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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number: 000-24956
ASSOCIATED MATERIALS INCORPORATED
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-1872487
------------------------------ -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
3773 State Rd. Cuyahoga Falls, Ohio 44223
- ---------------------------------------- ------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (330) 929 -1811
------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of May 14, 2004, the Registrant had 100 shares of Common Stock
outstanding, all of which is held by an affiliate of the Registrant.
ASSOCIATED MATERIALS INCORPORATED
REPORT FOR THE QUARTER ENDED APRIL 3, 2004
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets................................................................... 1
April 3, 2004 (Unaudited) and January 3, 2004
Consolidated Statements of Operations (Unaudited)............................................. 2
Quarters ended April 3, 2004 and March 29, 2003
Consolidated Statements of Cash Flows (Unaudited)............................................. 3
Quarters ended April 3, 2004 and March 29, 2003
Notes to Consolidated Financial Statements (Unaudited)........................................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 18
Item 4. Controls and Procedures................................................................. 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................................ 19
SIGNATURES.......................................................................................... 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSOCIATED MATERIALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
April 3, January 3,
2004 2004
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 6,250 $ 4,282
Accounts receivable, net.......................................... 115,889 106,975
Inventory......................................................... 115,554 97,907
Income taxes receivable........................................... 5,701 -
Deferred income taxes............................................. 7,019 7,019
Other current assets.............................................. 5,767 5,564
----------- -----------
Total current assets............................................ 256,180 221,747
Property, plant and equipment, net................................... 140,657 140,846
Goodwill............................................................. 230,435 230,283
Other intangible assets, net......................................... 115,279 116,136
Other assets......................................................... 9,473 9,621
----------- -----------
Total assets................................................ $ 752,024 $ 718,633
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................................. $ 73,463 $ 49,881
Accrued liabilities............................................... 42,153 53,234
Income taxes payable.............................................. - 4,934
----------- -----------
Total current liabilities....................................... 115,616 108,049
Deferred income taxes................................................ 57,863 58,028
Other liabilities.................................................... 40,738 41,587
Long-term debt....................................................... 327,300 305,000
Stockholder's equity................................................. 210,507 205,969
----------- -----------
Total liabilities and stockholder's equity.................. $ 752,024 $ 718,633
=========== ===========
See accompanying notes.
-1-
ASSOCIATED MATERIALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
----------- -----------
Net sales............................................................ $ 204,321 $ 110,944
Cost of sales........................................................ 153,966 82,776
----------- -----------
Gross profit......................................................... 50,355 28,168
Selling, general and administrative expense.......................... 59,892 31,310
----------- -----------
Loss from operations................................................. (9,537) (3,142)
Interest expense, net................................................ 6,012 5,438
Foreign currency loss................................................ 6 -
----------- -----------
Loss before taxes.................................................... (15,555) (8,580)
Income taxes......................................................... (6,456) (3,560)
----------- -----------
Net loss............................................................. $ (9,099) $ (5,020)
=========== ===========
See accompanying notes.
-2-
ASSOCIATED MATERIALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
-------- --------
OPERATING ACTIVITIES
Net loss.......................................................... $ (9,099) $ (5,020)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 5,106 2,717
Amortization of deferred financing costs..................... 365 344
Changes in operating assets and liabilities:
Accounts receivable, net................................... (9,205) 5,609
Inventories................................................ (18,053) (4,997)
Income taxes............................................... (10,635) (3,431)
Accounts payable and accrued liabilities................... 13,073 (9,318)
Other...................................................... (1,032) 570
-------- --------
Net cash used in operating activities............................. (29,480) (13,526)
INVESTING ACTIVITIES
Additions to property, plant and equipment........................ (5,307) (2,335)
-------- --------
Net cash used in investing activities............................. (5,307) (2,335)
FINANCING ACTIVITIES
Net increase in revolving line of credit.......................... 22,300 6,600
Equity contribution from Holdings................................. 14,498 -
Financing costs................................................... (67) -
Redemption of 9-1/4% senior subordinated notes.................... - (908)
-------- --------
Net cash provided by financing activities......................... 36,731 5,692
-------- --------
Net increase (decrease) in cash................................... 1,944 (10,169)
Effect of exchange rate changes on cash........................... 24 -
-------- --------
Cash at beginning of period....................................... 4,282 13,022
-------- --------
Cash at end of period............................................. $ 6,250 $ 2,853
======== ========
Supplemental information:
Cash paid for interest............................................ $ 1,562 $ 103
======== ========
Cash paid (received) for income taxes............................. $ 4,159 $ (129)
======== ========
See accompanying notes.
-3-
ASSOCIATED MATERIALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED APRIL 3, 2004
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated
(the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial reporting, the
instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in its annual report
on form 10-K for the year ended January 3, 2004. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the interim financial information have been
included.
The Company's 2004 results of operations include the results of Gentek
Holdings, Inc., which was acquired on August 29, 2003 (see Note 3). The Company
is a wholly owned subsidiary of Associated Materials Holdings Inc. ("Holdings").
The Company is a leading, vertically integrated manufacturer and North
American distributor of exterior residential building products. The Company's
core products are vinyl windows, vinyl siding, aluminum trim coil, aluminum and
steel siding and accessories, and vinyl fencing, decking and railing. Because
most of the Company's building products are intended for exterior use, the
Company's sales and operating profits tend to be lower during periods of
inclement weather. Weather conditions in the first quarter of each year
historically result in that quarter producing significantly less sales revenue
and profits than in any other period of the year. Therefore, the results of
operations for any interim period are not necessarily indicative of the results
of operations for a full year.
NOTE 2 - AMH HOLDINGS, INC.
