ASSOCIATED MATERIALS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

(Mark one)

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2001.

or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
____________ to ____________.

COMMISSION FILE NUMBER 0-24956

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ASSOCIATED MATERIALS INCORPORATED
(Exact name of Registrant as specified in its charter)

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DELAWARE 75-1872487
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

2200 ROSS AVENUE, SUITE 4100 EAST
DALLAS, TEXAS 75201
(Address of executive offices)
(214) 220-4600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

TITLE OF CLASS
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COMMON STOCK, PAR VALUE, $.0025 PER SHARE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of February 25, 2002 was approximately $153,563,000.

As of February 25, 2002 the Registrant had 6,774,027 shares of Common Stock
outstanding.

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PART I

ITEM 1. BUSINESS

Associated Materials Incorporated (the "Company") is a leading,
vertically integrated manufacturer and nationwide distributor of exterior
residential building products through its Alside division ("Alside"). Alside's
core products are vinyl siding and vinyl windows. These products are marketed on
a wholesale basis to more than 35,000 professional contractors engaged in home
remodeling and new home construction principally through Alside's nationwide
network of more than 80 Alside Supply Centers. Alside's vinyl product offerings
also include vinyl fencing, decking and railing, as well as vinyl garage doors.
In 2001, Alside accounted for approximately 88% of the Company's net sales. The
Company's operations also include its AmerCable division ("AmerCable"), a
manufacturer of specialty electrical cables for use in underground and surface
mining, marine and offshore drilling, automotive assembly robotics,
telecommunications and a variety of other industrial applications. The Company
was incorporated in Delaware in 1983.

In December 2001, the Company's Board of Directors authorized
management to undertake a review of strategic alternatives, including a possible
sale of the Company. As of the date of this report, the review process is
continuing and the Company anticipates announcing the results of this review in
March 2002. There can be no assurance that any transaction will result from this
review, nor the terms or timing of any transaction.

INDUSTRY OVERVIEW

Vinyl siding competes with other materials, such as wood, masonry,
fiber cement and metals, for a share of the residential siding market. Vinyl
siding has greater durability and requires less maintenance than wood siding,
and generally is less expensive than wood, masonry, fiber cement or metal
siding. According to an industry study jointly prepared by Sabre Associates,
Inc. and Pure Strategy (the "Sabre Study"), based on unit sales, vinyl siding
accounted for approximately 50% of the exterior siding market in 1998 versus
approximately 17% in 1985. Since the early 1980's, vinyl siding has become the
preferred siding product for professional home remodeling contractors and their
customers, and commanded approximately 62% of the home remodeling marketplace
for siding according to the most recent Sabre Study. Since the mid-1990's, vinyl
siding has achieved increasing acceptance in the new construction market, as
builders and home buyers have recognized vinyl's low maintenance, durability and
price advantages. The Company believes that vinyl siding will continue to gain
market share in the new residential construction market while remaining the
preferred product of the remodeling marketplace.

Vinyl windows require less maintenance, are more durable than either
wood or aluminum windows and provide greater energy efficiency than aluminum
windows. According to the Sabre Study, based on unit sales, approximately 51% of
all residential windows sold in 1998 were vinyl windows versus approximately 27%
in 1991. Since the early 1990's, vinyl windows have become the preferred window
product for professional home remodeling contractors and their customers, and
commanded approximately 75% of the home remodeling marketplace for windows. More
recently, vinyl windows have achieved increased acceptance in the new
construction market as a result of builders and home buyers recognizing vinyl's
favorable attributes, the enactment of local legal or building code requirements
that mandate more energy efficient windows and the increased development and
promotion of vinyl window products by national window manufacturers. The Company
believes that vinyl windows will continue to gain market share in the new
residential construction market while remaining the preferred product of the
remodeling marketplace.

ALSIDE

PRODUCTS. Alside's principal product offerings are vinyl siding and
vinyl windows, which together accounted for approximately 67% of Alside's 2001
net sales. Alside also manufactures a variety of other products including vinyl
fencing, decking and railing, as well as vinyl garage doors.

The vinyl siding market consists of three segments: economy/new
construction, standard and premium. Vinyl siding quality is determined by its
rigidity, resistance to fading, thickness and ease of installation as well as
other factors. Since its introduction of Charter Oak in 1995, Alside has
established itself as a leader in innovation within the vinyl siding industry.
Since 1995, the Company has broadened its product lines to increase its
penetration of the premium and economy segments. The Company believes that its
innovation in product development was key to its siding sales growth in the past
and will continue to be a principal factor in its sales growth in future years.
For example, in late 1995, Alside introduced its Charter Oak siding, which
enabled Alside to penetrate the premium segment of the vinyl siding market. The
Company believes that Charter Oak continues to set the standard for premium
vinyl siding products today. Alside introduced its Conquest siding product in
1997, which has enabled Alside to achieve additional market penetration in the
economy/new construction segment of the siding industry. During 1998, Alside
introduced CenterLock, a patented product positioned in the premium

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market segment. In 1999, Alside introduced Odyssey Plus, an improved and updated
version of its popular Odyssey siding product. Alside introduced its Seneca and
Landscape products in order to broaden its offerings for the standard and
economy segments in 2000. During 2001, Alside introduced three new premium
siding products: Preservation, Eclipse and Board and Batten. In addition to
these products, Alside has increased the number of colors and profiles offered
within its existing siding products and continues to increase and improve upon
the breadth of its vinyl siding product lines. Alside offers limited warranties
ranging from 50-year warranties to lifetime warranties with its siding products.

Alside divides its window products into the economy, standard and
premium categories. Product quality within the vinyl window industry is
determined by a number of competitive features including method of construction
and materials used. Alside custom manufactures substantially all of its windows
to fit existing window openings. Custom fabrication provides Alside's customers
with a product that is less expensive to install and more attractive after
installation. Alside's custom windows are used primarily in the repair and
remodeling market. One of the fastest growing segments of the window market is
the new construction segment. Alside acquired substantially all the assets of
Alpine Industries, Inc. in October 2000. Alpine primarily manufactures new
construction windows, and this acquisition increased Alside's presence in the
new construction market. Substantially all of Alside's window products are
accompanied by a limited lifetime warranty.

A summary of Alside's siding and window product offerings is presented
in the table below according to the Company's product line classification:

Alside produces vinyl fencing, decking and railing under the brand name
UltraGuard(R), currently a leading brand of both agricultural and residential
vinyl fencing. Sales of UltraGuard fencing accounted for less than 5% of
Alside's net sales in 2001. Alside introduced a raised panel vinyl garage door
in 1997 under the brand name Premium Garage Doors(TM). Alside primarily markets
its fencing, decking and railing and garage doors through independent dealers.

To complete its line of vinyl siding and window products, Alside also
distributes building products manufactured by other companies. These products
include metal siding, wood windows, roofing materials, insulation, cabinets and
installation equipment and tools.

MARKETING AND DISTRIBUTION. Traditionally, most vinyl siding has been
sold to the home remodeling marketplace through independent distributors. The
Company believes that Alside is one of only two major vinyl siding manufacturers
that market their products primarily through company-owned distribution centers.
Alside has a nationwide distribution network of more than 80 Alside Supply
Centers through which the Company markets Alside manufactured products and other
complementary building products to more than 35,000 professional home
improvement and new construction contractors. The Company believes that Alside
Supply Centers provide "one-stop shopping" to meet the specialized needs of its
contractor-customers by distributing more than 2,000 building and remodeling
products, including a broad range of Company-manufactured vinyl siding and vinyl
windows as well as products manufactured by others. In 2001, approximately 79%
of Alside's sales were made through its Supply Centers. In addition to sales and
promotional support, contractors look to their local Alside Supply Center to
provide a broad range of specialty product offerings in order to maximize their
ability to attract remodeling and homebuilding customers.

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Alside believes that distributing products through its Supply Centers
provides the Company with certain competitive advantages such as (a)
long-standing customer relationships, (b) the ability to implement targeted
marketing programs and (c) a permanent presence in local markets. Many of
Alside's contractor-customers have established long-standing relationships with
their local Supply Center based on individualized service and credit terms,
quality products, timely delivery, breadth of product offerings, strong sales
and promotional programs and competitive prices. Alside supports its
contractor-customer base with marketing and promotional programs that include
product sample cases, sales literature, product videos and other sales and
promotional materials. Professional contractors use these materials to sell
remodeling construction services to prospective customers. The customer
generally relies on the professional contractor to specify the brand of siding
or window to be purchased, subject to the customer's price, color and quality
requirements. Alside's daily contact with its contractor-customers also enables
it to closely monitor activity in each of the remodeling and new construction
markets in which Alside competes. This direct presence in the marketplace
permits Alside to obtain current local market information, providing Alside with
the ability to recognize trends in the marketplace earlier and adapt its product
offerings on a location-by-location basis.

Many of Alside's contractor-customers install both vinyl siding and
vinyl windows. Because Alside manufactures and distributes both vinyl siding and
vinyl windows, its contractor-customers can acquire both products from a single
source, which the Company believes provides Alside with a competitive advantage
in marketing these products to its target customer base. Furthermore, Alside has
the ability to achieve economies of scale in sales and marketing by developing
integrated programs on either a national or local basis for its vinyl siding and
vinyl window products. In 2000, Alside introduced Preservation as the industry's
first bundled premium siding and window marketing program. Alside's unique
position as a manufacturer and distributor of both vinyl siding and windows has
enabled it to offer Preservation to select dealers.

Each of Alside's Supply Centers is evaluated as a separate profit
center, and compensation of Supply Center personnel is based in part on the
Supply Center's operating results. Decisions to open new Supply Centers, and to
close or relocate existing Supply Centers, are based on Alside's continuing
assessment of market conditions and individual location profitability. During
2001, Alside added five Supply Centers to its distribution network. The Company
presently expects to open up to eight new Supply Centers in 2002. Alside has
developed formal training and recruiting programs for Supply Center personnel
which it expects to improve its ability to staff new locations.

Through certain of its Supply Centers, Alside's Installed Services
Division provides full-service product installation of its vinyl siding
products, principally to new homebuilders who value the importance of
installation services. Alside also provides installation services for vinyl
replacement windows through certain of its Supply Centers.

Alside sells its manufactured products to large direct dealers and
distributors, generally in those areas where no Alside Supply Center currently
exists. These sales accounted for approximately 21% of Alside's 2001 net sales.
Despite their aggregate lower percentage of total sales, Alside's largest
individual customers are its large direct dealers and independent distributors.
Alside carefully monitors and evaluates its activity with these customers to
ensure the profitability of this higher volume, lower margin business. No single
customer accounted for 5% or more of Alside's 2001 sales. Alside continues to
expand its network of independent distributors in strategic areas to improve its
penetration into certain markets.

Alside Window Company Northwest ("Alside Northwest"), which consists of
the assets purchased from Alpine in October 2000, has historically sold its
window products through a variety of channels including direct to builders and
to independent distributors and lumberyards. Alside Northwest has also sold its
products into foreign markets, principally the Far East. Alside Northwest
expects to continue many of these distribution relationships and also distribute
its products through certain Alside Supply Centers.

MANUFACTURING. Alside manufactures its vinyl siding products at its
Ennis and Freeport, Texas facilities. The Company added the Freeport facility,
which was completed in 1999, in order to meet its sales expectations for
Alside's siding products. The Company believes that, with planned capital
projects in 2002, Alside will have adequate capacity to meet its short-term
sales expectations. In addition, the Company is able to add incremental
extrusion capacity sufficient to increase its capacity by approximately 50% over
2001 levels without the need for an additional facility or the expansion of the
Freeport facility. Alside operates a vinyl extrusion facility in West Salem,
Ohio to produce vinyl window extrusions as well as vinyl fencing, decking and
railing and garage door panels. The Ennis, Texas plant also produces vinyl
fencing. Alside operates three window fabrication plants which each use vinyl
extrusions manufactured by Alside for the majority of their production
requirements and utilize high speed welding and cleaning equipment for their
welded window products. By producing its own vinyl extrusions, Alside believes
it achieves significant cost savings and higher product quality compared to
purchasing these materials from third-party suppliers. In October 2000, the
Company purchased significantly all of the assets of Alpine, including its
leased window fabrication facility located in Bothell, Washington. The Bothell
facility produces its glass inserts, but has a long-term contract to purchase
its vinyl extrusions from a third-party supplier.

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Alside's vinyl extrusion plants generally operate on a three-shift
basis to optimize equipment productivity and utilize additional equipment to
increase capacity to meet higher seasonal needs. Alside's window plants
generally operate on a single shift basis utilizing both a second shift and
increased numbers of leased production personnel to meet higher seasonal needs.

RAW MATERIALS. The principal raw materials used by Alside are vinyl
resins, resin stabilizers and pigments, packaging materials, window hardware and
glass, all of which are available from a number of suppliers. Alside has a
contract with its resin supplier to supply substantially all of its contract
vinyl resin requirements and believes that its requirements could also be met by
other suppliers. The price of vinyl resin has been, and may continue to be,
volatile. Alside generally has been able to pass through price increases in raw
materials to its customers. The price of vinyl resin increased significantly
during 1999 and remained at this higher level during 2000. Alside implemented
price increases in late 1999 and 2000 to offset the increases in vinyl resin
prices. The price of vinyl resin decreased somewhat in 2001. Alside does not
presently expect any significant change in the price of vinyl resin during 2002.

