ASSOCIATED MATERIALS, LLC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - ASSOCIATED MATERIALS, LLC	Financial_Report.xls
EX-31.2 - EX-31.2 - ASSOCIATED MATERIALS, LLC	c20669exv31w2.htm
EX-32.1 - EX-32.1 - ASSOCIATED MATERIALS, LLC	c20669exv32w1.htm
EX-32.2 - EX-32.2 - ASSOCIATED MATERIALS, LLC	c20669exv32w2.htm
EX-31.1 - EX-31.1 - ASSOCIATED MATERIALS, LLC	c20669exv31w1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 2011

For the quarterly period ended July 2, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-24956

Associated Materials, LLC

(Exact Name of Registrant as Specified in Its Charter)


Delaware		75-1872487

(State or Other Jurisdiction of Incorporation of Organization)		(I.R.S. Employer Identification No.)

3773 State Rd. Cuyahoga Falls, Ohio		44223

(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code (330) 929 -1811

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 o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 8, 2011, all of the registrant’s membership interests outstanding were held by an affiliate of the Registrant.

ASSOCIATED MATERIALS, LLC
REPORT FOR THE QUARTER ENDED JULY 2, 2011


	Page No.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets July 2, 2011 and January 1, 2011		1

Unaudited Condensed Consolidated Statements of Operations Quarters ended July 2, 2011 and July 3, 2010 Six months ended July 2, 2011 and July 3, 2010		2

Unaudited Condensed Consolidated Statements of Cash Flows Six months ended July 2, 2011 and July 3, 2010		3

Notes to Unaudited Condensed Consolidated Financial Statements		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3. Quantitative and Qualitative Disclosures About Market Risk		25

Item 4. Controls and Procedures		26

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		26

Item 1A. Risk Factors		26

Item 2. Unregistered Sales of Equity Securities and use of Proceeds		26

Item 3. Defaults Upon Senior Securities		26

Item 4. (Removed and Reserved)		26

Item 5. Other Information		27

Item 6. Exhibits		27

SIGNATURES		28

EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


Item 1.		Financial Statements

ASSOCIATED MATERIALS, LLC

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	July 2,		January 1,
	2011		2011
Assets
Current assets:
Cash and cash equivalents	$	6,785	$	13,789
Accounts receivable, net of allowance for doubtful accounts of $9,732 at July 2, 2011 and $9,203 at January 1, 2011		158,291		118,408
Inventories		193,429		146,215
Income taxes receivable		—		3,291
Prepaid expenses		9,058		8,995

Total current assets		367,563		290,698

Property, plant and equipment, net of accumulated depreciation of $17,293 at July 2, 2011 and $4,943 at January 1, 2011		137,460		137,862
Goodwill		573,912		566,423
Other intangible assets, net		725,940		731,014
Other assets		28,326		29,907

Total assets	$	1,833,201	$	1,755,904


Liabilities and Member’s Equity
Current liabilities:
Accounts payable	$	138,500	$	90,190
Accrued liabilities		69,937		79,319
Deferred income taxes		16,422		19,989
Income taxes payable		738		2,506

Total current liabilities		225,597		192,004

Deferred income taxes		144,668		144,668
Other liabilities		135,468		132,755
Long-term debt		857,800		788,000
Member’s equity		469,668		498,477

Total liabilities and member’s equity	$	1,833,201	$	1,755,904

See accompanying notes to unaudited condensed consolidated financial statements.

ASSOCIATED MATERIALS, LLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)


	Quarters Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor

Net sales	$	310,459		$	328,322		$	507,195		$	532,559
Cost of sales		230,119			236,464			386,776			392,262

Gross profit		80,340			91,858			120,419			140,297
Selling, general and administrative expenses		65,624			53,589			124,540			101,070

Income (loss) from operations		14,716			38,269			(4,121	)		39,227
Interest expense, net		19,095			18,797			37,795			37,491
Foreign currency loss (gain)		124			70			94			(52	)

(Loss) income before income taxes		(4,503	)		19,402			(42,010	)		1,788
Income taxes provision (benefit)		2,690			(326	)		2,301			752

Net income (loss)	$	(7,193	)	$	19,728		$	(44,311	)	$	1,036

See accompanying notes to unaudited condensed consolidated financial statements.

ASSOCIATED MATERIALS, LLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six Months Ended
	July 2,			July 3,
	2011			2010
	Successor			Predecessor
Operating Activities
Net income (loss)	$	(44,311	)	$	1,036
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		25,457			11,266
Deferred income taxes		1,850			261
Provision for losses on accounts receivable		1,531			1,974
Amortization of deferred financing costs		2,238			2,027
Stock compensation		114			—
Amortization of net liabilities recorded in purchase accounting for the fair value of leased facilities and warranty liabilities		(598	)		—
Debt accretion		—			127
Loss on sale or disposal of assets other than by sale		173			27
Changes in operating assets and liabilities:
Accounts receivable		(39,939	)		(48,448	)
Inventories		(45,153	)		(43,764	)
Accounts payable and accrued liabilities		37,512			61,014
Income taxes receivable / payable		(6,142	)		(5,725	)
Other		2,113			832

Net cash used in operating activities		(65,155	)		(19,373	)

Investing Activities
Supply center acquisition		(1,550	)		—
Capital expenditures		(9,941	)		(8,263	)

Net cash used in investing activities		(11,491	)		(8,263	)

Financing Activities
Net borrowings under ABL Facilities		69,800			—
Net borrowings under prior ABL Facility		—			5,000
Financing costs		(371	)		(106	)

Net cash provided by financing activities		69,429			4,894

Effect of exchange rate changes on cash and cash equivalents		213			(971	)

Net decrease in cash and cash equivalents		(7,004	)		(23,713	)
Cash and cash equivalents at beginning of period		13,789			55,905

Cash and cash equivalents at end of period	$	6,785		$	32,192


Supplemental information:
Cash paid for interest	$	38,365		$	35,837

Cash paid for income taxes	$	6,611		$	6,214

See accompanying notes to unaudited condensed consolidated financial statements.

ASSOCIATED MATERIALS, LLC

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED JULY 2, 2011

Note 1 — Basis of Presentation

On October 13, 2010, AMH Holdings II, Inc. (“AMH II”), the then indirect parent company of Associated Materials, LLC, completed its merger (the “Acquisition Merger”) with Carey Acquisition Corp. (“Merger Sub”), pursuant to the terms of the Agreement and Plan of Merger, dated as of September 8, 2010 (the “Merger Agreement”), among Carey Investment Holdings Corp. (now known as AMH Investment Holdings Corp.) (“Parent”), Carey Intermediate Holdings Corp. (now known as AMH Intermediate Holdings Corp.), a wholly-owned direct subsidiary of Parent (“Holdings”), Merger Sub, a wholly-owned direct subsidiary of Holdings, and AMH II, with AMH II surviving such merger as a wholly-owned direct subsidiary of Holdings. After a series of additional mergers (together with the “Acquisition Merger,” the “Merger”), AMH II merged with and into Associated Materials, LLC, with Associated Materials, LLC surviving such merger as a wholly-owned direct subsidiary of Holdings. As a result of the Merger, Associated Materials, LLC (the “Company”) is now an indirect wholly-owned subsidiary of Parent. Approximately 98% of the capital stock of Parent is owned by investment funds affiliated with Hellman & Friedman LLC (“H&F”).

The financial statements for the periods ended July 3, 2010 have been presented to reflect the financial results of the Company and its former direct and indirect parent companies, Associated Materials Holdings, LLC, AMH and AMH II (together, the “Predecessor”). The financial statements for the periods ended July 2, 2011 have been presented to reflect the financial results of the Company subsequent to the Merger (the “Successor”). The Company’s results of operations and cash flows prior to and including the Merger include the activity and results of its former direct and indirect parent companies, which principally consisted of borrowings and related interest expense, and are presented as the results of the Predecessor. The results of operations following the Merger are presented as the results of the Successor.

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, these interim condensed consolidated financial statements contain all of the normal recurring accruals and adjustments considered necessary for a fair presentation of the unaudited results for the quarter and the six months ended July 2, 2011 and July 3, 2010. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended January 1, 2011. A detailed description of the Company’s significant accounting policies and management judgments is located in the audited financial statements for the year ended January 1, 2011, included in the Company’s Form 10-K filed with the Securities and Exchange Commission.

The Company is a leading, vertically integrated manufacturer and distributor of exterior residential building products in the United States and Canada. The Company produces a comprehensive offering of exterior building products, including vinyl windows, vinyl siding, aluminum trim coil and aluminum and steel siding and accessories, which are produced at the Company’s 11 manufacturing facilities. The Company also sells complementary products that are manufactured by third parties, such as roofing materials, insulation, exterior doors, vinyl siding in a shake and scallop design and installation equipment and tools. Because most of the 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.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company believes the adoption of ASU 2011-05 concerns presentation and disclosure only and will not have an impact on its consolidated financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”), which amends current guidance to result in common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments change the wording used to describe fair value measurement requirements and disclosures, but often do not result in a change in the application of current guidance. The amendments in ASU No. 2011-04 are effective for interim and annual periods beginning after December 15, 2011. The Company does not believe that the adoption of the provisions of ASU No. 2011-04 will have a material impact on its consolidated financial position, results of operations or cash flows.

ASU No. 2010-29, Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”), provides clarification regarding the acquisition date that should be used for reporting the pro forma financial information disclosures required by Topic 805 when comparative financial statements are presented. ASU 2010-29 also requires entities to provide a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly attributable to the business combination. ASU 2010-29 is effective for the Company prospectively for business combinations occurring after December 31, 2010.

