UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 2, 2010.
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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 333-115543
AMH Holdings, LLC
(Exact name of Registrant as specified in its charter)
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DELAWARE
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16-1693178 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
3773 STATE ROAD
CUYAHOGA FALLS, OHIO 44223
(Address of principal executive offices)
(330) 929-1811
(Registrants 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: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
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 Registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the Common Stock held by non-affiliates of the Registrant at January
2, 2010: None
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
AMH Holdings, LLC (AMH), formerly AMH Holdings, Inc., was created on February 19, 2004. AMH
has no material assets or operations other than its 100% ownership of Associated Materials
Holdings, LLC (Holdings), which in turn has no material assets or operations other than its 100%
ownership of Associated Materials, LLC (Associated Materials). AMH, Holdings and Associated
Materials are collectively referred to as the Company.
Associated Materials was formed in 1983 and is a leading, vertically integrated manufacturer
and distributor of exterior residential building products in the United States and Canada. The
Companys core products include vinyl windows, vinyl siding, aluminum trim coil, and aluminum and
steel siding and accessories, which are produced at the Companys 11 manufacturing facilities. In
addition, the Company distributes these products, as well as third-party manufactured products,
through its extensive dual distribution network, consisting of 122 company-operated supply centers
and approximately 250 independent distributors located throughout the United States and Canada.
The third-party manufactured products which the Company distributes complement the Companys
exterior building product offerings and include roofing materials, insulation, exterior doors,
vinyl siding in a shake and scallop design, and installation equipment and tools. Vinyl windows,
vinyl siding, metal products, and third-party manufactured products comprised approximately 37%,
20%, 16% and 20%, respectively, of the Companys total net sales for the fiscal year ended January
2, 2010.
These products are generally marketed under Company brand names, such as Alside®, Revere® and
Gentek®, and are ultimately sold on a wholesale basis to approximately 50,000 professional
contractors engaged in home remodeling and new home construction. The Company estimates that
during the fiscal year ended January 2, 2010, approximately 65% of the Companys net sales were to
contractors engaged in the home repair and remodeling market and approximately 35% of net sales
were to the new construction market. The Companys supply centers provide one-stop shopping to
the Companys contractor customers, carrying products, accessories and tools necessary to complete
a vinyl window or siding project. In addition, the supply centers augment the customer experience
by offering product literature, product samples and installation training. During the fiscal year
ended January 2, 2010, approximately 72% of the Companys total net sales were generated through
the Companys network of supply centers, with the remainder to independent distributors and
dealers.
The Company believes that the strength of its products and distribution network has resulted
in strong brand loyalty and long-standing relationships with contractor customers, which has
enabled the Company to maintain its leadership position within the market. In addition, the
Companys focus is primarily in the repair and remodeling market, which the Company believes has
been less cyclical than the new construction market.
Effective August 21, 2009, Associated Materials formed Gentek Canada Holdings Limited, a
Canadian corporation wholly owned by Gentek Building Products, Inc. Associated Materials also
formed Gentek Building Products Limited Partnership, a Canadian limited partnership wholly owned by
Gentek Building Products Limited as the limited partner and Gentek Canada Holdings Limited as the
general partner. The operations of Gentek Building Products Limited were sold to Gentek Building
Products Limited Partnership in accordance with the asset purchase agreement dated September 5,
2009. In addition, the corporate name of Gentek Building Products Limited was legally changed to
Associated Materials Canada Limited on September 6, 2009.
FINANCIAL INFORMATION ABOUT SEGMENTS
The Company is in the single business of manufacturing and distributing exterior residential
building products. See Note 14 to the consolidated financial statements in Item 8. Financial
Statements and Supplementary Data.
2
INDUSTRY OVERVIEW
Demand for exterior residential building products is driven by a number of factors, including
consumer confidence, availability of credit, new housing starts and general economic cycles.
Historically, the demand for repair and remodeling products has been less sensitive and thus less
cyclical than demand for new home construction. Repair and remodeling projects often utilize a
greater mix of premium products with higher margins than those used in new construction projects.
The Company believes the long-term demand for repair and remodeling may continue to be driven by
the following:
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Favorable demographics. The segment of the population age 45 years and above, which the
Company believes is the largest demographic market for professionally installed, low
maintenance home improvements, is growing. By 2010, this age segment is expected to
represent approximately 39.1% of the United States population, up from 31.3% from 1990,
according to the U.S. Census Bureau. |
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Household formation and immigration growth. New household formation and immigration
growth in the United States is expected to remain favorable over the long term. The Joint
Center for Housing Studies of Harvard University (JCHS) forecasts annual household
formation between 1.25 million and 1.48 million households from 2010 through 2020, basing
its analysis on the latest U.S. Census Bureau population projection that annual net
immigration is estimated to increase from 1.1 million in 2005 to 1.5 million by 2020. The
Company believes that household formation is an important driver of both new housing starts
and repair and remodel spending. On a historical basis, total housing starts have averaged
1.55 million since 1970 according to the U.S. Census Bureau. The foregoing household
formation projections suggest that total housing starts are expected to return to levels
similar to long-term historical averages, particularly when combined with housing starts
that are generated by replacement of existing homes that have been destroyed. |
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Aging of the housing stock. The median estimated home age increased from 23 years in
1985 to 35 years in 2007, and more than 64% of the current housing stock was built prior to
1980 according to the American Housing Survey by the U.S. Census and the U.S. Department of
Housing and Urban Development. The aging housing stock trend is expected to continue to
drive demand for residential repair and remodeling projects. |
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Energy efficiency. There is favorable demand for energy efficient building products
given measurable payback periods and strong environmentally focused trends. The National
Association of Home Builders Consumer Preferences Survey found that the median consumer
was willing to make an upfront investment of $5,000 to save $1,000 of annual utility costs,
which implies a five-year payback period. The Company expects that the tax credit provided
by the American Recovery and Reinvestment Act of 2009 compounded with increased demand for
energy efficientor greenbuilding products should continue to benefit companies with
products that meet the requirements for the tax credit and other energy efficiency
standards. |
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Increase in average home size. The average home size increased over 33% from 1,785
square feet in 1985 to 2,373 square feet in 2009. |
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Favorable mortgage interest rates. Mortgage interest rates over the past few years have
been at historically low levels. |
As a result of these drivers, according to LIRA (Leading Indicator of Remodeling Activity),
total annual expenditures were approximately $109.7 billion in 2009 for residential improvements,
compared to $76 billion in 1993.
In the short term, however, the building products industry is expected to continue to be
negatively impacted by the weak housing market. Since 2006, sales of existing single-family homes
have decreased from previously experienced levels, the inventory of homes available for sale has
increased in many areas, home values have declined significantly, according to the National
Association of Realtors. In addition, the pace of new home construction has slowed dramatically,
as evidenced by declines in 2006 through 2009, in single-family housing starts and announcements
from home builders of significant decreases in their orders. Increased delinquencies on sub-prime
and other mortgages, increased foreclosure rates and tightening consumer credit markets over the
same time period have further hampered the housing market. These factors have reduced demand for
building products over the past four years.
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However, in 2009, leading home price indices, such as S&P Case-Schiller and housing start data
from the U.S. Census Bureau, suggest that home prices and the housing market are stabilizing. For
example, the S&P Case-Schiller home price index posted positive gains in June 2009 and July 2009
for the first time since May 2006. The following information highlights trends in single family
housing starts and existing home sales.
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Single family housing starts. According to the U.S. Census Bureau, single family
housing starts decreased to a seasonally adjusted annual rate of approximately 350,000 in
January 2009, the lowest level in 50 years, and have since increased to approximately
475,000 in December 2009. An average of leading housing start forecasts (National
Association of Realtors, National Association of Home Builders, FannieMae and the Mortgage
Bankers Association) suggests single-family housing starts will grow from 447,000 in 2009
to 867,000 in 2011, a 39.2% compound annual growth rate. |
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Existing home sales. According to the National Association of Realtors, monthly total
existing home sales reached a bottom of approximately 4.1 million in November 2008. Since
then, monthly existing home sales have increased to approximately 5.7 million in November
2009, or a 39% increase. |
The Company believes its products should benefit from stabilization in the housing market and
anticipated positive long-term trends for building products. In addition, the Company believes
vinyl siding and vinyl windows, which represent approximately 57% of the Companys total net sales,
possess preferred product attributes compared to other types of exterior cladding and windows.
Vinyl comprises the largest share (approximately 60%) of the residential windows shipped according
to Ducker International as well as approximately 40% of the siding market according to Freedonia.
Vinyl has greater durability, requires less maintenance and provides greater energy efficiency than
many competing siding and window products. Vinyl windows have increasingly gained acceptance in the
new construction market as a result of builders and home buyers recognizing vinyls favorable
attributes, lifetime cost advantages, the enactment of legal and building code requirements that
mandate more energy efficient windows and the increased development and promotion of vinyl window
products by national window manufacturers. In addition, vinyl siding has increasingly gained
acceptance in the new construction market as builders and home buyers have recognized vinyls low
maintenance, durability and price advantages.
Aluminum and steel building products complement vinyl window and siding installations.
Aluminum soffit, trim coil, and accessories are typically used in vinyl installations to prepare
surfaces and provide certain aesthetic features. Aluminum siding is primarily geared toward niche
markets in Canada. Steel siding continues to be an important product for the hail belt regions
due to steels superior resistance to impact damage.
Products. The Companys principal product offerings are vinyl windows, vinyl siding, aluminum
trim coil, and aluminum and steel siding and accessories. For the fiscal year ended January 2,
2010, vinyl windows and vinyl siding together comprised approximately 57% of the Companys net
sales, while aluminum and steel products comprised approximately 16%.
The Company manufactures and distributes vinyl windows in the premium, standard and economy
categories, primarily under the Alside®, Revere®, and Gentek® brand names. Vinyl window quality and
price vary across categories and are generally based on a number of differentiating factors
including method of construction and materials used. Premium and standard windows are primarily
geared toward the repair and remodeling segment, while economy products are typically used in new
construction applications. The Companys vinyl windows are available in a broad range of models,
including fixed, double and single hung, horizontal sliding, casement and decorative bay and bow,
as well as patio doors. All of the Companys windows for the repair and remodeling market are made
to order and are custom-fitted to existing window openings. Additional features include frames that
do not require painting, tilt-in sashes for easy cleaning, and high-energy efficiency glass
packages. Most models offer multiple finish and glazing options, and substantially all are
accompanied by a limited lifetime warranty. Key offerings include Excalibur®, a fusion-welded
window featuring a slim design, which was awarded the Consumer Digest® Best Buy for vinyl
replacement windows in 2007, 2008 and 2009; Performance Series, a new construction product with
superior strength and stability; and UltraMaxx®, an extra-thick premium window available in light
oak, dark oak, and cherry wood grain interior finishes.
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The Company manufactures and distributes vinyl siding and related accessories in the premium,
standard and economy categories, primarily under the Alside®, Revere® and Gentek® brand names.
Vinyl siding quality and
price vary across categories and are generally based on rigidity, thickness, impact resistance
and ease of installation, as well as other factors. Premium and standard siding products are
primarily geared towards the repair and remodeling segment, while economy products are typically
used in new construction applications. The Companys vinyl siding is textured to simulate wood lap
siding or shingles and is available in clapboard, Dutch lap and board-and-batten styles. Products
are available in a wide palette of colors to satisfy individual aesthetic tastes. The Company also
offers specialty siding products such as shakes and scallops, beaded siding, insulated siding,
extended length siding and variegated siding. The Companys product line is complemented by a broad
array of color and style-matched accessories, including soffit, fascia and other components, which
enable easy installation and provide numerous appearance options. All of the Companys siding
products are accompanied by limited 50 year to lifetime warranties. Key offerings include Charter
Oak®, a premium product whose exclusive TriBeam design system provides superior rigidity;
Prodigy®, a premium product that offers an insulating underlayment with a surface texture of
genuine milled lumber; and CenterLock®, an easy-to-install product designed for maximum visual
appeal.
The Company also manufactures and distributes a wood-polymer composite siding system and
accessories. The new-category product is manufactured with 50% recycled content (including 45%
pre-consumer wood) and features a maintenance-free capstock surface that provides a pre-finished
exterior color and superior water-resistance. This rigid siding is available in a palette of nine
popular colors and installs using a patented joiner and clip system. The product is compatible with
either traditional vinyl trim accessories or cellular polyvinyl chloride (PVC) trim accessories.
Marketed under the tradename Revolution®, this premium product has gained initial acceptance in
both the remodeling and new construction markets.
The Companys metal offerings include aluminum trim coil and flatstock, as well as aluminum
and steel siding and accessories. These products are available in a broad assortment of colors,
styles and textures and are color-matched to vinyl and other metal product lines with special
features including multi-colored paint applications, which replicate the light and dark tones of
the grain in natural wood. The Company offers steel siding in a full complement of profiles
including 8, vertical and Dutch lap. The Company manufactures aluminum siding and accessories in
economy, standard and premium grades in a broad range of profiles to appeal to various geographic
and contractor preferences. While aluminum siding sales are limited to niche markets particularly
in Canada, aluminum accessories enjoy popularity in vinyl siding applications. All aluminum soffit
colors match or complement the Companys core vinyl siding colors, as well as those of several of
the Companys competitors.
The Company manufactures a broad range of painted and vinyl coated aluminum trim coil and
flatstock for application in siding projects. The Companys innovative Color Clear Through® and
ColorConnect programs match core colors across its vinyl, aluminum and steel product lines, as
well as those of other siding manufacturers. Trim coil and flatstock products are installed in most
siding projects, whether vinyl, brick, wood, stucco, or metal, and are used to seal exterior
corners, fenestration and other areas. These products are typically formed on site to fit such
surfaces. As a result, due to its superior pliability, aluminum remains the preferred material for
these products and is rarely substituted for other materials. Trim coil and flatstock represent a
majority of the Companys metal product sales.
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The Company continues to market its products under the Alside®, Revere®, and Gentek® brands by
continuing to offer product, sales and marketing support. A summary of the Companys window and
siding product offerings is presented in the table below according to the Companys product line
classification:
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Product Line |
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Window |
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Vinyl Siding |
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Steel Siding |
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Aluminum Siding |
Premium
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Preservation
Regency
Sequoia Select
Sheffield
Sovereign
UltraMaxx
Westbridge
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Bennington Board
and Batten
Berkshire Beaded
Board and Batten
Centennial Beaded
CenterLock
Charter Oak
Cyprus Creek
Northern Forest
Preservation
Prodigy
Revolution (WPC)
Sequoia Select
Sovereign Select
Williamsport
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Cedarwood Driftwood
Gallery Series
SuperGuard
SteelTek
SteelSide
Universal
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Cedarwood
Vin.Al.Wood
Deluxe |
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Standard
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Alpine 80 Series
Berkshire
Excalibur
Fairfield 80 Series
Sierra
Signature
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Advantage III
Advantage Plus
Amherst
Berkshire Classic
Concord
Coventry
Fair Oaks
Odyssey Plus
Signature Supreme
Somerville III |
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Economy
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Alpine 70 Series
Amherst
Blue Print Series
Builder Series
Centurion
Concord
Fairfield 70 Series
Geneva
New Construction
Performance Series
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Aurora
Conquest
Driftwood
Homerun
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Woodgrain Series |
The Company also produces vinyl fencing and railing under the brand name UltraGuard®,
consisting of both agricultural and residential vinyl fencing. The Company primarily markets its
fencing and railing through independent dealers.
To complete its line of exterior residential building products, the Company also distributes
building products manufactured by other companies. The third-party manufactured products which the
Company distributes complement its exterior building product offerings and include roofing
materials, insulation, exterior doors, vinyl siding in a shake and scallop design, and installation
equipment and tools. Vinyl windows, vinyl siding, metal products and third-party manufactured
products comprised approximately 37%, 20%, 16% and 20%, respectively, of the Companys total net
sales for the fiscal year ended January 2, 2010.
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Marketing and Distribution. The Company markets exterior residential building products to
approximately 50,000 professional construction contractors engaged in home remodeling and new home
construction primarily through a North American distribution network of 122 company-operated supply
centers and through an
independent distribution network. Traditionally, most windows and siding are sold to the home
remodeling marketplace through independent distributors. Management believes that the Company is
one of only two major vinyl window and siding manufacturers that markets its products primarily
through company-operated distribution centers. During the fiscal year ended January 2, 2010,
approximately 72% of the Companys total net sales were generated through its supply centers.
The Company believes that distributing its vinyl siding and window products through its
network of 122 supply centers enables the Company to: (a) building long-standing customer
relationships; (b) monitor developments in local customer preferences; (c) ensure product
availability through integrated logistics between the Companys manufacturing and distribution
facilities; (d) offer one-stop shopping to our customers; and (e) target our marketing efforts.
The Companys customers look to their local supply center to provide a broad range of specialty
product offerings in order to maximize their ability to attract remodeling and homebuilding
customers. Many 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. The Company 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 customers price, color and quality requirements. The
Companys daily contact with its contractor customers also enables it to closely monitor activity
in each of the remodeling and new construction markets in which the Company competes. This direct
presence in the marketplace permits the Company to obtain current local market information,
providing it with the ability to recognize trends in the marketplace earlier and adapt its product
offerings on a location-by-location basis.
The Company believes that its strategic approach to provide a comprehensive product offering
is a key competitive advantage relative to competitors who focus on a limited number of products.
The Company also believes that its 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 windows, vinyl siding,
aluminum trim coil, aluminum and steel siding and accessories, and vinyl fencing and railing, as
well as products manufactured by third parties. The Company believes that its supply centers have
strong appeal to contractor customers and that the ability to provide a broad range of products is
a key competitive advantage because it allows its contractor customers, who often install more than
one product type, to acquire multiple products from a single source. In addition, the Company has
historically achieved economies of scale in sales and marketing by deploying integrated, multiple
product programs on a national, regional and local level. Through many of its supply centers, the
Company also provides full-service product installation of its vinyl siding and vinyl window
products, principally to new homebuilders who value the importance of installation services.
The Company also sells the products it manufactures directly to dealers and distributors in
the United States, many of which operate in multiple locations. Independent distributors comprise
the industrys primary market channel for the types of products that the Company manufactures and,
as such, remain a key focus of the Companys marketing activities. The Company provides these
customers with distinct brands and differentiated product, sales and marketing support. The
Companys distribution partners are carefully selected based on their ability to drive sales of the
Companys products, deliver high customer service levels and meet other performance factors. The
Company believes that its strength in independent distribution provides it with a high level of
operational flexibility because it allows it to penetrate key markets and expand the Companys
geographic reach without deploying the necessary capital to establish a company-operated supply
center. This reach also allows the Company to service larger customers with a broader geographic
scope which drives additional volume. For the fiscal year ended January 2, 2010, sales to
independent distributors and dealers accounted for approximately 28% of the Companys net sales.
Despite their aggregate lower percentage of total sales, the Companys largest individual customers
are among its direct dealers and independent distributors. In 2009 and 2008, sales to Window
World, Inc. and its licensees represented approximately 13% and 11% of total net sales,
respectively. No individual customer accounted for 10% or more of the Companys total net sales
during 2007.
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Manufacturing. The Company produces its core products at its 11 manufacturing facilities. The
Company fabricates vinyl windows at its facilities in Cuyahoga Falls, Ohio; Bothell, Washington;
Cedar Rapids, Iowa;
Kinston, North Carolina; Yuma, Arizona and London, Ontario. The Company operates vinyl
extrusion facilities in West Salem, Ohio, Ennis, Texas and Burlington, Ontario. The Company also
has two metal manufacturing facilities located in Woodbridge, New Jersey and Pointe Claire, Quebec.