COMPETITION. Except for Owens Corning, the Company believes that no
company within the residential siding industry competes with Alside on both the
manufacturing and distribution levels. There are, however, numerous small and
large manufacturers of vinyl siding products, some of whom are larger in size
and have greater financial resources than the Company. Alside competes with
Owens Corning and numerous large and small distributors of building products in
its capacity as a distributor of these products. The Company believes that
Alside is the fifth largest manufacturer of vinyl siding with approximately 8%
of the U.S. market. The market for vinyl replacement windows is highly
fragmented, and Alside believes that no single manufacturer accounts for a
significant percentage of national sales. Alside believes that the window
fabrication industry will continue to experience consolidation due to the
increased capital requirements for manufacturing welded vinyl windows. The trend
towards welded windows, which require more expensive production equipment as
well as more sophisticated information systems, has driven these increased
capital requirements. Alside and its competitors generally compete on price,
product performance, and sales and service support to professional contractors.
Competition varies by region. Alside also faces competition from alternative
materials: wood and aluminum in the window market, and wood, masonry, fiber
cement and metal in the siding market. However, the Company believes Alside's
products are competitive, and in most sectors are gaining share at the expense
of these alternative materials due to vinyl's superior qualities, including its
lower material cost, durability and low maintenance requirements.

AMERCABLE

AmerCable accounted for approximately 12% of the Company's net sales in
2001. AmerCable manufactures and markets jacketed electrical cable products for
specialized applications from its facility in El Dorado, Arkansas. These
applications include underground and surface mining, marine and offshore
drilling, automotive assembly robotics, telecommunications, and a variety of
other specialized industrial applications. AmerCable principally manufactures
specialty cable to meet industry technical standards and end-users'
specifications, and its products are internationally recognized and certified by
the world's governing approval authorities.

PRODUCTS. AmerCable manufactures and distributes three categories of
products: mining cable, marine and offshore drilling cable, and industrial
cable, which accounted for 40%, 32% and 28% of its 2001 sales, respectively.
AmerCable manufactures a complete line of mining cable products, which are
designed and utilized to supply power for mining equipment and systems in
diverse underground and surface mining applications where cable flexibility and
durability are critical. AmerCable's Tiger(R) brand cable products are
considered a leader in the mining cable market. AmerCable's marine cables,
marketed under the Gexol(TM) trade name, are designed to withstand the demanding
environments of marine, shipboard and offshore drilling applications, and are
recognized as a quality product in the marine cable market. AmerCable
manufactures and markets a variety of industrial cable products, which include
telecommunications central office power cables, diesel locomotive cables
("DLO"), automotive assembly robotics cables, magnet crane cables and a number
of other portable power cable products. The market for telecommunications
central office power cables, which are used to power towers, gateways, amplifier
stations and local office switches, had been one of the fastest growing sectors
in the wire and cable industry prior to 2001. The growth in this market is
largely responsible for the growth of AmerCable's industrial business in 2000 as
this market utilized DLO products as well as specialty telecommunications power
cable products. However, sales of telecommunication cable products decreased in
2001 due to reduced infrastructure expenditures by the telecommunications
industry. The Company anticipates that the telecommunications cable market will
provide opportunities for AmerCable over the long term.

MARKETING AND DISTRIBUTION. AmerCable markets its cable products
principally to independent distributors who resell to the end user, except for
certain marine products that are distributed through its Offshore/Marine Cable
Specialists division. Approximately 27% of AmerCable's 2001 sales were made
through its Offshore/Marine Cable Specialists division.

4

RAW MATERIALS. The principal raw material used by AmerCable is copper
strand, which is available from a number of suppliers. Historically, copper
strand has been subject to rapid price changes. AmerCable generally prices its
cable products based upon market prices for copper at the time of shipment. As a
result, sudden decreases in copper prices can result in lower gross profit
margins in subsequent periods. In certain instances, AmerCable may guarantee a
fixed copper price for its products where there is a significant time lag
between the purchase order and shipment. In these cases, AmerCable generally
attempts to hedge its position on copper prices.

COMPETITION. Rather than compete in the higher volume, commodity-type
markets such as residential building wire and magnet wire, AmerCable seeks to
compete as a market leader in small, niche markets in which products typically
are specialized constructions to meet market-specific applications and require a
higher level of value-added content. AmerCable competes with numerous large and
small manufacturers, a number of which have substantially greater resources than
the Company. AmerCable generally competes on sales and product service, product
performance, delivery speed and price. AmerCable believes that it has developed
strong customer relationships as a result of its ability to fulfill customer
needs through the manufacture of high quality products, through consistent
availability of products with industry-leading lead times and on-time delivery,
through innovative product enhancements and new products and through superior
customer service including strong field application engineering capabilities.

ACQUISITIONS AND DIVESTITURES

In October 2000, the Company acquired substantially all of the assets
of Alpine for $7.6 million in cash and the assumption of certain payroll related
and property tax liabilities. Included in the acquired assets is Alpine's leased
window fabrication facility located in Bothell, Washington. This facility
manufactures vinyl windows primarily for the new construction market. In
addition to new construction windows, Alpine manufactures premium sound control
windows. This acquisition significantly increases the Company's presence on the
West Coast. The acquisition was accounted for using the purchase method of
accounting.

The Company completed the sale of its UltraCraft operation, a
manufacturer of semi-custom frameless cabinets, in June 2000. Pre-tax net
proceeds from the sale were $18.9 million after working capital adjustments and
transaction costs. The Company recorded a pre-tax gain of $8.0 million on the
sale. UltraCraft represented approximately 5% of the Company's 1999 net sales.

AMERCORD

In addition to its Alside and AmerCable divisions, the Company owns a
9.9% interest in Amercord Inc. ("Amercord"). Amercord manufactured and marketed
steel cord and bead wire to the tire manufacturing industry. The Company reduced
its ownership in Amercord from 50% to 9.9% in the fourth quarter of 1999.
Amercord's operating results and financial position deteriorated during the
first quarter 2001. The Company believed it would not recover its investment in
Amercord and wrote off its $2.4 million investment in Amercord during the first
quarter of 2001. Amercord ceased operations during the second quarter of 2001.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

EMPLOYEES

Alside's employment needs vary seasonally with sales and production
levels. As of December 31, 2001, Alside had approximately 2,140 full-time
employees, including approximately 1,120 hourly workers. The West Salem, Ohio
plant is Alside's only unionized manufacturing facility, employing approximately
85 covered workers as of December 31, 2001. The collective bargaining agreement
for the West Salem facility was successfully renegotiated in November 2001 for a
three-year term. Additionally, approximately 90 hourly workers in certain Supply
Center locations are covered by collective bargaining agreements. The Company
considers Alside's labor relations to be good.

Alside utilizes leased employees to supplement its own workforce at its
vinyl window fabrication plants located in Akron, Ohio; Kinston, North Carolina;
and Cedar Rapids, Iowa. The Company believes that the employee leasing program
provides it with scheduling flexibility for seasonal production requirements.
The aggregate number of leased employees in the window plants ranges from
approximately 300 to 650 people based on seasonality.

As of December 31, 2001, AmerCable employed approximately 210 people,
including 115 hourly workers, none of whom are covered by collective bargaining
agreements. AmerCable maintains good relations with its employees.

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TRADEMARKS AND PATENTS

The Company has registered and nonregistered trade names and trademarks
covering the principal brand names and product lines under which its products
are marketed. Although the Company considers each of these items to be valuable,
it does not currently believe this property, other than the Alside(R) trademark,
to be material. The Company has obtained patents on certain claims associated
with its siding, fencing, decking and railing, and garage door products, which
the Company believes distinguish Alside's products from those of its
competitors.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

The Company is subject to numerous federal and state statutes and
regulations relating to, among other things, air and water quality, the
discharge of materials into the environment and safety and health issues. The
Company does not expect compliance with these requirements to have a material
impact on the Company's earnings or competitive position in the foreseeable
future. Additionally, no significant capital expenditures are presently
anticipated related to compliance with these requirements.

The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container storage area,
the use of these facilities was terminated prior to the acquisition of the
Alside assets by the Company from USX Corporation ("USX") in 1984. The effects
of the past practices at this facility are continuing to be investigated
pursuant to the terms of the consent order. The Company believes that USX bears
financial responsibility for substantially all of the direct costs of corrective
action at these facilities under the relevant contract terms and under statutory
and common law. To date, USX has reimbursed the Company for substantially all of
the direct costs of corrective action at these facilities, and the Company
expects that USX will continue to reimburse the Company for substantially all of
the direct costs of corrective action at these facilities. As a result, the
Company believes that any material claims resulting from this proceeding will
not have a material adverse effect on the Company.

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ITEM 2. PROPERTIES

The Company's operations include both owned and leased facilities as
described below:

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(1) Leased facilities.

Management believes that the Company's facilities are generally in good
operating condition and are adequate to meet anticipated requirements in the
near future.

Alside also operates more than 80 Alside Supply Centers in major
metropolitan areas throughout the United States. Except for one owned location
in Akron, Ohio, the Company leases its Supply Centers for terms generally
ranging from five to seven years with renewal options. The Supply Centers range
in size from 6,000 square feet to 50,000 square feet depending on sales volume
and the breadth and type of products offered at each location.

The leases for Alside's window plants extend through 2011 for the
Bothell location and 2005 for the Cedar Rapids and Kinston locations. Each lease
is renewable at the Company's option for an additional five-year period. The
Company's corporate headquarters occupy approximately 3,500 square feet of
leased office space in Dallas, Texas. Under the Company's existing credit
agreement with KeyBank, N.A., the bank lender holds a security interest in the
Company's contract rights, including real property leases.

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ITEM 3. LEGAL PROCEEDINGS

The Company is involved from time to time in litigation arising in the
ordinary course of its business, none of which, after giving effect to the
Company's existing insurance coverage, is expected to have a material adverse
effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Company's common stock is traded on The Nasdaq National Market with
the ticker symbol "SIDE." The following table shows the price range of the
Company's common stock for each quarter in 2001 and 2000:

HOLDERS

On February 25, 2002, the Company had 41 record holders of common
stock.

DIVIDENDS

The Company paid dividends of $0.10 and $0.20 per share in 2000 and
2001, respectively. The Company presently intends to pay a quarterly cash
dividend of $0.05 per share. However, the Company's future dividend policy will
depend upon the Company's capital requirements, results of operations, financial
condition and other factors as the Company's Board of Directors deems relevant.
Further, the payment of cash dividends is restricted by covenants in its
existing bank credit agreement and the Indenture pursuant to which the Company's
9 1/4% Senior Subordinated Notes ("9 1/4% Notes") were issued. At December 31,
2001, the Company had the ability to pay dividends and make other restricted
payments of up to $15.7 million under the most restrictive provision of these
agreements.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial information set forth below for the five-year
period ended December 31, 2001 was derived from the audited financial statements
of the Company. The data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
financial statements, related notes and other financial information included
elsewhere in this report.

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(1) Certain prior period amounts have been reclassified to conform with the
current period presentation.

(2) The Company recorded a $5.9 million curtailment gain due to the freeze
of the Alside Retirement Plan at December 31, 1998. The Company also
accrued an additional $3.3 million expense for retiree medical benefits
related to the 1989 closure of Alside's metal siding plant.

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(3) The Company recorded an $8.0 million pre-tax gain on the sale of its
UltraCraft operation, a manufacturer of semi-custom cabinets, in June
2000.

(4) In 1998, the Company recorded a pretax write-down on its investment in
Amercord in anticipation of a loss on the sale of Amercord. In 2001,
the Company recorded a $2.4 million loss upon the write-off of its
remaining investment in Amercord due to the deterioration of Amercord's
operations.

(5) The extraordinary item represents, net of tax, the loss recognized on
the write-off of debt issuance costs and the prepayment premium paid on
the purchase of the Company's 11 1/2% Senior Subordinated Notes in
1998.

(6) In accordance with the Commission Staff Accounting Bulletin, Topic 4D,
shares of common stock issued during the 12-month period prior to the
Company's initial public offering at prices below the initial public
offering price have been included in the calculation as if these shares
were outstanding for all periods presented. Earnings per share for all
periods prior to the initial public offering in 1998 were computed in
accordance with Topic 4D.

(7) EBITDA is calculated as income from operations plus depreciation and
amortization. The Company has included information concerning EBITDA
because it believes that EBITDA is used by certain investors as one
measure of an issuer's historical ability to service its debt. EBITDA
should not be considered as an alternative to, or more meaningful than,
net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. EBITDA has not been prepared in
accordance with generally accepted accounting principles. EBITDA as
presented above for the Company may not be comparable to similarly
titled measures reported by other companies.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

GENERAL. The Company consists of two operating divisions, Alside and
AmerCable. In addition, the Company owns an interest in Amercord, which was
accounted for using the equity method until November 1999 when it was
recapitalized, reducing the Company's interest in Amercord from 50% to 9.9%.
Since the recapitalization, the Company has accounted for Amercord under the
cost method.

ALSIDE. The Company's results of operations are primarily affected by
the operating results of Alside, which accounted for more than 87% of the
Company's net sales in each of the last three years. Because its residential
building products are consumer durable goods, Alside's sales are impacted by the
availability of consumer credit, consumer interest rates, employment trends,
changes in levels of consumer confidence, national and regional trends in new
housing starts and general economic conditions. Alside's sales are also affected
by changes in consumer preferences with respect to types of building products.
Alside's products are used in the repair and remodeling, as well as the new
construction, sectors of the building industry. Alside believes that
approximately two-thirds of its sales were made to the repair and remodeling
sector in 2001, 2000 and 1999.