On February 19, 2004, AMH Holdings, Inc. ("AMH") was incorporated. AMH has
no material assets or operations other than its 100% ownership of Holdings, the
Company's parent company. Stockholders and option holders of Holdings became
stockholders and option holders of AMH on March 4, 2004 and are no longer
stockholders and option holders of Holdings. On March 4, 2004, AMH completed an
offering of $446 million aggregate principal at maturity of 11-1/4% senior
discount notes. The total gross proceeds were approximately $258.3 million. In
connection with the note offering, certain options to acquire preferred and
common shares were exercised and the proceeds from the note offering were used
to redeem all of AMH's preferred stock including accrued and unpaid dividends,
pay a dividend to AMH's common stockholders and pay a bonus to certain members
of the Company's senior management. Through Holdings, AMH contributed $14.5
million to the Company to pay the bonus to certain members of the Company's
senior management. The management bonus is included in the Company's selling,
general and administrative expense for the quarter ended April 3, 2004. Interest
accrues at a rate of 11-1/4% on the notes in the form of an increase in the
accreted value of the notes prior to March 1, 2009. Thereafter, cash interest of
11-1/4% on the notes accrues and is payable semi-annually in arrears on March 1
and September 1 of each year, commencing on September 1, 2009. The notes mature
on March 1, 2014. The notes are structurally subordinated to all existing and
future debt and other liabilities of AMH's existing and future subsidiaries,
including the Company and Holdings.
NOTE 3 - PRO FORMA INFORMATION
On August 29, 2003, the Company acquired all of the issued and outstanding
shares of the capital stock of Gentek Holdings, Inc., the parent Company of
Gentek Building Products, Inc. and Gentek Building Products Limited,
collectively referred to as "Gentek". Gentek manufactures and distributes vinyl
windows, vinyl siding, aluminum trim coil, and aluminum and steel siding and
accessories under the Revere(R) and Gentek(R) brand names. Gentek markets its
products to professional contractors on a wholesale basis through 12
company-owned distribution centers in the mid-Atlantic region of the United
States and 20 company-owned distribution centers in Canada, as well as
approximately 200 independent distributors in the United States. The acquisition
was completed to expand the Company's presence in the independent distributor
market channel, to capitalize on synergy opportunities related to the vertical
integration of the metals products manufactured by Gentek and sold in the
Company's Alside supply centers, and to benefit from raw material savings
resulting from increased purchasing leverage. The Company
-4-
intends to maintain distinct separation of the Revere(R) and Gentek(R) brands
from the Company's Alside(R) brand by continuing to offer differentiated product
sales and market support. The acquisition was accounted for using the purchase
method of accounting. The purchase price allocation is preliminary, based on
facts currently known to the Company and is subject to adjustment as the final
valuation for the fair value of the warranty liability related to certain steel
siding has not been completed. As a result, the actual allocation is subject to
completion and therefore may differ.
The following pro forma information for the quarter ended March 29, 2003
was prepared as if the acquisition of Gentek Holdings occurred as of the
beginning of the period. On a pro forma basis, the Company would have had (in
thousands):
Quarter
Ended
March 29,
2003
-----------
Net sales...................... $ 165,626
Net loss....................... $ (8,014)
The pro forma information is not necessarily indicative of the results
that would have occurred had the acquisition of Gentek occurred at the beginning
of the period presented, nor is it necessarily indicative of future results. The
pro forma results of operations include $1.4 million of expenses related to an
inventory fair value adjustment recorded at the time of the Gentek acquisition.
NOTE 4 - INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or
market. Inventories consisted of the following (in thousands):
April 3, January 3,
2004 2004
---------- ----------
Raw materials................................. $ 26,727 $ 24,586
Work-in-process............................... 7,750 6,307
Finished goods and purchased stock............ 81,077 67,014
---------- ----------
$ 115,554 $ 97,907
========== ==========
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the purchase price in excess of the fair value of the
tangible and intangible net assets acquired and consists of $230.4 million
including $197.5 million from the purchase price for the April 2002 merger
transaction and $32.9 million from the acquisition of Gentek. None of the
Company's goodwill is deductible for income tax purposes. The Company's other
intangible assets consists of the following (in thousands):
Average April 3, 2004 January 3, 2004
Amortization --------------------------------------- -----------------------------------------
Period Accumulated Net Carrying Accumulated Net Carrying
(in Years) Cost Amortization Value Cost Amortization Value
------------ ----------- ------------ ------------ ----------- ------------ ------------
Trademarks and trade
names...................... 15 $ 109,280 $ 3,310 $ 105,970 $ 109,280 $ 2,844 $ 106,436
Patents.................... 10 6,550 1,274 5,276 6,550 1,110 5,440
Customer base.............. 7 4,592 559 4,033 4,628 368 4,260
----------- ----------- ----------- ----------- ----------- -----------
Total other intangible
assets............. $ 120,422 $ 5,143 $ 115,279 $ 120,458 $ 4,322 $ 116,136
=========== =========== =========== =========== =========== ===========
The Company has determined that trademarks and trade names totaling $81.1
million consisting primarily of the Alside(R), Revere(R) and Gentek(R) trade
names have indefinite useful lives. Amortization expense related to other
intangible assets was approximately $0.8 million and $0.6 million, for quarters
ended April 3, 2004 and March 29, 2003, respectively.
-5-
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
April 3, January 3,
2004 2004
-------- ---------
9-3/4% notes.................................... $165,000 $ 165,000
Term loan under credit facility................. 140,000 140,000
Revolving loans under credit facility........... 22,300 -
-------- ---------
$327,300 $ 305,000
======== =========
The Company's $165 million of 9-3/4% notes are due in 2012 and pay
interest semi-annually in April and October. In connection with the acquisition
of Gentek, the Company amended its existing credit facility by adding a term
loan facility to borrow $190 million, which was utilized for the Gentek
acquisition and repayment of the Company's existing $76.5 million of term loans,
and expanded its revolving facility from $40 million to $70 million, including a
new Canadian subfacility of $15 million. The term loans are due in August 2010
with minimum principal amortization of 1% per year with quarterly payments of
the unamortized principal in the final year of the loan and bears interest at
the London Interbank Offered Rate ("LIBOR") plus 2.75% payable quarterly at the
end of each calendar quarter. The revolving credit facility expires in 2007 and
bears interest at LIBOR plus 3.00% payable quarterly at the end of each calendar
quarter.