The Companys window fabrication plants in Cuyahoga Falls, Ohio; Kinston, North Carolina;
Cedar Rapids, Iowa and London, Ontario each use vinyl extrusions manufactured by the West Salem,
Ohio extrusion facility for a portion of their production requirements and utilize high speed
welding and cleaning equipment for their welded window products. By internally producing a portion
of its vinyl extrusions, the Company believes it achieves higher product quality compared to
purchasing these materials from third-party suppliers. The Companys Bothell, Washington and Yuma,
Arizona facilities have long-term contracts to purchase their vinyl extrusions from third-party
suppliers.
The Companys 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. The
Companys 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.
Raw Materials. The principal raw materials used by the Company are vinyl resin, aluminum,
steel, resin stabilizers and pigments, glass, window hardware, and packaging materials, all of
which are available from a number of suppliers and have historically been subject to price changes.
Raw material pricing on the Companys key commodities has increased significantly over the past
three years. The Company has a contract with its resin supplier through December 2011 to supply
substantially all of its vinyl resin requirements. The Company believes that other suppliers could
also meet its requirements for vinyl resin beyond 2011 on commercially acceptable terms. In
response, the Company announced price increases over the past several years on certain of its
product offerings to offset the inflation of raw materials, and continually monitors market
conditions for price changes as warranted.
Competition. The Company competes with numerous small and large manufacturers of exterior
residential building products, some of which are larger in size and have greater financial
resources than the Company. The Company also competes with numerous large and small distributors of
building products in its capacity as a distributor of these products. The Company believes that
only one company within the exterior residential building products industry competes with it
throughout the United States and Canada on both the manufacturing and distribution levels.
The Company believes that it is one of the largest manufacturers in the highly fragmented
North American market for vinyl windows. The Company 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. The Company generally competes on price, product performance, and sales,
service and marketing support. The Company also faces competition from alternative materials: wood
and aluminum in the window market, and wood, masonry and fiber cement in the siding market. An
increase in competition from other building product manufacturers and alternative building
materials may adversely impact the Companys business and financial performance. Over the past
several years, there has been an increasing amount of consolidation within the exterior residential
building products industry.
Seasonality. Because most of the Companys 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.
BACKLOG
The Company does not have material long-term contracts. The Companys backlog is subject to
fluctuation due to various factors, including the size and timing of orders and seasonality for the
Companys products and is not necessarily indicative of the level of future sales. The Company did
not have a significant manufacturing backlog at January 2, 2010.
8
TRADEMARKS, PATENTS AND OTHER INTANGIBLE ASSETS
The Company relies on patent, trademark and other intellectual property law and protective
measures to protect its proprietary rights. The Company has registered and common law rights in
trade names and trademarks covering the principal brand names and product lines under which its
products are marketed. The Company has obtained patents on certain claims associated with its
siding, fencing and railing products, which the Company believes distinguishes its products from
those of its competitors. Although the Company employs a variety of intellectual property in its
business, the Company believes that none of that intellectual property is individually critical to
its current operations.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Companys operations are subject to various U.S. and Canadian environmental statutes and
regulations, including those relating to materials used in its products and operations; discharge
of pollutants into the air, water and soil; treatment, transport, storage and disposal of solid and
hazardous wastes; and remediation of soil and groundwater contamination. Such laws and regulations
may also impact the cost and availability of materials used in manufacturing the Companys
products. The Companys facilities are subject to inspections by governmental regulators, which
occur from time to time. While the Companys management does not currently expect the costs of
compliance with environmental requirements to increase materially, future expenditures may increase
as compliance standards and technology change.
For information regarding pending proceedings relating to environmental matters, see Item 3.
Legal Proceedings.
EMPLOYEES
The Companys employment needs vary seasonally with sales and production levels. As of January
2, 2010, the Company had approximately 2,400 full-time employees, including approximately 1,200
hourly workers. Additionally, the Company had approximately 270 employees in the United States and
approximately 260 employees in Canada located at unionized facilities covered by collective
bargaining agreements. The Company considers its labor relations to be good.
The Company utilizes leased employees to supplement its own workforce at its manufacturing
facilities. The aggregate number of leased employees in the manufacturing facilities on a full-time
equivalency basis is approximately 1,200 workers.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
All of the Companys business operations are located in the United States and Canada. Revenue
from customers outside the United States was approximately $228 million, $249 million, and $241
million in 2009, 2008, and 2007, respectively, and was primarily derived from customers in Canada.
The Companys remaining revenue totaling $818 million, $885 million, and $963 million in 2009,
2008, and 2007, respectively, was derived from U.S. customers. At January 2, 2010, long-lived
assets totaled approximately $35.8 million in Canada and $420.8 million in the U.S. At January 3,
2009, long-lived assets totaled approximately $34 million in Canada and $424 million in the U.S.
The Company is exposed to risks inherent in any foreign operation, including foreign exchange rate
fluctuations. For further information on foreign currency exchange risk, see Item 7A. Quantitative
and Qualitative Disclosures About Market Risk Foreign Currency Exchange Rate Risk.
AVAILABLE INFORMATION
The Company makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, along with any related amendments and supplements on its website
as soon as reasonably practicable after it electronically files or furnishes such materials with or
to the Securities and Exchange Commission (SEC). These reports are available, free of charge, at
www.associatedmaterials.com. The Companys
website and the information contained in it and connected to it do not constitute part of this
annual report or any other report the Company files with or furnishes to the SEC.
9
ITEM 1A. RISK FACTORS
The following discussion of risks relating to the Companys business should be read carefully
in connection with evaluating the Companys business, prospects and the forward-looking statements
contained in this Annual Report on Form 10-K and oral statements made by representatives of the
Company from time to time. Any of the following risks could materially adversely affect the
Companys business, operating results, financial condition and the actual outcome of matters as to
which forward-looking statements are made. For additional information regarding forward-looking
statements, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Certain Forward-Looking Statements.
The Companys business is subject to a number of risks and uncertainties, including those
described below:
Conditions in the housing market and economic conditions generally have affected and may
continue to affect the Companys operating performance.
The Companys business is largely dependent on home improvement (including repair and
remodeling) activity and new home construction activity levels in North America. Low levels of
consumer confidence, downward pressure on home prices, disruptions in credit markets limiting the
ability of consumers to finance home improvements and consumer de-leveraging, among other things,
have been affecting and may continue to affect investment in existing homes in the form of
renovations and home improvements. The new home construction market has also undergone a downturn
marked by declines in the demand for new homes, an oversupply of new and existing homes on the
market and a reduction in the availability of financing for homebuyers. These industry conditions
and general economic conditions have had and may continue to have an adverse impact on the
Companys business.
While leading home price indices, such as S&P Case Schiller, and housing start data from the
U.S. Census Bureau, suggest that home prices and the housing market are stabilizing, the Company
cannot assure that the housing market will not decline further. Worsening of this downturn or
general economic conditions would have a more severe adverse effect on the Companys business,
liquidity and results of operations.
The housing market has benefited from a number of government programs, including:
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tax credits for home buyers provided by the federal government and certain state
governments, including California; and |
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support of the mortgage market, including through purchases of mortgage-backed
securities by The Federal Reserve Bank and the underwriting of a substantial amount of new
mortgages by the Federal Housing Administration and other governmental agencies. |
There can be no assurance that government responses to the disruptions in the financial
markets will restore consumer confidence, stabilize the markets or increase liquidity and the
availability of credit, or whether any such results will be sustainable. Further, these programs
are expected to wind down over time; for example the California tax credit ended recently and the
federal tax credit is scheduled to expire shortly. The Company cannot ensure that the housing
markets will not decline further as these programs are phased out.
The Companys substantial level of indebtedness could adversely affect the Companys financial
condition.
The Company has a substantial amount of indebtedness, which will require significant interest
payments. As of January 2, 2010, the Company had approximately $638.6 million of indebtedness and
interest expense for the year ended January 2, 2010 was approximately $72.6 million. In addition,
for the same period, the Company funded $4.3 million in interest expense of its parent company, AMH
Holdings II, Inc. (AMH II), and Associated Materials funded $5.9 million used by AMH II
to repurchase $15.0 million par value of the 11.25% notes directly from AMH debtholders in
exchange for additional equity interest of the Company.
10
The Companys substantial level of indebtedness could have important consequences, including
the following:
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the Company must use a substantial portion of its cash flow from operations to pay
interest and principal on its asset-based credit facilities (the ABL Facility), its
9.875% Senior Secured Second Lien Notes due 2016 (the 9.875% notes) and other
indebtedness, which reduces funds available to the Company for other purposes such as
working capital, capital expenditures, other general corporate purposes, potential
acquisitions and for payment of dividends to AMH II; |
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the Companys ability to refinance such indebtedness or to obtain additional financing
for working capital, capital expenditures, acquisitions or general corporate purposes may
be impaired; |
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the Company is exposed to fluctuations in interest rates, because Associated Materials
ABL Facility has a variable rate of interest; |
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the Companys leverage may be greater than that of some of its competitors, which may
put it at a competitive disadvantage and reduce the Companys flexibility in responding to
current and changing industry and financial market conditions; |
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the Company may be more vulnerable to economic downturns and adverse developments in
its business; and |
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the Company may be unable to comply with financial and other restrictive covenants in
the documents governing the ABL Facility, the 9.875% notes, the $431 million aggregate
principal at maturity in 2014 of 11 1/4% Senior Discount Notes (11.25% notes) and other
debt obligations, as applicable, some of which require the Company to maintain specified
financial ratios, and limit the Companys ability to incur additional debt and sell assets,
which could result in an event of default that, if not cured or waived, would have an
adverse effect on the Companys business and prospects and could result in bankruptcy. |
Associated Materials ability to access funding under its ABL Facility depends upon, among
other things, the absence of a default under the facility, including any default arising from a
failure to comply with the related covenants. If Associated Materials was unable to comply with
its covenants under the ABL Facility, its liquidity may be adversely affected.
To date, the Companys cash flows from operations have been sufficient to pay its expenses and
to pay the principal and interest on its debt. The Companys continued ability to meet expenses,
to remain in compliance with its covenants under the ABL Facility and to make future principal and
interest payments in respect of its debt depends on, among other things, the Companys operating
performance, competitive developments and financial market conditions, all of which are being
significantly affected by financial, business, economic and other factors. The Company is not able
to control many of these factors. Given current industry conditions and economic conditions, the
Companys cash flow may not be sufficient to allow it to pay principal and interest on the
Companys debt, including the 9.875% notes and 11.25% notes, and meet its other obligations.
11
AMH IIs substantial level of indebtedness could adversely affect the Company.
AMH II also has significant indebtedness. At January 2, 2010, AMH II had liabilities of
approximately $36.8 million (which includes all future interest accruals on AMH IIs 20% Senior
Notes due 2015 (the 20% notes) through their maturity date, as required by FASB ASC 470-60,
Troubled Debt Restructuring by Debtors (ASC 470-60) but does not include a $27.2 million
intercompany loan from Associated Materials, which includes $0.4 million of accrued interest).
Total AMH II debt outstanding, including that of its consolidated subsidiaries other than
Associated Materials and its subsidiaries, but excluding its intercompany loan from the Company,
was approximately $467.8 million as of January 2, 2010. Although the Company does not guarantee
the indebtedness of AMH II and has no legal obligation to make payments on such indebtedness, AMH
II has no operations of its own and must generally receive distributions, payments and loans from
its subsidiaries to satisfy its obligations under the 20% notes. As discussed under Managements
Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital
Resources Description of the Companys Outstanding Indebtedness, the Companys debt service
obligations increased beginning in 2009 due to the 11.25% notes, which were issued at a discount,
having accreted in value to their full principal amount, and, beginning with the semi-annual
interest payment that was due on September 1, 2009, requiring interest payments to be made in cash.
The ABL Facility and
the indenture governing the 9.875% notes, subject to certain limitations, permit Associated
Materials to make distributions, payments or loans to enable the Company to meet these debt service
obligations. To the extent the Company makes distributions, payments or loans to AMH II, its own
liquidity will be diminished. The occurrence of a default under the ABL Facility or the 9.875%
notes would prevent the Company from making further distributions, other payments or loans to its
direct parent companies. In addition, the terms of the ABL Facility and the indenture governing
the 9.875% notes significantly restrict the Company and its subsidiaries from otherwise paying
dividends and transferring assets to AMH II. Delaware law may also restrict the Companys ability
to make distributions. Associated Materials may not be able to generate sufficient earnings and
have sufficient distribution capability under its ABL Facility, the 9.875% notes, the 11.25% notes
or otherwise in order to allow the Company to meet its increased debt service obligations. In
addition, the indenture governing the 11.25% notes further restricts the Company from making cash
distributions to AMH II. If the Company is unable to distribute sufficient funds to AMH II to
allow it to make required payments on its debts and AMH II is unable to refinance all or part of
its indebtedness, borrow additional funds, or raise additional capital, AMH II may default on its
debt obligations. Any default on indebtedness by AMH II would have an adverse effect on the
Company and could also result in a default or change of control under the ABL Facility or the
indentures governing the 9.875% notes or 11.25% notes. See If AMH II defaults on its debt
obligations, it could result in a change in control.
The Company will need to refinance indebtedness under the 11.25% notes.
The 11.25% notes mature on March 1, 2014. Associated Materials will be required to redeem all
of the 9.875% notes no later than December 1, 2013, if as of October 15, 2013, any of the 11.25%
notes remain outstanding, unless discharged or defeased, or if any indebtedness incurred by the
Company to refinance the 11.25% notes matures prior to the maturity date of the 9.875% notes. The
Company may not be able to refinance the 11.25% notes on terms that are as favorable as those from
which the Company previously benefited, on terms that are acceptable, or at all. The ability to
refinance the Companys indebtedness will depend on the Companys financial and operating
performance, which is subject to prevailing economic and competitive conditions and to certain
financial, business and other factors beyond the Companys control.
Current global financial conditions could adversely affect the availability of new financing
and result in higher interest rates. The inability to access liquidity, particularly on favorable
terms, could adversely affect the Companys financial condition.
Current global financial conditions have contributed to increased volatility in the financing
markets. Several financial institutions have either gone into bankruptcy or have had to be
capitalized by governmental authorities. Access to financing has been negatively impacted by, among
other things, both the rapid decline in value of sub-prime mortgages and the liquidity crisis
affecting the asset-backed commercial paper market. These factors could adversely affect the
Companys ability to obtain financing in the future on favorable terms.
The disruptions in the capital and credit markets have also resulted in higher interest rates
on issued debt securities and increased costs under credit facilities. Longer term volatility and
continued disruptions in the capital and credit markets as a result of uncertainty, changing or
increased regulation of financial institutions, or reduced alternatives or failures of significant
financial institutions could adversely affect the Companys access to the liquidity needed for its
businesses.
Continued market disruptions could cause broader economic downturns, which may lead to lower
demand for the Companys products and services, as well as increased incidence of customers
inability to pay for the products and services it provides. Such disruptions could require the
Company to take measures to conserve cash until the markets stabilize or until alternative credit
arrangements or other funding for the Companys business needs can be arranged. Events such as
these would adversely impact the Companys results of operations, cash flows and financial
condition.
12
Market disruptions could adversely affect the creditworthiness of lenders under the ABL
Facility. One of the joint lead arrangers under the ABL Facility is a subsidiary of CIT Group, Inc.
(CIT), which has recently incurred significant rating downgrades due to liquidity concerns.
Subsidiaries of CIT are lenders under both the U.S. and Canadian facilities under the ABL Facility.
On November 1, 2009, CIT initiated a voluntary prepackaged bankruptcy filing under Chapter 11 of
the U.S. Bankruptcy Code, in order to restructure its debt commitments. On
December 8, 2009, CITs prepackaged bankruptcy plan was approved, and CIT emerged from
bankruptcy on December 10, 2009 with substantially reduced debt commitments. Although the
bankruptcy filing did not include any of CITs operating subsidiaries (which include the entities
that are lenders under the ABL Facility), it is not certain that CITs restructuring efforts will
ultimately be successful, or that CITs operating subsidiaries will not file for bankruptcy
protection in the future. CITs and its subsidiaries aggregate commitments represent 21.1% of the
total commitments under the ABL Facility. Any reduced availability under the ABL Facility as a
result of a future bankruptcy filing by CITs operating subsidiaries or other event could require
the Company to seek other forms of liquidity through financing in the future and the availability
of such financing may depend on market conditions prevailing at that time.
If AMH II defaults on its debt obligations, it could result in a change of control.
The Companys parent company, AMH II, is a holding company whose assets consist primarily of
its membership interest in the Company. As of January 2, 2010, AMH II had liabilities of
approximately $36.8 million (which includes all future interest accruals on AMH IIs 20% notes
through its maturity date, as required by ASC 470-60, but does not include a $27.2 million
intercompany loan from Associated Materials, which includes $0.4 million of accrued interest). If
AMH II defaults on obligations under its indebtedness, its creditors may be able to seize AMH IIs
equity interest in AMH. Should the creditors elect to foreclose on such equity interests, it would
result in a change of control of AMH. A change of control of AMH could cause a change of control
under the indentures governing the 9.875% notes and the 11.25% notes and an
event of default under the ABL Facility. Likewise, if AMH defaults on its payment or other
obligations under its indebtedness, its creditors may be able to seize the equity interests of
Holdings. Should the creditors elect to foreclose on such equity interests, it would result in a
change of control of Holdings. A change of control of Holdings could cause a change of control
under the indenture governing the 9.875% notes and an event of default under
the ABL Facility.
Upon a change of control, subject to certain conditions, each holder of the 9.875% notes may
require Associated Materials to repurchase all or a portion of the outstanding 9.875% notes at 101%
of the principal amount thereof, together with any accrued and unpaid interest to the date of
repurchase, each holder of the 11.25% notes may require AMH to repurchase all or a portion
of the outstanding 11.25% notes at 101% of the accreted value thereof, together with any accrued
and unpaid interest to the date of repurchase, and each holder of the 20% notes may require AMH II
to repurchase all or a portion of the outstanding 20% notes at 101% of the principal amount
thereof, together with any accrued and unpaid interest to the date of repurchase. In addition, the
creditors under the ABL Facility may declare all outstanding indebtedness thereunder as due and
payable. In the event of a default by the Company or AMH II resulting in a creditors foreclosing
on the equity of Holdings or the Company, the Company may be unable to
make required repurchases of tendered notes or repay all outstanding indebtedness under the ABL
Facility.
AMH IIs cash flows and ability to service its respective debt obligations are primarily
dependent upon Associated Materials earnings, cash flow and liquidity. Associated Materials
ability to distribute cash depends on the applicable laws and the contractual restrictions
contained in the ABL Facility and the 9.875% notes. Additionally, the indenture governing the
11.25% notes further restricts the Company from making cash distributions. The Company cannot be
certain that it will be able to make payments to AMH II in amounts that will be adequate to allow
AMH II to satisfy its indebtedness.
The Company and AMH II may be able to incur more indebtedness, in which case, the risks
associated with their substantial leverage, including their ability to service their indebtedness,
would increase.
The 9.875% notes were issued by Associated Materials and Associated Materials Finance, Inc.