Note 2 — Business Combination

Unaudited pro forma operating results of the Company giving effect to the Merger on January 3, 2010 is summarized as follows (in thousands):


	Quarter		Six Months
	Ended		Ended
	July 3,		July 3,
	2010		2010
Net sales	$	328,322	$	532,559
Net income (loss)		16,376		(5,659	)

Note 3 — Inventories

Inventories are valued at the lower of cost (first in, first out) or market. Inventories consist of the following (in thousands):


	July 2,		January 1,
	2011		2011

Raw materials	$	49,212	$	39,729
Work-in-progress		12,000		10,746
Finished goods and purchased products		132,217		95,740

	$	193,429	$	146,215

Note 4 — Goodwill and Other Intangible Assets

The Merger was accounted for using the acquisition method of accounting. The total purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values. The excess of the cost of the Merger over the fair value of the assets acquired and liabilities assumed resulted in goodwill. Total goodwill was approximately $573.9 million and $566.4 million as of July 2, 2011 and January 1, 2011, respectively. The Company did not recognize any impairment losses of its goodwill during any of the periods presented. The impact of foreign currency translation increased the carrying value of goodwill by $7.5 million for the six months ended July 2, 2011. None of the Company’s goodwill is deductible for income tax purposes.

In May 2011, the Company completed its acquisition of a supply center located in Evansville, Indiana. As a result, the Company recorded an additional customer base intangible asset of approximately $0.6 million and a non-compete agreement of less than $0.1 million, both of which will be amortized.

The Company’s other intangible assets consist of the following (in thousands):


	July 2, 2011							January 1, 2011
	Average							Average
	Amortization					Net		Amortization					Net
	Period			Accumulated		Carrying		Period			Accumulated		Carrying
	(In Years)	Cost		Amortization		Value		(In Years)	Cost		Amortization		Value
Amortized customer bases	13	$	334,141	$	18,711	$	315,430	13	$	330,915	$	5,453	$	325,462
Amortized non-compete agreements	3		10		—		10			—		—		—

Total amortized intangible assets			334,151		18,711		315,440			330,915		5,453		325,462
Non-amortized trade names			410,500		—		410,500			405,552		—		405,552

Total intangible assets		$	744,651	$	18,711	$	725,940		$	736,467	$	5,453	$	731,014

The Company’s non-amortized intangible assets consist of the Alside^®, Revere^® and Gentek^® trade names and are tested for impairment at least annually at the beginning of the fourth quarter.

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense related to intangible assets was approximately $6.6 million and $0.7 million for the quarters ended July 2, 2011 and July 3, 2010, respectively. Amortization expense related to intangible assets was approximately $13.2 million and $1.4 million for the six months ended July 2, 2011 and July 3, 2010, respectively. The foreign currency translation impact on accumulated amortization of intangibles was less than $0.1 million for the quarter ended July 2, 2011. Amortization expense is expected to be approximately $13.2 million for the remainder of fiscal 2011. Amortization expense is estimated to be $26.5 million per year for fiscal years 2012, 2013, 2014 and 2015.

Note 5 — Long-Term Debt

Long-term debt consists of the following (in thousands):


	July 2,		January 1,
	2011		2011

9.125% notes	$	730,000	$	730,000
Borrowings under the ABL facilities		127,800		58,000

Total long-term debt	$	857,800	$	788,000

9.125% Senior Secured Notes due 2017

In October 2010, in connection with the consummation of the Merger, the Company and AMH New Finance, Inc. (collectively, the “Issuers”) issued and sold $730.0 million of 9.125% Senior Secured Notes due 2017 (the “9.125% notes”). The notes bear interest at a rate of 9.125% per annum and are unconditionally guaranteed, jointly and severally, by each of the Issuers’ direct and indirect domestic subsidiaries that guarantee the Company’s obligations under the senior secured asset-based revolving credit facilities (the “ABL facilities”). The first semi-annual interest payment was made on April 29, 2011.

As the Company did not complete its offer to exchange all of its outstanding privately placed 9.125% notes for newly registered 9.125% notes until July 2011, the fair value of the 9.125% notes at July 2, 2011 and January 1, 2011 was estimated to be $730.0 million based upon the pricing determined in the private offering of the 9.125% notes at the time of issuance in October 2010. Subsequent to the completion of the notes exchange, the 9.125% notes have an estimated fair value of $671.6 million based on quoted market prices as of August 8, 2011.

ABL Facilities

In October 2010, in connection with the consummation of the Merger, the Company entered into the ABL facilities in the amount of $225.0 million (comprised of a $150.0 million U.S. facility and a $75.0 million Canadian facility) pursuant to a revolving credit agreement maturing in 2015 (the “Revolving Credit Agreement”). The revolving credit loans under the Revolving Credit Agreement bear interest at the rate of (1) the London Interbank Offered Rate (“LIBOR”) (for Eurodollar loans under the U.S. facility) or Canadian Dealer Offered Rate (“CDOR”) (for loans under the Canadian facility), plus an applicable margin of 3.00% as of July 2, 2011, (2) the alternate base rate (which is the highest of a prime rate, the Federal Funds Effective Rate plus 0.50% and a one-month LIBOR rate plus 1.0% per annum), plus an applicable margin of 2.00% as of July 2, 2011, or (3) the alternate Canadian base rate (which is the higher of a Canadian prime rate and the 30-day CDOR Rate plus 1.0%), plus an applicable margin of 2.00% as of July 2, 2011.

As of July 2, 2011, there was $127.8 million drawn under the Company’s ABL facilities and $52.7 million available for additional borrowings. As of July 2, 2011, the per annum interest rate applicable to borrowings under the U.S. portion of the ABL facilities was 3.9%. As of July 2, 2011, the per annum interest rate applicable to borrowings under the Canadian portion of the ABL facilities was 4.4%. The weighted average interest rate for borrowings under the ABL facilities was 4.0% for the quarter ended July 2, 2011. As of July 2, 2011, the Company had letters of credit outstanding of $7.4 million primarily securing deductibles of various insurance policies.

Note 6 — Comprehensive Income (Loss)

Comprehensive income (loss) differs from net income (loss) due to the reclassification of actuarial gains or losses and prior service costs associated with the Company’s pension and other postretirement plans and foreign currency translation adjustments as follows (in thousands):


	Quarters Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor
Net income (loss)	$	(7,193	)	$	19,728		$	(44,311	)	$	1,036
Unrecognized prior service cost and net loss		—			240			—			482
Foreign currency translation adjustments		2,425			(3,803	)		15,389			(939	)

Comprehensive income (loss)	$	(4,768	)	$	16,165		$	(28,922	)	$	579

Note 7 — Retirement Plans

The Company’s Alside division sponsors a defined benefit pension plan which covers hourly workers at its plant in West Salem, Ohio and a defined benefit retirement plan covering salaried employees, which was frozen in 1998 and subsequently replaced with a defined contribution plan. The Company’s Gentek subsidiary sponsors a defined benefit pension plan for hourly union employees at its Woodbridge, New Jersey plant (together with the Alside sponsored defined benefit plans, the “Domestic Plans”) as well as a defined benefit pension plan covering Gentek Canadian salaried employees and hourly union employees at the Lambeth, Ontario plant, a defined benefit pension plan for the hourly union employees at its Burlington, Ontario plant and a defined benefit pension plan for the hourly union employees at its Pointe Claire, Quebec plant (the “Foreign Plans”). Accrued pension liabilities are included in accrued and other long-term liabilities in the accompanying balance sheets. The actuarial valuation measurement date for the defined benefit pension plans is December 31st. Components of defined benefit pension plan costs are as follows (in thousands):


	Quarters Ended
	July 2, 2011						July 3, 2010
	Domestic			Foreign			Domestic			Foreign
	Plans			Plans			Plans			Plans
	Successor			Successor			Predecessor			Predecessor
Net periodic pension cost
Service cost	$	186		$	652		$	155		$	593
Interest cost		772			961			778			887
Expected return on assets		(845	)		(1,010	)		(760	)		(852	)
Amortization of unrecognized:
Prior service costs		—			—			7			11
Cumulative net loss		—			—			303			48

Net periodic pension cost	$	113		$	603		$	483		$	687


	Six Months Ended
	July 2, 2011						July 3, 2010
	Domestic			Foreign			Domestic			Foreign
	Plans			Plans			Plans			Plans
	Successor			Successor			Predecessor			Predecessor
Net periodic pension cost
Service cost	$	372		$	1,300		$	310		$	1,197
Interest cost		1,544			1,916			1,556			1,790
Expected return on assets		(1,690	)		(2,014	)		(1,520	)		(1,719	)
Amortization of unrecognized:
Prior service costs		—			—			14			22
Cumulative net loss		—			—			606			96

Net periodic pension cost	$	226		$	1,202		$	966		$	1,386

In March 2010, the President signed into law the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010 (“Reconciliation Act”). The PPACA and Reconciliation Act include provisions that reduce the tax benefits available to employers that receive Medicare Part D subsidies. During the first quarter of 2010, the Company recognized a $0.1 million impact on its deferred tax asset as a result of the reduced deductibility of the subsidy.

Although changes in market conditions, current pension law and uncertainties regarding significant assumptions used in the actuarial valuations may have a material impact on future required contributions to the Company’s pension plans, the Company currently does not expect funding requirements to have a material adverse impact on current or future liquidity.