The credit facility and the indenture governing the 9-3/4% notes contain
restrictive covenants that, among other things, limit the Company's ability to
incur additional indebtedness, make loans or advances to subsidiaries and other
entities, invest in capital expenditures, sell its assets or declare dividends.
In addition, under the credit facility the Company is required to achieve
certain financial ratios relating to leverage, coverage of fixed charges and
coverage of interest expense. The Company was in compliance with its covenants
as of April 3, 2004. On an annual basis, the Company is required to make
principal payments on the term loan under its credit facility based on a
percentage of excess cash flows as defined in the credit facility. The payments
on the term loan in 2003 were sufficient such that no additional principal
payments were required in 2004 under the excess cash flow provision. The Company
records as a current liability those principal payments that are estimated to be
due within twelve months under the excess cash flow provision of the credit
facility when the likelihood of those payments becomes probable.
NOTE 7 - STOCK PLANS
The Company measures stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 -
"Accounting for Stock Issued to Employees." The Company follows the disclosure
provisions required under Financial Accounting Standard Board ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 123 - "Accounting for Stock Based
Compensation." Pro forma information regarding net income is required by SFAS
No. 123, and has been determined as if the Company had accounted for its stock
options under the fair value method of that statement using a minimum value
approach for companies with private equity. FASB SFAS No. 148 - "Accounting for
Stock-Based Compensation" requires this information to be disclosed on a
quarterly basis. The pro forma effect on net loss for the quarters ended April
3, 2004 and March 29, 2003 would have been (in thousands):
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
------------- ------------
Net loss as reported ....................................... $ (9,099) $ (5,020)
Pro forma stock based employee compensation cost,
net of tax................................................. (28) (32)
------------- ------------
Pro forma net loss.......................................... $ (9,127) $ (5,052)
============= ============
NOTE 8 - INCOME TAXES
Due to the seasonal nature of the Company's operating results, the Company
has recorded an income tax benefit on the loss before taxes for the quarters
ended April 3, 2004 and March 29, 2003.
-6-
NOTE 9 - COMPREHENSIVE LOSS
Comprehensive loss differs from net loss due to foreign currency
translation adjustments as follows (in thousands):
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
------------ ----------
Net loss as reported ............................................ $ (9,099) $ (5,020)
Foreign currency translation adjustments......................... (861) -
------------ ----------
Comprehensive loss............................................... $ (9,960) $ (5,020)
============ ==========
NOTE 10 - RETIREMENT PLANS
The Company's Alside division sponsors a defined benefit pension plan
which covers hourly workers at its plant in West Salem, Ohio and a defined
benefit retirement plan covering salaried employees, which was frozen in 1998
and subsequently replaced with a defined contribution plan. The Company's Gentek
subsidiary sponsors a defined benefit pension plan for the hourly union
employees at its Woodbridge, New Jersey plant (together with the Alside
sponsored defined benefit plans, the "Domestic Plans"). Accrued pension
liabilities are included in other liabilities in the accompanying balance
sheets. Gentek plan information is presented subsequent to the date of its
acquisition on August 29, 2003. The actuarial valuation measurement date for the
defined benefit pension plans is December 31. Components of defined benefit
pension plan costs are as follows (in thousands):
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
------------ -------------
Domestic Domestic
Plans Plans
------------ -------------
NET PERIODIC PENSION COST
Service cost............................................... $ 104 $ 53
Interest cost.............................................. 628 515
Expected return on assets.................................. (704) (534)
Amortization of unrecognized:
Cumulative net loss .................................... 70 107
------------ -------------
Net periodic pension cost.................................. $ 98 $ 141
============ =============
The Company expects to make $0.4 million of contributions to the Domestic
Plans in 2004.
NOTE 11 - SUBSIDIARY GUARANTORS
The Company's payment obligations under the 9-3/4% notes are fully and
unconditionally guaranteed, jointly and severally (collectively, the "Subsidiary
Guarantees") on a senior subordinated basis, by its domestic wholly-owned
subsidiaries: Gentek Holdings, Inc., Gentek Building Products Inc. and Alside,
Inc. Alside, Inc. is a wholly owned subsidiary having no assets, liabilities or
operations. Gentek Building Products Limited (the "Non-Guarantor Subsidiary") is
a Canadian company and does not guarantee the Company's 9-3/4% notes. The
operations and cash flows of Gentek Holdings, Inc., Gentek Building Products,
Inc. and Gentek Building Products Limited are only presented for the quarter
ended April 3, 2004, since Gentek was acquired on August 29, 2003. As such, no
consolidating statements of operations or cash flows are presented for the
quarter ended March 29, 2003, as the Company's only guaranteeing subsidiary for
that period did not have any assets, liabilities or operations. In the opinion
of management, separate financial statements of the respective Guarantor
Subsidiaries would not provide additional material information, which would be
useful in assessing the financial composition of the Guarantor Subsidiaries.
None of the Guarantor Subsidiaries has any significant legal restrictions on the
ability of investors or creditors to obtain access to its assets in event of
default on the Subsidiary Guarantee other than its subordination to senior
indebtedness.