(formerly Alside, Inc.), a wholly owned subsidiary of Associated Materials (collectively, the
Issuers). The indentures relating to the 9.875% notes and the 11.25% notes, the ABL Facility and
the indenture relating to the 20% notes, permit, subject to specified conditions and limitations,
the incurrence of a significant amount of additional indebtedness. As of January 2, 2010,
Associated Materials was able to incur an additional $139.8 million of indebtedness under its ABL
Facility. If the Company or AMH II incurs additional debt, the risks associated with their
substantial leverage, including their ability to service their debt, would increase.
13
The indentures for the 9.875% notes and the 11.25% notes and the ABL Facility, as well as the
terms of the debt of AMH II impose significant operating and financial restrictions on the Company.
The indentures for the 9.875% notes and the 11.25% notes and the ABL Facility impose, and the
terms of any future debt may impose, significant operating and financial restrictions on the
Company. These restrictions, among other things, limit the Companys ability and that of its
subsidiaries to:
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incur or guarantee additional indebtedness; |
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pay dividends or make other distributions; |
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repurchase stock; |
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make investments; |
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sell or otherwise dispose of assets including capital stock of subsidiaries; |
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create liens; |
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enter into agreements restricting the Companys subsidiaries ability to pay dividends; |
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enter into transactions with affiliates; and |
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consolidate, merge or sell all of its assets. |
In addition, as discussed under Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources Description of the Companys
Outstanding Indebtedness, if Associated Materials borrowing availability under its ABL Facility
is below specified levels, Associated Materials will be subject to compliance with a fixed charge
coverage ratio.
The Company is also a restricted subsidiary under the indenture for the 20% notes, and is
therefore subject to the covenants and events of default contained therein. Covenants and events
of default with respect to the 20% notes are generally similar to those provided for in the 9.875%
and 11.25% notes indentures.
All of these covenants may adversely affect the Companys ability to finance its operations,
meet or otherwise address its capital needs, pursue business opportunities, react to market
conditions or otherwise restrict activities or business plans. A breach of any of these covenants
could result in a default in respect of the related indebtedness. If a default occurs, the relevant
lenders could elect to declare the indebtedness, together with accrued interest and other fees, to
be immediately due and payable and proceed against any collateral securing that indebtedness.
AMH is the sole obligor under the 11.25% notes. Its subsidiaries, including Associated
Materials, do not guarantee AMHs obligations under the 11.25% notes and do not have any obligation
with respect to the 11.25% notes. The 11.25% notes are structurally subordinated to the debt and
liabilities of AMHs subsidiaries, including Associated Materials, and are effectively subordinated
to any of the Companys existing and future secured debt to the extent of the value of the assets
secured by such debt. The ability to repay the 11.25% notes depends on the performance of its
subsidiaries. AMH may not have access to the cash flow and other assets of its subsidiaries that
may be needed to make payments on the 11.25% notes.
AMHs operations are conducted through its subsidiaries and its ability to make payment on the
11.25% notes is dependent on the earnings and the distribution of funds from its subsidiaries.
AMHs subsidiaries are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay amounts due under the 11.25% notes or to make any funds available to pay those
amounts, whether by dividend, distribution, loan or other payments.
14
The 11.25% notes are structurally subordinated to all debt and liabilities, including trade
payables, of AMHs subsidiaries, including Associated Materials, and are effectively subordinated to
any of the Companys existing and future secured debt to the extent of the value of the assets
secured by such debt. Since March 1, 2009, cash interest
on the 11.25% notes has accrued at the rate of 11.25% per annum, and is payable semi-annually.
AMHs subsidiaries are permitted under the terms of the credit facility and other indebtedness
(including under the indenture governing the 9.875% notes) to incur additional indebtedness that
may severely restrict or prohibit the making of distributions, the payment of dividends or the
making of loans by such subsidiaries to AMH. In addition, the terms of the indenture governing the
9.875% notes and the ABL Facility, or any future indebtedness, may not permit AMHs subsidiaries to
provide AMH with sufficient dividends, distributions or loans to fund scheduled interest and
principal payments on the 11.25% notes when due.
AMHs subsidiaries may not be able to maintain a level of cash flow from operating activities
sufficient to permit them and AMH to pay the principal, premium, if any, and interest on their and
AMHs indebtedness, including the 11.25% notes. AMHs subsidiaries may not have sufficient funds or
assets to permit payments to AMH in amounts sufficient to permit AMH to pay all or any portion of
its indebtedness and other obligations, including its obligations on the 11.25% notes.
Continued disruption in the financial markets could negatively affect the Company.
The Company, its customers and suppliers rely on stable and efficient financial markets.
Availability of financing depends on the lending practices of financial institutions, financial and
credit markets, government policies, and economic conditions, all of which are beyond the Companys
control. The credit markets and the financial services industry have recently experienced
significant disruptions, characterized by the bankruptcy and failure of several financial
institutions and severe limitations on credit availability. A prolonged continuation of adverse
economic conditions and disrupted financial markets could compromise the financial condition of the
Companys customers and suppliers. Customers may not be able to pay, or may delay payment of,
accounts receivable that are owed due to liquidity and financial performance issues or concerns
affecting them or due to their inability to secure financing. Suppliers may modify, delay or
cancel projects and reduce their levels of business with the Company. In addition, the weakened
credit markets may also impact the ability of the end consumer to obtain any needed financing to
purchase the Companys products, resulting in a reduction in overall demand, and consequently
negatively impact the Companys sales levels. Furthermore, continued disruption in the financial
markets could adversely affect the ability of the Company and/or its parent company to refinance
indebtedness when required.
The Company has substantial fixed costs and, as a result, operating income is sensitive to
changes in net sales.
The Company operates with significant operating and financial leverage. Significant portions
of the Companys manufacturing, selling, general and administrative expenses are fixed costs that
neither increase nor decrease proportionately with sales. In addition, a significant portion of the
Companys interest expense is fixed. There can be no assurance that the Company would be able to
further reduce its fixed costs in response to a decline in net sales. As a result, a decline in the
Companys net sales could result in a higher percentage decline in the Companys income from
operations.
Changes in raw material costs and availability can adversely affect the Companys profit
margins.
The principal raw materials used by the Company are vinyl resin, aluminum, steel, resin
stabilizers and pigments, glass, window hardware, and packaging materials, all of which have
historically been subject to price changes. Raw material pricing on the Companys key commodities
have increased significantly over the past three years. In response, the Company announced price
increases over the past several years on certain of its product offerings to offset the inflation
in raw materials, and continually monitors market conditions for price changes as warranted. The
Companys ability to maintain gross margin levels on its products during periods of rising raw
material costs depends on the Companys ability to obtain selling price increases. Furthermore,
the results of operations for individual quarters can and have been negatively impacted by a delay
between the timing of raw material cost increases and price increases on the Companys products.
There can be no assurance that the Company will be able to maintain the selling price increases
already implemented or achieve any future price increases. Additionally, the Company relies on its
suppliers for deliveries of raw materials. If any of the Companys suppliers were unable to deliver
raw materials to the Company for an extended period of time, the Company may not be able
to meet its raw material requirements through other raw material suppliers without incurring
an adverse impact on its operations.
15
The Companys business is seasonal and can be affected by inclement weather conditions which
could affect the timing of the demand for the Companys products and cause reduced profit margins
when such conditions exist.
Markets for the Companys products are seasonal and can be affected by inclement weather
conditions. Historically, the Companys business has experienced increased sales in the second and
third quarters of the year due to increased remodeling and construction activity during those
periods.
Because much of the Companys overhead and expense are fixed throughout the year, the
Companys operating profits tend to be lower in the first and fourth quarters. Inclement weather
conditions can affect the timing of when the Companys products are applied or installed, causing
reduced profit margins when such conditions exist.
The Companys industry is highly competitive.
The markets for the Companys products and services are highly competitive. 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,
selectively expanding its supply center network, increasing sales through independent specialty
distributor customers, developing innovative new products, expanding sales of third-party
manufactured products through its supply center network, and driving operational excellence by
reducing costs and increasing customer service levels. The Company believes that competition in
the industry is based on price, product and service quality, customer service and product features.
Sustained increases in competitive pressures could have an adverse effect on results of operations
and negatively impact sales and margins.
The Company has significant goodwill and other intangible assets, which if impaired, could
require the Company to incur significant charges.
As of January 2, 2010, the Company has approximately $231.3 million of goodwill and $96.1
million of other intangible assets. The value of these assets is dependent, among other things,
upon the Companys future expected operating results. The Company is required to test for
impairment of these assets annually or when factors indicating impairment are present, which could
result in a write down of all or a significant portion of these assets. Any future write down of
goodwill and other intangible assets could have an adverse effect on the Companys financial
condition, and on the results of operations for the period in which the impairment charge is
incurred.
The future recognition of the Companys deferred tax assets is uncertain, and assumptions used
to determine the amount of its deferred tax asset valuation allowance are subject to revision based
on changes in tax laws and variances between future expected operating performance and actual
results.
The Companys inability to realize deferred tax assets may have an adverse effect on its
consolidated results of operations and financial condition. The Company recognizes deferred tax
assets and liabilities for the future tax consequences related to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases, and
for tax credits. The Company evaluates its deferred tax assets for recoverability based on
available evidence, including assumptions about future profitability.
During the fourth quarter of 2009, the Company recorded an additional deferred tax asset
valuation allowance of $3.3 million. The Companys total valuation allowance of $76.3 million as
of January 2, 2010 is, based on the uncertainty of the future realization of deferred tax assets.
This reflects the Companys assessment that a portion of its deferred tax assets could expire
unused if the Company is unable to generate taxable income in the future sufficient to utilize
them, or the Company enters into one or more transactions that limit its ability to realize all of
its deferred tax assets. The assumptions used to make this determination are subject to revision
based on changes in tax laws or variances between the Companys future expected operating
performance and actual results. As a result, significant judgment is required in assessing the
possible need for a deferred tax asset valuation allowance. If the Company determined that it
would not be able to realize all or a portion of the deferred tax assets in the future, it would
further reduce its deferred tax asset through a charge to earnings in the period in which the
determination is
made. Any such charge could have an adverse effect on the Companys consolidated results of
operations and financial condition.
16
The Company is subject to foreign exchange risk as a result of exposures to changes in
currency exchange rates between the United States and Canada.
The Company is exposed to exchange rate fluctuations between the Canadian dollar and U.S.
dollar. The Company realizes revenues from sales made through Genteks Canadian distribution
centers in Canadian dollars. In the event that the Canadian dollar weakens in comparison to the
U.S. dollar, earnings generated from Canadian operations will translate into reduced earnings on
the Companys consolidated statement of operations reported in U.S. dollars. In addition, the
Companys Canadian subsidiary also records certain accounts receivable and accounts payable
accounts, which are denominated in U.S. dollars. Foreign currency transactional gains and losses
are realized upon settlement of these obligations. For more information, please see Quantitative
and Qualitative Disclosures about Market Risk Foreign Exchange Risk.
The Company is controlled by affiliates of Harvest Partners, L.P. (Harvest Partners) and
Investcorp S.A. (Investcorp) whose interests may be different than other investors.
By reason of their ownership of AMH II, affiliates of Harvest Partners and Investcorp have the
ability to designate a majority of the members of the board of directors of AMH II, the Companys
direct parent company, with each having the right to designate three of the seven members, with the
seventh board seat being occupied by the chief executive officer of the Company. Harvest Partners
and Investcorp are able to control actions to be taken by the Companys member, including
amendments to the Companys limited liability company agreement and approval of significant
corporate transactions, including mergers and sales of substantially all of the Companys assets.
The interests of Harvest Partners and Investcorp and their affiliates interests may be materially
different than other stakeholders in the Company. For example, Harvest Partners and Investcorp may
cause the Company to take actions or pursue strategies which could impact the Companys ability to
make payments under the indentures governing the 9.875% notes and the 11.25% notes and the ABL
Facility or cause a change of control. In addition, to the extent permitted by the indentures and
the ABL Facility, Harvest Partners and Investcorp may cause the Company to pay dividends rather
than make capital expenditures.
The Company could face potential product liability claims relating to products it manufactures
or distributes.
The Company faces a business risk of exposure to product liability claims in the event that
the use of its products is alleged to have resulted in injury or other adverse effects. The Company
currently maintains product liability insurance coverage, but it may not be able to obtain such
insurance on acceptable terms in the future, if at all, or any such insurance may not provide
adequate coverage against potential claims. Product liability claims can be expensive to defend and
can divert management and other personnel for months or years regardless of the ultimate outcome.
An unsuccessful product liability defense could have an adverse effect on the Companys business,
financial condition, results of operations or business prospects or ability to make payments on the
Companys indebtedness when due.
The Company may incur significant, unanticipated warranty claims.
Consistent with industry practice, the Company provides to homeowners limited warranties on
certain products. Warranties are provided for varying lengths of time, from the date of purchase up
to and including lifetime. Warranties cover product failures such as stress cracks and seal
failures for windows and fading and peeling for siding products, as well as manufacturing defects.
Liabilities for future warranty costs are provided for annually based on managements estimates of
such future costs, which are based on historical trends and sales of products to which such costs
relate. To the extent that the Companys estimates are inaccurate and it does not have adequate
warranty reserves, the Companys liability for warranty payments could have a material impact on
its financial condition and results of operations.
17
A material weakness in the Companys internal control over financial reporting was identified
in connection with the Companys financial statements for the year ended January 2, 2010. Material
weaknesses in the Companys internal control over financial reporting were previously identified in
connection with the Companys
financial statements for the second quarter ended July 4, 2009 and remediated prior to the
fiscal year end. If the Company fails to maintain effective internal control over financial
reporting at a reasonable assurance level, the Company may not be able to accurately report its
financial results or prevent fraud, which could have a material adverse effect on its operations,
investor confidence in its business and the trading prices of its securities.
Effective internal controls are necessary for the Company to provide reliable financial
reports and effectively prevent fraud. As of January 2, 2010, the Companys management determined
that it did not maintain effective controls over the completeness and accuracy of the income tax
provision and the related balance sheet accounts. The Companys income tax accounting in 2009 had
significant complexity due to multiple debt transactions during the year including the
restructuring of debt at a direct parent company, the impact of repatriation of foreign earnings
and the related foreign tax credit calculations, changes in the valuation allowance for deferred
tax assets, and the related impact of the Companys tax sharing agreement described in Note 9 to
the consolidated financial statements. Specifically, the Companys controls over the processes and
procedures related to the calculation and review of the annual tax provision were not adequate to
ensure that the income tax provision was prepared in accordance with generally accepted accounting
principles. Additionally, these control deficiencies could result in a misstatement of the income
tax provision, the related balance sheet accounts and note disclosures that would result in a
material misstatement to the annual consolidated financial statements that would not be prevented
or detected. Accordingly, management concluded as a result of these control deficiencies that a
material weakness in the Companys internal control over financial reporting existed as of January
2, 2010. A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material
misstatement of the Companys annual or interim financial statements will not be prevented or
detected on a timely basis.
The Company plans to engage an independent registered public accounting firm (other than its
auditors, Deloitte & Touche LLP) in 2010 to perform additional detail reviews of complex
transactions, the income tax calculations and disclosures, and to advise the Company on matters
beyond its in-house expertise. Management will continue to evaluate the design and effectiveness of
the enhanced internal controls, and once placed in operation for a sufficient period of time, these
internal controls will be subject to appropriate testing in order to determine whether they are
operating effectively. Until the appropriate testing of the change in controls from these enhanced
internal controls is complete, management will continue to perform the evaluations and analyses
believed to be adequate to provide reasonable assurance that there are no material misstatements of
the Companys consolidated financial statements.
As previously disclosed in the Companys Form 10-Q for the quarter ended July 4, 2009,
management determined during the second quarter of 2009 that it did not maintain operating
effectiveness of certain internal controls over financial reporting for establishing the Companys
allowance for doubtful accounts, the deferral of revenue for specific customer shipments until
collectibility is reasonably assured, and accounting for restructuring costs. Management
concluded that as a result of these control deficiencies, a material weakness in the Companys
internal control over financial reporting existed as of July 4, 2009.
During the third quarter of 2009, management substantially completed the remediation efforts
and the following remediation actions were implemented by the Company to ensure the accuracy of the
Companys consolidated financial statements and prevent or detect potential material misstatements
on a timely basis. The Company enhanced documentation supporting the Companys allowance for
doubtful accounts and review of past due customer accounts. In August 2009, the Company hired a
Vice President National Credit Manager, reporting directly to the Chief Financial Officer, who
works directly with the financial reporting staff as part of the processes related to the review
and assessment of past due customer accounts, the required allowance for doubtful accounts, and the
identification of revenue for which deferral treatment is appropriate. Additionally, the Company
enhanced its internal review procedures for accounting for restructuring costs and other
non-recurring items.
During the fourth quarter of 2009, these revised internal controls and procedures were tested
and determined to be operating effectively. As a result, management has concluded as of January 2,
2010 that the Company has remediated the material weakness identified during the second quarter
related to the operating effectiveness of certain internal controls over financial reporting for
establishing the Companys allowance for doubtful accounts, the deferral of revenue for specific
customer shipments until collectibility is reasonably assured, and accounting for restructuring
costs.
18
The Company cannot assure that additional material weaknesses in its internal control over
financial reporting will not be identified in the future. Any failure to maintain or implement
required new or improved controls, or any difficulties the Company encounters in their
implementation, could result in additional material weaknesses, and cause the Company to fail to
timely meet its periodic reporting obligations or result in material misstatements in its financial
statements. The existence of a material weakness could result in errors in the Companys financial
statements that could result in a restatement of financial statements, cause the Company to fail to
meet its reporting obligations and cause investors to lose confidence in the Companys reported
financial information.
The Company is subject to various environmental statutes and regulations, which may result in
significant costs.
The Companys operations are subject to various U.S. and Canadian environmental statutes and
regulations, including those relating to: materials used in its products and operations; discharge
of pollutants into the air, water and soil; treatment, transport, storage and disposal of solid and
hazardous wastes; and remediation of soil and groundwater contamination. Such laws and regulations
may also impact the cost and availability of materials used in manufacturing the Companys
products. The Companys facilities are subject to investigation by governmental regulators, which
occur from time to time. While the Companys management does not currently expect the costs of
compliance with environmental requirements to increase materially, future expenditures may increase
as compliance standards and technology change.
Also, the Company cannot be certain that it has identified all environmental matters giving
rise to potential liability. Its past use of hazardous materials, releases of hazardous substances
at or from currently or formerly owned or operated properties, newly discovered contamination at
any of its current or formerly owned or operated properties or at off-site locations such as waste
treatment or disposal facilities, more stringent future environmental requirements (or stricter
enforcement of existing requirements), or its inability to enforce indemnification agreements,
could result in increased expenditures or liabilities which could have an adverse effect on its
business and financial condition. Any judgment in an environmental proceeding entered against the
Company or its subsidiaries that is greater than $10.0 million and is not discharged, paid, waived
or stayed within 60 days after becoming final and non-appealable would be an event of default in
the indentures governing the 9.875% notes and the 11.25% notes. For further details regarding
environmental matters giving rise to potential liability, see Item 3. Legal Proceedings.
Legislative or regulatory initiatives related to global warming / climate change concerns may
negatively impact the Companys business.
Recently, there has been an increasing focus and continuous debate on global climate
change including increased attention from regulatory agencies and legislative bodies. This
increased focus may lead to new initiatives directed at regulating an unspecified array of
environmental matters. Legislative, regulatory or other efforts in the United States to combat
climate change could result in future increases in the cost of raw materials, taxes, transportation
and utilities for the Company and its suppliers which would result in higher operating costs for
the Company. However, Company management is unable to predict at this time, the potential effects,
if any, that any future environmental initiatives may have on the Companys business.