The Company believes that vinyl building products continue to gain
market share from metal and wood products due to vinyl's favorable attributes,
which include its durability, lower maintenance cost and lower cost compared to
wood and metal. Although no assurances can be given, the Company further
believes that these increases in market share, together with Alside's increased
marketing efforts, will increase Alside's sales of vinyl siding, vinyl windows
and other complementary building products.

The Company operates with significant operating and financial leverage.
Significant portions of Alside's selling, general and administrative expenses
are fixed costs that neither increase nor decrease proportionately with sales.
As a result, a percentage change in Alside's net sales will have a greater
percentage effect on Alside's income from operations. In addition, interest
expense related to the Company's long-term debt is fixed.

AMERCABLE. Rather than compete in the higher volume, commodity-type
markets such as residential building wire and magnet wire, AmerCable seeks to
compete as a market leader in smaller, niche markets in which products typically
are specialized constructions designed to meet market-specific applications and
require a higher value-added content. AmerCable manufactures and distributes a
core group of cable products that it believes best utilize its manufacturing
efficiencies and marketing and distribution capabilities. Its cable products are
used primarily in the mining, offshore drilling and telecommunications
industries. AmerCable's results can be affected by a slowdown in the mining and
offshore drilling industries as a result of lower commodity prices while its
sales of telecommunications cable products can be affected by reduced
infrastructure expenditures by the telecommunications industry. AmerCable's
sales can also be affected by the price of copper as AmerCable generally prices
its cable products based upon market prices for copper at the time of shipment.

11

AMERCORD. In November 1999, Amercord was recapitalized, and in that
transaction the Company's interest in Amercord was reduced from 50% to 9.9%. As
a result of the recapitalization, the Company received $1.2 million in cash (net
of related expenses) and a subordinated note for $1.5 million due November 2004.
The Company has the right to require Amercord to purchase the Company's
remaining 9.9% interest for $2.0 million in November 2003. For the reasons
described in the following paragraph, the Company does not presently expect
Amercord will have the financial ability to meet these obligations.

Amercord's operating results and financial position deteriorated during
the first quarter 2001. The Company believed it would not recover its investment
in Amercord and wrote off its $2.4 million investment in Amercord during the
first quarter of 2001. Amercord ceased operations during the second quarter of
2001.

SEGMENT DATA. Alside accounted for more than 87% of the Company's net
sales and income from operations in each of the last three years. In 2001,
Alside accounted for approximately 88% of the Company's income from operations
exclusive of corporate selling, general and administrative expenses. Management
believes that a discussion of the Company's results and financial position for
these periods is enhanced by presenting segment information for Alside and
AmerCable. The tables below set forth for the periods indicated certain items
from the Company's financial statements:

- ----------

(1) Certain prior period amounts have been reclassified to conform with the
current period presentation.

(2) Consolidated selling, general and administrative expenses include
corporate expenses of $5.0 million, $4.0 million and $3.6 million for
the years 2001, 2000 and 1999, respectively.

12

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31,
2000

GENERAL. The Company's net sales increased $96.4 million or 19.3% to a
record high of $595.8 million for the year ended 2001 as compared to the 2000
period due primarily to strong sales at the Company's Alside division. Income
from operations increased $12.4 million or 32.4% to $50.5 million for the 2001
period compared to $38.1 million for the 2000 period due primarily to higher
operating profits at Alside. Net income increased 7.9% to $25.4 million or $3.46
per share in 2001 compared to $23.6 million or $2.85 per share in 2000. The 2001
results include the $2.4 million write-down of the Company's Amercord investment
while the 2000 period results included the $8.0 million pre-tax gain on the sale
of the Company's UltraCraft cabinet operations and an additional $1.1 million in
income tax expense recorded due to an adjustment to a deferred tax asset.
Excluding these items, the Company's net income and earnings per share were
$26.9 million or $3.67 per share in 2001 and $19.7 million or $2.39 per share in
2000. In April 2001, the Company repurchased 1.0 million shares of its
outstanding Class B common stock. The Company's weighted average shares
outstanding were 7.3 million in 2001 and 8.3 million in 2000. Exclusive of the
repurchase of the shares of Class B common stock, the Company's weighted average
shares outstanding and earnings per share for 2001 were 8.0 million and $3.20,
respectively.

ALSIDE. Alside's net sales increased 20.6% to $524.5 million in 2001
compared to $434.8 million in the 2000 period due to higher sales volume of
vinyl windows, vinyl siding and complementary building products, such as
roofing, foam insulation, tools and other materials manufactured by third
parties and sold through Alside's Supply Centers. Unit sales of vinyl windows
increased 48.1% for the 2001 period compared to the 2000 period, exclusive of
the operations of Alpine, which were acquired in October 2000. Vinyl window unit
sales increased 83.5% including the Alpine operations. Unit sales of vinyl
siding increased 11.1% for the 2001 period while the Company believes that the
vinyl siding industry as a whole decreased slightly. Gross profit increased
18.9% to $156.6 million for the 2001 period compared to $131.7 million for the
same period in 2000, but decreased as a percentage of sales to 29.8% in 2001
from 30.3% in 2000 due to changes in product mix to lower margin vinyl windows.
Gross profit margins on vinyl siding and windows each increased over 2000 due to
lower raw material costs and improved manufacturing efficiencies. Selling,
general and administrative expense increased to $107.7 million in 2001 compared
to $95.4 million in 2000, but decreased as a percentage of sales. The increase
was due to higher personnel costs and higher Supply Center expenditures. The
increase in personnel costs was due to normal salary increases, an increase in
the number of salaried personnel due to the Alpine acquisition in 2000, higher
incentive compensation due to increased profitability at Alside and higher
severance expense. Supply Center costs increased due to higher personnel costs
due to an increase in number of Supply Center personnel, higher incentive
compensation and increased lease expense due to the opening of additional
locations and increased lease expense at existing locations. Income from
operations increased 34.7% to $48.9 million as higher gross profits were
partially offset by higher selling, general and administrative expense.

AMERCABLE. Net sales increased 10.4% to $71.3 million for the 2001
period compared to $64.5 million for the same period in 2000 due to higher sales
of marine and mining cable products which were partially offset by lower sales
of industrial cable products, including telecommunications cable products. Gross
profit increased to $13.8 million in 2001 compared to $13.7 million in 2000 but
decreased as a percentage of sales due to higher labor and overhead costs and
unfavorable fixed cost absorption. Selling, general and administrative expense
was $7.2 million for the period ended 2001 compared to $7.9 million for the same
period in 2000 as lower bad debt expense was partially offset by higher
personnel costs. In 2000, AmerCable recorded $1.4 million in additional bad debt
expense as the result of a customer bankruptcy. Income from operations increased
14.4% to $6.7 million in 2001 compared to $5.8 million for the same period in
2000 due to slightly higher gross profit and lower selling, general and
administrative expense due to the additional $1.4 million in bad debt expense
recorded in 2000.

OTHER. Net interest expense increased $749,000 or 12.4% in 2001
compared to 2000 due primarily to a decrease in the Company's investment income.
The Company's average investment balance decreased during 2001 as compared to
2000 due to the Company's repurchase of 1.0 million shares of its Class B common
stock at an aggregate cost of $19.5 million in April 2001. The overall decrease
in interest rates during 2001 also contributed to lower investment income. The
Company recorded interest income of $377,000 in 2001 as compared to $1.1 million
in 2000. Corporate selling, general and administrative expense increased to $5.0
million for 2001 compared to $4.0 million for the 2000 period due to the cost
associated with obtaining a fairness opinion in connection with the repurchase
of the Company's Class B common stock and additional compensation expense
recorded due to a modification of certain outstanding stock options.

13

YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31,
1999

GENERAL. The Company's net sales increased 9.7% to $499.4 million in
2000 as compared to $455.3 million in 1999 due to higher sales at the Company's
Alside and AmerCable divisions. Income from operations decreased 8.4% to $38.1
million in 2000 as compared to $41.6 million in 1999 as higher operating profits
from the Company's AmerCable division were offset by lower operating profits at
Alside. Net income increased to $23.6 million or $2.85 per share in 2000 as
compared to $20.5 million or $2.46 per share in 1999. The increase in net income
was due to the sale of the Company's UltraCraft cabinet operations in June 2000,
which resulted in a pre-tax gain of $8.0 million.

ALSIDE. Net sales at Alside increased to a record $434.8 million in
2000 as compared to $410.1 million in 1999 due to higher sales prices in vinyl
siding and higher sales volume in vinyl windows and vinyl fencing. Vinyl siding
sales increased in 2000 as compared to 1999 as higher sales prices which were
implemented to offset higher vinyl resin costs were partially offset by a slight
decrease in siding unit volume. Vinyl window sales increased 9.7% in 2000 due
primarily to a 6.5% increase in unit sales volume while sales of vinyl fencing,
decking and railing increased 28.5% due to higher sales volume. Gross profit
increased to $131.7 million in 2000 but decreased as a percentage of sales as
Alside was unable to recover any incremental margin on the selling price
increases that resulted due to higher vinyl resin prices. Selling, general and
administrative expense increased to $95.4 million in 2000 as compared to $87.6
million in 1999 due to the opening of eight additional Supply Centers as well as
higher personnel costs and higher legal expense. Income from operations
decreased to $36.3 million in 2000 from $42.4 million in 1999 as higher gross
profits were more than offset by higher selling, general and administrative
expense.

AMERCABLE. AmerCable's net sales increased 42.9% to $64.5 million in
2000 as compared to $45.2 million in 1999 due to higher volume across all
product lines. Sales increased by 86% in the industrial segment as sales of
power cable to the telecommunications industry were very strong. Gross profit
increased to $13.7 million in 2000 up from $7.7 million in 1999 due to higher
sales and improved fixed cost absorption. Gross profit as a percentage of sales
increased to 21.2% as compared to 17.0% in 1999. Selling, general and
administrative expense increased to $7.9 million in 2000 as compared to $4.8
million in 1999. The increase was due to a $1.4 million increase in bad debt
expense as well as higher personnel costs and higher incentive compensation. Bad
debt expense increased by $1.4 million in 2000 as a result of a large customer
that filed for bankruptcy. Income from operations increased to $5.8 million in
2000 as compared to $2.9 million in 1999 due to higher gross profits, which were
offset in part by higher selling, general and administrative expense.

OTHER. Net interest expense decreased $733,000 or 10.8% in 2000 as
compared to 1999 primarily due to an increase in the Company's investment
income. The Company recorded interest income of $1.1 million in 2000 as compared
to $329,000 in 1999. The Company recorded $1.1 million in additional income tax
expense due to an adjustment to a 1986 deferred tax asset recorded pursuant to
the spin-off of the tire cord division into Amercord. This adjustment increased
the effective tax rate from 38.5% to 41.3%.

14

QUARTERLY FINANCIAL DATA

GENERAL. Because most of Alside's building products are intended for
exterior use, Alside's sales and operating profits tend to be lower during
periods of inclement weather. Weather conditions in the first quarter of each
calendar year historically result in that quarter producing significantly less
sales revenue than in any other period of the year. As a result, the Company has
historically had small profits or losses in the first quarter, and reduced
profits in the fourth quarter of each calendar year due to the significant
impact of Alside on the Company's performance.

Quarterly sales and operating profit data for the Company in 2001 and 2000 are
shown in the table below:

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $44.0 million, $23.0
million and $15.2 million in 2001, 2000 and 1999, respectively. Cash flows from
operations increased $21.0 million in 2001 compared to 2000 due to higher
operating profits and higher accounts payable and accrued liabilities which were
partially offset by higher accounts receivable. The increase in accounts payable
was due to higher fourth quarter sales and the timing of vendor payments while
the increase in accrued liabilities was due to higher commission and profit
sharing accruals at the Company's Alside division. Sales for the fourth quarter
of 2001 were 26% higher than the same period in 2000 resulting in an increase in
accounts receivable for 2001 compared to the 2000 period. Inventory levels have
not increased proportionately with sales due to improved inventory management
and the significant increase in vinyl window sales, which have relatively small
amounts of finished goods inventory due to the fact that the Company's window
products are custom fabricated to the customer's specifications. Cash flows from
operations increased in 2000 as compared to 1999 due primarily to lower working
capital requirements.

In May 1999, the Company amended its existing $50 million bank credit
facility to extend the term of the facility through May 2002. Available
borrowings under this credit agreement are limited to the lesser of the total
facility less unused letters of credit or availability based on percentages of
eligible accounts receivable and inventories. The credit agreement is secured by
substantially all of the Company's assets other than the Company's owned real
property, equipment and its interest in Amercord. At December 31, 2001, $1.9
million of this facility had been used to secure various insurance letters of
credit. At December 31, 2001 the Company had an available borrowing capacity
under the credit agreement of approximately $48.1 million. The Company is
presently in discussions with the lender under the credit agreement to extend
the term of this credit facility.