-7-
ASSOCIATED MATERIALS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
April 3, 2004
(In thousands)
(Unaudited)
Guarantor Non-Guarantor Reclassification /
Parent Subsidiaries Subsidiary Eliminations Consolidated
----------- ------------ ------------- --------------- -----------
ASSETS
Current assets:
Cash and cash equivalents............. $ 4,716 $ 716 $ 818 $ - $ 6,250
Accounts receivable, net.............. 73,818 22,011 20,060 - 115,889
Intercompany receivables.............. - 5,480 1,823 (7,303) -
Inventory............................. 72,873 15,215 27,466 - 115,554
Income taxes receivable............... 6,146 98 - (543) 5,701
Deferred income taxes................. 3,925 3,094 - - 7,019
Other current assets.................. 4,445 584 738 - 5,767
----------- ----------- ----------- ----------- -----------
Total current assets................ 165,923 47,198 50,905 (7,846) 256,180
Property, plant and equipment, net....... 101,325 6,356 32,976 - 140,657
Goodwill................................. 197,461 32,974 - - 230,435
Other intangible assets, net............. 100,713 13,049 1,517 - 115,279
Deferred income taxes.................... - 9,350 - (9,350) -
Investment in subsidiaries............... 112,576 44,988 - (157,564) -
Other assets............................. 9,369 - 104 - 9,473
----------- ----------- ----------- ----------- -----------
Total assets.................... $ 687,367 $ 153,915 $ 85,502 $ (174,760) $ 752,024
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable...................... $ 40,959 $ 11,002 $ 21,502 $ - $ 73,463
Intercompany payables................. 643 6,660 - (7,303) -
Accrued liabilities................... 27,483 8,962 5,708 - 42,153
Income taxes payable.................. - - 543 (543) -
----------- ----------- ----------- ----------- -----------
Total current liabilities........... 69,085 26,624 27,753 (7,846) 115,616
Deferred income taxes.................... 60,425 3,453 3,335 (9,350) 57,863
Other liabilities........................ 20,050 11,262 9,426 - 40,738
Long-term debt........................... 327,300 - - - 327,300
Stockholders' equity..................... 210,507 112,576 44,988 (157,564) 210,507
----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholder's equity.......... $ 687,367 $ 153,915 $ 85,502 $ (174,760) $ 752,024
=========== =========== =========== =========== ===========
-8-
ASSOCIATED MATERIALS INCORPORATED AND SUBSIDIARES
CONDENSED CONSOLIDATING BALANCE SHEET
January 3, 2004
(In thousands)
Guarantor Non-Guarantor Reclassification/
Parent Subsidiaries Subsidiary Eliminations Consolidated
----------- ------------ ------------- ----------------- ------------
ASSETS
Current assets:
Cash and cash equivalents............. $ 2,399 $ 2,982 $ - $ (1,099) $ 4,282
Accounts receivable, net.............. 75,533 17,106 14,336 - 106,975
Intercompany receivables.............. - 4,116 2,553 (6,669) -
Inventory............................. 60,909 14,418 22,580 - 97,907
Deferred income taxes................. 3,925 3,094 - - 7,019
Other current assets.................. 4,546 650 368 - 5,564
----------- ------------ ----------- ------------ ------------
Total current assets................ 147,312 42,366 39,837 (7,768) 221,747
Property, plant and equipment, net....... 99,750 6,616 34,480 - 140,846
Goodwill................................. 197,461 32,822 - - 230,283
Other intangible assets, net............. 101,272 13,201 1,663 - 116,136
Investment in subsidiaries............... 112,938 44,671 - (157,609) -
Deferred income taxes.................... - 5,798 - (5,798) -
Other assets............................. 9,503 - 118 - 9,621
----------- ------------ ----------- ------------ ------------
Total assets.................... $ 668,236 $ 145,474 $ 76,098 $ (171,175) $ 718,633
=========== ============ =========== ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable...................... $ 30,045 $ 10,213 $ 10,722 $ (1,099) $ 49,881
Intercompany payables................. 6,669 - - (6,669) -
Accrued liabilities................... 36,241 10,302 6,691 - 53,234
Income taxes payable.................. 3,761 389 784 - 4,934
----------- ------------ ----------- ------------ ------------
Total current liabilities........... 76,716 20,904 18,197 (7,768) 108,049
Deferred income taxes.................... 60,425 - 3,401 (5,798) 58,028
Other liabilities........................ 20,126 11,632 9,829 - 41,587
Long-term debt........................... 305,000 - - - 305,000
Stockholders' equity..................... 205,969 112,938 44,671 (157,609) 205,969
----------- ------------ ----------- ------------ ------------
Total liabilities and
stockholder's equity.......... $ 668,236 $ 145,474 $ 76,098 $ (171,175) $ 718,633
=========== ============ =========== ============ ============
-9-
ASSOCIATED MATERIALS INCORPORATED AND SUBSIDIARES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended April 3, 2004
(In thousands)
(Unaudited)
Guarantor Non-Guarantor Reclassification/
Parent Subsidiaries Subsidiary Eliminations Consolidated
----------- ------------ ------------- ----------------- ------------
Net sales ......................................... $ 140,431 $ 39,770 $ 38,803 $ (14,683) $ 204,321
Cost of sales ..................................... 102,069 34,394 32,186 (14,683) 153,966
---------- --------- ----------- ---------- ---------
Gross profit ...................................... 38,362 5,376 6,617 - 50,355
Selling, general and administrative expense ....... 48,788 5,589 5,515 - 59,892
---------- --------- ----------- ---------- ---------
Income (loss) from operations ..................... (10,426) (213) 1,102 - (9,537)
Interest expense, net ............................. 5,977 - 35 - 6,012
Foreign currency loss ............................. - - 6 - 6
---------- --------- ----------- ---------- ---------
Income (loss) from continuing operations before
income taxes ................................... (16,403) (213) 1,061 - (15,555)
Income taxes ...................................... (6,808) (97) 449 - (6,456)
---------- --------- ----------- ---------- ---------
Income before equity income from subsidiaries ..... (9,595) (116) 612 - (9,099)
Equity income from subsidiaries ................... 496 612 - (1,108) -
---------- --------- ----------- ---------- ---------
Net income (loss) ................................. $ (9,099) $ 496 $ 612 $ (1,108) $ (9,099)
========== ========= =========== ========== =========
ASSOCIATED MATERIALS INCORPORATED AND SUBSIDIARES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended April 3, 2004
(In thousands)
(Unaudited)
Guarantor Non-Guarantor Reclassification/
Parent Subsidiaries Subsidiary Eliminations Consolidated
---------- ------------ ------------- ----------------- ------------
Net cash provided by (used in) operating
activities ....................................... $ (23,576) $ (6,701) $ (302) $ 1,099 $ (29,480)
INVESTING ACTIVITIES
Additions to property, plant and equipment .......... (4,812) (333) (162) - (5,307)
--------- -------- -------- -------- ---------
Net cash used in investing activities ............... (4,812) (333) (162) - (5,307)
FINANCING ACTIVITIES
Net increase in revolving line of credit ............ 22,300 - - - 22,300
Equity contribution from Holdings ................... 14,498 - - - 14,498
Financing costs ..................................... (67) - - - (67)
Intercompany transactions ........................... (6,026) 4,768 1,258 - -
--------- -------- -------- -------- ---------
Net cash provided by financing activities ........... 30,705 4,768 1,258 - 36,731
--------- -------- -------- -------- ---------
Net increase (decrease) in cash from continuing
operations ....................................... 2,317 (2,266) 794 1,099 1,944
Effect of exchange rates on cash .................... - - 24 - 24
Cash at beginning of period ......................... 2,399 2,982 - (1,099) 4,282
--------- -------- -------- -------- ---------
Cash at end of period ............................... $ 4,716 $ 716 $ 818 $ - $ 6,250
========= ======== ======== ======== =========
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading, vertically integrated manufacturer and North
American distributor of exterior residential building products. The Company's
core products are vinyl windows, vinyl siding, aluminum trim coil, aluminum and
steel siding and accessories, and vinyl fencing, decking and railing. Vinyl
windows and vinyl siding together comprise approximately 60% of the Company's
total net sales. These products are marketed under the Alside(R), Revere(R) and
Gentek(R) brand names and sold on a wholesale basis to more than 50,000
professional contractors engaged in home remodeling and new home construction
principally through the Company's North American network of 125 supply centers.