Additionally, the recent legislative and regulatory responses related to climate change could
create financial risk. Many governing bodies have been considering various forms of legislation
related to greenhouse gas emissions. Increased public awareness and concern may result in more laws
and regulations requiring reductions in or mitigation of the emission of greenhouse gases. The
Companys facilities may be subject to regulation under climate change policies introduced within
the next few years. There is a possibility that, when and if enacted, the final form of such
legislation could increase the Companys costs of compliance with environmental laws. If the
Company is unable to recover all costs related to complying with climate change regulatory
requirements, it could have a material adverse effect on its results of operations.
19
Declining returns in the investment portfolio of the Companys defined benefit pension plans
and changes in actuarial assumptions could increase the volatility in the Companys pension expense
and require it to increase cash contributions to the plans.
The Company sponsors a number of defined benefit pension plans for its employees in the United
States and Canada. Pension expense for the defined benefit pension plans sponsored by the Company
is determined based upon a number of actuarial assumptions, including expected long-term rates of
return on assets and discount rates. The use of these assumptions makes the Companys pension
expense and its cash contributions subject to year-to-year volatility. Declines in market
conditions, changes in pension law and uncertainties regarding significant assumptions used in the
actuarial valuations can have a material impact on future required contributions to the Companys
pension plans and could result in additional charges to equity and an increase in future pension
expense and cash contributions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Companys operations include both owned and leased facilities as described below:
|
|
|
|
|
|
|
Location |
|
Principal Use |
|
Square Feet |
|
Cuyahoga Falls, Ohio |
|
Corporate Headquarters |
|
|
70,000 |
|
Cuyahoga Falls, Ohio |
|
Vinyl Windows, Vinyl Fencing and Railing |
|
|
577,000 |
|
Bothell, Washington |
|
Vinyl Windows |
|
|
159,000 |
(1) |
Yuma, Arizona |
|
Vinyl Windows |
|
|
223,000 |
(1)(4) |
Cedar Rapids, Iowa |
|
Vinyl Windows |
|
|
259,000 |
(1) |
Kinston, North Carolina |
|
Vinyl Windows |
|
|
319,000 |
(1) |
London, Ontario |
|
Vinyl Windows |
|
|
60,000 |
|
Burlington, Ontario |
|
Vinyl Siding Products |
|
|
394,000 |
(2) |
Ennis, Texas |
|
Vinyl Siding Products |
|
|
538,000 |
(3) |
West Salem, Ohio |
|
Vinyl Window Extrusions, Vinyl Fencing and Railing |
|
|
173,000 |
|
Pointe Claire, Quebec |
|
Metal Products |
|
|
289,000 |
|
Woodbridge, New Jersey |
|
Metal Products |
|
|
318,000 |
(1) |
Ashtabula, Ohio |
|
Distribution Center |
|
|
297,000 |
(1) |
|
|
|
(1) |
|
Leased facilities. |
|
(2) |
|
The Company leases a portion of its warehouse space in this facility. |
|
(3) |
|
Includes a 237,000 square foot warehouse that was built during 2005 and is leased. The
Company owns the remainder of the facility. |
|
(4) |
|
The land for this facility is owned by the Company, but the Company leases the use of the
building. |
Management believes that the Companys facilities are generally in good operating condition
and are adequate to meet anticipated requirements in the near future.
The Company also operates 122 supply centers in major metropolitan areas throughout the United
States and Canada. 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 the Companys window plants expire in 2011 for the Bothell location, in 2015
for the Yuma location, in 2020 for the Cedar Rapids location and in 2010 for the Kinston location.
20
The lease for the warehouse at the Companys Ennis location expires in 2020. The Company
transitioned the majority of distribution of its U.S. vinyl siding products to a center located in
Ashtabula, Ohio and committed to a plan to discontinue use of its warehouse facility adjacent to
its Ennis, Texas vinyl manufacturing facility. The
Companys previously announced plans to completely discontinue using the warehouse facility
adjacent to the Ennis manufacturing plant prior to the end of 2008 were concluded during the second
quarter of 2009. The lease for the warehouse at the Companys Ashtabula location expires in 2013.
The leases at the Bothell and Yuma locations and for the warehouse at the Ennis location are
renewable at the Companys option for two additional five-year periods. The lease for the Companys
Burlington warehouse space expires in 2014. The lease for the Companys Woodbridge location expires
in 2014.
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 Companys existing insurance coverage, is
expected to have a material adverse effect on the Companys financial position, results of
operations or liquidity. From time to time, the Company is involved in proceedings and potential
proceedings relating to environmental and product liability matters.
Certain environmental laws, including the federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, (CERCLA), and comparable state laws, impose
strict, and in certain circumstances, joint and several, liability upon specified responsible
parties, which include certain former owners and operators of waste sites designated for clean up
by environmental regulators. A facility in Lumber City, Georgia, initially owned by USX Corporation
(USX), subsequently owned by the Company and then subsequently owned by Amercord, Inc., a company
in which the Company held a minority interest, is subject to a Consent Order. The Consent Order was
entered into by Amercord, Inc. with the Georgia Department of Natural Resources in 1994, and
required Amercord, Inc. to conduct soil and groundwater investigation and perform required
remediation. The Company was not a party to the Consent Order. Additionally, the Company believes
that soil and groundwater in certain areas of the site (including the area of two industrial waste
landfills) were being investigated by the United States Environmental Protection Agency (EPA)
under CERCLA to determine whether remediation of those areas may be required and whether the site
should be listed on the state or federal list of priority sites requiring remediation. Amercord,
Inc. is no longer an operating entity and does not have adequate financial resources to perform any
further investigation and remediation activities that may be required. If substantial remediation
is required, claims may be made against the Company, which could result in material expenditures.
If costs related to the remediation of this site are incurred, the Company and USX have agreed to
share in those costs; however, there can be no assurance that USX can or will make the payments.
Currently, it is not probable that the outcome of this matter will result in a liability to the
Company, and further, the amount of liability cannot be reasonably estimated. The Company believes
this matter will not have a material adverse effect on its financial position, results of
operations or liquidity.
The Woodbridge, New Jersey facility is currently the subject of an investigation and/or
remediation before the New Jersey Department of Environmental Protection (NJDEP) under ISRA Case
No. E20030110 for Gentek Building Products, Inc. (Gentek U.S.). The facility is currently leased
by Gentek U.S. Previous operations at the facility resulted in soil and groundwater contamination
in certain areas of the property. In 1999, the property owner and Gentek U.S. signed a remediation
agreement with NJDEP, pursuant to which the property owner and Gentek U.S. agreed to continue an
investigation/remediation that had been commenced pursuant to a Memorandum of Agreement with NJDEP.
Under the remediation agreement, NJDEP required posting of a remediation funding source of
approximately $100,000 that was provided by Gentek U.S. under a self-guarantee. Although
investigations at this facility are ongoing and it appears probable that a liability will be
incurred, the Company cannot currently estimate the amount of liability that may be associated with
this facility as the delineation process has not been completed. The Company believes that this
matter will not have a material adverse effect on its financial position, results of operations or
liquidity.
The Company handles other environmental claims in the ordinary course of business and
maintains product liability insurance covering certain types of claims. Although it is difficult to
estimate the Companys potential exposure to these matters, the Company believes that the
resolution of these matters will not have a material adverse effect on the Companys financial
position, results of operations or liquidity.
21
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
MARKET INFORMATION
There is no established public trading market for the Companys membership interests.
HOLDERS
As of March 26, 2010, AMH II is the Companys sole record holder of its membership interests.
DIVIDENDS
Associated Materials ABL Facility and the indentures governing the 9.875% notes and the
11.25% notes restrict dividend payments by Associated Materials and AMH, respectively. See
Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity
and Capital Resources Description of the Companys Outstanding Indebtedness for further details
of the Companys indebtedness, the 11.25% notes, the 9.875% notes and ABL Facility. During fiscal
2009, 2008 and 2007, the Company declared dividends totaling approximately $4.3 million, $8.3
million and $8.0 million, respectively, to fund AMH IIs scheduled interest payments on its 13.625%
Senior Notes due 2014 (the 13.625% notes), which are no longer outstanding.
The Company presently does not plan to pay other future cash dividends other than to allow AMH
II to make interest payments on its debt obligations. AMH II has no operations of its own.
Associated Materials is a separate and distinct legal entity and has no obligation, contingent or
otherwise, to pay amounts due under the 11.25% notes or AMH IIs 20% notes or make any funds
available to pay those amounts, whether by dividend, distribution, loan or other payments.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The Company has no outstanding equity compensation plans under which securities of the Company
are authorized for issuance. Equity compensation plans are maintained at AMH II, the Companys
parent company.
RECENT SALES OF UNREGISTERED SECURITIES
On June 25, 2009,
the Company issued new limited liability company interests in the Company to AMH II in exchange for
$15.0 million aggregate principal amount of the 11.25% Senior Discount Notes due 2014 of the
Company, which notes AMH II had previously purchased at a discount to face value in privately
negotiated transactions. The issuance of new limited liability company interests was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
22
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the five-year period ended January 2, 2010 was
derived from the audited consolidated financial statements of the Company. The data should be read
in conjunction with Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations and Item 8. Financial Statements and Supplementary Data included elsewhere
in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
December 30, |
|
|
December 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,046,107 |
|
|
$ |
1,133,956 |
|
|
$ |
1,204,056 |
|
|
$ |
1,250,054 |
|
|
$ |
1,173,591 |
|
Cost of sales |
|
|
765,691 |
|
|
|
859,107 |
|
|
|
899,839 |
|
|
|
947,776 |
|
|
|
906,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
280,416 |
|
|
|
274,849 |
|
|
|
304,217 |
|
|
|
302,278 |
|
|
|
267,324 |
|
Selling, general and administrative
expenses |
|
|
204,610 |
|
|
|
212,025 |
|
|
|
208,001 |
|
|
|
203,844 |
|
|
|
198,493 |
|
Manufacturing restructuring costs (1) |
|
|
5,255 |
|
|
|
1,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,423 |
|
|
|
|
|
Facility closure costs, net (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
3,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
70,551 |
|
|
|
61,041 |
|
|
|
96,216 |
|
|
|
95,103 |
|
|
|
64,875 |
|
Interest expense, net (4) |
|
|
72,626 |
|
|
|
70,777 |
|
|
|
69,703 |
|
|
|
69,954 |
|
|
|
65,592 |
|
Net gain on debt extinguishment (5) |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency (gain) loss |
|
|
(184 |
) |
|
|
1,809 |
|
|
|
(227 |
) |
|
|
(703 |
) |
|
|
781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(1,773 |
) |
|
|
(11,545 |
) |
|
|
26,740 |
|
|
|
25,852 |
|
|
|
(1,498 |
) |
Income taxes (benefit) |
|
|
5,520 |
|
|
|
57,598 |
|
|
|
10,986 |
|
|
|
17,893 |
|
|
|
(1,804 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,293 |
) |
|
$ |
(69,143 |
) |
|
$ |
15,754 |
|
|
$ |
7,959 |
|
|
$ |
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
22,169 |
|
|
$ |
22,698 |
|
|
$ |
22,062 |
|
|
$ |
22,147 |
|
|
$ |
20,475 |
|
EBITDA (6) |
|
|
93,022 |
|
|
|
81,930 |
|
|
|
118,505 |
|
|
|
117,953 |
|
|
|
84,569 |
|
Adjusted EBITDA (6) |
|
|
100,490 |
|
|
|
86,876 |
|
|
|
121,833 |
|
|
|
123,896 |
|
|
|
92,844 |
|
Net cash provided by
operating activities |
|
|
121,886 |
|
|
|
16,262 |
|
|
|
71,351 |
|
|
|
68,300 |
|
|
|
48,315 |
|
Capital expenditures |
|
|
(8,733 |
) |
|
|
(11,498 |
) |
|
|
(12,393 |
) |
|
|
(14,648 |
) |
|
|
(20,959 |
) |
Net cash used in investing activities |
|
|
(35,552 |
) |
|
|
(11,473 |
) |
|
|
(13,175 |
) |
|
|
(11,740 |
) |
|
|
(20,877 |
) |
Net cash used in financing activities |
|
|
(38,754 |
) |
|
|
(18,682 |
) |
|
|
(53,018 |
) |
|
|
(53,863 |
) |
|
|
(73,300 |
) |
Balance Sheet Data (end of period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
55,855 |
|
|
$ |
6,709 |
|
|
$ |
21,603 |
|
|
$ |
15,015 |
|
|
$ |
12,300 |
|
Working capital |
|
|
118,951 |
|
|
|
161,353 |
|
|
|
156,350 |
|
|
|
149,459 |
|
|
|
152,598 |
|
Total assets |
|
|
785,725 |
|
|
|
750,721 |
|
|
|
800,422 |
|
|
|
793,865 |
|
|
|
823,516 |
|
Long-term debt, less current maturities |
|
|
638,552 |
|
|
|
659,095 |
|
|
|
618,677 |
|
|
|
622,967 |
|
|
|
632,478 |
|
Members deficit |
|
|
(128,069 |
) |
|
|
(133,448 |
) |
|
|
(30,002 |
) |
|
|
(48,124 |
) |
|
|
(194,359 |
) |
|
|
|
(1) |
|
During the first quarter of 2008, the Company committed to, and subsequently completed,
relocating a portion of its vinyl siding production from Ennis, Texas to its vinyl
manufacturing facilities in West Salem, Ohio and Burlington, Ontario. In addition, during
2008, the Company transitioned the majority of distribution of its U.S. vinyl siding products
to a center located in Ashtabula, Ohio and committed to a plan to discontinue use of its
warehouse facility adjacent to its Ennis, Texas vinyl manufacturing facility. For the fiscal
year ended January 3, 2009, the amount represents asset impairment costs, costs incurred to
relocate manufacturing equipment and costs associated with the transition of distribution
operations. In addition, the Company recorded $0.9 million of inventory markdown costs
associated with these restructuring costs within cost of sales in the statement of operations
during the second quarter of 2008. The Company discontinued its use of the warehouse facility
adjacent to the Ennis manufacturing plant during the second quarter of 2009. As a result, the
related lease costs associated with the discontinued use of the warehouse facility were
recorded as a restructuring charge of approximately $5.3 million for the fiscal year ended
January 2, 2010. |
|
(2) |
|
The Company recorded an impairment charge of $2.6 million against certain machinery and
equipment, trademarks, and patents used to manufacture its fence and rail products during 2006
as their carrying values exceed their fair value. In addition, due to changes in the Companys
information technology and business strategies, $0.8 million of software and other equipment
was considered impaired. |
23
|
|
|
(3) |
|
Represents one-time costs associated with the closure of the Freeport, Texas manufacturing
facility consisting primarily of relocation costs for certain equipment of approximately $1.9
million, inventory relocation costs of approximately $1.5 million, facility shut down costs of
approximately $0.4 million and contract termination costs of approximately $0.2 million for
the year ended December 31, 2005. Amounts recorded during 2006 resulted in a net gain of
approximately $0.1 million, including the gain realized upon the final sale of the facility,
partially offset by other non-recurring expenses associated with the closure of the facility. |
|
(4) |
|
The years ended January 2, 2010, January 3, 2009, December 29, 2007, December 30, 2006 and
December 31, 2005 include $49.9 million, $46.5 million, $41.8 million, $37.5 million and $33.7
million, respectively, of interest expense related to the 11.25% notes, which is comprised of
accretion of $7.9 million up to March 1, 2009, $45.4 million, $40.7 million, $36.5 million and
$32.6 million, respectively. The year ended January 3, 2009 includes the write-off of $1.3
million of deferred financing costs related to Associated Materials prior credit facility
that was replaced by the ABL Facility in 2008. |
|
(5) |
|
Represents a gain on debt extinguishment of approximately $8.9 million as a result of AMH II
purchasing $15.0 million par value of AMHs 11.25% notes directly from the AMH debtholders
with funds loaned from Associated Materials for approximately $5.9 million. In exchange for
the purchased 11.25% notes, AMH II was granted additional equity interest in AMH. This gain
on debt extinguishment was partially offset by $8.8 million of debt extinguishment costs,
including call premiums of approximately $2.9 million, interest from November 5, 2009 to
December 7, 2009 (the redemption date of Associated Materials 9 3/4% Senior Subordinated
Notes due 2012 (the 9.75% notes) and the 15% Senior Subordinated Notes due 2012 (the 15%
notes)) of approximately $1.6 million and the write-off of the remaining unamortized
financing costs of approximately $4.2 million, incurred with the redemption of Associated
Materials previously outstanding 9.75% notes and 15% notes and the issuance of Associated
Materials new 9.875% notes. |
|
(6) |
|
EBITDA is calculated as net income plus interest, taxes, depreciation and amortization.
