Form 8-K to report
its financial results for the second quarter ended June 28,
2003 (Items 7, 9 and 12).
August 1, 2003 The Company furnished a current report on Form 8-K to report
certain disclosures made during its second quarter earnings
conference call, which was held on August 1, 2003 (Item 9).
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED MATERIALS INCORPORATED
---------------------------------
(Registrant)
Date: August 12, 2003 By: /s/ Michael Caporale, Jr.
----------------------------------------
Michael Caporale, Jr.
President, Chief Executive Officer and
Director
(Principal Executive Officer)
By: /s/ D. Keith LaVanway
----------------------------------------
D. Keith LaVanway
Vice President, Chief Financial Officer
Treasurer and Secretary
(Principal Financial and Accounting
Officer)
-18-
Certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michael Caporale, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Associated
Materials Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: August 12, 2003 By: /s/ Michael Caporale, Jr.
------------------------------------------
Michael Caporale, Jr.
President, Chief Executive Officer and
Director
(Principal Executive Officer)
Certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, D. Keith LaVanway, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Associated
Materials Incorporated;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: August 12, 2003 By: /s/ D. Keith LaVanway
-----------------------------------------
D. Keith LaVanway
Vice President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
-19-