Approximately two-thirds of the Company's products are sold to contractors
engaged in the home repair and remodeling market with one-third sold to the new
construction market. The supply centers provide "one-stop shopping" to the
Company's contractor customers, carrying products, accessories and tools
necessary to complete a vinyl window or siding project. In addition, the supply
centers provide high quality product literature, product samples and
installation training to these customers.
Because its exterior residential building products are consumer durable
goods, the Company'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. The Company's sales are also affected by changes in
consumer preferences with respect to types of building products.
The Company operates with significant operating and financial leverage.
Significant portions of the Company's manufacturing, selling, general and
administrative expenses are fixed costs that neither increase nor decrease
proportionately with sales. In addition, a significant portion of the Company's
interest expense is fixed. There can be no assurance that the Company will be
able to reduce its fixed costs in response to a decline in its net sales. As a
result, a decline in the Company's net sales could result in a higher percentage
decline in its income from operations.
Because most of the Company'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 net sales and net cash flows from
operations 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. To meet
seasonal cash flow needs during the periods of reduced sales and net cash flows
from operations, the Company typically makes borrowings under the revolving loan
portion of its amended and restated credit facility.
On August 29, 2003, the Company completed the acquisition of Gentek
Holdings, Inc. ("Gentek Holdings") and repaid all of the indebtedness and
accrued interest of Gentek Holdings and its subsidiaries for an aggregate
purchase price of approximately $114.3 million, which included $1.1 million of
cash acquired, a working capital adjustment and customary transaction fees.
Gentek Holdings, which was privately held, is the parent of Gentek
Building Products, Inc. and Gentek Building Products Limited (collectively,
"Gentek"). Gentek manufactures and distributes vinyl windows, vinyl siding and
accessories, aluminum trim coil, and aluminum and steel siding and accessories
under the Revere(R) and Gentek(R) brand names. Gentek markets its products to
professional contractors on a wholesale basis through 12 company-owned
distribution centers in the mid-Atlantic region of the United States and 20
company-owned distribution centers in Canada, as well as approximately 200
independent distributors in the United States.
The Gentek acquisition has provided the Company with a number of
significant cost savings and other operational opportunities, including
increased purchasing leverage, insourcing of distributed metal products, and
operational best practices. The Company believes that the Gentek acquisition
will provide synergy opportunities of approximately $5 million to $10 million
over the next two years. The Company has implemented many of the actions
necessary to drive these opportunities and expects to realize approximately half
of the benefits in 2004 and the remainder by the end of 2005.
In connection with the acquisition, the Company amended its existing
credit facility by adding a term loan facility to borrow an additional $113.5
million and expanding its revolving credit facility from $40 million to $70
million, including a new Canadian subfacility of $15 million.
-11-
The Company seeks to distinguish itself from other suppliers of
residential building products and to sustain its profitability through a
business strategy focused on increasing sales at existing supply centers,
expanding its supply center network where the Company already has a supply
center presence, increasing sales through independent specialty distributor
customers, realizing synergies from the Gentek acquisition, developing
innovative new products, and driving operational excellence by reducing costs,
increasing customer service levels and reducing lead times.
RECENT DEVELOPMENTS
On February 19, 2004, AMH Holdings, Inc. ("AMH") was incorporated. AMH has
no material assets or operations other than its 100% ownership of Associated
Materials Holdings, Inc. ("Holdings"), the Company's parent company.
Stockholders and option holders of Holdings became stockholders and option
holders of AMH on March 4, 2004 and are no longer stockholders and option
holders of Holdings. On March 4, 2004, AMH completed an offering of $446 million
aggregate principal at maturity of 11 1/4% senior discount notes. The total
gross proceeds were approximately $258.3 million. In connection with the note
offering, certain options to acquire preferred and common shares were exercised
and the proceeds from the note offering were used to redeem all of AMH's
preferred stock including accrued and unpaid dividends, pay a dividend to AMH's
common stockholders and pay a bonus to certain members of the Company's senior
management. Through Holdings, AMH contributed $14.5 million to the Company to
pay the management bonus. The management bonus is included in the Company's
selling, general and administrative expense for the quarter ended April 3, 2004.