Adjusted EBITDA excludes certain items. The Company considers EBITDA and adjusted EBITDA to be
important indicators 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 Companys ability to service its debt and / or incur debt and meet the Companys
capital expenditure requirements; (ii) internally measure the Companys operating performance;
and (iii) determine the Companys incentive compensation programs. In addition, Associated
Materials ABL Facility has certain covenants that apply ratios utilizing this measure of
adjusted EBITDA. EBITDA and adjusted EBITDA have not been prepared in accordance with U.S.
generally accepted accounting principles (GAAP). Adjusted EBITDA as presented by the
Company may not be comparable to similarly titled measures reported by other companies. EBITDA
and adjusted EBITDA are not measures determined in accordance with GAAP and should not be
considered as an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of the Companys operating results or cash flows from
operations (as determined in accordance with GAAP) as a measure of the Companys liquidity. |
The reconciliation of the Companys net income (loss) to EBITDA and adjusted EBITDA is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
December 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Net income (loss) |
|
$ |
(7,293 |
) |
|
$ |
(69,143 |
) |
|
$ |
15,754 |
|
|
$ |
7,959 |
|
|
$ |
306 |
|
Interest expense, net |
|
|
72,626 |
|
|
|
70,777 |
|
|
|
69,703 |
|
|
|
69,954 |
|
|
|
65,592 |
|
Income taxes (benefit) |
|
|
5,520 |
|
|
|
57,598 |
|
|
|
10,986 |
|
|
|
17,893 |
|
|
|
(1,804 |
) |
Depreciation and amortization |
|
|
22,169 |
|
|
|
22,698 |
|
|
|
22,062 |
|
|
|
22,147 |
|
|
|
20,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
93,022 |
|
|
|
81,930 |
|
|
|
118,505 |
|
|
|
117,953 |
|
|
|
84,569 |
|
Net gain on debt extinguishment (i) |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing restructuring costs (ii) |
|
|
5,255 |
|
|
|
2,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination costs (iii) |
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax restructuring costs (iv) |
|
|
507 |
|
|
|
|
|
|
|
961 |
|
|
|
|
|
|
|
|
|
Amortization of management fee (v) |
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
|
|
4,000 |
|
Bank audit fees (vi) |
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss upon disposal of assets other than by sale (vii) |
|
|
|
|
|
|
1,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs (viii) |
|
|
|
|
|
|
|
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
319 |
|
Facility closure costs, net (ix) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
3,956 |
|
Impairment charges (x) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,423 |
|
|
|
|
|
Separation costs (xi) |
|
|
|
|
|
|
|
|
|
|
699 |
|
|
|
2,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (xii) |
|
$ |
100,490 |
|
|
$ |
86,876 |
|
|
$ |
121,833 |
|
|
$ |
123,896 |
|
|
$ |
92,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
(i) |
|
Represents a gain on debt extinguishment of approximately $8.9 million as a result of AMH II
purchasing $15.0 million par value of AMHs 11.25% notes directly from the AMH debtholders
with funds loaned from Associated Materials for approximately $5.9 million. In exchange for
the purchased 11.25% notes, AMH II was granted additional equity interest in AMH. This gain
on debt extinguishment was partially offset by $8.8 million of debt extinguishment costs,
including call premiums of approximately $2.9 million, interest from November 5, 2009 to
December 7, 2009 (the redemption date of the 9.75% notes and 15% notes) of approximately $1.6
million and the write-off of the remaining unamortized financing costs of approximately $4.2
million, incurred with the redemption of Associated Materials previously outstanding 9.75%
notes and 15% notes and the issuance of Associated Materials new 9.875% notes. |
|
(ii) |
|
During the first quarter of 2008, the Company committed to, and subsequently completed,
relocating a portion of its vinyl siding production from Ennis, Texas to its vinyl
manufacturing facilities in West Salem, Ohio and Burlington, Ontario. In addition, during
2008, the Company transitioned the majority of distribution of its U.S. vinyl siding products
to a center located in Ashtabula, Ohio and committed to a plan to discontinue use of its
warehouse facility adjacent to its Ennis, Texas vinyl manufacturing facility. For the fiscal
year ended January 3, 2009, the amount represents asset impairment costs, costs incurred to
relocate manufacturing equipment and costs associated with the transition of distribution
operations. In addition, the Company recorded $0.9 million of inventory markdown costs
associated with these restructuring costs within cost of sales in the statement of operations
during the second quarter of 2008. The Company discontinued its use of the warehouse facility
adjacent to the Ennis manufacturing plant during the second quarter of 2009. As a result, the
related lease costs associated with the discontinued use of the warehouse facility were
recorded as a restructuring charge of approximately $5.3 million for the fiscal year ended
January 2, 2010. |
|
(iii) |
|
During 2009, the Company recorded employee
termination costs as a result of workforce reductions in connection with the Companys overall
cost reduction initiatives. |
|
(iv) |
|
Represents legal and accounting fees incurred in connection with tax restructuring projects. |
|
(v) |
|
Represents amortization of a prepaid management fee paid to Investcorp International Inc. in
connection with the December 2004 recapitalization transaction. |
|
(vi) |
|
Represents bank audit fees incurred under Associated Materials ABL Facility. |
|
(vii) |
|
As part of the Companys ongoing efforts to improve its internal controls, the Company
enhanced its controls surrounding the physical verification of property, plant and equipment
during the second quarter of 2008. The amount recorded represents the loss upon disposal of
assets other than by sale as a result of executing these enhanced controls. |
|
(viii) |
|
Represents legal and accounting fees incurred in connection with an unsuccessful bid for an
acquisition target. |
|
(ix) |
|
Fiscal year 2006 represents net gain of approximately $0.1 million, including the gain
realized upon the final sale of the Freeport, Texas facility, partially offset by other
non-recurring expenses associated with the closure of the facility. Fiscal year 2005
represents one-time costs associated with the closure of the Freeport, Texas manufacturing
facility consisting primarily of asset write-downs and equipment relocation expenses. |
|
(x) |
|
Based on current and projected operating results for its vinyl fencing and railing
product lines, the Company concluded that certain machinery and equipment, trademarks, and
patents used to manufacture these products were impaired during the fourth quarter of 2006 as
their carrying values exceeded their fair value by $2.6 million. In addition, due to changes
in the Companys information technology and business strategies, $0.8 million of software and
other equipment was considered impaired. |
|
(xi) |
|
For the fiscal year ended December 29, 2007, amount represents separation costs, including
payroll taxes, related to the resignation of Mr. Deighton, former Chief Operating Officer of
the Company. For the fiscal
year ended December 30, 2006, amount represents separation costs, including payroll taxes and
benefits, related to the resignation of Mr. Caporale, former Chairman, President and Chief
Executive Officer of the Company by mutual agreement with the Board of Directors. |
|
(xii) |
|
For fiscal years 2007, 2006 and 2005, adjusted EBITDA amounts have been reclassified to
conform to the current years presentation, which, in conformity with the computation of
adjusted EBITDA under the Companys ABL Facility, excludes any adjustment for foreign currency
gain or loss. |
25
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AMH Holdings, LLC (AMH), formerly AMH Holdings, Inc., was created on February 19, 2004. AMH
has no material assets or operations other than its 100% ownership of Associated Materials
Holdings, LLC (Holdings), which in turn has no material assets or operations other than its 100%
ownership of Associated Materials, LLC (Associated Materials). AMH, Holdings and Associated
Materials are collectively referred to as the Company. The Company is a leading, vertically
integrated manufacturer and distributor of exterior residential building products in the United
States and Canada. The Companys core products are vinyl windows, vinyl siding, aluminum trim coil,
and aluminum and steel siding and accessories. In addition, the Company distributes third-party
manufactured products primarily through its supply centers. During 2009, vinyl windows comprised
approximately 37%, vinyl siding comprised approximately 20%, metal products, which includes
aluminum and steel products, comprised approximately 16%, and third-party manufactured products
comprised approximately 20% of the Companys total net sales. These products are generally
marketed under the Alside®, Revere® and Gentek® 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 Companys network of 122 supply centers, as well as through approximately
250 independent distributors across the United States and Canada. Approximately 65% of the
Companys products are sold to contractors engaged in the home repair and remodeling market with
approximately 35% sold to the new construction market. The supply centers provide one-stop
shopping to the Companys contractor customers, carrying products, accessories and tools necessary
to complete a vinyl window or siding project. In addition, the supply centers provide product
literature, product samples and installation training to these customers.
Because its exterior residential building products are consumer durable goods, the Companys
sales are impacted by, among other things, 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 Companys sales are also affected by
changes in consumer preferences with respect to types of building products. Overall, the Company
believes the long-term fundamentals for the building products industry remain strong as the
population continues to age, homes continue to get older, household formation is expected to be
strong and vinyl remains optimal material for exterior cladding and window solutions, all of which
the Company believes bodes well for the demand for its products in the future. In the short term,
however, the Company believes the building products industry will continue to be negatively
impacted by the weak housing market. Since 2006, sales of existing single-family homes have
decreased from peak levels previously experienced, the inventory of homes available for sale has
increased, and in many areas, home values have declined significantly. In addition, the pace of
new home construction has slowed dramatically, as evidenced by declines in 2006 through 2009 in
single-family housing starts and announcements from home builders of significant decreases in their
orders. Increased delinquencies on sub-prime and other mortgages, increased foreclosure rates and
tightening consumer credit markets over the same time period have further hampered the housing
market. The Companys sales volumes are dependent on the strength in the housing market, including
both residential remodeling and new residential construction activity. Continued reduced levels of
existing homes sales and housing price depreciation has had a significant negative impact on the
Companys remodeling sales. In addition, a reduced number of new housing starts has had a negative
impact on the Companys new construction sales. As a result of the continuation in the prolonged
housing market downturn, competition in the building products market may intensify, which could
result in lower sales volumes and reduced selling prices for the Companys products and lower gross
margins. In the event that the Companys expectations regarding the outlook for the housing market
result in a reduction in its forecasted sales and operating income, and related growth rates, the
Company may be required to record an impairment of certain of its assets, including goodwill and
intangible assets. Moreover, the prolonged downturn in the housing market and the general economy
may have other consequences to the Company, including further accounts receivable write-offs due to
financial distress of customers and lower of cost or market reserves related to the Companys
inventories.
26
The principal raw materials used by the Company are vinyl resin, aluminum, steel, resin
stabilizers and pigments, glass, window hardware, and packaging materials, all of which have
historically been subject to price changes. Raw material pricing on the Companys key commodities
has increased significantly over the past three years. In response, the Company announced price
increases over the past several years on certain of its product
offerings to offset the inflation of raw materials, and continually monitors market conditions
for price changes as warranted. The Companys ability to maintain gross margin levels on its
products during periods of rising raw material costs depends on the Companys ability to obtain
selling price increases. Furthermore, the results of operations for individual quarters can and
have been negatively impacted by a delay between the timing of raw material cost increases and
price increases on the Companys products. There can be no assurance that the Company will be able
to maintain the selling price increases already implemented or achieve any future price increases.
The Company operates with significant operating and financial leverage. Significant portions
of the Companys manufacturing, selling, general and administrative expenses are fixed costs that
neither increase nor decrease proportionately with sales. In addition, a significant portion of
the Companys interest expense is fixed. There can be no assurance that the Company will be able to
continue to reduce its fixed costs in response to a further decline in its net sales. As a result,
a continued decline in the Companys net sales could result in a higher percentage decline in its
income from operations. Also, the Companys gross margins and gross margin percentages may not be
comparable to other companies as some companies include all of the costs of their distribution
network in cost of sales, whereas the Company includes the operating costs of its supply centers in
selling, general and administrative expenses.
Because most of the Companys 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 utilizes its ABL
Facility and repays such borrowings in periods of higher cash flow. The Company typically generates
the majority of its cash flow in the third and fourth quarters.
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, selectively expanding its supply center network, increasing sales through
independent specialty distributor customers, developing innovative new products, expanding sales of
third-party manufactured products through its supply center network, and driving operational
excellence by reducing costs and increasing customer service levels. The Company continually
analyzes new and existing markets for the selection of new supply center locations.
The Company is a wholly owned subsidiary of AMH II, which is controlled by affiliates of
Investcorp S.A. (Investcorp) and Harvest Partners L.P. (Harvest Partners). AMH and AMH II do
not have material assets or operations other than a direct or indirect ownership of the membership
interest of Associated Materials. The Company operates on a 52/53 week fiscal year that ends on the
Saturday closest to December 31st. The Companys 2009, 2008, and 2007 fiscal years ended on
January 2, 2010, January 3, 2009, and December 29, 2007, respectively. The fiscal year ended
January 3, 2009 included 53 weeks of operations, with the additional week recorded in the fourth
quarter of fiscal 2008. The additional week did not have a significant impact on the results of
operations due to its timing and the seasonality of the business. The fiscal years ended January
2, 2010 and December 29, 2007 included 52 weeks of operations.
27
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the results of the Companys
operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Net |
|
|
|
Amount |
|
|
Sales |
|
|
Amount |
|
|
Sales |
|
|
Amount |
|
|
Sales |
|
Net sales |
|
$ |
1,046,107 |
|
|
|
100.0 |
% |
|
$ |
1,133,956 |
|
|
|
100.0 |
% |
|
$ |
1,204,056 |
|
|
|
100.0 |
% |
Gross profit |
|
|
280,416 |
|
|
|
26.8 |
|
|
|
274,849 |
|
|
|
24.2 |
|
|
|
304,217 |
|
|
|
25.3 |
|
Selling, general and administrative
expense |
|
|
204,610 |
|
|
|
19.6 |
|
|
|
212,025 |
|
|
|
18.7 |
|
|
|
208,001 |
|
|
|
17.3 |
|
Manufacturing restructuring costs |
|
|
5,255 |
|
|
|
0.5 |
|
|
|
1,783 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
70,551 |
|
|
|
6.7 |
|
|
|
61,041 |
|
|
|
5.4 |
|
|
|
96,216 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
72,626 |
|
|
|
|
|
|
|
70,777 |
|
|
|
|
|
|
|
69,703 |
|
|
|
|
|
Net gain on debt extinguishment |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency (gain) loss |
|
|
(184 |
) |
|
|
|
|
|
|
1,809 |
|
|
|
|
|
|
|
(227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(1,773 |
) |
|
|
|
|
|
|
(11,545 |
) |
|
|
|
|
|
|
26,740 |
|
|
|
|
|
Income taxes |
|
|
5,520 |
|
|
|
|
|
|
|
57,598 |
|
|
|
|
|
|
|
10,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,293 |
) |
|
|
|
|
|
$ |
(69,143 |
) |
|
|
|
|
|
$ |
15,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (1) |
|
$ |
93,022 |
|
|
|
|
|
|
$ |
81,930 |
|
|
|
|
|
|
$ |
118,505 |
|
|
|
|
|
Adjusted EBITDA (1) |
|
|
100,490 |
|
|
|
|
|
|
|
86,876 |
|
|
|
|
|
|
|
121,833 |
|
|
|
|
|
Depreciation and amortization |
|
|
22,169 |
|
|
|
|
|
|
|
22,698 |
|
|
|
|
|
|
|
22,062 |
|
|
|
|
|
Capital expenditures |
|
|
(8,733 |
) |
|
|
|
|
|
|
(11,498 |
) |
|
|
|
|
|
|
(12,393 |
) |
|
|
|
|
The following table sets forth for the periods presented a summary of net sales by principal
product offering (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Vinyl windows |
|
$ |
389,293 |
|
|
$ |
380,260 |
|
|
$ |
410,164 |
|
Vinyl siding products |
|
|
210,212 |
|
|
|
254,563 |
|
|
|
285,303 |
|
Metal products |
|
|
167,749 |
|
|
|
213,163 |
|
|
|
225,846 |
|
Third-party manufactured products |
|
|
210,806 |
|
|
|
210,633 |
|
|
|
205,445 |
|
Other products and services |
|
|
68,047 |
|
|
|
75,337 |
|
|
|
77,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,046,107 |
|
|
$ |
1,133,956 |
|
|
$ |
1,204,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
EBITDA is calculated as net income plus interest, taxes, depreciation and amortization.
Adjusted EBITDA excludes certain items. The Company considers EBITDA and adjusted EBITDA to
be important indicators 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 Companys ability to service its debt and / or incur debt and
meet the Companys capital expenditure requirements; (ii) internally measure the Companys
operating performance; and (iii) determine the Companys incentive compensation programs.
In addition, Associated Materials ABL Facility has certain covenants that apply ratios
utilizing this measure of adjusted EBITDA. EBITDA and adjusted EBITDA have not been
prepared in accordance with U.S. generally accepted accounting principles (GAAP).
Adjusted EBITDA as presented by the Company may not be comparable to similarly titled
measures reported by other companies. EBITDA and adjusted EBITDA are not measures
determined in accordance with GAAP and should not be considered as an alternative to, or
more meaningful than, net income (as determined in accordance with GAAP) as a measure of
the Companys operating results or cash flows from operations (as determined in accordance
with GAAP) as a measure of the Companys liquidity. |
28
The reconciliation of the Companys net income (loss) to EBITDA and adjusted EBITDA is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Net income (loss) |
|
$ |
(7,293 |
) |
|
$ |
(69,143 |
) |
|
$ |
15,754 |
|
Interest expense, net |
|
|
72,626 |
|
|
|
70,777 |
|
|
|
69,703 |
|
Income taxes |
|
|
5,520 |
|
|
|
57,598 |
|
|
|
10,986 |
|
Depreciation and amortization |
|
|
22,169 |
|
|
|
22,698 |
|
|
|
22,062 |
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
93,022 |
|
|
|
81,930 |
|
|
|
118,505 |
|
Net gain on debt extinguishment (i) |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
Manufacturing restructuring costs (ii) |
|
|
5,255 |
|
|
|
2,642 |
|
|
|
|
|
Employee termination costs (iii) |
|
|
1,182 |
|
|
|
|
|
|
|
|
|
Tax restructuring costs (iv) |
|
|
507 |
|
|
|
|
|
|
|
961 |
|
Amortization of management fee (v) |
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
Bank audit fees (vi) |
|
|
142 |
|
|
|
|
|
|
|
|
|
Loss upon disposal of assets other than by sale (vii) |
|
|
|
|
|
|
1,804 |
|
|
|
|
|
Transaction costs (viii) |
|
|
|
|
|
|
|
|
|
|
1,168 |
|
Separation costs (ix) |
|
|
|
|
|
|
|
|
|
|
699 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (x) |
|
$ |
100,490 |
|
|
$ |
86,876 |
|
|
$ |
121,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Represents a gain on debt extinguishment of approximately $8.9 million as a result of AMH II
purchasing $15.0 million par value of AMHs 11 1/4% Senior Discount Notes due 2014 (the
11.25% notes) directly from the AMH debtholders with funds loaned from Associated Materials
for approximately $5.9 million. In exchange for the purchased 11.25% notes, AMH II was granted
additional equity interest in AMH. This gain on debt extinguishment was partially offset by
$8.8 million of debt extinguishment costs, including call premiums of approximately $2.9
million, interest from November 5, 2009 to December 7, 2009 (the redemption date of Associated
Materials 9 3/4% Senior Subordinated Notes due 2012 (the 9.75% notes) and the 15% Senior
Subordinated Notes due 2012 (the 15% notes)) of approximately $1.6 million and the write-off
of the remaining unamortized financing costs of approximately $4.2 million, incurred with the
redemption of Associated Materials previously outstanding 9.75% notes and 15% notes and the
issuance of Associated Materials new 9.875% Senior Secured Second Lien Notes due 2016 (the
9.875% notes). |
|
(ii) |
|
During the first quarter of 2008, the Company committed to, and subsequently completed,
relocating a portion of its vinyl siding production from Ennis, Texas to its vinyl
manufacturing facilities in West Salem, Ohio and Burlington, Ontario. In addition, during
2008, the Company transitioned the majority of distribution of its U.S. vinyl siding products
to a center located in Ashtabula, Ohio and committed to a plan to discontinue use of its
warehouse facility adjacent to its Ennis, Texas vinyl manufacturing facility. For the fiscal
year ended January 3, 2009, the amount represents asset impairment costs, costs incurred to
relocate manufacturing equipment and costs associated with the transition of distribution
operations. In addition, the Company recorded $0.9 million of inventory markdown costs
associated with these restructuring costs within cost of sales in the statement of operations
during the second quarter of 2008. The Company discontinued its use of the warehouse facility
adjacent to the Ennis manufacturing plant during the second quarter of 2009. As a result, the
related lease costs associated with the discontinued use of the warehouse facility were
recorded as a restructuring charge of approximately $5.3 million for the fiscal year ended
January 2, 2010. |
|
(iii) |
|
During 2009, the Company recorded employee
termination costs as a result of workforce reductions in connection with the Companys overall
cost reduction initiatives. |
|
(iv) |
|
Represents legal and accounting fees incurred in connection with tax restructuring projects. |
|
(v) |
|
Represents amortization of a prepaid management fee paid to Investcorp International Inc. in
connection with the December 2004 recapitalization transaction. |
29
|
|
|
(vi) |
|
Represents bank audit fees incurred under Associated Materials ABL Facility. |
|
(vii) |
|
As part of the Companys ongoing efforts to improve its internal controls, the Company
enhanced its controls surrounding the physical verification of property, plant and equipment
during the second quarter of 2008. The amount recorded represents the loss upon disposal of
assets other than by sale as a result of executing these enhanced controls. |
|
(viii) |
|
Represents legal and accounting fees incurred in connection with an unsuccessful bid for an
acquisition target. |
|
(ix) |
|
Amount represents separation costs, including payroll taxes, related to the resignation of
Mr. Deighton, former Chief Operating Officer of the Company. |
|
(x) |
|
The fiscal year 2007 adjusted EBITDA amount has been reclassified to conform to the current
years presentation, which, in conformity with the computation of adjusted EBITDA under
Associated Materials ABL Facility, excludes any adjustment for foreign currency gain or loss. |
YEAR ENDED JANUARY 2, 2010 COMPARED TO YEAR ENDED JANUARY 3, 2009
Net sales decreased 7.7% to $1,046.1 million for the year ended January 2, 2010 compared to
$1,134.0 million for the same period in 2008 primarily due to decreased unit volumes across all
product categories, principally in vinyl siding, vinyl windows and metal products, and the impact
of the weaker Canadian dollar during the first three quarters of 2009. Compared to the 2008 fiscal
year, vinyl siding unit volumes decreased by 17%, while vinyl window unit volumes decreased by 1%.