The actuarial valuations require significant estimates and assumptions to be made by management, primarily the funding interest rate, discount rate and expected long-term return on plan assets. These assumptions are all susceptible to changes in market conditions. The funding interest rate and discount rate are based on representative bond yield curves maintained and monitored by independent third parties. In determining the expected long-term rate of return on plan assets, the Company considers historical market and portfolio rates of return, asset allocations and expectations of future rates of return.

Note 8 — Business Segments

The Company is in the single business of manufacturing and distributing exterior residential building products. The following table sets forth for the periods presented a summary of net sales by principal product offering (in thousands):


	Quarters Ended				Six Months Ended
	July 2,		July 3,		July 2,		July 3,
	2011		2010		2011		2010
	Successor		Predecessor		Successor		Predecessor
Vinyl windows	$	97,131	$	115,443	$	168,840	$	191,780
Vinyl siding products		62,823		68,998		99,983		108,354
Metal products		47,101		52,086		83,470		88,461
Third-party manufactured products		85,651		72,329		122,771		109,892
Other products and services		17,753		19,466		32,131		34,072

	$	310,459	$	328,322	$	507,195	$	532,559

Note 9 — Product Warranty Costs and Service Returns

Consistent with industry practice, the Company provides to homeowners limited warranties on certain products, primarily related to window and siding product categories. Warranties are of varying lengths of time from the date of purchase up to and including lifetime. Warranties cover product failures such as stress cracks and seal failures for windows and fading and peeling for siding products, as well as manufacturing defects. The Company has various options for remedying product warranty claims including repair, refinishing or replacement and directly incurs the cost of these remedies. Warranties also become reduced under certain conditions of time and change in ownership. Certain metal coating suppliers provide warranties on materials sold to the Company that mitigate the costs incurred by the Company. Reserves for future warranty costs are provided based on management’s estimates of such future costs using historical trends of claims experience, sales history of products to which such costs relate, and other factors. An independent actuary assists the Company in determining reserve amounts related to warranties for product failures.

As a result of the Merger and the application of purchase accounting, the Company adjusted its warranty reserves to represent an estimate of the fair value of the liability as of the closing date of the Merger. The estimated fair value of the liability was based on an actuarial calculation performed by an independent actuary which projected future remedy costs using historical data trends of claims incurred, claims payments and sales history of products to which such costs relate. The fair value of the expected future remedy costs related to products sold prior to the Merger was based on the actuarially determined estimates of expected future remedy costs and other factors and assumptions the Company believes market participants would use in valuing the warranty reserves. These other factors and assumptions included inputs for claims administration costs, confidence adjustments for uncertainty in the estimates of expected future remedy costs and a discount factor to arrive at the estimated fair value of the liability at the date of the Merger. The excess of the estimated fair value over the expected future remedy costs, which was included in the Company’s warranty reserve at the date of the Merger, is being amortized as a reduction of warranty expense over the expected term such warranty claims will be satisfied. The provision for warranties is reported within cost of sales in the consolidated statements of operations.

A reconciliation of the warranty reserve activity is as follows (in thousands):


	Quarters Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor
Balance at the beginning of the period	$	95,933		$	33,582		$	94,712		$	33,016
Provision for warranties issued and changes in estimates for pre-existing warranties		1,653			1,780			3,025			3,320
Claims paid		(1,213	)		(2,039	)		(1,841	)		(3,276	)
Foreign currency translation		92			338			569			601

Balance at the end of the period	$	96,465		$	33,661		$	96,465		$	33,661

Note 10 — Manufacturing Restructuring Costs

The following is a reconciliation of the manufacturing restructuring liability of the warehouse facility adjacent to the Ennis manufacturing plant related to the discontinued use (in thousands):


	Quarters Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor
Beginning liability	$	4,298		$	4,730		$	4,583		$	5,036
Additions		228			—			228			—
Accretion of related lease obligations		121			93			259			184
Payments		(299	)		(289	)		(722	)		(686	)

Ending liability	$	4,348		$	4,534		$	4,348		$	4,534

During the second quarter of 2011, the Company re-measured its restructuring liability due to changes in the expected timing and amount of cash flows over the remaining lease term. As a result, the Company recorded an adjustment to increase the restructuring liability and recognized a charge of approximately $0.2 million within selling, general and administrative expenses reported in the condensed consolidated statements of operations for the quarter and six months ended July 2, 2011.

Of the remaining restructuring liability at July 2, 2011, approximately $0.5 million is expected to be paid during the remainder of 2011. Amounts related to the ongoing facility obligations will continue to be paid over the lease term, which ends April 2020.

Note 11 — Employee Termination Costs

On June 2, 2011, Thomas N. Chieffe resigned from his position as President and Chief Executive Officer and as a director of the Company, and on June 29, 2011, Warren J. Arthur resigned from his position as Senior Vice President of Operations of the Company. The Company accrued $5.5 million for separation costs, including payroll taxes, certain benefits and related professional fees, which has been recorded as a component of selling, general and administrative expenses for the quarter and six months ended July 2, 2011. Payments for Mr. Chieffe and Mr. Arthur’s separation costs will be paid in accordance with their respective employment agreements, with approximately $2.6 million to be paid over the next 12 months and the remainder paid at various dates through October 2013.

Note 12 — Lease Termination Costs

During the second quarter ended July 2, 2011, the Company purchased previously leased equipment via a buy-out option and paid the lessor the present value of the remaining lease payments, the residual value and sales and personal property taxes. As a result, the Company recorded a charge of approximately $0.8 million within selling, general and administrative expenses for the quarter and six months ended July 2, 2011. The charge represents the excess of cash paid over the estimated fair values of the purchased equipment. The estimated fair values of the purchased equipment have been recorded within the Company’s property, plant and equipment totals and will be depreciated over their estimated remaining useful lives.

Note 13 — Subsidiary Guarantors

The Company’s payment obligations under its 9.125% notes are fully and unconditionally guaranteed, jointly and severally, on a senior basis, by its domestic wholly owned subsidiaries, Gentek Holdings, LLC and Gentek Building Products, Inc. AMH New Finance, Inc. (formerly Carey New Finance, Inc.) is a co-issuer of the 9.125% notes and is a domestic wholly owned subsidiary of the Company having no operations, revenues or cash flows for the periods presented.

Associated Materials Canada Limited, Gentek Canada Holdings Limited and Gentek Buildings Products Limited Partnership are Canadian companies and do not guarantee the Company’s 9.125% notes. In the opinion of management, separate financial statements of the respective Subsidiary Guarantors would not provide additional material information that would be useful in assessing the financial composition of the Subsidiary Guarantors.

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
July 2, 2011 (Successor)
(In thousands)


					Subsidiary			Non-Guarantor			Reclassification/
	Company		Co-Issuer		Guarantors			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	6,785	$	—	$	—		$	—			—		$	6,785
Accounts receivable, net		102,716		—		14,801			40,774			—			158,291
Intercompany receivables		368,466		—		6,953			2,364			(377,783	)		—
Inventories		129,534		—		16,848			47,047			—			193,429
Income taxes receivable		19,987		—		—			—			(19,987	)		—
Deferred income taxes		—		—		1,634			—			(1,634	)		—
Prepaid expenses		6,278		—		904			1,876			—			9,058

Total current assets		633,766		—		41,140			92,061			(399,404	)		367,563

Property, plant and equipment, net		86,105		—		3,452			47,903			—			137,460
Goodwill		353,433		—		28,978			191,501			—			573,912
Other intangible assets, net		486,525		—		50,780			188,635			—			725,940
Investment in subsidiaries		27,627		—		(20,385	)		—			(7,242	)		—
Intercompany receivable		—		730,000		—			—			(730,000	)		—
Other assets		25,184		—		11			3,131			—			28,326

Total assets	$	1,612,640	$	730,000	$	103,976		$	523,231		$	(1,136,646	)	$	1,833,201


Liabilities and Member’s Equity
Current liabilities:
Accounts payable	$	90,538	$	—	$	13,226		$	34,736			—		$	138,500
Intercompany payables		—		—		—			377,783			(377,783	)		—
Accrued liabilities		54,000		—		5,536			10,401			—			69,937
Deferred income taxes		11,407		—		—			6,649			(1,634	)		16,422
Income taxes payable		—		—		16,320			4,405			(19,987	)		738

Total current liabilities		155,945		—		35,082			433,974			(399,404	)		225,597

Deferred income taxes		85,191		—		14,661			44,816			—			144,668
Other liabilities		81,036		—		26,606			27,826			—			135,468
Long-term debt		820,800		730,000		—			37,000			(730,000	)		857,800
Member’s equity		469,668		—		27,627			(20,385	)		(7,242	)		469,668

Total liabilities and member’s equity	$	1,612,640	$	730,000	$	103,976		$	523,231		$	(1,136,646	)	$	1,833,201

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Quarter Ended July 2, 2011 (Successor)
(In thousands)


						Subsidiary		Non-Guarantor		Reclassification/
	Company			Co-Issuer		Guarantors		Subsidiaries		Eliminations			Consolidated
Net sales	$	226,284		$	—	$	44,309	$	83,885	$	(44,019	)	$	310,459
Cost of sales		169,717			—		42,674		61,747		(44,019	)		230,119

Gross profit		56,567			—		1,635		22,138		—			80,340
Selling, general and administrative expenses		53,440			—		858		11,326		—			65,624

Income from operations		3,127			—		777		10,812		—			14,716
Interest expense, net		18,520			—		—		575		—			19,095
Foreign currency loss		—			—		—		124		—			124

(Loss) income before income taxes		(15,393	)		—		777		10,113		—			(4,503	)
Income taxes provision		—			—		—		2,690		—			2,690