15

Capital expenditures totaled $15.0 million, $11.9 million and $18.9
million in 2001, 2000 and 1999, respectively. Alside's 2001 expenditures were
used primarily to increase window and fencing capacity and for the new ERP
system which will be implemented over the next two years at a total cost of
approximately $12.0 million. Capital expenditures associated with the ERP
implementation totaled $3.1 million in 2001. Expenditures at AmerCable were used
to expand manufacturing capacity. Capital expenditures in 2000 were used
primarily to increase extrusion capacity for window profiles, fencing and siding
products, improve window efficiency and upgrade window information systems at
Alside and increase capacity and processing efficiency at AmerCable.
Expenditures in 1999 were primarily used to complete the new vinyl siding
manufacturing facility in Freeport, Texas, expand extrusion capacity for window
profiles and vinyl fencing, expand capacity and increase manufacturing
efficiency for semi-custom cabinets and increase production flexibility and
capacity at AmerCable. Capital expenditures for the new vinyl siding
manufacturing plant were $9.8 million in 1999. The Company has historically
funded these capital expenditure requirements out of cash generated from
operating activities or borrowings under its bank credit facility.

The Company believes that capital expenditures ranging from $8.0
million to $10.0 million represent a base level of spending needed to maintain
its manufacturing facilities as well as provide for modest increases in capacity
and further automation. 2002 estimated capital expenditures are $13.3 million of
which $10.3 million are budgeted for Alside. Alside's 2002 budget includes
expenditures to replace existing window tooling to facilitate the manufacture of
new products, increase window and siding capacity to meet anticipated sales
growth, expand its existing Supply Center network and approximately $400,000 for
the ERP system implementation. Approximately $3.0 million of the 2002 capital
budget has been allocated to AmerCable, primarily to add extrusion capacity.

The Company has commitments for future minimum lease payments under
noncancelable operating leases, principally for manufacturing and distribution
facilities and certain equipment. The minimum commitments under these leases for
2002, 2003, 2004, 2005, 2006 and thereafter are $14.0 million, $11.6 million,
$8.9 million, $6.2 million, $3.4 million and $5.4 million, respectively.

In connection with the recapitalization of Amercord in November 1999,
the Company guaranteed a $3.0 million note secured by Amercord's real property.
Amercord ceased operations in the second quarter of 2001. As of the date of this
report, the lender has not requested the Company to make payment under the
guaranty. Should the guaranty be exercised by Amercord's lender, the Company and
Ivaco Inc., another stockholder of Amercord, have the option to assume the loan.
Ivaco Inc. has indemnified the Company for 50% of any loss under the guaranty up
to $1.5 million. Based on a third party appraisal of Amercord's real property,
the Company believes that it is adequately secured under its guaranty of the
$3.0 million Amercord note such that no loss is anticipated with respect to this
guaranty.

Effective October 1, 1998, the Company established an Employee Stock
Purchase Plan ("ESPP"). Employees participating in the ESPP can purchase shares
of the Company's common stock at a 15% discount to fair market value through
payroll deductions of up to 25% of their eligible compensation. The Company
initially registered 250,000 shares of common stock with the Securities and
Exchange Commission ("SEC") for issuance pursuant to the ESPP and registered an
additional 250,000 shares during 2001. During 2001, 2000 and 1999, the Company
issued 60,679, 65,873 and 80,919 shares of common stock pursuant to the ESPP,
resulting in net proceeds to the Company of approximately $875,000, $848,000 and
$851,000, respectively. The Company's Board of Directors approved the suspension
of the ESPP effective December 31, 2001.

On October 27, 1998 the Company's Board of Directors approved a program
to repurchase up to 800,000 shares of common stock in open market transactions
depending on market, economic and other factors. On November 28, 2000 the
Company's Board authorized the repurchase of an additional 800,000 shares under
the program for a total of 1.6 million shares. At December 31, 2001, the Company
had repurchased 1.0 million shares of common stock under this program at a cost
of $13.9 million. The Class B common stock repurchase described below was not
part of this stock repurchase program.

On April 29, 2001, the Company repurchased 1,000,000 shares of its
Class B common stock from The Prudential Insurance Company of America
("Prudential") and its wholly owned subsidiary, PCG Finance Company II, LLC
("PCG") at $19.50 per share, or $19.5 million in the aggregate, which has been
reflected primarily as a reduction to retained earnings. The share purchase was
financed through available cash and borrowings under the Company's existing
credit facility. Following the purchase, Prudential and PCG converted the
remaining 550,000 shares of Class B common stock held by these entities into
550,000 shares of common stock pursuant to the terms of the Company's
Certificate of Incorporation. The Company has retired all 1,550,000 previously
authorized shares of Class B common stock.

The Company believes the future cash flows from operations and its
borrowing capacity under its existing credit agreement will be sufficient to
satisfy its obligations to pay principal and interest on its outstanding debt,
maintain current

16

operations, provide sufficient capital for presently anticipated capital
expenditures and fund its stock repurchase program. However, there can be no
assurances that the cash so generated by the Company will be sufficient for
these purposes.

EFFECTS OF INFLATION

The Company believes that the effects of inflation have not been
material to its operating results for each of the past three years. Alside's
principal raw material, vinyl resin, has been subject to rapid price changes,
including in 1999 and 2000. Alside has historically been able to pass on price
increases to its customers. The results of operations for individual quarters
can and have been negatively impacted by a delay between the time of vinyl resin
price increases and price increases in Alside's products. However, over longer
periods of time, the impact of the price increases in vinyl resin tends to not
be material. No assurances can be given that Alside will be able to pass on any
price increases in the future. Alside does not expect any significant change in
the price of vinyl resin for 2002.

FINANCIAL ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" which has eliminated the pooling of interests
method for mergers and acquisitions. The purchase method of accounting is
required for all business combinations initiated after June 30, 2001. SFAS No.
141 supercedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises." The
Company has not made any acquisitions that were accounted for by the pooling of
interests method. The Company believes the adoption of this Statement will not
have a material effect on the Company's financial position, results of
operations or cash flows.

In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets" which addresses financial accounting
and reporting for acquired goodwill and other intangible assets and supercedes
APB Opinion No. 17, "Intangible Assets." SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized but
instead be reviewed annually for impairment using a fair-value based approach.
Intangible assets that have a finite life will continue to be amortized over
their respective estimated useful lives. The Statement is effective for fiscal
years beginning after December 15, 2001. The Company has not recorded goodwill
or other intangible assets with respect to any acquisition. The Company believes
the adoption of this Statement will not have a material effect on the Company's
financial position, results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs and establishes
consistent accounting treatment for these items. This Statement is effective for
fiscal years beginning after June 15, 2002. The Company believes the adoption of
this Statement will not have a material effect on the Company's financial
position, results of operations or cash flows.

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the financial reporting and accounting for the impairment or disposal
of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" for the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial
Statements" to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This Statement is effective for fiscal
years beginning after December 15, 2001. The Company believes the adoption of
this Statement will not have a material effect on the Company's financial
position, results of operations or cash flows.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL. The Company's discussion and analysis of its financial
condition and results of operations are based upon the Company's financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. On an on-going
basis, the Company evaluates its estimates, including those related to customer
programs and incentives, bad debts, inventories, income taxes and pensions and
benefits. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

17

The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
financial statements.

REVENUE RECOGNITION. Revenues are recorded net of estimated customer
programs and incentive offerings including special pricing agreements,
promotions and other volume-based incentives. Revisions to these estimates are
charged to income in the period in which the facts that give rise to the
revision become known.

BAD DEBT. The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. The allowance for doubtful accounts is based on review of the overall
condition of accounts receivable balances and review of significant past due
accounts. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.

INVENTORY. The Company values its inventories at the lower of cost
(first-in, first-out) or market. The Company writes down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.

INCOME TAXES. The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes" which requires that deferred tax
assets and liabilities be recognized for the effect of temporary differences
between the book and tax bases of recorded assets and liabilities. SFAS No. 109
also requires that deferred tax assets be reduced by a valuation allowance if it
is more likely than not that some portion or all of the deferred tax asset will
not be realized. The Company reviews the recoverability of any tax assets
recorded on the balance sheet and provides any necessary allowances as required.

PENSION. The Company's pension costs are developed from actuarial
valuations. Inherent in these valuations are key assumptions including discount
rates and expected return on plan assets. In selecting these assumptions,
management considers current market conditions, including changes in interest
rates. Changes in the related pension benefit costs may occur in the future due
to changes in assumptions.

CERTAIN FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on the beliefs of, and estimates and
assumptions made by and information currently available to, the Company's
management. When used in this report, the words "anticipate," "believe,"
"estimate," "expect," "intend," and similar words, as they relate to the Company
or the Company's management, identify forward-looking statements. These
statements reflect the current views of the Company's management regarding the
operations and results of operations of the Company as well as its customers and
suppliers. These statements are subject to certain risks and uncertainties. Some
of the factors that might cause a difference are discussed below. Should one or
more of these risks or uncertainties occur, or should management's assumptions
or estimates prove incorrect, actual results and events may vary materially from
those discussed in the forward-looking statements.

GENERAL INDUSTRY, ECONOMIC, INTEREST RATES AND OTHER CONDITIONS. The
exterior residential building products industry in which Alside operates may be
significantly affected by changes in national and local economic and other
conditions, including employment levels, changing demographic considerations,
availability of financing, interest rates and consumer confidence, all of which
are outside of the Company's control. A prolonged recession affecting the
residential construction industry could result in a significant decrease in the
Company's financial performance.

SUBSTANTIAL FIXED COSTS. A significant portion of Alside's selling,
general and administrative expenses are fixed costs which do not fluctuate
proportionately with sales. As a result, a percentage decline in Alside's net
sales has a greater percentage effect on Alside's operating income.

CHANGING RAW MATERIAL COSTS AND AVAILABILITY. The principal raw
material used in producing Alside's vinyl products is vinyl resin, which
historically has been subject to significant price fluctuations. Although Alside
has generally been able to pass on price increases in vinyl resin to its
customers, there can be no assurance that in the future the market will respond
favorably to selling price increases or that the Company will otherwise be able
to absorb these cost increases without significantly affecting its margins.
Additionally, a major interruption in the delivery of vinyl resin to Alside
would disrupt Alside's operations and could have an adverse effect on the
Company's financial condition and results of operations. Alside has a contract
with a vendor to supply substantially all of its vinyl resin requirements and
believes its requirements could also be met by other suppliers. Copper is the
principal raw material used by AmerCable in the manufacture of its products.

18

Historically, copper has been subject to rapid price changes. A decrease in the
price of copper may also affect the Company's gross margins as AmerCable
generally prices its cable products based on market prices for copper at the
time of shipment. As a result, sudden decreases in copper prices can result in
lower gross profit margins in future periods. See Item 7. -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this report.

WEATHER IMPACTS QUARTERLY RESULTS. Because most of Alside's 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 sales revenue than
in any other period of the year. Consequently, the Company has historically had
small profits or losses in the first quarter and reduced profits from operations
in the fourth quarter of each calendar year. See Item 7. -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Quarterly Financial Data" in this report.

FINANCIAL COVENANT RESTRICTIONS. At December 31, 2001 the Company had
total indebtedness of $75.0 million, compared to stockholders' equity of $102.7
million. In addition, the Company has a $50 million bank credit facility. At
December 31, 2001, the Company had borrowing capacity of approximately $48.1
million. The Company's bank credit agreement includes covenants that require the
maintenance of certain financial ratios and net worth. This credit agreement
also restricts the Company's ability to repurchase its common stock and to pay
dividends. Outstanding borrowings under the bank credit agreement are secured by
substantially all of the assets of the Company other than the Company's real
property, equipment and its interests in Amercord. In addition, the Indenture
under which the Company's 9 1/4% Notes were issued contains covenants that,
among other things, limits the Company's ability to incur additional
indebtedness, pay dividends, make certain investments and repurchase stock or
subordinated indebtedness. At December 31, 2001, the Company had the ability to
pay dividends and make other restricted payments of up to $15.7 million under
the most restrictive provision of these agreements. See Item 7. -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" in this report.

COMPETITION FROM OTHER VINYL BUILDING PRODUCT MANUFACTURERS AND
ALTERNATIVE BUILDING PRODUCT MATERIALS. With the exception of Owens Corning, we
believe that no other company within the vinyl residential siding market
competes with Alside in both manufacturing and distribution. However, Alside
does compete with other manufacturers of vinyl building products. Some of these
companies are larger and have greater financial resources than the Company. The
Company also competes with Owens Corning and numerous large and small
distributors of building products in its capacity as a distributor of these
products. Additionally, the Company's products face competition from alternative
materials: wood and aluminum in the window market, and wood, masonry, fiber
cement and metal in the siding market. There can be no assurance the Company
will not be adversely impacted by its competitors or alternative materials. See
Item 1. -- "Business -- Alside -- Competition" in this report.

COSTS OF ENVIRONMENTAL COMPLIANCE. The Company's operations are subject
to various environmental statutes and regulations, including laws and
regulations addressing materials used in the manufacturing of the Company's
products. In addition, certain of the Company's operations are subject to
federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the air and water and establish
standards for the treatment, storage and disposal of solid and hazardous wastes.
Future expenditures may be necessary as compliance standards and technology
change. Unforeseen significant expenditures required to maintain compliance,
including unforeseen liabilities, could have an adverse effect on the Company's
business and financial condition. See Item 1. -- "Business -- Government
Regulation and Environmental Matters" in this report.