Gross profit for the year ended January 2, 2010 was $280.4 million, or 26.8% of net sales,
compared to gross profit of $274.8 million, or 24.2% of net sales, for the 2008 fiscal year. The
increase in gross profit as a percentage of net sales was primarily a result of cost reduction
initiatives, improved operational efficiencies and procurement savings.
Selling, general and administrative expense decreased to $204.6 million, or 19.6% of net
sales, for the fiscal year ended January 2, 2010 versus $212.0 million, or 18.7% of net sales, for
the 2008 fiscal year. Selling, general and administrative expense for the year ended January 2,
2010 includes employee termination costs of $1.2 million, tax restructuring costs of $0.5 million
and bank audit fees of $0.1 million, while selling, general and administrative expense for the 2008
fiscal year includes a loss upon the disposal of assets other than by sale of $1.8 million.
Excluding these items, selling, general and administrative expense for the year ended January 2,
2010 decreased $7.4 million compared to the 2008 fiscal year. The decrease in selling, general and
administrative expense was primarily due to decreased personnel costs as a result of reduced
headcount of approximately $5.2 million, the translation impact on Canadian expenses as a result of
the weaker Canadian dollar throughout most of 2009 of approximately $4.3 million and decreased
professional fees of approximately $3.1 million, partially offset by increases in EBITDA-based
incentive compensation programs of approximately $2.7 million and increased bad debt expense of
approximately $2.3 million recorded during 2009 as a result of current economic conditions.
Income from operations was $70.6 million for the year ended January 2, 2010 compared to $61.0
million for the 2008 fiscal year.
Interest expense of $72.6 million for the year ended January 2, 2010 primarily consisted of
accretion and interest expense on the 11.25% notes, interest expense on the 9.75% notes through
October 2009, the 15% notes for the period of July 2009 through October 2009, the 9.875% notes for
the period of November through December 2009, the ABL Facility and amortization of deferred
financing costs. The 9.75% notes and 15% notes were redeemed and discharged in November 2009 in
conjunction with the issuance of the 9.875% notes. Interest expense of $70.8 million for the year
ended January 3, 2009 primarily consisted of accretion of the 11.25% notes, interest expense on the
9.75% notes, the prior credit facility, the ABL Facility and amortization of deferred financing
costs. Excluding the write-off of $1.3 million of deferred financing costs included in the 2008
total interest expense amount, interest expense increased $3.1 million primarily due to incremental
accretion and interest expense on the 11.25% notes, increased principal note balances at higher
interest rates and increased amortization of deferred financing costs related to the note issuances
in 2009, partially offset by lower borrowings under the ABL Facility at lower interest rates in
2009.
30
The net gain on debt extinguishment of approximately $0.1 million was a result of the $8.9
million gain on debt extinguishment in connection with the AMH II purchase of $15.0 million par
value of AMHs 11.25% notes directly from the AMH debtholders with funds loaned from Associated
Materials for approximately $5.9 million, partially offset by debt extinguishment costs of $8.8
million incurred with the redemption of the previously outstanding 9.75% notes and 15% notes and
the issuance of the new 9.875% notes.
The income tax provision for the year ended January 2, 2010 reflects an effective income tax
rate of (311.3)%, compared to an effective income tax rate of (499.0)% for the 2008 fiscal year.
The change in the effective income tax rate in 2009 is primarily due to the impact of the changes in the valuation
allowance between years. This valuation allowance was recorded
based upon the review of historical earnings, trends, forecasted earnings and current economic
conditions.
The Company incurred a net loss of $7.3 million for the year ended January 2, 2010 compared to
$69.1 million for the year ended January 3, 2009.
EBITDA was $93.0 million for the year ended January 2, 2010 compared to EBITDA of $81.9
million for the year ended January 3, 2009. For the year ended January 2, 2010, adjusted EBITDA was
$100.5 million compared to adjusted EBITDA of $86.9 million for the 2008 fiscal year. Adjusted
EBITDA for the 2009 fiscal year excludes manufacturing restructuring costs of $5.3 million,
employee termination costs of $1.2 million, tax restructuring costs of $0.5 million, amortization
related to prepaid management fees of $0.5 million, a net debt extinguishment gain of $0.1 million
and bank audit fees of $0.1 million. Adjusted EBITDA for the 2008 fiscal year excludes
manufacturing restructuring costs of $2.6 million, loss upon the disposal of assets other than by
sale of $1.8 million and $0.5 million of amortization related to prepaid management fees.
YEAR ENDED JANUARY 3, 2009 COMPARED TO YEAR ENDED DECEMBER 29, 2007
Net sales decreased 5.8% to $1,134.0 million for the year ended January 3, 2009 compared to
$1,204.1 million for the same period in 2007 primarily due to decreased unit volumes, principally
in vinyl siding and vinyl windows, partially offset by price increases implemented throughout 2008.
Compared to the 2007 fiscal year, vinyl window unit volumes decreased by 6%, while vinyl siding
unit volumes decreased by 17%, which is comprised of a decrease in U.S. vinyl siding unit volumes
of 21% due to the negative economic factors surrounding the U.S. housing market, and a decrease in
Canadian vinyl siding unit volumes of 4%.
Gross profit for the fiscal year ended January 3, 2009 was $274.8 million, or 24.2% of net
sales, compared to gross profit of $304.2 million, or 25.3% of net sales, for the 2007 fiscal year.
The decrease in gross profit as a percentage of net sales was primarily a result of reduced
leverage of fixed manufacturing costs due to lower sales volumes, partially offset by the impact of
cost reduction initiatives.
Selling, general and administrative expense increased to $212.0 million, or 18.7% of net
sales, for the fiscal year ended January 3, 2009 versus $208.0 million, or 17.3% of net sales, for
the 2007 fiscal year. Selling, general and administrative expense for the fiscal year ended
January 3, 2009 includes a loss upon the disposal of assets other than by sale of $1.8 million,
while selling, general and administrative expense for the 2007 fiscal year includes $0.7 million of
separation costs related to the resignation of the Companys former Chief Operating Officer, $1.2
million of transaction costs relating to an unsuccessful bid for an acquisition target and $1.0
million of tax restructuring costs. Excluding these items, selling, general and administrative
expense for the fiscal year ended January 3, 2009 increased $5.0 million compared to the 2007
fiscal year. The increase in selling, general and administrative expense was due primarily to
increased bad debt expense of $4.7 million and increased building and truck lease expenses of $2.1
million in the Companys supply center network, partially offset by decreases in EBITDA-based
incentive compensation programs of $3.0 million. Income from operations was $61.0 million for the
fiscal year ended January 3, 2009 compared to $96.2 million for the 2007 fiscal year.
Interest expense of $70.8 million for the year ended January 3, 2009 and $69.7 million for the
year ended December 29, 2007 consisted primarily of accretion of $45.4 million and $40.7 million on
the 11.25% notes, respectively, interest expense on the 9.75% notes, the prior credit facility, the ABL Facility, and amortization of deferred financing costs in 2008. The increase in interest
expense was due to the incremental accretion on the
11.25% notes and the write-off of $1.3 million of deferred financing costs offset by lower
overall borrowings under the credit facilities and decreased interest rates during 2008.
31
The income tax provision for the year ended January 3, 2009 reflects an effective income tax
rate of (499.0)% compared to an effective income tax rate of 41.1% for the 2007 fiscal year. The
decrease in the effective income tax rate in 2008 is primarily due to a valuation allowance
provided against certain deferred tax assets during 2008. This valuation allowance was recorded
based upon the review of historical earnings, trends, forecasted earnings and current economic
conditions.
The Company incurred a net loss of $69.1 million for the year ended January 3, 2009 compared
to net income of $15.8 million for the year ended December 29, 2007.
EBITDA was $81.9 million for the fiscal year ended January 3, 2009 compared to EBITDA of
$118.5 million for the fiscal year ended December 29, 2007. For the fiscal year ended January 3,
2009, adjusted EBITDA was $86.9 million compared to adjusted EBITDA of $121.8 million for the 2007
fiscal year. Adjusted EBITDA for the 2008 fiscal year excludes manufacturing restructuring costs of
$2.6 million, loss upon the disposal of assets other than by sale of $1.8 million and $0.5 million
of amortization related to prepaid management fees. Adjusted EBITDA for the 2007 fiscal year
excludes separation costs of $0.7 million related to the resignation of the Companys former Chief
Operating Officer, $1.2 million of transaction costs relating to an unsuccessful bid for an
acquisition target, $1.0 million of tax restructuring costs and $0.5 million of amortization
related to prepaid management fees.
QUARTERLY FINANCIAL DATA
Because most of the Companys building products are intended for exterior use, 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 and operating results than in any other period of the year. The Company has
historically had small profits or losses in the first quarter and reduced profits in the fourth
quarter of each calendar year.
Quarterly sales and operating profit data for the Company in 2009 and 2008 are shown in the
tables below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
April 4 |
|
|
July 4 |
|
|
October 3 |
|
|
January 2 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
172,332 |
|
|
$ |
274,969 |
|
|
$ |
324,807 |
|
|
$ |
273,999 |
|
Gross profit |
|
|
30,253 |
|
|
|
77,981 |
|
|
|
97,809 |
|
|
|
74,373 |
|
Selling, general and administrative expenses (1) |
|
|
48,498 |
|
|
|
51,297 |
|
|
|
53,323 |
|
|
|
51,492 |
|
Income (loss) from operations |
|
|
(18,245 |
) |
|
|
21,429 |
|
|
|
44,486 |
|
|
|
22,881 |
|
Net income (loss) |
|
|
(34,988 |
) |
|
|
9,336 |
|
|
|
24,937 |
|
|
|
(6,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 29 |
|
|
June 28 |
|
|
September 27 |
|
|
January 3 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
200,878 |
|
|
$ |
314,812 |
|
|
$ |
342,678 |
|
|
$ |
275,588 |
|
Gross profit |
|
|
44,613 |
|
|
|
78,992 |
|
|
|
86,586 |
|
|
|
64,658 |
|
Selling, general and administrative expenses (2) |
|
|
50,128 |
|
|
|
52,862 |
|
|
|
55,898 |
|
|
|
53,137 |
|
Income (loss) from operations |
|
|
(6,360 |
) |
|
|
25,192 |
|
|
|
30,688 |
|
|
|
11,521 |
|
Net income (loss) |
|
|
(14,774 |
) |
|
|
14,226 |
|
|
|
(1,071 |
) |
|
|
(67,524 |
) |
|
|
|
(1) |
|
Selling, general and administrative expenses include employee termination costs of $1.2
million, tax restructuring costs of $0.5 million and bank audit fees of $0.1 million. |
|
(2) |
|
Selling, general and administrative expenses include a loss upon the disposal of assets
other than by sale of $1.8 million. |
32
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth a summary of the Companys cash flows for 2009, 2008 and 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Net cash provided by operating activities |
|
$ |
121,886 |
|
|
$ |
16,262 |
|
|
$ |
71,351 |
|
Net cash used in investing activities |
|
|
(35,552 |
) |
|
|
(11,473 |
) |
|
|
(13,175 |
) |
Net cash used in financing activities |
|
|
(38,754 |
) |
|
|
(18,682 |
) |
|
|
(53,018 |
) |
CASH FLOWS
At January 2, 2010, the Company had cash and cash equivalents of $55.9 million and Associated
Materials had available borrowing capacity of approximately $139.8 million under its ABL Facility.
See - Description of the Companys Outstanding Indebtedness for further details of Associated
Materials ABL Facility. As of January 2, 2010, the Company had letters of credit outstanding of
$9.1 million primarily securing deductibles of various insurance policies.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $121.9 million for the year ended January 2,
2010, compared to $16.3 million for the same period in 2008. The increase was primarily due to
improved operating income and favorable changes in working capital. Accounts receivable was a use
of cash of $2.9 million for the year ended January 2, 2010, compared to a source of cash of $5.7
million for the same period in 2008, resulting in a net decrease in cash flows of $8.6 million
which was primarily due to decreased sales levels during 2009. Inventory was a source of cash of
$30.4 million for the year ended January 2, 2010, compared to a use of cash of $13.5 million for
the same period in 2008, resulting in a net increase in cash flows of $43.9 million which was
primarily due to reduced inventory levels and declining commodity costs. Accounts payable and
accrued liabilities were a source of cash of $45.7 for the year ended January 2, 2010, compared to
a use of cash of $27.2 million for the same period in 2008, resulting in a net increase in cash
flows of $72.9 million. The change was primarily due to improved vendor terms in 2009, accrued
interest on the 11.25% notes in 2009, reduced inventory purchase requirements during the fourth
quarter of 2008 and the decline of commodity prices towards the end of 2008.
Net cash provided by operating activities was $16.3 million for the year ended January 3,
2009, compared to $71.4 million for the same period in 2007. Accounts receivable was a source of
cash of $5.7 million for the year ended January 3, 2009, compared to a use of cash of $2.2 million
for the same period in 2007, resulting in a net increase in cash flows of $7.9 million which was
primarily due to decreased sales levels during 2008. Inventory was a use of cash of $13.5 million
for the year ended January 3, 2009, compared to a source of cash of $3.6 million for the same
period in 2007, resulting in a net decrease in cash flows of $17.1 million which was primarily due
to higher commodity costs experienced throughout most of 2008. Accounts payable and accrued
liabilities were a use of cash of $27.2 million for the year ended January 3, 2009, compared to a
use of cash of $4.0 million for the same period in 2007, resulting in a net decrease in cash flows
of $23.2 million. The change is primarily due to the timing of payments to vendors as a result of
the timing of when inventory levels were built, including the impact of the build of inventory to
prepare for the Companys distribution center in Ashtabula, Ohio and new distribution strategy, as
well as the recent decline of commodity prices toward the end of 2008.
CASH FLOWS FROM INVESTING ACTIVITIES
For the year ended January 2, 2010, net cash used in investing activities included an
intercompany loan of $26.8 million made to AMH II by Associated Materials in June 2009 for use in
the AMH II debt exchange and capital
expenditures of $8.7 million. The major areas of expenditures in 2009 were for maintenance
capital, cost improvement projects and the Companys glass insourcing project.
33
For the year ended January 3, 2009, net cash used in investing activities included capital
expenditures of $11.5 million. Capital expenditures in 2008 were primarily to improve capacity at
the Companys vinyl siding manufacturing operations and to improve manufacturing capacity at the
Companys window facilities.
For the year ended December 29, 2007, net cash used in investing activities included capital
expenditures of $12.4 million and cash paid to acquire a supply center of $0.8 million. Capital
expenditures in 2007 were primarily to improve capabilities in the Companys vinyl siding and metal
manufacturing operations.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities for the year ended January 2, 2010 included cash paid to
redeem and discharge the 9.75% notes and 15% notes of $189.5 million, net repayments under
Associated Materials ABL Facility of $46.0 million, payments of financing costs of $16.5 million
and dividend payments of $4.3 million, partially offset by proceeds from the issuance of the 9.875%
notes and 15% notes of $217.5 million. The dividends in 2009 were paid to the Companys direct
parent company to fund the scheduled interest payments on AMH IIs 13.625% Senior Notes due 2014
(the 13.625% notes). AMH IIs 13.625% notes were exchanged in June 2009 as part of AMH IIs debt
restructuring.
Net cash used in financing activities for the year ended January 3, 2009 included repayments
of $61.0 million of term debt under Associated Materials prior credit facility, borrowings of
$56.0 million under Associated Materials ABL Facility, payments for financing costs of $5.4
million for the ABL Facility and dividend payments of $8.3 million. The dividends were paid to the
Companys direct parent company to fund AMH IIs scheduled interest payments on its 13.625% notes.
Net cash used in financing activities for the year ended December 29, 2007 included repayments
of $45.0 million of term debt under Associated Materials prior credit facility and dividend
payments of $8.0 million. The dividends were paid to the Companys direct parent company to fund
AMH IIs scheduled interest payments on its 13.625% notes.
For 2010, cash requirements for working capital, capital expenditures, interest and tax
payments will continue to impact the timing and amount of borrowings on Associated Materials ABL
Facility.
DESCRIPTION OF THE COMPANYS OUTSTANDING INDEBTEDNESS
The following descriptions of the terms of the Companys outstanding indebtedness are
qualified in their entirety by reference to the documents governing such indebtedness, which are
included as exhibits to this Annual Report on Form 10-K and incorporated by reference herein.
ABL Facility
General. On October 3, 2008, Associated Materials, Gentek Building Products, Inc. and
Associated Materials Canada Limited (formerly known as Gentek Building Products Limited), as
borrowers, entered into an asset-based credit facility (the ABL Facility) with Wells Fargo
Securities, LLC (formerly known as Wachovia Capital Markets, LLC) and CIT Capital Securities LLC,
as joint lead arrangers, Wachovia Bank, N.A., as agent and the lenders party to the facility.
Pursuant to a reorganization of certain Canadian subsidiaries of Associated Materials occurring in
August and September of 2009 (the Canadian Reorganization), Gentek Building Products Limited
Partnership, a newly formed Canadian operating entity, was added as a borrower under the Canadian
portion of the ABL Facility. The ABL Facility provides for a senior secured asset-based revolving
credit facility of up to $225.0 million, comprising a $165.0 million U.S. facility and a $60.0
million Canadian facility, in each case subject to borrowing base availability under the applicable
facility. Pursuant to an amendment to the ABL Facility (the ABL Facility Amendment) entered into
in connection with the issuance of the 9.875% notes, effective November 5, 2009, the maturity date
of the ABL Facility was changed to mean the earliest of (i) October 3, 2013 and (ii) the date three
months prior to the stated maturity date of the 9.875% notes (as amended, supplemented or
replaced), if any such notes remain outstanding at such date, taking into account any stated
maturity dates which may be contingent, conditional or alternative. As of January 2, 2010, there
was $10.0 million drawn under the ABL Facility and $139.8 million available for additional
borrowing.
34
The obligations of Associated Materials, Gentek Building Products, Inc., Associated Materials
Canada Limited, and Gentek Building Products Limited Partnership as borrowers under the ABL
Facility, are jointly and severally guaranteed by Holdings and by Associated Materials wholly
owned domestic subsidiaries, Gentek Holdings, LLC and Associated Materials Finance, Inc. (formerly
Alside, Inc.). Such obligations and guaranties are also secured by (i) a security interest in
substantially all of the owned real and personal assets (tangible and intangible) of Associated
Materials, Holdings, Gentek Building Products, Inc., Gentek Holdings, LLC and Associated Materials
Finance, Inc. and (ii) a pledge of up to 65% of the voting stock of Associated Materials Canada
Limited and Gentek Canada Holdings Limited. The obligations of Associated Materials Canada Limited
and Gentek Building Products Limited Partnership are further secured by a security interest in
their owned real and personal assets (tangible and intangible) and are guaranteed by Gentek Canada
Holdings Limited, an entity formed as part of the Canadian Reorganization.