(Loss) income before equity income from subsidiaries		(15,393	)		—		777		7,423		—			(7,193	)
Equity income from subsidiaries		8,200			—		7,423		—		(15,623	)		—

Net income (loss)	$	(7,193	)	$	—	$	8,200	$	7,423	$	(15,623	)	$	(7,193	)

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Six Months Ended July 2, 2011 (Successor)
(In thousands)


						Subsidiary		Non-Guarantor		Reclassification/
	Company			Co-Issuer		Guarantors		Subsidiaries		Eliminations			Consolidated
Net sales	$	370,496		$	—	$	78,477	$	134,950	$	(76,728	)	$	507,195
Cost of sales		284,850			—		76,009		102,645		(76,728	)		386,776

Gross profit		85,646			—		2,468		32,305		—			120,419
Selling, general and administrative expenses		100,081			—		1,900		22,559		—			124,540

(Loss) income from operations		(14,435	)		—		568		9,746		—			(4,121	)
Interest expense, net		36,859			—		—		936		—			37,795
Foreign currency loss		—			—		—		94		—			94

(Loss) income before income taxes		(51,294	)		—		568		8,716		—			(42,010	)
Income taxes provision		—			—		—		2,301		—			2,301

(Loss) income before equity income from subsidiaries		(51,294	)		—		568		6,415		—			(44,311	)
Equity income from subsidiaries		6,983			—		6,415		—		(13,398	)		—

Net income (loss)	$	(44,311	)	$	—	$	6,983	$	6,415	$	(13,398	)	$	(44,311	)

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Six Months Ended July 2, 2011 (Successor)
(In thousands)


									Non-
						Subsidiary			Guarantor
	Company			Co-Issuer		Guarantors			Subsidiaries			Consolidated
Net cash used in operating activities	$	(59,823	)	$	—	$	(2,188	)	$	(3,144	)	$	(65,155	)

Investing Activities
Supply center acquisition		(1,550	)		—		—			—			(1,550	)
Capital expenditures		(8,029	)		—		(15	)		(1,897	)		(9,941	)

Net cash used in investing activities		(9,579	)		—		(15	)		(1,897	)		(11,491	)

Financing Activities
Net borrowings under ABL facilities		32,800			—		—			37,000			69,800
Intercompany transactions		37,847			—		2,203			(40,050	)		—
Financing costs		(371	)		—		—			—			(371	)

Net cash provided by (used in) financing activities		70,276			—		2,203			(3,050	)		69,429

Effect of exchange rate changes on cash and cash equivalents		—			—		—			213			213

Net increase (decrease) in cash and cash equivalents		874			—		—			(7,878	)		(7,004	)
Cash and cash equivalents at beginning of period		5,911			—		—			7,878			13,789

Cash and cash equivalents at end of period	$	6,785		$	—	$	—		$	—		$	6,785

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
January 1, 2011 (Successor)
(In thousands)


					Subsidiary			Non-Guarantor			Reclassification/
	Company		Co-Issuer		Guarantors			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:

Cash and cash equivalents	$	5,911	$	—	$	—		$	7,878		$	—		$	13,789
Accounts receivable, net		85,496		—		11,107			21,805			—			118,408
Intercompany receivables		406,309		—		9,257			2,264			(417,830	)		—
Inventories		99,228		—		10,870			36,117			—			146,215
Income taxes receivable		19,731		—		—			—			(16,440	)		3,291
Deferred income taxes		—		—		1,629			—			(1,629	)		—
Prepaid expenses		6,622		—		1,174			1,199			—			8,995

Total current assets		623,297		—		34,037			69,263			(435,899	)		290,698

Property, plant and equipment, net		86,636		—		4,014			47,212			—			137,862
Goodwill		353,434		—		28,978			184,011			—			566,423
Other intangible assets, net		495,850		—		51,006			184,158			—			731,014
Investment in subsidiaries		5,256		—		(42,289	)		—			37,033			—
Intercompany receivable		—		788,000		—			—			(788,000	)		—
Other assets		26,662		—		(1	)		3,246			—			29,907

Total assets	$	1,591,135	$	788,000	$	75,745		$	487,890		$	(1,186,866	)	$	1,755,904


Liabilities and Member’s Equity
Current liabilities:
Accounts payable	$	66,087	$	—	$	5,761		$	18,342		$	—		$	90,190
Intercompany payables		—		—		—			417,830			(417,830	)		—
Accrued liabilities		63,116		—		7,057			9,146			—			79,319
Deferred income taxes		11,454		—		—			10,164			(1,629	)		19,989
Income taxes payable		—		—		16,440			2,506			(16,440	)		2,506

Total current liabilities		140,657		—		29,258			457,988			(435,899	)		192,004

Deferred income taxes		85,191		—		14,661			44,816			—			144,668
Other liabilities		78,810		—		26,570			27,375			—			132,755
Long-term debt		788,000		788,000		—			—			(788,000	)		788,000
Member’s equity		498,477		—		5,256			(42,289	)		37,033			498,477

Total liabilities and member’s equity	$	1,591,135	$	788,000	$	75,745		$	487,890		$	(1,186,866	)	$	1,755,904

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Quarter Ended July 3, 2010 (Predecessor)
(In thousands)


						Subsidiary		Non-Guarantor		Reclassification/
	Company			Co-Issuer		Guarantors		Subsidiaries		Eliminations			Consolidated
Net sales	$	239,861		$	—	$	50,352	$	88,987	$	(50,878	)	$	328,322
Cost of sales		173,694			—		47,425		66,223		(50,878	)		236,464

Gross profit		66,167			—		2,927		22,764		—			91,858
Selling, general and administrative expenses		43,199			—		296		10,094		—			53,589

Income from operations		22,968			—		2,631		12,670		—			38,269
Interest expense, net		18,614			—		—		183		—			18,797
Foreign currency loss		—			—		—		70		—			70

Income before income taxes		4,354			—		2,631		12,417		—			19,402
Income taxes (benefit) provision		(4,904	)		—		840		3,738		—			(326	)

Income before equity income from subsidiaries		9,258			—		1,791		8,679		—			19,728
Equity income from subsidiaries		10,470			—		8,679		—		(19,149	)		—

Net income	$	19,728		$	—	$	10,470	$	8,679	$	(19,149	)	$	19,728

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Six Months Ended July 3, 2010 (Predecessor)
(In thousands)


						Subsidiary		Non-Guarantor			Reclassification/
	Company			Co-Issuer		Guarantors		Subsidiaries			Eliminations			Consolidated
Net sales	$	385,752		$	—	$	79,913	$	146,968		$	(80,074	)	$	532,559
Cost of sales		286,170			—		74,937		111,229			(80,074	)		392,262

Gross profit		99,582			—		4,976		35,739			—			140,297
Selling, general and administrative expenses		80,604			—		1,104		19,362			—			101,070

Income from operations		18,978			—		3,872		16,377			—			39,227
Interest expense, net		37,059			—		2		430			—			37,491
Foreign currency (gain)		—			—		—		(52	)		—			(52	)

(Loss) income before income taxes		(18,081	)		—		3,870		15,999			—			1,788
Income taxes (benefit) provision		(5,840	)		—		1,776		4,816			—			752

(Loss) income before equity income from subsidiaries		(12,241	)		—		2,094		11,183			—			1,036
Equity income from subsidiaries		13,277			—		11,183		—			(24,460	)		—

Net income	$	1,036		$	—	$	13,277	$	11,183		$	(24,460	)	$	1,036

ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Six Months Ended July 3, 2010 (Predecessor)
(In thousands)


						Subsidiary			Non-Guarantor
	Company			Co-Issuer		Guarantors			Subsidiaries			Consolidated
Net cash (used in) provided by operating activities	$	(26,372	)	$	—	$	3,739		$	3,260		$	(19,373	)

Investing Activities
Capital expenditures		(6,286	)		—		(54	)		(1,923	)		(8,263	)
Other		385			—		—			(385	)		—

Net cash used in investing activities		(5,901	)		—		(54	)		(2,308	)		(8,263	)

Financing Activities
Net borrowings under prior ABL Facility		5,000			—		—			—			5,000
Dividends from non-guarantor subsidiary		—			—		20,000			(20,000	)		—
Intercompany transactions		26,671			—		(23,640	)		(3,031	)		—
Financing costs		(106	)		—		—			—			(106	)

Net cash provided by (used in) financing activities		31,565			—		(3,640	)		(23,031	)		4,894

Effect of exchange rate changes on cash and cash equivalents		—			—		—			(971	)		(971	)

Net (decrease) increase in cash and cash equivalents		(708	)		—		45			(23,050	)		(23,713	)
Cash and cash equivalents at beginning of period		5,917			—		82			49,906			55,905

Cash and cash equivalents at end of period	$	5,209		$	—	$	127		$	26,856		$	32,192


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

Overview

We are a leading, vertically integrated manufacturer and distributor of exterior residential building products in the United States and Canada. Our core products are vinyl windows, vinyl siding, aluminum trim coil and aluminum and steel siding and accessories. In addition, we distribute third-party manufactured products primarily through our company-operated supply centers. Vinyl windows, vinyl siding, metal products and third-party manufactured products comprised approximately 31%, 20%, 15% and 28%, respectively, of our net sales for the quarter ended July 2, 2011. For the six months ended July 2, 2011, vinyl windows, vinyl siding, metal products and third-party manufactured products comprised approximately 33%, 20%, 16% and 24%, respectively, of our net sales. These products are generally marketed under our brand names, such as Alside^®, Revere^® and Gentek^®, and are ultimately sold on a wholesale basis to approximately 50,000 professional exterior contractors (who we refer to as our contractor customers) engaged in home remodeling and new home construction, primarily through our extensive dual-distribution network, consisting of 123 company-operated supply centers, through which we sell directly to our contractor customers, and our direct sales channel, through which we sell to approximately 250 independent distributors and dealers, who then sell to their customers. We estimate that, for the six month period ended July 2, 2011, approximately 70% of our net sales were generated in the residential repair and remodeling market and approximately 30% of our net sales were generated in the residential new construction market. Our supply centers provide “one-stop” shopping to our contractor customers by carrying the products, accessories and tools necessary to complete their projects. In addition, our supply centers augment the customer experience by offering product support and enhanced customer service from the point of sale to installation and warranty service. During the quarter and six months ended July 2, 2011, net sales generated through our network of company-operated supply centers represented approximately 74% and 72%, respectively, of our total net sales.