Interest accrues at a rate of 11 1/4% on the notes in the form of an increase in
the accreted value of the notes prior to March 1, 2009. Thereafter, cash
interest of 11 1/4% on the notes accrues and is payable semi-annually in arrears
on March 1 and September 1 of each year, commencing on September 1, 2009. The
notes mature on March 1, 2014. The AMH notes are structurally subordinated to
all existing and future debt and other liabilities of AMH's existing and future
subsidiaries, including the Company and Holdings.
RESULTS OF OPERATIONS
The Company's 2004 results of operations include the results of Gentek,
which was acquired on August 29, 2003. Gentek's results as compared to Alside's
results typically have a lower gross profit margin percentage as a larger
proportion of Gentek's net sales are to independent distributors versus to
contractors through company-owned distribution centers. As such, Gentek's
selling, general and administrative expense as a percentage of net sales is
typically lower than Alside's as Gentek does not have as large of a proportion
of fixed costs associated with operating company-owned distribution centers. The
Company anticipates that on a consolidated basis, its gross profit margin
percentage and its selling, general and administrative expense as a percentage
of net sales will decrease as compared to periods prior to the Gentek
acquisition.
The following table sets forth for the periods indicated the results of
the Company's operations (in thousands):
-12-
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
---------- -----------
Net sales ....................................... $ 204,321 $ 110,944
Gross profit .................................... 50,355 28,168
Selling, general and administrative expense ..... 59,892 31,310
--------- ---------
Loss from operations ............................ (9,537) (3,142)
Interest expense, net ........................... 6,012 5,438
Foreign currency loss ........................... 6 -
--------- ---------
Loss before income taxes ........................ (15,555) (8,580)
Income taxes .................................... (6,456) (3,560)
--------- ---------
Net loss ........................................ $ (9,099) $ (5,020)
========= =========
Other Data:
EBITDA (a)(b) ................................... $ (4,437) $ (425)
Adjusted EBITDA (a)(b) .......................... 10,061 (425)
(a) EBITDA is calculated as net loss plus interest, taxes, depreciation and
amortization. Adjusted EBITDA excludes certain items. The Company
considers Adjusted EBITDA to be an important indicator of its operational
strength and performance of its business. The Company has included
Adjusted EBITDA because it is a key financial measure used by management
to (i) assess the Company's ability to service its debt and / or incur
debt and meet the Company's capital expenditure requirements; (ii)
internally measure the Company's operating performance; and (iii)
determine the Company's incentive compensation programs. In addition, the
Company's credit facility has certain covenants that use ratios utilizing
this measure of Adjusted EBITDA. The definition of EBITDA under the
indenture governing the 9 3/4% notes due 2012 excludes certain items.
Adjusted EBITDA has not been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"). Adjusted
EBITDA as presented by the Company may not be comparable to similarly
titled measures reported by other companies. As Adjusted EBITDA is not a
measure determined in accordance with GAAP, it should not be considered as
an alternative to, or more meaningful than, net loss (as determined in
accordance with GAAP), as a measure of the Company's operating results or
cash flows from operations (as determined in accordance with GAAP). The
reconciliation of net loss to EBITDA and Adjusted EBITDA is as follows (in
thousands):
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
--------- ---------
Reconciliation of net loss to EBITDA and Adjusted EBITDA (c):
Net loss ..................................................... $ (9,099) $ (5,020)
Interest ..................................................... 6,012 5,438
Taxes ........................................................ (6,456) (3,560)
Depreciation and amortization ................................ 5,106 2,717
-------- --------
EBITDA ....................................................... (4,437) (425)
Management bonus (c) ......................................... 14,498 -
-------- --------
Adjusted EBITDA .............................................. $ 10,061 $ (425)
======== ========
-13-
(b) The 2004 results of operations include the results of Gentek. A
reconciliation of Gentek's net income to EBITDA for the quarter ended
April 3, 2004 is as follows (in thousands):
Quarter
Ended
April 3,
2004
--------
Reconciliation of Gentek's net income to EBITDA
Net income .................................... $ 466
Interest ...................................... 35
Taxes ......................................... 329
Depreciation and amortization ................. 1,841
--------
Gentek's EBITDA ............................... $ 2,671
========
(c) Represents a management bonus paid in connection with the completion on
March 4, 2004 of AMH Holding's offering of senior discount notes.
-14-
Quarter Ended April 3, 2004 Compared to Quarter Ended March 29, 2003
Net sales increased 84.2% during the first quarter of 2004 compared to the
same period in 2003, driven by increased vinyl window and vinyl siding sales
along with net sales from Gentek, which contributed $65.4 million of net sales
in the first quarter of 2004. Additionally, many of the key metrics, which the
Company believes are indicators of strength of the building products industry
including existing home sales, single family housing starts and interest rates
continued to be strong in the first quarter of 2004. Gross profit in the first
quarter of 2004 was $50.4 million, or 24.6% of net sales, compared to gross
profit of $28.2 million, or 25.4% of net sales, in the first quarter of 2003.
The decrease in gross profit margin percentage is primarily due to the impact of
the results contributed by Gentek as Gentek's gross margin percentage is
typically lower than Alside's. Selling, general and administrative expense
increased to $59.9 million, or 29.3% of net sales, for the first quarter of 2004
versus $31.3 million, or 28.2% of net sales, for the same period in 2003. The
increase in selling, general and administrative expense is a result of the $14.5
million management bonus relating to AMH's offering of senior discount notes,
the impact of the acquisition of Gentek, as well as the result of adding two new
Alside supply centers in 2004 along with the three new supply centers added in
2003, which had a full quarter of expense in 2004. The loss from operations was
$9.5 million in the first quarter of 2004 compared to a loss of $3.1 million for
the same period in 2003.
Interest expense increased 10.6% during the first quarter of 2004 compared
to the same period in 2003. The increase in interest expense is due to
additional borrowings on the term loan as a result of the Gentek acquisition, as
well as additional borrowings on the revolving loan portion of the credit
facility to meet the seasonal working capital needs of the Company. Due to the
seasonal nature of the Company's operating results, the Company has recorded an
income tax benefit on the loss before taxes for the quarters ended April 3, 2004
and March 29, 2003 at an effective rate of 41.5%.