The interest rate applicable to outstanding loans under the ABL Facility is, at Associated
Materials option, equal to either a U.S. or Canadian adjusted base rate or a Eurodollar base rate
plus an applicable margin. Pursuant to the ABL Facility Amendment, the range of the applicable
margin related to adjusted base rate loans was changed, effective November 5, 2009, from the then
current range of 0.75% to 1.75% to an amended range of 1.25% to 2.25%, and the applicable margin
related to LIBOR loans was changed from the then current range of 2.50% to 3.50% to an amended
range of 3.00% to 4.00%, with the applicable margin in each case depending on Associated Materials
quarterly average excess availability. As of January 2, 2010, the per annum interest rate
applicable to borrowings under the ABL Facility was 5.0%. The weighted average interest rate for
borrowings under the ABL Facility and Associated Materials prior credit facility, as applicable,
were 4.2%, 5.6% and 7.8% for the years ended January 2, 2010, January 3, 2009 and December 27,
2007.
Associated Materials borrowing base under the ABL facility, for each of the U.S. and Canadian
facilities, is generally equal to (A) 85% of eligible accounts receivable plus (B) the lesser of
(i) the sum of (x) 50% of the value of eligible raw materials inventory, other than painted coil,
plus (y) the lesser of 35% of the value of painted coil and $2.5 million plus (z) 60% of the value
of finished goods inventory, and (ii) 85% of the net orderly liquidation value of eligible
inventory, plus (C) the lesser of fixed asset availability and $24.8 million (for the U.S.
facility) or $9.0 million (for the Canadian facility), minus (D) attributable reserves. Fixed
asset availability is generally defined as equal to 85% of the net orderly liquidation value of
eligible equipment plus 70% of the appraised fair market value of eligible real property; provided
that such amount decreases by a fixed amount each month. Associated Materials borrowing base will
fluctuate during the course of the year based on a variety of factors impacting Associated
Materials level of eligible accounts receivable and inventory, including seasonal builds in
inventory immediately prior to and during the peak selling season and changes in the levels of
accounts receivable, which tend to increase during the peak selling season and are at seasonal lows
during the winter months. Associated Materials peak selling season is typically May through
October. As of January 2, 2010, Associated Materials borrowing base was $158.8 million, which was
based on the borrowing base calculation utilizing November month end account balances.
Covenants. The ABL Facility contains covenants that, among other things and subject in each
case to certain specified exceptions, limit the ability of Holdings, Associated Materials and its
subsidiaries to: (i) merge or consolidate with, or sell equity interests, indebtedness or assets
to, a third party; (ii) wind up, liquidate or dissolve; (iii) create liens or other encumbrances on
assets; (iv) incur additional indebtedness or make payments in respect of existing indebtedness;
(v) make loans, investments and acquisitions; (vi) make certain restricted payments; (vii) enter
into transactions with affiliates; (viii) engage in any business other than the business engaged in
by Associated Materials at the time of entry into the ABL Facility; and (ix) incur restrictions on
its subsidiaries ability to make distributions to Holdings or Associated Materials or transfer or
encumber its subsidiaries assets. The ABL Facility also requires Associated Materials to obtain
an unqualified audit opinion from its independent registered public accounting firm on its
consolidated financial statements for each fiscal year.
The ABL Facility does not require Associated Materials to comply with any financial
maintenance covenants, unless it has less than $28.1 million of aggregate excess availability at
any time (or less than $20.6 million of excess availability under the U.S. facility or less than
$7.5 million of excess availability under the Canadian facility), during which time Associated
Materials is subject to compliance with a fixed charge coverage ratio covenant of 1.1 to 1. As of
January 2, 2010, Associated Materials exceeded the minimum aggregate excess availability
thresholds, and therefore, was not required to comply with this maintenance covenant.
35
Under the ABL Facility restricted payments covenant, subject to specified exceptions,
Holdings, Associated Materials and its restricted subsidiaries cannot make restricted payments,
such as dividends or distributions on equity, redemptions or repurchases of equity, or payments of
certain management or advisory fees or other extraordinary forms of compensation, unless prior
written notice is given and, as of the date of and after giving effect to the making of the
restricted payment:
|
|
|
excess availability under the ABL Facility exceeds $45.0 million for the total
facility, and $24.8 million and $9.0 million for the U.S. and Canadian facilities,
respectively, if the fixed asset availability (as defined) is greater than zero; or if
the fixed asset availability is equal to zero, $33.8 million for the total facility,
and $20.6 million and $7.5 million for the U.S. and Canadian facilities, respectively; |
|
|
|
the consolidated EBITDA (as defined under the ABL Facility) of Holdings and its
subsidiaries in the most recent fiscal quarter for which financial statements have been
delivered (or, if such quarter is the first fiscal quarter of Holdings and its
subsidiaries of such year, then the fiscal quarter immediately preceding such quarter)
is at least 50% of the consolidated EBITDA of such entities for the same quarter in the
prior year; and |
|
|
|
no default has occurred and is continuing under the ABL Facility. |
Excess availability is generally defined under the ABL Facility as the difference between the
borrowing base and the outstanding obligations of the borrowers (as such obligations are adjusted
for changes in the level of reserves and certain other short term payables). During the year ended
January 2, 2010, Holdings and Associated Materials were not prevented from making restricted
payments by the ABL Facilitys restricted payments covenant. For the fourth quarter of 2009, the
consolidated EBITDA of Holdings and its subsidiaries, as determined in accordance with the ABL
Facility, exceeded 50% of the consolidated EBITDA for the fourth quarter of 2008.
Associated Materials excess availability under the ABL Facility was $139.8 million as of
January 2, 2010. The excess availability will fluctuate throughout the course of the year based on
a variety of factors impacting Associated Materials borrowing base and outstanding borrowings and
other obligations. The borrowing base and the level of outstanding borrowings and other
obligations are impacted by the seasonality of Associated Materials business, as sales and
earnings are typically lower during the first quarter of each year, while working capital
requirements increase prior to the peak selling season as inventories are built in advance of the
peak selling season.
Events of Default. Events of default under the ABL Facility include: (i) nonpayment of
principal or interest; (ii) failure to comply with covenants, subject to applicable grace periods;
(iii) defaults on indebtedness in excess of $7.5 million; (iv) change of control events; (v)
certain events of bankruptcy, insolvency or reorganization; (vi) any material provision of any ABL
Facility document ceasing to be valid, binding and enforceable or any assertion of such invalidity;
(vii) a guarantor denying, disaffirming or otherwise failing to perform its obligations under its
guaranty; (viii) any event of default under any other document related to the ABL Facility; and
(ix) certain undischarged judgments or decrees for the payment of money, certain ERISA events, and
certain Canadian tax events, in each case in excess of specified thresholds.
If an event of default under the ABL Facility occurs and is continuing, amounts outstanding
under the ABL Facility may be accelerated upon notice, in which case the obligations of the lenders
to make loans and arrange for letters of credit under the ABL Facility would cease. If an event of
default relates to certain events of bankruptcy, insolvency or reorganization of Holdings,
Associated Materials or the other borrowers and guarantors under the ABL Facility, the payment
obligations of the borrowers under the ABL Facility will become automatically due and payable
without any further action required.
36
9.875% Notes
General. In June 2009, Associated Materials issued $20.0 million of its 15% notes in a
private placement to certain institutional investors. Net proceeds were approximately $15 million
from the issuance of the 15% notes, net of funding fees and other transaction expenses.
On November 5, 2009, Associated Materials issued $200.0 million of 9.875% notes in a private
offering. The 9.875% notes were issued by Associated Materials and Associated Materials Finance,
Inc., a wholly owned subsidiary of Associated Materials (collectively, the Issuers) at a price of
98.757%. The net proceeds from the offering were used to discharge and redeem Associated
Materials outstanding 9.75% notes and its outstanding 15% notes, and to pay fees and expenses
related to the offering. The discharge was accomplished, effective upon closing of the offering of
the 9.875% notes, by a deposit with the relevant trustees of funds sufficient to redeem the 9.75%
notes and 15% notes and such funds were used to redeem the 9.75% notes and 15% notes on December 7,
2009. At January 2, 2010, the accreted balance of the 9.875% notes, net of the original issue
discount, was $197.6 million.
The 9.875% notes bear interest at a rate of 9.875% per annum and will mature on November 15,
2016. Interest accrues on the 9.875% notes and is payable semi-annually on May 15th and November
15th of each year, commencing May 15, 2010. The Issuers are required to redeem the 9.875% notes no
later than December 1, 2013, if as of October 15, 2013, AMHs 11.25% notes remain outstanding,
unless discharged or defeased, or if any indebtedness incurred by the Issuers or any of their
holding companies to refinance such AMH 11.25% notes matures prior to the maturity date of the
9.875% notes. As of January 2, 2010, AMH had $431.0 million in aggregate principal amount of its
11.25% notes outstanding.
Prior to November 15, 2012, the Issuers may redeem all or a portion of the 9.875% notes at any
time or from time to time at a price equal to 100% of the principal amount of the 9.875% notes plus
accrued and unpaid interest, plus a make-whole premium. Beginning on November 15, 2012, the
Issuers may redeem all or a portion of the 9.875% notes at a redemption price of 107.406%. The
redemption price declines to 104.938% at November 15, 2013, to 102.469% at November 15, 2014 and to
100% on November 15, 2015 for the remaining life of the 9.875% notes. In addition, on or prior to
November 15, 2012, the Issuers may redeem up to 35% of the 9.875% notes using the proceeds of
certain equity offerings at a redemption price equal to 100% of the aggregate principal amount
thereof, plus a premium equal to the interest rate per annum on the 9.875% notes, plus accrued and
unpaid interest, if any, to the date of redemption.
The 9.875% notes and related guarantees are secured, subject to certain permitted liens, by
second-priority liens on the assets that secure the ABL Facilitys indebtedness, namely
substantially all of the Issuers and their U.S. subsidiaries tangible and intangible assets. The
9.875% notes are structurally senior to all of AMHs indebtedness, including the 11.25% notes.
Covenants. The indenture governing the 9.875% notes (the 9.875% notes indenture) contains
covenants that, among other things and subject in each case to certain specified exceptions, limit
the ability of the Issuers and of certain restricted subsidiaries: (i) to incur additional
indebtedness unless Associated Materials meets a 2 to 1 consolidated coverage ratio test, or as
permitted under specified available baskets; (ii) to make restricted payments; (iii) to incur
restrictions on subsidiaries ability to make distributions or transfer assets to Associated
Materials; (iv) to create, incur, affirm or suffer to exist any liens, (v) to sell assets or stock
of subsidiaries; (vi) to enter into transactions with affiliates; and (vii) to merge or consolidate
with, or sell all or substantially all assets to, a third party or undergo a change of control.
Under the restricted payments covenant in the 9.875% notes indenture, Associated Materials and
its restricted subsidiaries cannot, subject to specified exceptions, make restricted payments
unless: (i) the amount available for distribution of restricted payments under the 9.875% notes
indenture (the restricted payments basket) exceeds the aggregate amount of the proposed
restricted payment; (ii) Associated Materials is not in default under the 9.875% notes indenture;
and (iii) the consolidated coverage ratio of Associated Materials exceeds 2 to 1. Consolidated
coverage ratio is defined in the 9.875% notes indenture as the ratio of Associated Materials
EBITDA to consolidated interest expense (each as defined in such indenture). Restricted payments
(with certain exceptions) and net losses erode the restricted payment basket, while net income (by
a factor of 50%), proceeds from equity issuances, and proceeds from investments and returns of
capital increase the restricted payment basket. Restricted payments include paying dividends or
making other distributions in respect of Associated Materials capital stock, purchasing, redeeming
or otherwise acquiring capital stock or subordinated indebtedness of Associated Materials and
making investments (other than certain permitted investments).
37
Irrespective of whether it is otherwise able to pay dividends under the restricted payments
test described above, the 9.875% notes indenture permits the payment of dividends by Associated
Materials to Holdings (and AMH) for
the payment of interest on AMHs 11.25% notes (or any refinancing thereof), in an aggregate
amount not to exceed $125.0 million or if Associated Materials leverage ratio (as defined in the
9.875% notes indenture) is equal to or less than 4.5 to 1.00. The 9.875% notes indenture also
permits dividends for the payment of principal on the 11.25% notes or AMH IIs 20% Senior Notes due
2014 (the 20% notes) in an aggregate amount not to exceed $50 million when Associated Materials
leverage ratio is equal to or less than 4.5 to 1.00.
Associated Materials ability to make restricted payments under the 9.875% notes indenture is
subject to compliance with the other conditions to making restricted payments provided for in such
indenture, to compliance with the restricted payments covenants in the ABL Facility, and to
statutory limitations on the payment of dividends. At January 2, 2010, subject to the limitations
to both the Indenture for 9.875% notes and the ABL Facility, Associated Materials could have
upstreamed an additional $150.3 million, which is comprised of availability under the borrowing
base and the cash on hand at year end.
Events of default. The 9.875% indenture provides for the following events of default: (i)
default for 30 days in payment of interest on the 9.875% notes; (ii) default in payment of
principal on the 9.875% notes; (iii) the failure by the Issuers or any of Associated Materials
existing and future domestic restricted subsidiaries, other than Associated Materials Finance, Inc.
(the Subsidiary Guarantors) to comply with other agreements in the Indenture or the 9.875% notes,
in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure
to pay within any grace period after final maturity) of other indebtedness of the Issuers or any
significant subsidiary if the amount accelerated (or so unpaid) exceeds $10.0 million; (v) certain
events of bankruptcy or insolvency with respect to the Issuers or any significant subsidiary; (vi)
certain judgments or decrees for the payment of money in excess of $10.0 million; and (vii) certain
defaults with respect to the subsidiary guarantees and the security documents creating a security
interest in assets to secure the obligations under the 9.875% notes, the subsidiary guarantees and
other pari passu secured indebtedness. If an event of default occurs and is continuing, the
trustee or the holders of at least 25% in principal amount of the outstanding 9.875% notes may
declare all the 9.875% notes to be due and payable. Certain events of bankruptcy or insolvency are
events of default which will result in the 9.875% notes being due and payable immediately upon the
occurrence of such events of default.
Change of control. In the event of a change of control of Associated Materials, as defined in
the 9.875% notes indenture, holders of the 9.875% notes have the right to require Associated
Materials to repurchase their 9.875% notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the repurchase date.
11.25% Notes
General. As of January 2, 2010, AMH had $431.0 million in aggregate principal amount of its
11.25% notes outstanding. During the second quarter of 2009, AMH II purchased $15.0 million par
value of AMHs 11.25% notes directly from the AMH debtholders with funds loaned from Associated
Materials for approximately $5.9 million. In exchange for the purchased 11.25% notes, AMH II was
granted additional equity interests in AMH. As a result, AMH recorded a gain on debt extinguishment
of $8.9 million for the year ended January 2, 2010.
The 11.25% notes are unsecured senior obligations of AMH, equal in right of payment with AMHs
existing and future unsecured senior indebtedness, senior in right of payment to any current or
future indebtedness of AMH that is made subordinated to the 11.25% notes, effectively subordinated
in right of payment to AMHs existing and future secured debt, to the extent of the value of the
assets securing such debt, and structurally subordinated to all obligations of existing and future
subsidiaries of AMH, including Associated Materials. AMHs payment obligations under the 11.25%
notes are not guaranteed by Associated Materials or any other party. The 11.25% notes are
redeemable at the option of AMH, currently at a redemption price of 103.750% (beginning on March
1, 2010), declining to 101.875% on March 1, 2011, and to 100% on March 1, 2012 for the remaining
life of the 11.25% notes.
38
Prior to March 1, 2009, interest accrued at a rate of 11.25% per annum on the 11.25% notes in
the form of an increase in the accreted value of the notes. Since March 1, 2009, cash interest has
been accruing at a rate of 11.25% per annum on the 11.25% notes and is payable semi-annually in
arrears on March 1st and September 1st of each year, with the first payment of cash interest under
the 11.25% notes paid on September 1, 2009.
AMH is a holding company with no independent operations. Because AMH has no independent
operations, it is dependent upon distributions, payments and loans from Associated Materials to
service its indebtedness under the 11.25% notes. If Associated Materials were precluded from making
restricted payments, either under its debt agreements or pursuant to statutory limitations on the
payment of dividends, it would not be able to dividend or otherwise upstream sufficient funds to
AMH to permit AMH to service its 11.25% notes. In that event, AMH would have to find alternative
sources of liquidity to meet its obligations under the 11.25% notes.
Covenants. The indenture governing the 11.25% notes contains covenants that, among other
things and subject in each case to certain specified exceptions, limit the ability of AMH and of
certain restricted subsidiaries (including Holdings and Associated Materials): (i) to incur
additional indebtedness unless (x) in the case of AMH, AMH meets a 2 to 1 consolidated coverage
ratio test and (y) in the case of Associated Materials or its restricted subsidiaries, Associated
Materials meets a 2 to 1 consolidated coverage ratio test, or as permitted under specified
available baskets; (ii) to incur liens; (iii) to make restricted payments; (iv) to incur
restrictions on the ability of the restricted subsidiaries of AMH to make distributions or transfer
assets to AMH or its restricted subsidiaries; (v) to sell assets or stock of subsidiaries; (vi) to
enter into transactions with affiliates; and (vi) to merge or consolidate with, or sell all or
substantially all assets to, a third party or undergo a change of control.
Under the restricted payments covenant in the 11.25% notes indenture, AMH and its restricted
subsidiaries (including Holdings and Associated Materials) cannot, subject to specified exceptions,
make restricted payments unless: (i) the amount available for distribution of restricted payments
under the 11.25% notes indenture (the restricted payments basket) exceeds the aggregate amount of
the proposed restricted payment; (ii) AMH is not in default under the 11.25% notes indenture; and
(iii) the consolidated coverage ratio of AMH exceeds 2 to 1.
Events of default. The 11.25% notes indenture provides for the following events of default:
(i) default in the payment of interest, continued for 30 days; (ii) default in the payment of
principal when due; (iii) failure by AMH to comply with its covenants in the 11.25% notes
indenture, subject to applicable grace periods; (iv) payment default after maturity, or
acceleration following other defaults with respect to, indebtedness of AMH or any significant
subsidiary exceeding $10.0 million; (v) certain events of bankruptcy, insolvency or reorganization;
and (vi) certain undischarged judgments or decrees for the payment of money exceeding a specified
threshold. These events of default are generally similar to those provided for in the 9.875% notes
indenture.
If an event of default occurs, the trustee or holders of 25% or more in aggregate principal
amount of the notes may accelerate the notes. If an event of default relates to certain events of
bankruptcy, insolvency or reorganization, the notes will automatically accelerate without any
further action required by the trustee or holders of the notes.
Change of control. In the event of a change of control, as defined in the 11.25% notes
indenture, of AMH, holders of the 11.25% notes have the right to require AMH to repurchase their
notes at a purchase price in cash equal to 101% of the accreted value thereof plus accrued and
unpaid interest to the repurchase date.