Because our exterior residential building products are consumer durable goods, our sales are impacted by, among other things, the availability of consumer credit, consumer interest rates, employment trends, changes in levels of consumer confidence, weather, government incentives and national and regional trends in the housing market. Our sales are also affected by changes in consumer preferences with respect to types of building products. Overall, we believe the long-term fundamentals for the building products industry remain strong, as homes continue to get older, household formation is expected to be strong, demand for energy efficiency products continues and vinyl remains an optimal material for exterior window and siding solutions, all of which we believe bodes well for the demand for our products in the future. In the short term, however, the building products industry continues to be negatively impacted by a weak housing market. Since 2006, sales of existing single-family homes have decreased from peak levels previously experienced, the inventory of existing homes available for sale has increased, and in many areas, home values have declined significantly. In addition, the pace of new home construction has slowed dramatically, as evidenced by declines in 2006 through 2011 in single-family housing starts and announcements from home builders of significant decreases in their orders. Increased delinquencies on sub-prime and other mortgages, increased foreclosure rates and tightening consumer credit markets over the same time period have further hampered the housing market. Our sales volumes are dependent on the strength in the housing market, including both residential remodeling and new residential construction activity. Reduced levels of existing homes sales and housing price depreciation have had a significant negative impact on our remodeling sales over the past few years. In addition, a reduced number of new housing starts has had a negative impact on our new construction sales. As a result of the prolonged housing market downturn, competition in the building products market may intensify, which could result in lower sales volumes and reduced selling prices for our products and lower gross margins. In the event that our expectations regarding the outlook for the housing market result in a reduction in forecasted sales and operating income, and related growth rates, we may be required to record an impairment of certain of our assets, including goodwill and intangible assets. Moreover, a prolonged downturn in the housing market and the general economy may have other consequences to our business, including accounts receivable write-offs due to financial distress of customers and lower of cost or market reserves related to our inventories.

The principal raw materials used by us are vinyl resin, aluminum, steel, resin stabilizers and pigments, glass, window hardware and packaging materials, all of which have historically been subject to price changes. Raw material pricing on certain of our key commodities has fluctuated significantly over the past several years. In response, we have announced price increases over the past several years on certain of our product offerings to offset inflation in raw material pricing and continually monitor market conditions for price changes as warranted. Our ability to maintain gross margin levels on our products during periods of rising raw material costs depends on our ability to obtain selling price increases. Furthermore, the results of operations for individual quarters can and have been negatively impacted by a delay between the timing of raw material cost increases and price increases on our products. There can be no assurance that we will be able to maintain the selling price increases already implemented or achieve any future price increases.

We operate with significant operating and financial leverage. Significant portions of our manufacturing, selling, general and administrative expenses are fixed costs that neither increase nor decrease proportionately with sales. In addition, a significant portion of our interest expense is fixed. There can be no assurance that we will be able to reduce our fixed costs in response to a decline in our net sales. As a result, a decline in our net sales could result in a higher percentage decline in our income from operations. Also, our gross margins and gross margin percentages may not be comparable to other companies, as some companies include all of the costs of their distribution network in cost of sales, whereas we include the operating costs of our supply centers in selling, general and administrative expenses.

Because most of our building products are intended for exterior use, sales tend to be lower during periods of inclement weather. Weather conditions in the first quarter of each calendar year usually result in that quarter producing significantly less net sales and net cash flows from operations than in any other period of the year. Consequently, we have historically had losses or small profits in the first quarter and reduced profits from operations in the fourth quarter of each calendar year. To meet seasonal cash flow needs during the periods of reduced sales and net cash flows from operations, we have typically utilized our revolving credit facilities and repay such borrowings in periods of higher cash flow. We typically generate the majority of our cash flow in the third and fourth quarters.

We seek to distinguish ourselves from other suppliers of residential building products and to sustain our profitability through a business strategy focused on increasing sales at existing supply centers, selectively expanding our supply center network, increasing sales through independent specialty distributor customers, developing innovative new products, expanding sales of third-party manufactured products through our supply center network and driving operational excellence by reducing costs and increasing customer service levels. We continually analyze new and existing markets for the selection of new supply center locations.

On October 13, 2010, AMH Holdings II, Inc. (“AMH II”), the then indirect parent company of Associated Materials, LLC, completed its merger (the “Acquisition Merger”) with Carey Acquisition Corp. (“Merger Sub”), pursuant to the terms of the Agreement and Plan of Merger, dated as of September 8, 2010 (the “Merger Agreement”), among Carey Investment Holdings Corp. (now known as AMH Investment Holdings Corp.) (“Parent”), Carey Intermediate Holdings Corp. (now known as AMH Intermediate Holdings Corp.), a wholly-owned direct subsidiary of Parent (“Holdings”), Merger Sub, a wholly-owned direct subsidiary of Holdings, and AMH II, with AMH II surviving such merger as a wholly-owned direct subsidiary of Holdings. After a series of additional mergers (together with the “Acquisition Merger,” the “Merger”), AMH II merged with and into Associated Materials, LLC, with Associated Materials, LLC surviving such merger as a wholly-owned direct subsidiary of Holdings. As a result of the Merger, Associated Materials, LLC is now an indirect wholly-owned subsidiary of Parent. Approximately 98% of the capital stock of Parent is owned by investment funds affiliated with Hellman & Friedman LLC (“H&F”).

Results of Operations

Our results of operations, along with the results of our then existing direct and indirect parent companies, Associated Materials Holdings, LLC, AMH and AMH II, prior to and including the Merger are presented as the results of the predecessor (the “Predecessor”). The results of operations following the Merger are presented as the results of the successor (the “Successor”).

The following table sets forth for the periods indicated our results of operations (in thousands):


	Quarters Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor
Net sales	$	310,459		$	328,322		$	507,195		$	532,559
Cost of sales		230,119			236,464			386,776			392,262

Gross profit		80,340			91,858			120,419			140,297
Selling, general and administrative expenses		65,624			53,589			124,540			101,070

Income (loss) from operations		14,716			38,269			(4,121	)		39,227
Interest expense, net		19,095			18,797			37,795			37,491
Foreign currency loss (gain)		124			70			94			(52	)

(Loss) income before income taxes		(4,503	)		19,402			(42,010	)		1,788
Income taxes provision (benefit)		2,690			(326	)		2,301			752

Net income (loss)	$	(7,193	)	$	19,728		$	(44,311	)	$	1,036


Other Data:
EBITDA (1)	$	27,392		$	43,832		$	21,242		$	50,545
Adjusted EBITDA (1)		34,230			46,655			30,036			55,444


(1)		EBITDA is calculated as net income plus interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted to reflect certain adjustments that are used in calculating covenant compliance under our revolving credit agreement and the indenture governing the 9.125% Senior Secured Notes due 2017 (the “9.125% notes”). We consider EBITDA and Adjusted EBITDA to be important indicators of our operational strength and performance of our business. We have included Adjusted EBITDA because it is a key financial measure used by our management to (i) assess our ability to service our debt or incur debt and meet our capital expenditure requirements; (ii) internally measure our operating performance; and (iii) determine our incentive compensation programs. In addition, our senior secured asset-based revolving credit facilities (the “ABL facilities”) and the indenture governing the 9.125% notes have certain covenants that apply ratios utilizing this measure of Adjusted EBITDA. EBITDA and Adjusted EBITDA have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA as presented by us may not be comparable to similarly titled measures reported by other companies. EBITDA and Adjusted EBITDA are not measures determined in accordance with GAAP and should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results or net cash provided by operating activities (as determined in accordance with GAAP) as a measure of our liquidity.

		Prior year Adjusted EBITDA amounts are presented to conform to the current year’s presentation of the computation of Adjusted EBITDA, which is in conformity with the Adjusted EBITDA as defined in our revolving credit agreement and the indenture governing the 9.125% notes.


		The reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA is as follows (in thousands):


	Quarters Ended						Six Months Ended
	July 2,			July 3,			July 2,			July 3,
	2011			2010			2011			2010
	Successor			Predecessor			Successor			Predecessor
Net income (loss)	$	(7,193	)	$	19,728		$	(44,311	)	$	1,036
Interest expense, net		19,095			18,797			37,795			37,491
Income taxes provision (benefit)		2,690			(326	)		2,301			752
Depreciation and amortization		12,800			5,633			25,457			11,266

EBITDA		27,392			43,832			21,242			50,545
Merger costs (a)		96			1,263			585			1,263
Purchase accounting related adjustments (b)		(878	)		—			(1,854	)		—
Management fees (c)		—			227			—			447
Executive officers separation costs (d)		5,467			—			5,467			—
Restructuring costs (e)		228			—			228			—
Tax restructuring costs (f)		—			—			—			88
Write-offs of assets other than by sale		89			13			173			27
Bank audit fees (g)		—			35			—			50
Stock compensation expense (h)		87			—			114			—
Other normalizing and unusual items (i)		1,625			1,215			3,987			2,473
Foreign currency loss (gain) (j)		124			70			94			(52	)
Pro forma cost savings (k)		—			—			—			603

Adjusted EBITDA	$	34,230		$	46,655		$	30,036		$	55,444


(a)		Represents professional fees incurred in connection with the Merger.