ITEM 7A. DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company had $25.3 million in short-term investments at December 31,
2001. These short-term investments are highly liquid with original maturities of
less than three months and are subject to interest-rate risk. The Company
generally holds these investments until maturity thus avoiding the losses
resulting from sudden changes in interest rates. Declines in interest rates
would reduce the amount of the Company's interest income. A 100 basis point
decrease in interest rates would have decreased interest income for 2001 by
approximately $81,000.

The Company borrows under its revolving credit facility from time to
time for general corporate purposes, including working capital requirements and
capital expenditures. Borrowings under the revolving credit facility bear
interest at either the prime commercial rate or LIBOR plus 1.00% at the option
of the Company. At December 31, 2001, the Company had no borrowings under its
revolving credit facility.

19

The Company has $75.0 million of Senior Subordinated Notes due 2008
that bear a fixed interest rate of 9 1/4%. The fair value of the Company's
9 1/4% Notes is sensitive to changes in interest rates.

FOREIGN CURRENCY EXCHANGE RATE RISK

The Company's revenues are primarily from domestic customers and are
realized in U.S. dollars. Accordingly, the Company believes its direct foreign
currency exchange rate risk is not material. In the past, the Company has hedged
against foreign currency exchange rate fluctuations on specific sales or
equipment purchasing contracts. At December 31, 2001 the Company had no currency
hedges in place.

COMMODITY PRICE RISK

Copper is one of the primary raw materials used by its AmerCable
division. A decrease in the price of copper may affect the Company's gross
margins as AmerCable generally prices its cable products based on market prices
for copper at the time of shipment. As a result, sudden decreases in copper
prices can result in lower gross profit margins in future periods. The Company
from time to time uses forward contracts as a hedge against changes in copper
prices for specific contracts. At December 31, 2001, no raw material forward
contracts were in place. See Item 7. -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Forward-Looking
Statements -- Changing Raw Material Costs and Availability" in this report.

20

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ASSOCIATED MATERIALS INCORPORATED
INDEX TO FINANCIAL STATEMENTS

21

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Associated Materials Incorporated

We have audited the accompanying balance sheets of Associated Materials
Incorporated as of December 31, 2001 and 2000 and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Associated Materials
Incorporated at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.

ERNST & YOUNG LLP

Dallas, Texas
February 8, 2002

22

ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes.

23

ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes.

24

ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

See accompanying notes.

25

ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes

26

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Line of Business

Associated Materials Incorporated (the "Company") consists of two
operating divisions, Alside and AmerCable. Alside is engaged principally in the
manufacture and distribution of exterior residential building products to
professional contractors throughout the United States. AmerCable manufactures
jacketed electrical cable utilized in a variety of industrial applications. The
Company also owns an interest in Amercord Inc. ("Amercord"), which was accounted
for using the equity method until November 1999 when Amercord was recapitalized,
reducing the Company's interest in Amercord from 50% to 9.9%. Since the
recapitalization, the Company has accounted for Amercord under the cost method.
See Note 2.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Revenue Recognition

Product sales are recognized at the time of shipment and when payment
is reasonably certain. Revenues are recorded net of estimated customer programs
and incentive offerings including special pricing agreements, promotions and
other volume-based incentives. Revisions to these estimates are charged to
income in the period in which the facts that give rise to the revision become
known.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or
market. The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is
provided by the straight-line method over the estimated useful lives of the
assets which are as follows:

Building and improvements............................ 7 to 30 years
Computer equipment................................... 3 years
Machinery and equipment.............................. 3 to 15 years

Income Tax

Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

Short-Term Investment

At December 31, 2000 the Company had a $5.0 million commercial paper
investment, with an original maturity of six months, reported as a short-term
investment on the balance sheet. The Company classified the investment as
held-to-maturity as the Company had the intent and held the investment to
maturity. The investment was carried at amortized cost.

27

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

Derivatives

From time to time the Company hedges its position with respect to raw
material or currency fluctuations on specific contracts by entering into forward
contracts or purchase options, the cost of which are realized upon the
completion of the contract as cost of sales. The contracts effectively meet risk
reduction and correlation criteria and are recorded using hedge accounting. No
such contracts were in place at December 31, 2001 or 2000.

Interest Income

Interest income was $377,000, $1.1 million and $329,000 in 2001, 2000
and 1999, respectively, and is included in interest expense, net.

Marketing and Advertising

The Company expenses marketing and advertising costs as incurred.
Marketing and advertising expense was $9.9 million, $9.2 million and $8.5
million in 2001, 2000 and 1999, respectively.

Reclassifications

Certain prior period amounts have been reclassified to conform with the
current period presentation.

Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets held
for sale are reported at the lower of the carrying amount or fair value less
costs to sell.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" which has eliminated the pooling of interests
method for mergers and acquisitions. All business combinations initiated after
June 30, 2001 are required to be accounted for using the purchase method of
accounting. SFAS No. 141 supercedes APB Opinion No. 16, "Business Combinations"
and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." The Company has not made any acquisitions that were accounted for
by the pooling of interests method. The Company believes the adoption of this
Statement will not have a material effect on the Company's financial position,
results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets" which addresses financial accounting
and reporting for acquired goodwill and other intangible assets and supercedes
APB Opinion No. 17, "Intangible Assets." SFAS No. 142 requires goodwill and
intangible assets with indefinite useful lives no longer be amortized but
instead be reviewed annually for impairment using a fair-value based approach.
Intangible assets that have a finite life will continue to be amortized over
their respective estimated useful lives. The Statement is effective for fiscal
years beginning after December 15, 2001. The Company has not recorded goodwill
or other intangible assets with respect to any acquisition. The Company believes
the adoption of this Statement will not have a material effect on the Company's
financial position, results of operations or cash flows.

In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs and establishes
consistent accounting treatment for these items. This Statement is effective for
fiscal years beginning after June 15, 2002. The Company believes the adoption of
this Statement will not have a material effect on the Company's financial
position, results of operations or cash flows.

In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the financial reporting and accounting for the impairment or disposal
of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the

28

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" for the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial
Statements" to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This Statement is effective for fiscal
years beginning after December 15, 2001. The Company believes the adoption of
this Statement will not have a material effect on the Company's financial
position, results of operations or cash flows.

In September 2000, the Emerging Issues Task Force issued EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs" which was effective for
the fourth quarter of 2000. The EITF concluded that amounts billed to a customer
in a sale transaction related to shipping and handling should be classified as
revenue. The EITF also concluded that if costs incurred related to shipping and
handling are significant and not included in cost of sales, an entity should
disclose both the amount of such costs and the line item on the income statement
that includes such costs. Prior to implementing EITF 00-10, the Company
classified shipping and handling amounts billed to a customer as revenue. Costs
incurred related to shipping and handling were classified as a reduction of
revenue. The Company has reclassified prior period information to conform with
the provisions of EITF 00-10.

2. INVESTMENT IN AMERCORD

The Company owns a 9.9% interest in Amercord, a manufacturer of steel
tire cord and tire bead wire used in the tire manufacturing industry.

During the fourth quarter of 1999, Amercord was recapitalized, reducing
the Company's interest in Amercord from 50% to 9.9%. As a result of the
recapitalization, the Company received cash of $1.2 million (net of related
expenses) and a subordinated note for $1.5 million due November 2004. In
addition, the Company has the right to require Amercord to purchase the
Company's remaining 9.9% interest for $2.0 million in November 2003. After
Amercord's recapitalization, the Company accounted for Amercord using the cost
method of accounting. Prior to Amercord's recapitalization, the Company
accounted for Amercord using the equity method of accounting. The Company
recorded equity in the losses of Amercord of $1.3 million in 1999.

Amercord's operating results and financial position deteriorated during
the first quarter 2001. The Company believed it would not recover its investment
in Amercord and wrote off its $2.4 million investment in Amercord during the
first quarter of 2001. Amercord ceased operations during the second quarter of
2001.

In connection with the recapitalization of Amercord in November 1999,
the Company guaranteed a $3.0 million note secured by Amercord's real property.
To date, the lender has not requested the Company to make payment under the
guaranty. Should the guaranty be exercised by Amercord's lender, the Company and
Ivaco Inc., another stockholder of Amercord, have the option to assume the loan.
Ivaco Inc. has indemnified the Company for 50% of any loss under the guaranty up
to $1.5 million. Based on a third party appraisal of Amercord's real property,
the Company believes that it is adequately secured under its guaranty of the
$3.0 million Amercord note such that no losses are anticipated with respect to
this guaranty.

3. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Changes in the allowance for doubtful accounts on accounts receivable
for the years ended December 31 consist of (in thousands):

29

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The allowance for doubtful accounts is based on review of the overall condition
of accounts receivable balances and review of significant past due accounts. If
the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

4. INVENTORIES

Inventories at December 31 consist of (in thousands):

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31 consist of (in thousands):

6. ACCRUED LIABILITIES AND OTHER LIABILITIES

Accrued liabilities at December 31 consist of (in thousands):

Other liabilities of $5,108,000 and $5,442,000 at December 31, 2001 and
2000, respectively, consist primarily of accruals for retiree medical benefits
related to the 1989 closure of the Company's metal plant.

7. DEBT

In May 1999, the Company amended its $50 million credit agreement with
KeyBank, N.A. ("Credit Agreement") to extend the term to May 31, 2002. Available
borrowings under the Credit Agreement are limited to the lesser of the total
facility less unused letters of credit or availability based on percentages of
eligible accounts receivable and inventories. Unused letters of credit totaled
$1,898,000 at December 31, 2001, primarily related to insurance coverage. The
Company's available borrowing capacity at December 31, 2001 was approximately
$48,102,000. The Credit Agreement includes covenants that require the
maintenance of certain financial ratios and net worth and that place
restrictions on the repurchase of common stock and the payment of dividends. One
covenant in the Credit Agreement requires the Company to maintain a minimum
ratio of cash inflows to cash outflows determined for the preceding twelve-month
period at the end of each

30

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

calendar quarter. During 2001, the Company repurchased 1.0 million shares of its
Class B common stock at an aggregate cost of $19.5 million. In order to complete
the Class B common stock repurchase, the Company obtained a waiver under the
Credit Agreement to exclude the Class B common stock repurchase from the
covenant calculation of cash inflows to cash outflows. The Company was in
compliance with all Credit Agreement covenants at December 31, 2001. Outstanding
borrowings under the Credit Agreement are secured by substantially all of the
assets of the Company other than the Company's real property, equipment and its
interest in Amercord.

Interest is payable on borrowings under the revolving credit facility
at either the prime commercial rate (4.75% at December 31, 2001) or LIBOR plus
1.00% at the option of the Company and on the unused credit facility at a rate
of .20%. Letter of credit fees of 1.125% are paid at origination.

The weighted average interest rate for borrowings under the revolving
credit facility was 5.9% and 8.4% for the years ended December 31, 2001 and
2000, respectively.

Long-term debt at December 31, 2001 and 2000 consists of $75 million of
9 1/4% Senior Subordinated Notes due 2008. The fair value of the 9 1/4% Notes at
December 31, 2001 was $76.6 million based upon quoted market price.

The Company's ability to make restricted payments, such as the
repurchase of stock and the payment of dividends, is restricted by covenants in
its Credit Agreement and the Indenture pursuant to which the Company's 9 1/4%
Senior Subordinated Notes were issued. At December 31, 2001, the Company had the
ability to make restricted payments of up to $15.7 million under the terms of
the Indenture, the more restrictive of the two agreements.

8. ACQUISITIONS AND DIVESTITURES

On October 6, 2000, the Company acquired substantially all of the
assets of Alpine Industries, Inc. for $7.6 million in cash and the assumption of
certain payroll related and property tax liabilities. Included in the acquired
assets is Alpine's leased window fabrication facility located in Bothell,
Washington. This facility manufactures vinyl windows for the new construction
and remodeling markets. The Company accounted for the acquisition using the
purchase method of accounting and the results of operations have been included
in the Company's income statement from the date of acquisition.

The Company completed the sale of its UltraCraft operation, a
manufacturer of semi-custom frameless cabinets, in June 2000. Pre-tax net
proceeds from the sale were $18.9 million after working capital adjustments and
transaction costs. The Company recorded a pre-tax gain on the sale of $8.0
million. UltraCraft represented approximately 5% of the Company's 1999 net
sales.

Under the terms of the 9 1/4% Note Indenture, the Company was obligated
to make an offer to repurchase the 9 1/4% Notes using the after-tax net proceeds
from the UltraCraft sale, to the extent the Company did not use these net
proceeds within one year of the sale to repay senior indebtedness or to acquire
assets used in, or other businesses similar to, the business currently conducted
by the Company. As a result of the Company's acquisition of the Alpine assets
together with other capital expenditures, the Company believes that it was not
obligated to make an offer to repurchase the 9 1/4% Notes.

9. COMMITMENTS

Commitments for future minimum lease payments under noncancelable
operating leases, principally for manufacturing and distribution facilities and
certain equipment, are as follows (in thousands)

2002 ........................... $ 13,961
2003 ........................... 11,624
2004 ........................... 8,933
2005 ........................... 6,168
2006 ........................... 3,423
Thereafter ..................... 5,410

Lease expense was approximately $17,859,000, $14,673,000 and
$13,141,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
The Company's lease agreements typically contain renewal options.