The net loss increased to $9.1 million for the quarter ended April 3, 2004
compared to $5.0 million for the quarter ended March 29, 2003. The increase in
the net loss is a result of the $14.5 million management bonus partially offset
by the increased sales and operating income from the Alside division and the net
income contributed by Gentek.
EBITDA for the first quarter of 2004 was a loss of $4.4 million compared
to a loss of $0.4 million for the first quarter of 2003. Gentek contributed $2.7
million of EBITDA in the first quarter of 2004. Adjusted EBITDA for the first
quarter of 2004 was $10.1 million compared to a loss of $0.4 million for the
same period in 2003. As compared to EBITDA, Adjusted EBITDA for the quarter
ended April 3, 2004 excludes a bonus paid to certain members of Company
management totaling approximately $14.5 million related to the completion of the
offering of senior discount notes on March 4, 2004 by AMH.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth a summary of the Company's cash flows for the
three months ended April 3, 2004 and March 29, 2003 (in thousands):
Quarter Quarter
Ended Ended
April 3, March 29,
2004 2003
--------- ---------
Cash used in operating activities ........ $(29,480) $(13,526)
Cash used in investing activities ........ (5,307) (2,335)
Cash provided by financing activities .... 36,731 5,692
CASH FLOWS
At April 3, 2004, the Company had cash and cash equivalents of $6.3
million and available borrowing capacity of approximately $43.1 million under
the revolving portion of its credit facility. Outstanding letters of credit as
of April 3, 2004, totaled $4.6 million securing various insurance letters of
credit.
-15-
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operations was $29.5 million and $13.5 million for the
quarters ended April 3, 2004 and March 29, 2003, respectively. The cash used in
operations for both periods reflects the operating results for each quarter, the
seasonal increase of inventory levels required for the summer selling season, as
well as payments of accrued profit sharing and customer sales incentives.
Additionally, cash used in operations for the quarter ended April 3, 2004
includes the seasonal operating needs of Gentek.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures totaled $5.3 million and $2.3 million for the
quarters ended April 3, 2004 and March 29, 2003, respectively. Capital
expenditures in the 2004 period include $0.5 million of capital expenditures for
Gentek. Capital expenditures in 2004 were primarily to increase extrusion
capacity at the Company's West Salem, Ohio manufacturing location and to
increase capacity at two of the Company's window manufacturing facilities.
Capital expenditures in the first quarter of 2003 were primarily to replace
vinyl siding extrusion and handling equipment at the Company's Ennis, Texas
manufacturing location. The Company has increased its estimate for total capital
expenditures for 2004 to approximately $22 million reflecting additional
spending to meet capacity requirements at the Company's window manufacturing
facilities.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities for the quarter ended April 3, 2004
include borrowings on the revolving portion of its credit facility of $22.3
million, a capital contribution from Holdings of $14.5 million and $0.1 million
paid for financing costs. Cash flows from financing activities for the quarter
ended March 29, 2003 include borrowings on the revolving portion of the
Company's credit facility of $6.6 million and the redemption of the remaining
outstanding 9 1/4% notes of $0.9 million. The increase in borrowings on the
revolving portion of the credit facility for the quarter ended April 3, 2004 of
$15.7 million as compared to the same period in the prior year is due to the
increased working capital requirements as a result of the increased sales, as
well as Gentek's seasonal needs.
DESCRIPTION OF THE COMPANY'S OUTSTANDING INDEBTEDNESS
The Company's 9 3/4% notes pay interest semi-annually in April and
October. The Company's amended and restated credit facility as of April 3, 2004
includes $140 million of outstanding term loans due through 2010 that bear
interest at the London Interbank Offered Rate (LIBOR) plus 2.75%, payable
quarterly at the end of each calendar quarter, and up to $70 million of
available borrowings provided by revolving loans (including a Canadian
subfacility of $15 million), which expire in 2007 and bear interest at LIBOR
plus 3.00%. Outstanding borrowings on the revolving portion of the Company's
credit facility totaled $22.3 million at April 3, 2004. No interest was paid on
the credit facility in the first quarter of 2003 due to the fiscal quarter
ending before March 31, 2003. The Company's payment obligations under the 9 3/4%
notes are fully and unconditionally guaranteed, jointly and severally on a
senior subordinated basis, by its domestic wholly-owned subsidiaries: Gentek
Holdings, Inc., Gentek Building Products Inc. and Alside, Inc. Alside, Inc. is a
wholly owned subsidiary having no assets, liabilities or operations. Gentek
Building Products Limited is a Canadian company and does not guarantee the
Company's 9 3/4% notes.
The credit facility and the indenture governing the 9 3/4% notes contain
restrictive covenants that, among other things, limit the Company's ability to
incur additional indebtedness, make loans or advances to subsidiaries and other
entities, invest in capital expenditures, sell its assets or declare dividends.
In addition, under the amended and restated credit facility the Company is
required to achieve certain financial ratios relating to leverage, coverage of
fixed charges and coverage of interest expense. The Company was in compliance
with these covenants as of April 3, 2004. On an annual basis, the Company is
required to make principal payments on the term loan under its amended and
restated credit facility based on a percentage of excess cash flows as defined
in the credit facility. The payments on the term loan in 2003 and 2002 were
sufficient such that no additional principal payments were required under the
excess cash flow provision. The Company records as a current liability those
principal payments that are estimated to be due within twelve months under the
excess cash flow provision of the credit facility when the likelihood of those
payments becomes probable.
The Company believes that for the foreseeable future cash flows from
operations and its borrowing capacity under its credit facility will be
sufficient to satisfy its obligations to pay principal and interest on its
outstanding debt, maintain current operations, and provide sufficient capital
for presently anticipated capital expenditures. There can be no assurances,
however, that the cash generated by the Company will be sufficient for these
purposes.