(b)		Represents the elimination of the impact of adjustments related to purchase accounting recorded as a result of the Merger, which include the following: $0.7 million of reduced pension expense as a result of purchase accounting adjustments and amortization related to net liabilities recorded in purchase accounting for the fair value of certain of our leased facilities and warranty liabilities of $0.1 million and $0.2 million, respectively, for both the first and second quarters of 2011. These purchase accounting related adjustments related to the Merger are offset by a $0.1 million negative adjustment to inventory that was acquired as part of the supply center acquisition completed during the second quarter of 2011.

(c)		Represents annual management fees paid to Harvest Partners, L.P. (one of our sponsors prior to the Merger).

(d)		Represents separation costs, including payroll taxes and certain benefits of $5.4 million, and professional fees of $0.1 million, related to the terminations of Mr. Chieffe, our former President and Chief Executive Officer, and Mr. Arthur, our former Senior Vice President of Operations, in June 2011.

(e)		During the second quarter of 2011, we recognized a charge of approximately $0.2 million within selling, general and administrative expenses reported in the condensed consolidated statements of operations. The charge was a result of re-measuring the restructuring liability related to the discontinued use of the warehouse facility adjacent to our Ennis manufacturing plant due to changes in the expected timing and amount of cash flows over the remaining lease term.

(f)		Represents legal and accounting fees incurred in connection with tax restructuring projects.

(g)		Represents bank audit fees incurred under our prior ABL Facility.

(h)		Represents stock compensation related to restricted share units issued to certain board members, including the Interim Chief Executive Officer.

(i)		Represents the following (in thousands):


	Quarters Ended				Six Months Ended
	July 2,		July 3,		July 2,		July 3,
	2011		2010		2011		2010
Professional fees (i)	$	656	$	1,020	$	2,461	$	1,900
Accretion on lease liability (ii)		85		93		223		184
Excess severance costs (iii)		67		102		265		389
Operating lease termination penalty (iv)		773		—		773		—
Excess legal expense (v)		44		—		265		—

Total	$	1,625	$	1,215	$	3,987	$	2,473


(i)		Represents management’s estimate of unusual or non-recurring consulting fees primarily associated with cost savings initiatives.

(ii)		Represents accretion on the liability recorded at present value for future lease costs in connection with our warehouse facility adjacent to the Ennis manufacturing, which we discontinued using during 2009.


(iii)		Represents management’s estimates for excess severance expense primarily due to unusual changes within management.

(iv)		Represents the excess of cash paid over the estimated fair values of purchased equipment previously leased.

(v)		Represents management’s estimate of excess legal expense incurred in connection with the defense of certain warranty related claims.

(j)		Represents currency transaction/translation (gains)/losses, including on currency exchange hedging agreements.

(k)		For the six months ended July 3, 2010, the amount represents management’s estimates of cost savings that could have resulted from producing glass in-house at our Cuyahoga Falls, Ohio window facility had such production started on January 4, 2009 of $0.5 million and cost savings that could have resulted from entering into our leveraged procurement program with an outside consulting firm had such program been entered into on January 4, 2009 of approximately $0.1 million.

The following table sets forth for the periods presented a summary of net sales by principal product offering (in thousands):


	Quarters Ended				Six Months Ended
	July 2,		July 3,		July 2,		July 3,
	2011		2010		2011		2010
	Successor		Predecessor		Successor		Predecessor
Vinyl windows	$	97,131	$	115,443	$	168,840	$	191,780
Vinyl siding products		62,823		68,998		99,983		108,354
Metal products		47,101		52,086		83,470		88,461
Third-party manufactured products		85,651		72,329		122,771		109,892
Other products and services		17,753		19,466		32,131		34,072

	$	310,459	$	328,322	$	507,195	$	532,559

Quarter Ended July 2, 2011 Compared to Quarter Ended July 3, 2010

Net sales decreased 5.4% to $310.5 million for the second quarter of 2011 compared to $328.3 million for the same period in 2010. The decrease in sales is primarily due to vinyl siding and vinyl window unit volume decreases of 14% each and lower sales of metal products of approximately $5.0 million, partially offset by increased sales of third-party manufactured products of approximately $13.3 million and the impact of the stronger Canadian dollar in 2011 of approximately $6.0 million.

Gross profit in the second quarter of 2011 was $80.3 million, or 25.9% of net sales, compared to gross profit of $91.9 million, or 28.0% of net sales, for the same period in 2010. The decrease in gross margin percentage was primarily the result of lower volumes, a negative impact from product mix, an increase in the cost of certain commodities used in manufacturing processes and increased freight costs.

Selling, general and administrative expenses were approximately $65.6 million, or 21.1% of net sales, for the second quarter of 2011 compared to $53.6 million, or 16.3% of net sales, for the same period in 2010. Selling, general and administrative expenses for the quarter ended July 2, 2011 included separation costs related to the terminations of senior management personnel of approximately $5.5 million, an operating lease termination penalty of approximately $0.8 million, professional fees associated with cost savings initiatives of approximately $0.7 million, expense related to the re-measurement of the Ennis restructuring liability due to changes in the expected timing and amount of cash flows over the remaining lease term of approximately $0.2 million and professional fees associated with the Merger of approximately $0.1 million, partially offset by amortization related to net liabilities recorded as part of purchase accounting for the fair value of certain liabilities of approximately $0.3 million and reduced pension expense as a result of purchase accounting adjustments of

approximately $0.3 million. Selling, general and administrative expenses for the quarter ended July 3, 2010 included professional fees associated with the Merger of approximately $1.3 million, professional fees associated with cost savings initiatives of approximately $1.0 million and management fees of approximately $0.2 million. Excluding these costs, selling, general and administrative expenses for the quarter ended July 2, 2011 increased approximately $7.8 million when compared to the same period in 2010. This increase in selling, general and administrative expenses was primarily due to increased depreciation of fixed assets and amortization of intangible assets as a result of the revaluation of certain assets as part of the application of the purchase accounting fair value adjustments in the fourth quarter of 2010 of approximately $6.4 million, increased salaries and wages as a result of increased headcount of approximately $1.3 million, increased operating lease and delivery costs within our distribution centers of approximately $1.0 million and the translation impact on Canadian expenses as a result of a stronger Canadian dollar in 2011 of approximately $0.8 million. These increases to expense were partially offset by decreased sales commissions and incentive compensation program expense of approximately $3.1 million.

Income from operations was approximately $14.7 million for the quarter ended July 2, 2011, compared to approximately $38.3 million for the same period in 2010 primarily due to the decrease in sales, combined with a decrease in the gross margin rate and increased selling, general and administrative costs.

Interest expense was approximately $19.1 million for the quarter ended July 2, 2011, compared to approximately $18.8 million for the same period in 2010. Interest expense for the quarter ended July 2, 2011 related to interest on the 9.125% notes and borrowings under our ABL facilities, while interest expense for the same period in 2010 related to interest on the then outstanding 9.875% notes, 11.25% notes, 20% notes and borrowings under the prior ABL Facility. Interest expense has remained relatively consistent when compared to the same period in the prior year as higher note principal balances and average borrowings under our ABL facilities have been offset by lower interest rates on both our notes and our credit facilities.

The income tax provision for the second quarter of 2011 reflects an effective income tax rate of (59.7)%, compared to an effective income tax rate of (1.7)% for the same period in 2010. The change in the tax rate was primarily the result of an inability to recognize the benefit of current U.S. losses in the quarter ended July 2, 2011 compared to the same period in 2010.

Net loss for the quarter ended July 2, 2011 was $7.2 million compared to net income of $19.7 million for the same period in 2010.

Six Months Ended July 2, 2011 Compared to Six Months Ended July 3, 2010

Net sales decreased 4.8% to $507.2 million for the six months ended July 2, 2011, compared to $532.6 million for the same period in 2010. The decrease in sales is primarily due to vinyl siding and vinyl window unit volume decreases of 13% and 11%, respectively, and lower sales of metal products of approximately $5.0 million, partially offset by increased sales of third-party manufactured products of approximately $12.9 million and the impact of the stronger Canadian dollar in 2011 of approximately $8.0 million.

Gross profit for the six months ended July 2, 2011 was $120.4 million, or 23.7% of net sales, compared to gross profit of $140.3 million, or 26.3% of net sales, for the same period in 2010. The decrease in gross margin percentage was primarily the result of lower volumes, a negative impact from product mix, an increase in the cost of certain commodities used in manufacturing processes and increased freight costs.