31

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

10. INCOME TAXES

Income tax expense for the years ended December 31 consists of (in
thousands):

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred income taxes as of December 31 are as
follows (in thousands):

The reconciliation of the statutory rate to the Company's effective income tax
rate for the years ended December 31 follows:

During the third quarter 2000, the Company recorded $1.1 million in
additional income tax expense due to an adjustment to a deferred tax asset,
which was recorded in 1986 pursuant to the spin-off of the Company's tire cord
operation into Amercord. The effect of this adjustment is included in the other
category in the rate reconciliation. Exclusive of this adjustment, the Company's
effective tax rate would have been 38.5%.

11. STOCKHOLDERS' EQUITY

In October 1998 the Company's Board of Directors approved a stock
repurchase program that authorized the Company to purchase up to 800,000 shares
of common stock in open market transactions depending on market, economic and
other factors. In November 2000, the Board authorized the repurchase of an
additional 800,000 shares of common stock under the Company's stock repurchase
program, bringing the total number of shares under the plan to 1,600,000 shares.
During 2001, 2000 and 1999, the Company repurchased 123,306, 399,774 and 467,000
shares of its common stock under the stock repurchase program at a cost of
$2,051,000, $5,799,000 and $5,578,000. The repurchase of the Company's Class B
common stock described below was not part of this stock repurchase program.

On April 29, 2001, the Company repurchased 1,000,000 shares of its
Class B common stock from The Prudential Insurance Company of America
("Prudential") and its wholly owned subsidiary, PCG Finance Company II, LLC
("PCG") at $19.50 per share, or $19.5 million in the aggregate, which has been
reflected primarily as a reduction to retained earnings. The share purchase was
financed through available cash and borrowings under the Company's $50,000,000
credit facility.

32

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

Following the purchase, Prudential and PCG converted the remaining 550,000
shares of Class B common stock held by these entities into 550,000 shares of
common stock pursuant to the terms of the Company's Certificate of
Incorporation. The Company has retired all 1,550,000 previously authorized
shares of Class B common stock.

12. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

Options to purchase 50,000 and 40,000 shares of common stock with a
weighted average exercise price of $16.11 and $16.00 per share were outstanding
for the years ended December 31, 2000 and December 31, 1999, respectively, but
were excluded from the diluted earnings per share calculation because the option
exercise price was greater than the average market price of the common stock
during the period.

13. STOCK PLANS

The Company has a stock option plan, whereby it grants stock options to
certain directors, officers and key employees. The Company has authorized
1,200,000 shares of common stock to be issued under the plan. Options were
granted at fair market value on the grant date and are exercisable for ten
years. Options vest by either of the following methods: 50% vests upon the grant
date with the other 50% vesting after two years or 20% vests upon the grant date
with an additional 20% vesting each year commencing on the first anniversary of
the grant date. All outstanding options granted under the stock option plan are
non-statutory stock options.

Transactions during 1999, 2000 and 2001 under this plan are summarized below:

33

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

Options to purchase 456,000, 476,800 and 407,800 shares were exercisable at
December 31, 2001, 2000 and 1999, respectively. The weighted average exercise
price of options outstanding was $10.41, $9.65 and $8.50 at December 31, 2001,
2000 and 1999, respectively.

The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 2001:

The Company has adopted the disclosure provisions of SFAS No. 123 but
continues to measure stock-based compensation in accordance with APB No. 25. Pro
forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of that statement. The weighted
average fair value at date of grant for options granted during 2001 and 2000
using the Black Scholes method was $8.39 and $12.58 per option, respectively. No
options were granted in 1999. The fair value of the options was estimated at the
date of the grant using the Black Scholes option pricing model with the
following assumptions for 2001 and 2000, respectively: dividend yield of .95%
and .67%, volatility factor of the expected market price of the stock of .330
and .307, a weighted-average risk free interest rate of 5.10% and 6.38% and an
expected life of the option of 10 years.

Stock based compensation costs would have reduced net income by
$344,000, $977,000 and $475,000 or $0.05, $0.12 and $0.06 per basic and diluted
share in 2001, 2000 and 1999, respectively, if the fair values of the options
granted in that year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma effect
on net income for 2001, 2000 and 1999 may not be representative of the pro forma
effect on net income in future years.

Effective October 1, 1998 the Company established an Employee Stock
Purchase Plan ("ESPP"). The ESPP allows employees to purchase the Company's
common stock at 85% of the lower of the fair market value on the first day of
the purchase period or the last day of the purchase period. The Company has
registered 500,000 shares of common stock for issuance under the ESPP. Employees
purchased 60,679, 65,873, and 80,919 shares under the ESPP at average prices of
$14.42, $12.87 and $10.52 per share during 2001, 2000 and 1999, respectively.
The Company's Board of Directors approved the suspension of the ESPP effective
December 31, 2001.

14. BUSINESS SEGMENTS

The Company has two reportable segments: building products and
electrical cable products. The principal business activities of the building
products segment are the manufacture of vinyl siding, vinyl windows and the
wholesale distribution of these and other complementary building products
principally to professional home remodeling and new construction contractors.
The principal business activity of the electrical cable segment is the
manufacture and sale of jacketed electrical cable.

The Company evaluates performance and allocates resources based on
operating profit, which is net sales less operating costs and expenses.

34

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

Comparative financial data by reportable segment for the years ended
December 31 are as follows (in thousands):

Identifiable assets by segment are those used in the Company's
operations in each segment. Corporate assets are principally the Company's cash
and cash equivalents and short-term investments. The Company operates
principally in the United States. Neither aggregate export sales nor sales to a
single customer have accounted for 10% or more of consolidated net sales in any
of the years presented.

15. RETIREMENT PLANS

The Company sponsors a defined benefit pension plan, The Premium
Building Products Company Hourly Employees Pension Plan ("Premium Plan"), which
covers approximately 250 participants. The Company froze the Alside defined
benefit retirement plan ("Alside Plan") effective December 31, 1998 and replaced
it with a defined contribution plan effective January 1, 1999. As a result of
the plan freeze, the Company recorded a $5,951,000 curtailment gain in 1998.
Prepaid pension and accrued pension liabilities are included in other assets and
accrued liabilities in the accompanying balance sheets.

35

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

Information regarding the Company's defined benefit plans is as
follows:

The Company sponsors two defined contribution plans (the "401(k)
Plans") intended to provide assistance in accumulating personal savings for
retirement. The 401(k) Plans are qualified as a tax-exempt plan under Sections
401(a) and 401(k) of the Internal Revenue Code. The Alside 401(k) Plan covers
all full-time, non-union employees of Alside and matches up to 4.0% of eligible
compensation. For the years ended December 31, 2001, 2000 and 1999, the
Company's pre-tax contribution to the Alside 401(k) Plan was $2.1 million, $2.0
million and $2.1 million, respectively. The AmerCable 401(k) Plan covers all
full-time employees of AmerCable and matches up to 4.0% of eligible compensation
(3.5% of eligible

36

ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)

compensation prior to 2001). For the years ended December 31, 2001, 2000 and
1999, the Company's pre-tax contributions to the AmerCable 401(k) Plan were
$281,000, $238,000 and $215,000, respectively.

16. CONTINGENCIES

The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container storage area,
the use of these facilities was terminated prior to the acquisition of the
facilities by the Company from USX Corporation ("USX") in 1984. The Company
believes that USX bears financial responsibility for substantially all of the
direct costs of corrective action at these facilities under relevant contract
terms and under statutory and common law. The effects of the past practices of
these facilities are continuing to be investigated pursuant to the terms of the
consent order and as a result the Company is unable to reasonably estimate a
reliable range of the aggregate cost of corrective action at this time. To date,
USX has reimbursed the Company for substantially all of the direct costs of
corrective action at these facilities. The Company expects that USX will
continue to reimburse the Company for substantially all of the direct costs of
corrective action at these facilities. As a result, the Company believes that
any material claims resulting from this proceeding will not have a material
adverse effect on the Company.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

37

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following information concerning the directors, executive officers
and other key employees of the Company is as of January 31, 2002.

WILLIAM W. WINSPEAR, AGE 68. Mr. Winspear has been Chairman of the
Board, President and Chief Executive Officer of the Company since its inception
in 1983. Mr. Winspear was President and Chief Executive Officer of Chaparral
Steel Company from 1975 to 1982. Mr. Winspear is the father of Robert L.
Winspear.

MICHAEL CAPORALE, JR., AGE 50. Mr. Caporale was named Chief Executive
Officer of the Alside division and became a director of the Company in February
2001. Mr. Caporale joined the Company in January 2000 as President of the Alside
Window Company, became President and Chief Operating Officer of the Company's
Alside division in April 2000 and was named a Vice President of the Company in
August 2000. Prior to joining the Company, Mr. Caporale was the President of
Great Lakes Window, Inc., a subsidiary of Nortek, Inc., where he had been
employed since 1995.

RICHARD I. GALLAND, AGE 85. Mr. Galland became a director of the
Company in 1984, is the Chairman of the Audit Committee and currently serves as
a member of the Compensation Committee. Mr. Galland was formerly Chairman of the
Board and Chief Executive Officer of American Petrofina Incorporated, an
integrated petroleum and petrochemical company, and formerly Of Counsel to the
international law firm of Jones, Day, Reavis & Pogue. Mr. Galland is also a
director of D. R. Horton, Inc., a homebuilding company.

JOHN T. GRAY, AGE 66. Mr. Gray became a director of the Company in 1998
and serves as a member of the Compensation Committee. Mr. Gray is a General
Partner in Brynwood Partners, a private equity investment fund. From 1982 to
1995, Mr. Gray was President and Chief Executive Officer of the Genie Company, a
manufacturer of automatic garage door openers. Mr. Gray is also a director of
Lincoln Snacks, Inc., a snack food manufacturer and J.B. Williams Co., a
marketer of men's grooming and cold-care products.

JAMES F. LEARY, AGE 71. Mr. Leary became a director of the Company in
1984 and serves as a member of the Audit and Compensation Committees. Mr. Leary
is a managing director of Benefit Capital South West, Inc., a financial
consulting firm. From 1995 to 1998, Mr. Leary was Vice Chairman - Finance and a
director of Search Financial Services Inc., a consumer finance company. In March
1998, Search Financial filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code. Mr. Leary is also a director of certain
mutual funds managed by Capstone Asset Management Inc. and is a director of
Prospect Street High Income Fund, a mutual fund.

ALAN B. LERNER, AGE 71. Mr. Lerner became a director of the Company in
May 1997 and is the Chairman of the Compensation Committee and currently serves
as a member of the Audit Committee. Mr. Lerner retired in 1993 as a Senior
Executive Vice President of Associates Corporation of North America, a consumer
and commercial finance company, where he had been employed since 1981.

A. A. MEITZ, AGE 64. Mr. Meitz became a director of the Company in 1993
and serves as a member of the Audit and Compensation Committees. Mr. Meitz
retired as Senior Vice President of the consulting firm of Booz, Allen &
Hamilton, Inc. where he was employed from 1965 through 1994. Mr. Meitz is also
currently a director of the Northern Trust Bank of Texas.

ROBERT F. HOGAN, JR., AGE 45. Mr. Hogan has been President and Chief
Executive Officer of AmerCable since 1993 and a Vice President of the Company
since 1984. Prior to becoming President of AmerCable, Mr. Hogan was Treasurer
and Secretary of the Company from 1984 to 1993.

ROBERT L. WINSPEAR, AGE 36. Mr. Winspear joined the Company in 1993,
was named Vice President, Treasurer and Secretary in October 1993 and was named
Chief Financial Officer in 1998. Prior to joining the Company, Mr. Winspear was
employed by the Dallas office of Andersen. Mr. Winspear is the son of William W.
Winspear.

38

KENNETH L. BLOOM, AGE 38. Mr. Bloom joined the Company in July 2000 as
Alside's Vice President of Window Manufacturing. Mr. Bloom was named President
of the Company's Alside Window Company in March 2001. Prior to joining the
Company, Mr. Bloom was Corporate Vice President of Field Container Co., L.P.,
where he had been employed since 1996.

WAYNE D. FREDRICK, AGE 55. Mr. Fredrick was named Group Vice President
- - Window Products of Alside in 1997. From 1990 to 1996, Mr. Fredrick was Senior
Vice President - Window Products of Alside. Mr. Fredrick joined Alside in 1973.

GARY D. HOFMANN, AGE 44. Mr. Hofmann was named Group Vice President -
Vinyl Siding of Alside in October 2000. From 1997 to 2000, Mr. Hofmann was
Senior Vice President - Vinyl Siding Sales of Alside. Mr. Hofmann joined Alside
in 1995.

D. KEITH LAVANWAY, AGE 37. Mr. LaVanway joined the Company in February
2001 as Vice President - Chief Financial Officer of Alside and was also named a
Vice President of the Company. Prior to joining the Company, Mr. LaVanway was
employed by Nortek, Inc. from 1995 to 2001, most recently as Vice President -
Chief Financial Officer of Peachtree Doors and Windows Company.

BENJAMIN L. MCGARRY, AGE 54. Mr. McGarry was named Group Vice President
- - Vinyl Manufacturing of Alside in 1997. From 1984 to 1996, Mr. McGarry was
Senior Vice President - Manufacturing of Alside. Mr. McGarry joined Alside in
1980.

All directors of the Company are elected annually with terms expiring
at the Company's next annual meeting of stockholders. All officers of the
Company serve at the discretion of the Board of Directors. Mr. Caporale and the
Company are parties to an employment agreement that provides for Mr. Caporale to
serve as President and Chief Executive Officer of the Company's Alside division.
See Item 11. "Executive Compensation -- Compensation and Incentive Programs --
Employment Agreement."