-16-
EFFECTS OF INFLATION
The Company believes that the effects of inflation have not been material
to its operating results for each of the past three years, including interim
periods. The Company's principal raw materials, vinyl resin, aluminum, and steel
have historically been subject to price changes. The Company believes that for
the remainder of 2004, prices for the Company's principal raw materials will
continue to increase. The Company has announced price increases, which it
believes will offset the impact of the raw material inflation. While the Company
expects that any additional significant raw material price increases in 2004
will be offset by price increases to its customers, there can be no assurances
that the Company will be able to pass on any future price increases including
the announced price increases.
CERTAIN FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
report regarding the prospects of the industry and the Company's prospects,
plans, financial position and business strategy, may constitute forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "intend," "estimate," "anticipate," "believe," "predict," "potential"
or "continue" or the negatives of these terms or variations of them or similar
terminology. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, it does not assure that these
expectations will prove to be correct. The following factors are among those
that may cause actual results to differ materially from the forward-looking
statements:
- changes in home building industry, economic, interest rates and
other conditions;
- changes in availability of consumer credit, employment trends,
levels of consumer confidence and consumer preferences;
- changes in raw material costs and availability;
- changes in national and regional trends in new housing starts;
- changes in weather conditions;
- the Company's ability to comply with certain financial covenants in
the loan documents governing its indebtedness;
- increases in competition from other manufacturers of vinyl and metal
exterior residential building products as well as alternative
building products;
- increases in the Company's indebtedness;
- increases in costs of environmental compliance;
- increases in capital expenditure requirements;
- potential conflict between existing Alside and new Gentek
distribution channels;
- the achievement of anticipated synergies and operational
efficiencies from the Gentek acquisition; and
- the other factors discussed under the heading "Risk Factors" in the
Company's annual report on Form 10-K for the year ended January 3,
2004 and elsewhere in this report.
All forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements included in this report. These forward-looking statements speak only
as of the date of this report. The Company does not intend to update these
statements unless the securities laws require it to do so.
-17-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company has outstanding borrowings under the term loan and revolving
loan portions of its amended and restated credit facility and may borrow under
the revolving credit facility from time to time for general corporate purposes,
including working capital and capital expenditures. Interest under the credit
facility is based on the variable London Interbank Offered Rate (LIBOR). At
April 3, 2004, the Company had borrowings of $140.0 million under the term loan
and $22.3 million under the revolving loan portions of its amended and restated
credit facility. The effect of a 1/8% increase or decrease in interest rates
would increase or decrease total interest expense for the quarter ended April 3,
2004 by approximately $0.1 million.
The Company has $165.0 million of senior subordinated notes due 2012 that
bear a fixed interest rate of 9 3/4%. The fair value of the Company's 9 3/4%
notes is sensitive to changes in interest rates. In addition, the fair value is
affected by the Company's overall credit rating, which could be impacted by
changes in the Company's future operating results.
FOREIGN CURRENCY EXCHANGE RISK
The Company's revenues are primarily from domestic customers and are
realized in U.S. dollars. However, since the acquisition of Gentek, the Company
now realizes revenues from sales made through Gentek's Canadian distribution
centers in Canadian dollars. The Company's Canadian manufacturing facilities
acquire raw materials and supplies from U.S. vendors, which results in foreign
currency transactional gains and losses. However, payment terms among Canadian
manufacturing facilities and these vendors are short-term in nature.
Accordingly, the Company believes its direct foreign currency exchange risk is
not material. At April 3, 2004, the Company had no currency hedges in place.
COMMODITY PRICE RISK
See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Effects of Inflation" for a discussion of
the market risk related to the Company's principal raw materials, vinyl resin,
aluminum and steel.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by this quarterly report
(the "Evaluation Date"). Based on their evaluation as of the Evaluation
Date, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are
effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within required time periods.
There have been no changes to the Company's internal control over
financial reporting during the quarter ended April 3, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
-18-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which, after giving effect to the Company's
existing insurance coverage, is expected to have a material adverse effect on
the Company.
From time to time, the Company is involved in a number of proceedings and
potential proceedings relating to environmental and product liability matters.
The Company handles these claims in the ordinary course of business and
maintains product liability insurance covering certain types of claims. Although
it is difficult to estimate the Company's potential exposure to these matters,
the Company believes that the resolution of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14 of the Exchange Act, as adopted, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14 of the Exchange Act, as adopted, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
* This document is being furnished in accordance with SEC Release Nos.
33-8212 and 34-47551.
(b) Reports on Form 8-K
Report Date Description
- ----------- -----------
February 20, 2004 The Company furnished a current report on Form 8-K to
report its financial results for the fourth quarter ended
January 3, 2004 (Items 7, 9 and 12).
February 20, 2004 The Company furnished a current report on Form 8-K to
report pro forma consolidated financial statements of the
Company for the year ended January 3, 2004 and the nine
months ended September 27, 2003 (Items 7 and 9).
February 20, 2004 The Company furnished a current report on Form 8-K to
report that AMH Holdings, Inc., the Company's indirect
parent company, issued a press release announcing its
plans to offer senior discount notes in a private
placement (Items 5 and 7).
March 4, 2004 The Company furnished a current report on Form 8-K to
report that AMH Holdings, Inc., the Company's indirect
parent company, issued a press release announcing the
completion of its offering of $446 million aggregate
principal amount at maturity of its 11 1/4% senior
discount notes due 2014, resulting in gross proceeds of
approximately $258 million (Items 5 and 7).
-19-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED MATERIALS INCORPORATED
----------------------------------------
(Registrant)
Date: May 18, 2004 By: /s/ Michael Caporale, Jr.
--------------------------------------------
Michael Caporale, Jr.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
By: /s/ D. Keith LaVanway
--------------------------------------------
D. Keith LaVanway
Vice President - Chief Financial Officer
Treasurer and Secretary
(Principal Financial and Accounting Officer)
-20-
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14 of the Exchange Act, as adopted, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14 of the Exchange Act, as adopted, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
-21-