Selling, general and administrative expenses were approximately $124.5 million, or 24.6% of net sales, for the six months ended July 2, 2011, compared to $101.1 million, or 19.0% of net sales, for the same period in 2010. Selling, general and administrative expenses for the six months ended July 2, 2011 included separation costs related to the terminations of senior management personnel of approximately $5.5 million, professional fees associated with cost savings initiatives of approximately $2.5 million, an operating lease termination penalty of approximately $0.8 million, professional fees associated with the Merger of approximately $0.6 million and expense related to the re-measurement of the Ennis restructuring liability due to changes in the expected timing and amount of cash flows over the remaining lease term of approximately $0.2 million, partially offset by amortization related to net liabilities recorded as part of purchase accounting for the fair value of certain liabilities of approximately $0.6 million and reduced pension expense as a result of purchase accounting adjustments of approximately $0.5 million. Selling, general and administrative expenses for the six months ended July 3, 2010 included professional fees associated with cost savings initiatives of approximately $1.9 million, professional fees associated with the Merger of approximately $1.3 million and management fees of approximately $0.4 million. Excluding these costs, selling, general and administrative expenses for the six months ended July 2, 2011 increased approximately $18.5 million when compared to the same period in 2010. This increase in selling, general and administrative expenses was primarily due to increased depreciation of fixed assets and amortization of intangible assets as a result of the revaluation of certain assets as part of the application of the purchase accounting fair value adjustments in the fourth quarter of 2010 of approximately $12.7 million, increased salaries and wages as a result of increased headcount of approximately $3.0 million, the translation impact on Canadian expenses as a result of a stronger Canadian dollar in 2011 of approximately $1.5 million and increased operating lease and delivery costs within our distribution centers of approximately $1.2 million. These increases to expense were partially offset by decreased sales commissions and incentive compensation program expense of approximately $2.9 million.

Loss from operations was approximately $4.1 million for the six months ended July 2, 2011 compared to income from operations of approximately $39.2 million for the same period in 2010 primarily due to the decrease in sales, combined with a decrease in the gross margin rate and increased selling, general and administrative costs.

Interest expense was approximately $37.8 million for the six months ended July 2, 2011, compared to approximately $37.5 million for the same period in 2010. Interest expense for the six months ended July 2, 2011 related to interest on the 9.125% notes and borrowings under our ABL facilities, while interest expense for the same period in 2010 related to interest on the then outstanding 9.875% notes, 11.25% notes, 20% notes and borrowings under the prior ABL Facility. Interest expense has remained relatively consistent when compared to the same period in the prior year as higher note principal balances and average borrowings under our ABL facilities have been offset by lower interest rates on both our notes and our credit facilities.

The income tax provision for the six months ended July 2, 2011 reflects an effective income tax rate of (5.5)%, compared to an effective income tax rate of 42.1% for the same period in 2010. The change in the tax rate was primarily the result of an inability to recognize the benefit of current U.S. losses in the six months ended July 2, 2011 compared to the same period in 2010.

Net loss for the six months ended July 2, 2011 was $44.3 million compared to net income of $1.0 million for the same period in 2010.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We believe the adoption of ASU 2011-05 concerns presentation and disclosure only and will not have an impact on our consolidated financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”), which amends current guidance to result in common fair value measurement and disclosures between accounting principles generally accepted in the United States and International Financial Reporting Standards. The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments change the wording used to describe fair value measurement requirements and disclosures, but often do not result in a change in the application of current guidance. The amendments in ASU No. 2011-04 are effective for interim and annual periods beginning after December 15, 2011. We do not believe that the adoption of the provisions of ASU No. 2011-04 will have a material impact on our consolidated financial position, results of operations or cash flows.

ASU No. 2010-29, Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”), provides clarification regarding the acquisition date that should be used for reporting the pro forma financial information disclosures required by Topic 805 when comparative financial statements are presented. ASU 2010-29 also requires entities to provide a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly attributable to the business combination. ASU 2010-29 is effective for us prospectively for business combinations occurring after December 31, 2010.

Liquidity and Capital Resources

The following sets forth a summary of our cash flows for the six months ended July 2, 2011 and July 3, 2010 (in thousands):


	Six Months Ended
	July 2,			July 3,
	2011			2010
	Successor			Predecessor
Net cash used in operating activities	$	(65,155	)	$	(19,373	)
Net cash used in investing activities		(11,491	)		(8,263	)
Net cash provided by financing activities		69,429			4,894

Liquidity

At July 2, 2011, we had cash and cash equivalents of $6.8 million and available borrowing capacity of approximately $52.7 million under our ABL facilities. Outstanding letters of credit as of July 2, 2011 totaled approximately $7.4 million primarily securing deductibles of various insurance policies.

Cash Flows from Operating Activities

Net cash used in operating activities was $65.2 million for the six months ended July 2, 2011, compared to $19.4 million for the same period in 2010. The factors typically impacting cash flows from operating activities during the first six months of the year include the seasonal increase of inventory levels and use of cash related to payments for accrued liabilities including payments of incentive compensation and customer sales incentives. Accounts receivable was a use of cash of $39.9 million for the six months ended July 2, 2011, compared to $48.4 million for the same period in 2010, resulting in a lower use of cash of $8.5 million reflecting the decreased sales levels in the current year. Inventory was a use of cash of $45.2 million during the six months ended July 2, 2011, compared to $43.8 million during the same period in 2010, resulting in a greater use of cash of $1.4 million, which was primarily due to increased inventory levels and rising costs of certain raw materials in the current year. Accounts payable and accrued liabilities were a source of cash of $37.5 million for the six months ended July 2, 2011, compared to $61.0 million for the same period in 2010, resulting in a smaller source of cash of $23.5 million. This smaller source of cash was primarily due to lower sales and purchasing volumes in 2011, as well as the current year’s beginning accounts payable balances being higher than that of the prior year based on the timing of purchases and higher raw material costs.

Cash Flows from Investing Activities

During the six months ended July 2, 2011, net cash used in investing activities consisted of capital expenditures of $9.9 million and a supply center acquisition of approximately $1.6 million. Capital expenditures in 2011 were primarily at supply centers for continued operations, relocations, opening preparations, the purchase of previously leased equipment and various enhancements at our manufacturing facilities. During the six months ended July 3, 2010, net cash used in investing activities consisted of capital expenditures of $8.3 million. Capital expenditures in 2010 were primarily at supply centers for continued operations and relocations, the continued implementation of our glass insourcing process and various enhancements at plant locations.

Cash Flows from Financing Activities

Net cash provided by financing activities for the six months ended July 2, 2011 included net borrowings under our ABL facilities of $69.8 million, partially offset by payments of financing costs of approximately $0.4 million. Net cash provided by financing activities for the six months ended July 3, 2010 included net borrowings under our prior ABL Facility of $5.0 million, partially offset by payments of financing costs of approximately $0.1 million.

Description of Our Indebtedness

9.125% Senior Secured Notes due 2017

In October 2010, in connection with the consummation of the Merger, Associated Materials, LLC and AMH New Finance, Inc. (collectively, the “Issuers”) issued and sold $730.0 million of the 9.125% notes. The notes bear interest at a rate of 9.125% per annum and are unconditionally guaranteed, jointly and severally, by each of the Issuers’ direct and indirect domestic subsidiaries that guarantees our obligations under the ABL facilities. The first semi-annual interest payment was made on April 29, 2011.

As we did not complete our offer to exchange all of our outstanding privately placed 9.125% notes for newly registered 9.125% notes until July 2011, the fair value of the 9.125% notes at July 2, 2011 and January 1, 2011 was estimated to be $730.0 million based upon the pricing determined in the private offering of the 9.125% notes at the time of issuance in October 2010. Subsequent to the completion of the notes exchange, the 9.125% notes have an estimated fair value of $671.6 million based on quoted market prices as of August 8, 2011.

ABL Facilities

In October 2010, in connection with the consummation of the Merger, Associated Materials, LLC entered into the ABL facilities in the amount of $225.0 million (comprised of a $150.0 million U.S. facility and a $75.0 million Canadian facility) pursuant to a revolving credit agreement maturing in 2015 (the “Revolving Credit Agreement”). The revolving credit loans under the Revolving Credit Agreement bear interest at the rate of (1) the London Interbank Offered Rate (“LIBOR”) (for Eurodollar loans under the U.S. facility) or Canadian Dealer Offered Rate (“CDOR”) (for loans under the Canadian facility), plus an applicable margin of 3.00% as of July 2, 2011, (2) the alternate base rate (which is the highest of a prime rate, the Federal Funds Effective Rate plus 0.50% and a one-month LIBOR rate plus 1.0% per annum), plus an applicable margin of 2.00% as of July 2, 2011, or (3) the alternate Canadian base rate (which is the higher of a Canadian prime rate and the 30-day CDOR Rate plus 1.0%), plus an applicable margin of 2.00% as of July 2, 2011.

As of July 2, 2011, there was $127.8 million drawn under our ABL facilities and $52.7 million available for additional borrowings. As of July 2, 2011, the per annum interest rate applicable to borrowings under the U.S. portion of the ABL facilities was 3.9%. As of July 2, 2011, the per annum interest rate applicable to borrowings under the Canadian portion of the ABL facilities was 4.4%. The weighted average interest rate for borrowings under the ABL facilities was 4.0% for the quarter ended July 2, 2011. As of July 2, 2011, we had letters of credit outstanding of $7.4 million primarily securing deductibles of various insurance policies.

Covenant Compliance

There are no financial maintenance covenants included in the Revolving Credit Agreement and the indenture governing the 9.125% notes (“Indenture”), other than (A) a Consolidated EBITDA (as defined below) to consolidated fixed charges ratio (the “fixed charge coverage ratio”) of at least 1.00 to 1.00 under the Revolving Credit Agreement, which is triggered when excess availability is less than, for a period of five consecutive business days, the greater of $20.0 million and 12.5% of the sum of (i) the lesser of (x) the aggregate commitments under the U.S. facility at such time and (y) the then applicable U.S. borrowing base and (ii) the lesser of (x) the aggregate commitments under the Canadian facility at such time and (y) the then applicable Canadian borrowing base, and which applies until the 30th consecutive day that excess availability exceeds such threshold, and (B) as otherwise described below. As of August 11, 2011, we have not triggered such covenant.