Messrs. Bloom, Fredrick, Hofmann, LaVanway and McGarry are considered
key employees of the Company because of their responsibilities as divisional
officers in the respective capacities indicated. The Company, however, does not
consider these employees to be executive officers of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's common stock, to file with the SEC initial reports of ownership
and reports of changes in ownership of the common stock beneficially owned by
them. Directors, executive officers and greater than 10% stockholders are
required to furnish the Company with copies of all Section 16(a) reports they
file with the SEC.

To the Company's knowledge, based solely on review of copies of the
reports furnished to the Company or written representations from certain
reporting persons, during the year ended December 31, 2001, all Section 16(a)
filing requirements applicable to the directors, executive officers and greater
than 10% stockholders were complied with by these persons, except that Mr.
William Winspear filed one report with respect to a gift of shares on March 1,
2001, when that report was required to be filed on February 14, 2001.

39

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the annual compensation paid by the
Company for services rendered in 2001, 2000 and 1999 by the chief executive
officer and each of the other executive officers of the Company.

1. Includes amounts for the payment of income taxes relating to relocation
expenses paid by the Company in 2001 and 2000 and taxable to Mr. Caporale.
Perquisites and other personal benefits received by the Company's other
executive officers are not included in the Summary Compensation Table
because the aggregate amount of this compensation, if any, did not meet
disclosure thresholds established under current SEC regulations.

2. In January 2000, Mr. Caporale was granted an option to purchase 50,000
shares of common stock at $14.4375 per share, the fair market value on the
grant date. In March 2000, Mr. Caporale was granted an option to purchase
an additional 50,000 shares of common stock at $13.875 per share, the fair
market value on the grant date. These options vested 50% on the date of
grant and the balance vests on the second anniversary of the grant date.

3. Includes directors fees of $38,000 and amounts accrued or allocated under a
defined contribution plan of $6,800.

4. Mr. Caporale joined the Company in January 2000.

5. Includes directors fees of $25,500, amounts accrued or allocated under a
defined contribution plan of $6,800, a cash payment of $100,002 made under
the terms of Mr. Caporale's employment agreement in consideration of the
cancellation of stock options granted by his previous employer and moving
expenses of $82,429 incurred by Mr. Caporale and paid by the Company under
the terms of his employment agreement.

6. Represents amounts accrued or allocated under a defined contribution plan.

COMPENSATION AND INCENTIVE PROGRAMS

INCENTIVE BONUS PLAN. The Company maintains an Incentive Bonus Plan
providing for annual bonus awards to certain key employees, including each of
the executive officers of the Company. Bonus amounts are based on pre-tax
profits of the Company or, in the case of Alside and AmerCable personnel, the
pre-tax profits or return on invested capital of these divisions. This Plan is
administered by the Compensation Committee, none of the members of which are
eligible for a bonus award under this plan. Bonus payments under the Incentive
Bonus Plan are not guaranteed. Cash bonuses accrued in 2001, 2000 and 1999 to
each of the Company's executive officers are set forth in the Summary
Compensation Table.

EMPLOYMENT AGREEMENT. The Company is a party to an employment agreement
with Michael Caporale pursuant to which he serves as the President and Chief
Executive Officer of the Company's Alside division. The employment agreement has
an initial term that expires on December 31, 2004, and renews automatically each
year for an additional one-year period unless either party provides notice prior
to renewal that the employment agreement is not to be extended. The employment
agreement provides for an annual base salary of $475,000, subject to annual
review and adjustment by the Company's Board, an annual cash bonus, certain
perquisites and participation in employee benefit programs made available to the
Company's other senior executives. In the event of an involuntary termination of
Mr. Caporale's employment (other than for cause or as a result of his death) or
in the event Mr. Caporale terminates his employment under certain circumstances,
Mr. Caporale will receive severance pay equal to (i) three times his
then-current base salary; (ii) three times his annual cash bonus (determined by
reference to the highest cash bonus received by Mr. Caporale during the three
years immediately prior to the termination

40

of his employment); and (iii) if Mr. Caporale's employment is terminated after
June 30 of any year, a prorated cash bonus for that calendar year. In addition,
certain employee benefits previously provided to Mr. Caporale will continue for
a three-year period, subject to reduction to the extent comparable benefits are
actually received by Mr. Caporale from another employer during this period. Mr.
Caporale's employment agreement also provides that if any amount to be paid to
Mr. Caporale under this employment agreement is determined to be non-deductible
by reason of Section 280G of the Internal Revenue Code, the severance benefits
will be reduced to the extent necessary so that Section 280G does not cause any
amount to be non-deductible by the Company.

SEVERANCE AGREEMENTS. The Company has entered into severance agreements
with two of its executive officers, Robert F. Hogan, Jr. and Robert L. Winspear.

These severance agreements only become operative upon a "change in
control" of the Company. The severance agreements generally provide that if,
within a two-year period following a change in control, the Company terminates
the employment of the executive other than as a result of his death or
disability, or for cause, or if the executive terminates employment with the
Company under certain circumstances, the executive is entitled to receive
severance compensation. For Mr. Hogan and Mr. Winspear, this severance
compensation would be: (i) two times the executive's base pay at the highest
rate in effect for any period prior to his termination, (ii) two times the
executive's cash bonus (equal to the highest applicable cash bonus earned during
the three years immediately preceding the year in which the change in control
occurred) and (iii) if the termination of employment occurs after June 30 in any
year, a prorated bonus for that calendar year. In addition, health and life
insurance benefits substantially similar to those provided prior to termination
would continue for a two-year period, subject to reduction to the extent
comparable benefits are actually received by the executive from another employer
during this period. The Company's severance agreements with Mr. Hogan and Mr.
Robert Winspear also provide that if any amount to be paid to the executive
under the severance agreement is determined to be non-deductible by reason of
Section 280G of the Internal Revenue Code, the severance benefits will be
reduced to the extent necessary so that Section 280G does not cause any amount
to be non-deductible by the Company.

DIRECTOR COMPENSATION. Directors, including directors who are employees
of the Company, receive an annual retainer of $16,000 plus $3,500 for each Board
meeting and $1,000 for each committee meeting attended in person or $1,000 for
each such meeting in which participation was by telephone. Directors are also
reimbursed for reasonable travel expenses incurred in attending Board and
committee meetings.

OPTION/SAR GRANTS IN 2001

No stock options or stock appreciation rights were granted to the
Company's executive officers in 2001.

AGGREGATED OPTION/SAR EXERCISES IN 2001
AND DECEMBER 31, 2001 OPTION/SAR VALUES

The following table provides information regarding the exercise of
options during 2001 and unexercised options held as of December 31, 2001 for
each of the Company's executive officers.

- ----------

1. The Company has not granted stock appreciation rights.

2. Based on a price of $37.55 per share of common stock, the closing sale
price on December 31, 2001, multiplied by the number of shares of common
stock issuable upon exercise of these options.

41

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of January 31, 2002, the beneficial
ownership of common stock by each director of the Company, each of the Company's
executive officers and all directors and executive officers of the Company as a
group.

- ----------

* Less than 1%.

1. Includes 2,911,165 shares of common stock held of record by the Winspear
Family Limited Partnership ("Winspear Partnership") and 100,000 shares of
common stock held of record by Winspear Family Investments, Ltd. ("Winspear
Investments"). Mr. William Winspear is the trustee of a trust that is the
general partner of the Winspear Partnership and is a general partner of
Winspear Investments. Also includes 21,709 shares of common stock held by a
trust established by Mr. Winspear's spouse, for which Mr. Winspear is the
trustee. Mr. Winspear disclaims beneficial ownership of the shares owned by
this trust. According to a Schedule 13G filed by Mr. William Winspear, he
has sole voting power with respect to 1,681,025 shares of common stock and
sole dispositive power with respect to 3,097,242 shares of common stock.
The address of Mr. William Winspear, the Winspear Partnership and Winspear
Investments is 2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201.

2. Includes options to purchase common stock held by Mr. Caporale (100,000
shares), Mr. Gray (15,000 shares), Mr. Hogan (24,000 shares), Mr. Lerner
(40,000 shares), Mr. Meitz (40,000 shares) and Mr. Robert Winspear (36,000
shares).

3. Includes 252,182 shares held of record by the Winspear Partnership and
98,010 shares held of record by Winspear Investments, as to which Mr.
Robert Winspear has voting rights. Mr. Robert Winspear disclaims beneficial
ownership of the shares owned by Winspear Investments. According to a
Schedule 13G filed by Mr. Robert Winspear, he has sole voting power with
respect to 386,192 shares of common stock and sole dispositive power with
respect to 36,000 shares of common stock. Mr. Robert Winspear's address is
2200 Ross Avenue, Suite 4100 East, Dallas, Texas 75201.

42

The following table sets forth information regarding the number and
percentage of shares of common stock beneficially owned by all persons and
entities who are known by the Company to beneficially own five percent or more
of the outstanding common stock, other than directors and executive officers of
the Company, whose share ownership is reflected in the table above. The
information regarding beneficial ownership of common stock by the persons and
entities identified below is included in reliance on a report filed with the SEC
by these persons and entities, except that the percentage is based upon the
Company's calculations made in reliance upon the number of shares reported to be
beneficially owned by the person or entity in the report and the number of
shares of common stock outstanding on January 31, 2002.

- ----------

1. According to a Schedule 13G filed by Donald Winspear, he has sole voting
power with respect to 582,182 shares of common stock, shared voting power
with respect to 4,000 shares of common stock, sole dispositive power with
respect to 330,000 shares of common stock and shared dispositive power with
respect to 4,000 shares of common stock. These shares include 252,182
shares held of record by the Winspear Partnership, as to which Mr. Winspear
has voting rights, 330,000 shares held of record by the Winspear
Foundation, a charitable trust intended to qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code, and
4,000 shares Mr. Winspear owns jointly with his spouse. Mr. Donald Winspear
is a trustee of the Winspear Foundation. In that capacity, he has the sole
power to vote and dispose of 330,000 shares of common stock. Mr. Donald
Winspear disclaims beneficial ownership of the shares owned by the Winspear
Foundation. Mr. Donald Winspear's address is 7502 Greenville Avenue, Suite
500, Dallas, Texas 75231.

2. According to a Schedule 13G filed by Malcolm Winspear, he has sole voting
power with respect to 582,182 shares of common stock, shared voting power
with respect to 1,400 shares of common stock, sole dispositive power with
respect to 330,000 shares of common stock and shared dispositive power with
respect to 1,400 shares of common stock. These shares include 252,182
shares held of record by the Winspear Partnership, as to which Mr. Winspear
has voting rights, 330,000 shares held of record by the Winspear
Foundation, a charitable trust intended to qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code, and
1,400 shares Mr. Winspear owns jointly with his spouse. Mr. Malcolm
Winspear is a trustee of the Winspear Foundation. In that capacity, he has
the sole power to vote and dispose of 330,000 shares of common stock. Mr.
Malcolm Winspear disclaims beneficial ownership of the shares owned by the
Winspear Foundation. Mr. Malcolm Winspear's address is 3773 State Road,
Cuyahoga Falls, Ohio 44223.

3. According to a Schedule 13G filed by Prudential Financial, Inc., Prudential
beneficially owns 550,000 shares of common stock. Prudential's address is
751 Broad Street, Newark, New Jersey 07102-3777.

4. According to a Schedule 13G filed by Wellington Management Company, LLP,
Wellington has shared voting power with respect to 235,400 shares of common
stock and shared dispositive power with respect to 438,400 shares of common
stock. Wellington's business address is 75 State Street, Boston,
Massachusetts 02109.

43

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS' AGREEMENT

The Prudential Insurance Company of America (a subsidiary of Prudential
Financial, Inc.), the Winspear Partnership and the Company are parties to a
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, Prudential and
the Winspear Partnership have agreed that (a) if the Winspear Partnership, or
any subsequent holder of its shares of common stock, intends to sell any of its
shares (other than in a public offering), to permit Prudential to participate in
that sale on a pro rata basis and (b) if the Winspear Partnership, or any
subsequent holder of its shares of common stock, elects to sell shares of common
stock, to require Prudential and subsequent holders of its shares to participate
in the sale on a pro rata basis, but only if the total number of shares of
common stock to be sold exceeds 50% of the outstanding shares of common stock on
a fully diluted basis. The Stockholders' Agreement also provides that, so long
as Prudential and certain Prudential affiliates beneficially own at least 5% of
the common stock, all shares of common stock subject to the Stockholders'
Agreement are required to be voted to elect one person designated by Prudential
to the Company's Board of Directors. The Stockholders' Agreement expires on
August 19, 2003.

REGISTRATION RIGHTS AGREEMENT

Under the terms of a Registration Rights Agreement among the Company,
Prudential and certain other stockholders, upon the request of either Prudential
or the Winspear Partnership and its private transferees the Company shall,
subject to certain exceptions, be required to effect two registrations of the
common stock, provided that certain minimum and maximum numbers of shares are
included in the request. The Registration Rights Agreement also grants secondary
offering rights ("piggy-back" rights) to Prudential, the Winspear Partnership
and certain other stockholders in connection with these requested registrations
and any other Company registration of common stock or common stock equivalents.
The registration rights may not be transferred, with certain exceptions, to
persons who, after such transfer, would hold less than 100,000 shares of common
stock.