In addition to the covenant described above, certain incurrences of debt and investments require compliance with financial covenants under the Revolving Credit Agreement and the Indenture. The breach of any of these covenants could result in a default under the Revolving Credit Agreement and the Indenture, and the lenders or note holders, as applicable, could elect to declare all amounts borrowed due and payable. As of August 11, 2011, we were in compliance with such covenants.

EBITDA is calculated by reference to net income plus interest and amortization of other financing costs, provision for income taxes, depreciation and amortization. Consolidated EBITDA, as defined in the Revolving Credit Agreement and the Indenture, is calculated by adjusting EBITDA to reflect adjustments permitted in calculating covenant compliance under these agreements. Consolidated EBITDA is referred to as Adjusted EBITDA herein. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors to demonstrate our ability to comply with our financial covenant.

Potential Implications of Current Trends and Conditions in the Building Products Industry on our Liquidity and Capital Resources

We believe our cash flows from operations and our borrowing capacity under the ABL facilities will be sufficient to satisfy our obligations to pay principal and interest on our outstanding debt, maintain current operations and provide sufficient capital for the foreseeable future. However, as discussed under “— Overview” above, the building products industry continues to be negatively impacted by a weak housing market, with a number of factors contributing to lower current demand for our products, including reduced numbers of existing home sales and new housing starts and depreciation in housing prices. If these trends continue, our ability to generate cash sufficient to meet our existing indebtedness obligations could be adversely affected, and we could be required either to find alternate sources of liquidity or to refinance our existing indebtedness in order to avoid defaulting on our debt obligations.

Our ability to generate sufficient funds to service our debt obligations will be dependent in large part on the impact of building products industry conditions on our business, profitability and cash flows and on our ability to refinance our indebtedness. There can be no assurance that we would be able to obtain any necessary consents or waivers in the event we are unable to service or were to otherwise default under our debt obligations, or that we would be able to successfully refinance our indebtedness. The ability to refinance any indebtedness may be made more difficult to the extent that current building products industry and credit market conditions continue to persist. Any inability we experience in servicing or refinancing our indebtedness would likely have a material adverse effect on us.

Other Matters

The union contract for our West Salem, Ohio manufacturing facility, which expired on November 1, 2010, was recently renegotiated and became effective retroactive to the former expiration date and now expires on October 31, 2013. The union contract for our Lambeth, Ontario manufacturing facility, which expired on June 5, 2011, was recently renegotiated and became effective retroactive to the former expiration date and now expires on June 4, 2014. In addition, the union contract for our Burlington, Ontario manufacturing facility, which was set to expire on September 1, 2011, was recently renegotiated and will become effective on September 1, 2011 and will expire on August 31, 2014. We do not believe that any of the recently negotiated contract rates will have a significant impact on our consolidated financial position, results of operations or cash flows.

Effects of Inflation

The principal raw materials used by us are vinyl resin, aluminum, steel, resin stabilizers and pigments, glass, window hardware, and packaging materials, all of which have historically been subject to price changes. Raw material pricing on our key commodities has increased significantly over the past three years. In response, we announced price increases over the past several years on certain of our product offerings to offset the inflation of raw materials, and continually monitor market conditions for price changes as warranted. Our ability to maintain gross margin levels on our products during periods of rising raw material costs depends on our ability to obtain selling price increases. Furthermore, the results of operations for individual quarters can and have been negatively impacted by a delay between the timing of raw material cost increases and price increases on our products. There can be no assurance that we will be able to maintain the selling price increases already implemented or achieve any future price increases. At July 2, 2011, we had no raw material hedge contracts in place.

Certain Forward-Looking Statements

All statements (other than statements of historical facts) included in this report regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “predict,” “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, it does not assure that these expectations will prove to be correct. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. The following factors are among those that may cause actual results to differ materially from the forward-looking statements:

•

our operations and results of operations;

•

declines in remodeling and home building industries, economic conditions and changes in interest rates, foreign currency exchange rates and other conditions;

•

deteriorations in availability of consumer credit, employment trends, levels of consumer confidence and spending and consumer preferences;

•

changes in raw material costs and availability of raw materials and finished goods;

•

the unavailability, reduction or elimination of government and economic home buying and remodeling incentives;

•

our ability to continuously improve organizational productivity and global supply chain efficiency and flexibility;

•

market acceptance of price increases;

•

declines in national and regional trends in home remodeling and new housing starts;

•

increases in competition from other manufacturers of vinyl and metal exterior residential building products as well as alternative building products;

•

changes in weather conditions;

•

consolidation of our customers;

•

our ability to attract and retain qualified personnel;

•

our ability to comply with certain financial covenants in the indenture governing the 9.125% notes and our ABL facilities;

•

declines in market demand;

•

our substantial level of indebtedness;

•

increases in our indebtedness;

•

increases in costs of environmental compliance or environmental liabilities;

•

increases in warranty or product liability claims;

•

increases in capital expenditure requirements; and

•

the other factors discussed under Item 1A. “Risk Factors” as filed in our Annual Report on Form 10-K for the year ended January 1, 2011 and elsewhere in this report.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this report. These forward-looking statements speak only as of the date of this report. We do not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, unless the securities laws require us to do so.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We have outstanding borrowings under our ABL facilities and may incur additional borrowings from time to time for general corporate purposes, including working capital and capital expenditures. The interest rate applicable to outstanding loans under the ABL facilities is, at our option, equal to either a United States or Canadian adjusted base rate plus an applicable margin ranging from 1.50% to 2.00%, or LIBOR plus an applicable margin ranging from 2.50% to 3.00%, with the applicable margin in each case depending on our quarterly average “excess availability” (as defined). At July 2, 2011, we had borrowings outstanding of $127.8 million under the ABL facilities. The effect of a 1.00% increase or decrease in interest rates would increase or decrease total annual interest expense by approximately $1.3 million.

We have $730.0 million aggregate principal at maturity in 2017 of senior secured notes that bear a fixed interest rate of 9.125%. The fair value of our 9.125% notes is sensitive to changes in interest rates. In addition, the fair value is affected by our overall credit rating, which could be impacted by changes in our future operating results. As we did not complete our offer to exchange all of our outstanding privately placed 9.125% notes for newly registered 9.125% notes until July 2011, the fair value of the 9.125% notes at July 2, 2011 and January 1, 2011 was estimated to be $730.0 million based upon the pricing determined in the private offering of the 9.125% notes at the time of issuance in October 2010. Subsequent to the completion of the notes exchange, the 9.125% notes have an estimated fair value of $671.6 million based on quoted market prices as of August 8, 2011.

Foreign Currency Exchange Risk

Our revenues are primarily from domestic customers and are realized in U.S. dollars. However, we realize revenues from sales made through Gentek’s Canadian distribution centers in Canadian dollars. Our Canadian manufacturing facilities acquire raw materials and supplies from U.S. vendors, which results in foreign currency transactional gains and losses upon settlement of the obligations. Payment terms among Canadian manufacturing facilities and these vendors are short-term in nature. We may, from time to time, enter into foreign exchange forward contracts with maturities of less than three months to reduce our exposure to fluctuations in the Canadian dollar.

At July 2, 2011, we were a party to foreign exchange forward contracts for Canadian dollars, the value of which was immaterial. A 10% strengthening or weakening from the levels experienced during the second quarter of 2011 of the U.S. dollar relative to the Canadian dollar would have resulted in an approximately $0.7 million decrease or increase, respectively, in net income for the quarter ended July 2, 2011. A 10% strengthening or weakening from the levels experienced during the six months ended July 2, 2011 of the U.S. dollar relative to the Canadian dollar would have resulted in an approximately $0.6 million decrease or increase, respectively, in net income for the six months ended July 2, 2011.

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 our principal raw materials — vinyl resin, aluminum and steel.


Item 4.		Controls and Procedures

Evaluation of Disclosure Controls and Procedures

During the fiscal period covered by this report, our management, with the participation of our Interim Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our Interim Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal period covered by this report, the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes to our internal control over financial reporting during the quarter or six months ended July 2, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.		Legal Proceedings

We are involved from time to time in litigation arising in the ordinary course of our business, none of which, after giving effect to our existing insurance coverage, is expected to have a material adverse effect on our financial position, results of operations or liquidity. From time to time, we are also involved in proceedings and potential proceedings relating to environmental and product liability matters.


Item 1A.		Risk Factors

There have been no material changes from the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended January 1, 2011 filed with the Securities and Exchange Commission on April 1, 2011.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3.		Defaults Upon Senior Securities

None.


Item 4.		(Removed and Reserved)


Item 5.		Other Information

None.


Item 6.		Exhibits


Exhibit
Number		Description
	31.1	Certification of the Principal Executive Officer pursuant to Rule 13a-14 of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of the Principal Financial Officer pursuant to Rule 13a-14 of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

	32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


*		This document is being furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986.

SIGNATURES

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


	ASSOCIATED MATERIALS, LLC
	(Registrant)

Date: August 11, 2011	By:	/s/ Dana R. Snyder Dana R. Snyder
		Interim Chief Executive Officer
		(Principal Executive Officer)

Date: August 11, 2011	By:	/s/ Stephen E. Graham Stephen E. Graham
		Senior Vice President — Chief Financial Officer and Secretary
		(Principal Financial Officer and
		Principal Accounting Officer)

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ASSOCIATED MATERIALS, LLC Reports

ASSOCIATED MATERIALS, LLC - FORM 10-Q - August 11, 2011

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ASSOCIATED MATERIALS, LLC Reports