The Registration Rights Agreement also provides that the Company will
bear all expenses associated with the Company's obligation to effect these
registrations, other than underwriting discounts, commissions and transfer
taxes, if any. The Company's obligation to pay these expenses includes the
out-of-pocket expenses, including legal and accounting expenses, for the first
registration of common stock by Prudential or its private transferees, up to
$100,000, and for the first registration of common stock by the Winspear
Partnership or its private transferees, up to $100,000. The Company has
reimbursed Prudential $100,000 for expenses incurred in connection with a prior
offering of common stock. Therefore, the Company has no obligation to reimburse
Prudential for any future expenses under this agreement.

REPURCHASE OF CLASS B COMMON STOCK

On April 29, 2001, the Company repurchased 1,000,000 shares of its
Class B common stock from the Prudential Insurance Company of America and its
wholly owned subsidiary, PCG Finance Company II, LLC. The purchase price was
$19.50 per share of Class B common stock, or $19,500,000 in the aggregate. The
Company financed this stock repurchase through available cash and borrowings
under the Company's existing bank credit facility. Following the purchase,
Prudential and PCG converted their remaining 550,000 shares of Class B common
stock into 550,000 shares of common stock. The Company has retired all 1,550,000
previously authorized shares of Class B common stock.

RELOCATION LOAN

In connection with his joining the Company, Mr. Caporale moved to the
Akron, Ohio area, where the Company's Alside division is located. As part of his
relocation benefits, on November 16, 2000 the Company made a non-interest
bearing loan to Mr. Caporale in the amount of $270,407 for the purchase of a new
home. Mr. Caporale repaid this loan in full on February 16, 2001.

44

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The following documents are included in this report.

(a)(1) FINANCIAL STATEMENTS

See Index to Financial Statements at Item 8 on Page 21 of this report.

(a)(2) FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been omitted due to the absence
of conditions under which they are required or because the information required
is included in the financial statements or the notes thereto.

(b) REPORTS ON FORM 8-K

The Company did not file any Current Reports on Form 8-K during the
quarter ended December 31, 2001.

(c) EXHIBITS

3.1 -- Restated Certificate of Incorporation, as amended, of
Associated Materials Incorporated (the "Company")
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
2001).

3.2 -- Restated Bylaws of the Company (incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 2001).

4.1 -- Form of Indenture between the Company and U.S. Trust Company
of Texas, N.A., as Trustee (the "9 1/4% Note Indenture")
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Commission File No.
33-42067 (the "1997 Debt Registration Statement")).

4.2 -- Form of Senior Subordinated Note under the 9 1/4% Note
Indenture (incorporated by reference to Exhibit A to Exhibit
4.1 to the 1997 Debt Registration Statement).

4.3 -- Registration Rights Agreement, dated as of August 19, 1993,
among the Company, PruSupply Capital Assets, Inc.
("PruSupply"), W.W. Winspear, M.M. Winspear, D.J. Allan, M.G.
Winspear, D.W. Winspear, R.L. Winspear, B.W. Meyer, The
Principal/The Eppler, Guerin & Turner, Inc., Frank T.
Lauinger, John Wallace and Bonnie B. Smith (incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (the
"1993 Form 10-K")).

4.4 -- Stockholders' Agreement, dated as of August 19, 1993, among
the Company, PruSupply, W.W. Winspear and M.M. Winspear
(incorporated by reference to Exhibit 4.4 to the 1993 Form
10-K).

4.5 -- Amendment to the Stockholders' Agreement, dated as of April 1,
1994, among the Company, PruSupply, W.W. Winspear and M.M.
Winspear (incorporated by reference to Exhibit 4.5 to the 1994
Registration Statement).

4.6 -- Second Amendment to the Stockholders' Agreement, dated as of
July 1, 1994, among the Company, PruSupply, W.W. Winspear and
M.M. Winspear (incorporated by reference to Exhibit 4.6 to the
1994 Registration Statement).

4.7 -- Third Amendment to the Stockholders' Agreement, dated as of
October 12, 1994, among the Company, Prudential and the
Winspear Family Limited Partnership (incorporated by reference
to Exhibit 4.15 to the 1994 Registration Statement).

4.8 -- Assumption Agreement, effective as of July 29, 1994, by the
Winspear Family Limited Partnership (incorporated by reference
to Exhibit 4.7 to the 1994 Registration Statement).

45

4.9 -- Assumption Agreement, effective as of September 30, 1994 by
The Prudential Insurance Company of America ("Prudential")
(incorporated by reference to Exhibit 4.14 to the 1994
Registration Statement).

4.10 -- Assumption Agreement, effective as of February 16, 2000 by
PCG Finance Company II, LLC (incorporated by reference to
Exhibit 4.1 to the March 30, 2000 Form 10-Q).

10.1 -- Agreement of Sale, dated as of January 30, 1984, between
USX Corporation (formerly United States Steel Corporation)
("USX") and the Company (incorporated by reference to Exhibit
10.1 to the 1993 Registration Statement).

10.2 -- Amendment Agreement, dated as of February 29, 1984, between
USX and the Company (incorporated by reference to Exhibit 10.2
to the 1993 Registration Statement).

10.3 -- Form of Indemnification Agreement between the Company and
each of the Directors and executive officers of the Company
(incorporated by reference to Exhibit 10.14 to the 1994
Registration Statement).

10.4 -- Second Amended and Restated Loan and Security Agreement,
dated as of April 2, 1996, between the Company and KeyBank
(the "Credit Agreement") (incorporated by reference to Exhibit
10.1 to the March 31, 1996 Form 10-Q).

10.5 -- Third Amendment to Second Amended and Restated Loan and
Security Agreement and Waiver, dated May 21, 1999 between the
Company and KeyBank relating to the Credit Agreement
(incorporated by reference to Exhibit 10.1 to the June 30,
1999 Form 10-Q).

10.6 -- Third Amended and Restated Note, dated April 2, 1996, from
the Company to KeyBank relating to the Credit Agreement
(incorporated by reference to Exhibit 10.1 to the March 31,
1996 Form 10-Q).

10.7 -- Stock Disposition Agreement, dated April 29, 2001, among
Associated Materials Incorporated, The Prudential Insurance
Company of America and PCG Finance Company II, LLC
(incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 8-K, dated April 29, 2001).

10.8* -- Associated Materials Incorporated Amended and Restated 1994
Stock Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2001).

10.9* -- Associated Materials Incorporated Employee Stock Purchase
Plan (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001).

10.10* -- Amendment to Associated Materials Incorporated Employee Stock
Purchase Plan, dated December 27, 2001.

10.11* -- Associated Materials Incorporated Incentive Bonus Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2000).

10.12* -- Amended and Restated Agreement, dated February 5, 2002,
between the Company and Michael Caporale, Jr.

10.13* -- Severance Agreement, dated December 27, 2001, between the
Company and Robert F. Hogan, Jr.

10.14* -- Severance Agreement, dated December 27, 2001, between the
Company and Robert L. Winspear.

21.1 -- List of Subsidiaries of the Company.

23.1 -- Consent of Ernst & Young LLP, Independent Auditors.

24.1 -- Power of Attorney of directors and certain executive officers
of the Company.

- ----------

* Constitutes a compensatory plan or arrangement.

46

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, in the City of Dallas,
State of Texas on March 1, 2002.

ASSOCIATED MATERIALS INCORPORATED

By: /s/ ROBERT L. WINSPEAR
------------------------------------
Robert L. Winspear
Chief Financial Officer,
Vice President, Secretary and
Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the date
indicated:

Robert L. Winspear, by signing his name hereto, signs and executes this document
on behalf of each of the above-named officers and directors of Associated
Materials Incorporated on the 1st day of March, 2002, pursuant to a power of
attorney executed on behalf of each of these officers and directors, and
contemporaneously filed herewith with the Securities and Exchange Commission.

* By: /s/ ROBERT L. WINSPEAR
-----------------------------
Robert L. Winspear
Attorney-in-Fact

47

INDEX TO EXHIBITS

3.1 -- Restated Certificate of Incorporation, as amended, of
Associated Materials Incorporated (the "Company")
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
2001).

3.2 -- Restated Bylaws of the Company (incorporated by reference to
Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 2001).

4.1 -- Form of Indenture between the Company and U.S. Trust Company
of Texas, N.A., as Trustee (the "9 1/4% Note Indenture")
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1, Commission File No.
33-42067 (the "1997 Debt Registration Statement")).

4.2 -- Form of Senior Subordinated Note under the 9 1/4% Note
Indenture (incorporated by reference to Exhibit A to Exhibit
4.1 to the 1997 Debt Registration Statement).

4.3 -- Registration Rights Agreement, dated as of August 19, 1993,
among the Company, PruSupply Capital Assets, Inc.
("PruSupply"), W.W. Winspear, M.M. Winspear, D.J. Allan, M.G.
Winspear, D.W. Winspear, R.L. Winspear, B.W. Meyer, The
Principal/The Eppler, Guerin & Turner, Inc., Frank T.
Lauinger, John Wallace and Bonnie B. Smith (incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (the
"1993 Form 10-K")).

4.4 -- Stockholders' Agreement, dated as of August 19, 1993, among
the Company, PruSupply, W.W. Winspear and M.M. Winspear
(incorporated by reference to Exhibit 4.4 to the 1993 Form
10-K).

4.5 -- Amendment to the Stockholders' Agreement, dated as of April 1,
1994, among the Company, PruSupply, W.W. Winspear and M.M.
Winspear (incorporated by reference to Exhibit 4.5 to the 1994
Registration Statement).

4.6 -- Second Amendment to the Stockholders' Agreement, dated as of
July 1, 1994, among the Company, PruSupply, W.W. Winspear and
M.M. Winspear (incorporated by reference to Exhibit 4.6 to the
1994 Registration Statement).

4.7 -- Third Amendment to the Stockholders' Agreement, dated as of
October 12, 1994, among the Company, Prudential and the
Winspear Family Limited Partnership (incorporated by reference
to Exhibit 4.15 to the 1994 Registration Statement).

4.8 -- Assumption Agreement, effective as of July 29, 1994, by the
Winspear Family Limited Partnership (incorporated by reference
to Exhibit 4.7 to the 1994 Registration Statement).

4.9 -- Assumption Agreement, effective as of September 30, 1994 by
The Prudential Insurance Company of America ("Prudential")
(incorporated by reference to Exhibit 4.14 to the 1994
Registration Statement).

4.10 -- Assumption Agreement, effective as of February 16, 2000 by PCG
Finance Company II, LLC (incorporated by reference to Exhibit
4.1 to the March 30, 2000 Form 10-Q).

10.1 -- Agreement of Sale, dated as of January 30, 1984, between USX
Corporation (formerly United States Steel Corporation) ("USX")
and the Company (incorporated by reference to Exhibit 10.1 to
the 1993 Registration Statement).

10.2 -- Amendment Agreement, dated as of February 29, 1984, between
USX and the Company (incorporated by reference to Exhibit 10.2
to the 1993 Registration Statement).

10.3 -- Form of Indemnification Agreement between the Company and each
of the Directors and executive officers of the Company
(incorporated by reference to Exhibit 10.14 to the 1994
Registration Statement).

10.4 -- Second Amended and Restated Loan and Security Agreement, dated
as of April 2, 1996, between the Company and KeyBank (the
"Credit Agreement") (incorporated by reference to Exhibit 10.1
to the March 31, 1996 Form 10-Q).

10.5 -- Third Amendment to Second Amended and Restated Loan and
Security Agreement and Waiver, dated May 21, 1999 between the
Company and KeyBank relating to the Credit Agreement
(incorporated by reference to Exhibit 10.1 to the June 30,
1999 Form 10-Q).

10.6 -- Third Amended and Restated Note, dated April 2, 1996, from the
Company to KeyBank relating to the Credit Agreement
(incorporated by reference to Exhibit 10.1 to the March 31,
1996 Form 10-Q).

10.7 -- Stock Disposition Agreement, dated April 29, 2001, among
Associated Materials Incorporated, The Prudential Insurance
Company of America and PCG Finance Company II, LLC
(incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 8-K, dated April 29, 2001).

10.8* -- Associated Materials Incorporated Amended and Restated 1994
Stock Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2001).

10.9* -- Associated Materials Incorporated Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
2001).

10.10* -- Amendment to Associated Materials Incorporated Employee Stock
Purchase Plan, dated December 27, 2001.

10.11* -- Associated Materials Incorporated Incentive Bonus Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 2000).

10.12* -- Amended and Restated Agreement, dated February 5, 2002,
between the Company and Michael Caporale, Jr.

10.13* -- Severance Agreement, dated December 27, 2001, between the
Company and Robert F. Hogan, Jr.

10.14* -- Severance Agreement, dated December 27, 2001, between the
Company and Robert L. Winspear.

10.15 -- Stock Disposition Agreement, dated April 29, 2001, among
Associated Materials Incorporated, The Prudential Insurance
Company of America and PCG Finance Company II, LLC
(incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 8-K, dated April 29, 2001).

21.1 -- List of Subsidiaries of the Company.

23.1 -- Consent of Ernst & Young LLP, Independent Auditors.

24.1 -- Power of Attorney of directors and certain executive officers
of the Company.

- ----------

* Constitutes a compensatory plan or arrangement.