Parent Company Indebtedness
AMHs direct parent company, AMH II, is a holding company with no independent operations. In
connection with a December 2004 recapitalization transaction, AMH II was formed and subsequently
issued $75 million of 13.625% notes. In June 2009, AMH II entered into an exchange agreement
pursuant to which it paid $20.0 million in cash and issued $13.066 million original principal
amount of its 20% notes in exchange for all of its outstanding 13.625% notes. Interest on AMH IIs
20% notes is payable in cash semi-annually in arrears or may be added to the then outstanding
principal amount of the 20% notes and paid at maturity on December 1, 2014. In accordance with the
principles described in FASB ASC 470-60, Troubled Debt Restructurings by Debtors (ASC 470-60),
AMH II recorded a troubled debt restructuring gain of approximately $19.2 million during the second
quarter of 2009. In November 2009, Associated Materials redeemed its 15% notes that were issued in
June 2009. As a result of applying ASC 470-60 on a consolidated basis, AMH II recorded an
additional debt restructuring gain of $10.3 million during the fourth quarter of 2009. The
additional gain primarily consisted of the write-off of all future accrued interest of Associated
Materials 15% notes that were redeemed and discharged in connection with Associated Materials
issuance of its 9.875% notes. As of January 2, 2010, AMH II had $13.066 million in aggregate
principal amount of its 20% notes outstanding, and had recorded an additional liability of $23.7
million in accrued interest related to all future interest payments on its 20% notes in accordance
with ASC 470-60. As of
January 2, 2010, total AMH II debt, including that of its consolidated subsidiaries, was
approximately $675.4 million, which includes $23.7 million of accrued interest related to all
future interest payments on AMH IIs 20% notes.
39
AMH, Holdings and Associated Materials are each restricted subsidiaries under the indenture
for AMH IIs 20% notes and are therefore subject to the covenants and events of default described
therein. Covenants and events of default with respect to AMH IIs 20% notes are generally
similar to those provided for in the 9.875% notes indenture and the indenture governing
AMHs 11.25% notes.
Because AMH II has no independent operations, it is dependent upon distributions, payments and
loans from Associated Materials and AMH to service its indebtedness under the 20% notes. However,
unlike AMH IIs previously outstanding 13.625% notes, all of which were exchanged for the 20% notes
in June 2009, interest on AMH IIs 20% notes may be added to the then outstanding principal amount
of the 20% notes and paid at maturity on December 1, 2014. If Associated Materials and AMH were
unable to or were precluded from making restricted payments, either under their debt agreements or
pursuant to statutory limitations on the payment of dividends, AMH would not be able to dividend or
otherwise upstream sufficient funds to AMH II to allow AMH II to make the payments due on its 20%
notes at maturity. Under such a scenario, AMH II would have to find alternative sources of
liquidity to meet its obligations under the 20% notes. AMH does not guarantee the 20% notes and
has no obligation to make any payments with respect thereto.
If Associated Materials were unable to meet its indebtedness obligations with respect to the
ABL Facility or the 9.875% notes, or if either of AMH or AMH II, were not able to meet its
indebtedness obligations under the 11.25% notes or the 20% notes, as the case may be, or if an
event of default were otherwise to occur with respect to any of such indebtedness obligations, and
such indebtedness obligations could not be refinanced or amended to eliminate the default, then the
lenders under the ABL Facility (in the case of an event of default under that facility) or the
holders of the applicable series of notes (in the case of an event of default under those notes)
could declare the applicable indebtedness obligations due and payable and exercise any remedies
available to them. Any event of default under the 9.875% notes could in turn trigger a
cross-default under the ABL Facility, and any acceleration of the ABL Facility, the 9.875% notes or
the 11.25% notes could, in turn, result in an event of default under the other indebtedness
obligations of the relevant obligor on such indebtedness and its parent companies, allowing the
holders of such indebtedness likewise to declare all such indebtedness obligations due and payable
and exercise any remedies available to them.
POTENTIAL IMPLICATIONS OF CURRENT TRENDS AND CONDITIONS IN THE BUILDING PRODUCTS INDUSTRY ON
THE COMPANYS LIQUIDITY AND CAPITAL RESOURCES
The Company believes its cash flows from operations and Associated Materials borrowing
capacity under the ABL Facility will be sufficient to satisfy its obligations to pay principal and
interest on its outstanding debt, maintain current operations and provide sufficient capital, as
well as pay dividends or make other upstream payments sufficient for AMH to be able to service its
debt obligations through 2010. However, as discussed under - Overview above, the building
products industry continues to be negatively impacted by a weak housing market, with a number of
factors contributing to lower current demand for the Companys products, including reduced numbers
of existing home sales and new housing starts and depreciation in housing prices. If these trends
continue, the Companys ability to generate cash sufficient to meet its existing indebtedness
obligations could be adversely affected, and the Company could be required either to find alternate
sources of liquidity or to refinance its existing indebtedness in order to avoid defaulting on its
debt obligations.
40
The ability of the Company to generate sufficient funds and have sufficient restricted
payments capability both to service its own debt obligations and to allow the Company to pay
dividends or make other upstream payments
sufficient for AMH II to be able to service their respective obligations will be dependent in
large part on the impact of building products industry conditions on the Companys business,
profitability and cash flows and on the ability of the Company and/or its parent company to
refinance its indebtedness. There can be no assurance that the Company and/or AMH II would be able
to obtain any necessary consents or waivers in the event any of them is unable to service or were
to otherwise default under their debt obligations, or that any of them would be able to
successfully refinance their indebtedness. The ability to refinance any indebtedness may be made
more difficult to the extent that current building products industry and credit market conditions
continue to persist. The inability of the Company and/or AMH II to service or refinance their
indebtedness would likely have a material adverse effect on the Company and/or AMH II.
For additional information regarding these and similar risks, see Item 1A. Risk Factors.
CONTRACTUAL OBLIGATIONS
The Company has commitments for maturities of long-term debt, obligations under defined
benefit pension plans, and future minimum lease payments under noncancelable operating leases
principally for manufacturing and distribution facilities and certain equipment. The following
summarizes certain of the Companys scheduled maturities of long-term debt, scheduled interest
payments on the 9.875% notes and 11.25% notes, estimated required contributions to its defined
benefit pension plans, and obligations for future minimum lease payments under non-cancelable
operating leases at January 2, 2010 and the effect such obligations are expected to have on the
Companys liquidity and cash flow in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
Total |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2014 |
|
Long-term debt (1) |
|
$ |
641,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,000 |
|
|
$ |
431,000 |
|
|
$ |
200,000 |
|
Interest payments on 11.25% notes |
|
|
218,196 |
|
|
|
48,488 |
|
|
|
48,488 |
|
|
|
48,488 |
|
|
|
48,488 |
|
|
|
24,244 |
|
|
|
|
|
Interest payments on 9.875% notes |
|
|
138,799 |
|
|
|
20,299 |
|
|
|
19,750 |
|
|
|
19,750 |
|
|
|
19,750 |
|
|
|
19,750 |
|
|
|
39,500 |
|
Operating leases (2) |
|
|
146,149 |
|
|
|
33,740 |
|
|
|
28,748 |
|
|
|
23,640 |
|
|
|
19,510 |
|
|
|
14,787 |
|
|
|
25,724 |
|
Expected pension contributions (3) |
|
|
40,985 |
|
|
|
5,738 |
|
|
|
9,498 |
|
|
|
9,365 |
|
|
|
8,672 |
|
|
|
7,712 |
|
|
|
|
|
|
|
|
(1) |
|
Represents principal amounts, but not interest. The Companys long-term debt consists of the
$10.0 million outstanding balance under Associated Materials ABL Facility as of January 2,
2010, $431.0 million of the 11.25% notes and $200.0 million of the 9.875% notes. The Company is not able to
estimate reasonably the cash payments for interest associated with the ABL Facility due to the significant estimation
required related to both market rates as well as projected principal payments. The stated
maturity date of the 11.25% notes is March 1, 2014 and the stated maturity date of the 9.875%
notes is November 15, 2016. However, if the 11.25% notes remain outstanding as of October 15,
2013, or if any indebtedness incurred by the Company or its parent company to refinance the
11.25% notes has a maturity date which is earlier than that of the 9.875% notes, then the
Company will be required to redeem the entire principal amount outstanding of the 9.875% notes
no later than December 1, 2013. See Note 7 to the consolidated financial statements for
further details. |
|
(2) |
|
For additional information on the Companys operating leases, see Note 8 to the consolidated
financial statements. |
|
(3) |
|
Although subject to change, the amounts set forth in the table above represent the estimated
minimum funding requirements under current law. Due to uncertainties regarding significant
assumptions involved in estimating future required contributions to the Companys pension
plans, including: (i) interest rate levels, (ii) the amount and timing of asset returns, and
(iii) what, if any, changes may occur in pension funding legislation, the estimates in the
table may differ materially from actual future payments. The Company cannot reasonably
estimate payments beyond 2014. |
41
Net long-term deferred income tax liabilities as of January 2, 2010 were $35.0 million. This
amount is not included in the contractual obligations table because the Company believes this
presentation would not be meaningful. Deferred income tax liabilities are calculated based on
temporary differences between the tax bases of assets and liabilities and their respective book
bases, which will result in taxable amounts in future years when the liabilities are settled at
their reported financial statement amounts. The results of these calculations do not have a direct
connection with the amount of cash taxes to be paid in any future periods. As a result, the Company
believes scheduling deferred income tax liabilities as payments due by period could be misleading,
because this scheduling
would not relate to liquidity needs. At January 2, 2010, the Company had unrecognized
tax benefits of $1.0 million relating to uncertain tax positions. Due to the high degree of
uncertainty regarding the timing of future cash flows associated with these tax positions, the
Company is unable to estimate when cash settlement may occur.
Consistent with industry practice, the Company provides to homeowners limited warranties on
certain products, primarily related to window and siding product categories. The Company has
recorded reserves of approximately $33.0 million at January 2, 2010 related to warranties issued to
homeowners. The Company estimates that approximately $6.4 million of payments will be made in 2010
to satisfy warranty obligations. However, the Company cannot reasonably estimate payments by year
for 2011 and thereafter due to the nature of the obligations under these warranties.
There can be no assurance that the Companys cash flow from operations, combined with
additional borrowings under the ABL Facility, will be available in an amount sufficient to enable
the Company to repay its indebtedness or to fund its other liquidity needs or planned capital
expenditures. The Company may need to refinance all or a portion of its indebtedness on or before
their respective maturities. Although the stated maturity date of the 9.875% notes is November 15,
2016, if the 11.25% notes remain outstanding as of October 15, 2013, or if any indebtedness
incurred by the Company or its parent company to refinance the 11.25% notes has a maturity date
which is prior to that of the 9.875% notes, then the Company will be required to redeem the entire
principal amount outstanding of 9.875% notes no later than December 1, 2013. There can be no
assurance that the Company will be able to refinance any of its indebtedness on commercially
reasonable terms or at all.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no special purpose entities or off-balance sheet debt, other than operating
leases in the ordinary course of business, which are disclosed in Note 8 to the consolidated
financial statements.
At January 2, 2010, the Company had stand-by letters of credit of $9.1 million with no amounts
drawn under the stand-by letters of credit. These letters of credit reduce the availability under
the ABL Facility. Letters of credit are purchased guarantees that ensure the Companys performance
or payment to third parties in accordance with specified terms and conditions.
Under certain agreements, indemnification provisions may require the Company to make payments
to third parties. In connection with certain facility leases, the Company may be required to
indemnify its lessors for certain claims. Also, the Company may be required to indemnify its
directors, officers, employees and agents to the maximum extent permitted under the laws of the
State of Delaware. The duration of these indemnity provisions under the terms of each agreement
varies. The majority of indemnities do not provide for any limitation of the maximum potential
future payments the Company could be obligated to make. In 2009, the Company did not make any
payments under any of these indemnification provisions or guarantees, and the Company has not
recorded any liability for these indemnities in the accompanying consolidated balance sheets.
RELATED PARTY TRANSACTIONS
The Company entered into a management advisory agreement with Investcorp International Inc.
(III) for management advisory, strategic planning and consulting services, for which the Company
paid III the total due under the agreement of $6.0 million on December 22, 2004. As described in
the management advisory agreement with III, $4.0 million of this management fee relates to services
to be provided during the first year of the agreement, with $0.5 million related to services to be
provided each year of the remaining four year term of the agreement. The term of the management
advisory agreement ended on December 22, 2009. The Company expensed the prepaid management fee in
accordance with the services provided over the life of the agreement and recorded $0.5 million of
expense in connection with this agreement for each of the years ended January 2, 2010, January 3,
2009, and December 29, 2007, which are included in selling, general and administrative expenses in
the consolidated statements of operations.
42
On November 5, 2009, the Company entered into a financing advisory services agreement with
III, which financing advisory services agreement provided for the payment to III of a one-time fee
in exchange for certain
financing advisory services. In connection with such agreement, a fee, equal to 0.667%, or
approximately $1.3 million, of the total proceeds of the 9.875% notes offering was paid to III upon
the issuance of the 9.875% notes.
The Company entered into an amended and restated management agreement with Harvest Partners in
December 2004 for financial advisory and strategic planning services. For these services, Harvest
Partners receives an annual fee payable on a quarterly basis in advance, beginning on the date of
execution of the original agreement. The fee is adjusted on a yearly basis in accordance with the
U.S. Consumer Price Index. The Company paid approximately $0.9 million, $0.9 million and $0.8
million of management fees to Harvest Partners for the years ended January 2, 2010, January 3,
2009, and December 29, 2007, respectively, which are included in selling, general and
administrative expenses in the consolidated statements of operations. The agreement also provides
that Harvest Partners will receive transaction fees in connection with financings, acquisitions and
divestitures of the Company. Such fees will be a percentage of the applicable transaction. In
December 2004, Harvest Partners and III entered into an agreement pursuant to which they agreed
that any transaction fee that becomes payable under the amended management agreement after December 22, 2004
will be shared equally by Harvest Partners and III. The initial term of the management agreement
concluded on March 31, 2007. The term has been automatically renewed for one-year periods since
that date and will continue to automatically renew for one-year periods on March 31st of each year
provided written notice of termination has not been given by Harvest Partners at least three years
prior to the end of the applicable term.
On November 5, 2009, the Company entered into a financing advisory services agreement with
Harvest Partners, which finance advisory services agreement provided for the payment to Harvest
Partners of a one-time fee in exchange for certain financing advisory services. In connection with
such agreement, a fee equal to 0.333%, or approximately $0.7 million, of the total proceeds of the
9.875% notes offering was paid to Harvest Partners upon the issuance of the 9.875% notes.
As of January 2, 2010 and January 3, 2009, the Company has a payable to its direct parent
company totaling approximately $14.8 million and $10.5 million, respectively. The balances
outstanding with its direct parent company relates primarily to amounts owed under the Companys
tax sharing agreement with its direct parent company, which include the Company on its consolidated
tax return, totaling $16.0 million and $11.7 million at January 2, 2010 and January 3, 2009,
respectively, offset by $1.2 million of amounts due for fees paid by the Company on behalf of its
direct parent company in connection with its formation.
In June 2009, at the time the Company entered into the purchase agreement pursuant to which it
issued its 15% notes (which were redeemed and discharged in connection with the issuance of its
9.875% notes in November 2009), Associated Materials entered into an intercompany loan agreement
with AMH II, pursuant to which Associated Materials agreed to periodically make loans to AMH II in
an amount not to exceed an aggregate outstanding principal amount of approximately $33.0 million at
any one time, plus accrued interest. Interest accrues at a rate of 3% per annum and is added to the
then outstanding principal amount on a semi-annual basis. The principal amount and accrued but
unpaid interest thereon will mature on May 1, 2015. As of January 2, 2010, the principal amount of
borrowings by AMH II under this intercompany loan agreement and accrued interest thereon was $27.2
million. The Company believes that AMH II will have the ability to repay the loan in accordance
with its stated terms. Due to the related party nature and the underlying terms of the intercompany
loan with AMH II, the Company has deemed it not practical to assign and disclose a fair value
estimate.
For additional information on related party transactions, see Item 13. Certain Relationships
and Related Transactions and Note 2 to the consolidated financial statements.
43
EFFECTS OF INFLATION
The principal raw materials used by the Company are vinyl resin, aluminum, steel, resin
stabilizers and pigments, glass, window hardware, and packaging materials, all of which have
historically been subject to price changes. Raw material pricing on the Companys key commodities
has increased significantly over the past three years. In response, the Company announced price
increases over the past several years on certain of its product offerings to offset the inflation
of raw materials, and continually monitors market conditions for price changes as warranted. The
Companys ability to maintain gross margin levels on its products during periods of rising raw
material costs depends on the Companys ability to obtain selling price increases. Furthermore, the
results of operations for individual quarters can and have been negatively impacted by a delay
between the timing of raw
material cost increases and price increases on the Companys products. There can be no
assurance that the Company will be able to maintain the selling price increases already implemented
or achieve any future price increases. At January 2, 2010, the Company had no raw material hedge
contracts in place.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 Accounting Polices Recent Accounting Pronouncements of the consolidated
financial statements for a description of recent accounting pronouncements, including the
respective dates of adoption and effects on the Companys financial position, results of operations
and cash flows.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys consolidated financial statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these consolidated financial
statements requires the Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates its
estimates, including those related to customer programs and incentives, bad debts, inventories,
warranties 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.
The Company believes the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition. The Company primarily sells and distributes its products through two
channels: direct sales from its manufacturing facilities to independent distributors and dealers
and sales to contractors through its company-operated supply centers. Direct sales revenue is
recognized when the Companys manufacturing facility ships the product. Sales to contractors are
recognized either when the contractor receives product directly from the supply centers or when the
supply centers deliver the product to the contractors job site. For both direct sales to
independent distributors and sales generated through the Companys supply centers, revenue is not
recognized until collectibility is reasonably assured. A substantial portion of the Companys
sales is in the repair and replacement segment of the building products industry. Therefore, vinyl
windows are manufactured to specific measurement requirements received from the Companys
customers.
Revenues are recorded net of estimated returns, customer incentive programs and other
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. On contracts involving installation, revenue is
recognized when the installation is complete. The Company collects sales, use, and value added
taxes that are imposed by governmental authorities on and concurrent with sales to the Companys
customers. Revenues are presented net of these taxes as the obligation is included in accrued
liabilities until the taxes are remitted to the appropriate taxing authorities.
The Company offers certain sales incentives to customers who become eligible based on the
level of purchases made during the calendar year and are accrued as earned throughout the year.
The sales incentives programs are considered customer volume rebates, which are typically computed
as a percentage of customer sales, and in certain instances the rebate percentage may increase as
customers achieve sales hurdles. Volume rebates are accrued throughout the year based on
management estimates of customers annual sales volumes and the expected annual rebate percentage
achieved. For these programs, the Company does not receive an identifiable benefit in exchange for
the consideration, and therefore, the Company characterizes the volume rebate to the customer as a
reduction of revenue in the Companys consolidated statement of operations.
44
Accounts Receivable. The Company records accounts receivable at selling prices which are fixed
based on purchase orders or contractual arrangements. The Company maintains an allowance 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 a review of the overall
condition of accounts receivable balances and a review of significant
past due accounts. If the financial condition of the Companys customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be
required. Account balances are charged off against the allowance for doubtful accounts after all
means of collection have been exhausted and the potential for recovery is considered remote.
Inventories. The Company values its inventories at the lower of cost (first-in, first-out) or
market value. 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 as
of the reporting date. Market value is estimated based on the inventories current replacement
costs by purchase or production; however, market value shall not exceed net realizable value or be
lower than net realizable value less normal profit margins. The market and net realizable values
of inventory require estimates and judgments based on the Companys historical write-down
experience, anticipated write-downs based on future merchandising plans and consumer demand,
seasonal considerations, current market conditions and expected industry trends. If actual market
conditions are less favorable than those projected by management, additional inventory write-downs
may be required. The Companys estimates of market value generally are not sensitive to management
assumptions. Replacement costs and net realizable values are based on actual recent purchase and
selling prices, respectively. The Company believes that its average days of inventory on hand
indicates that market value declines are not a significant risk and that the Company does not
maintain excess levels of inventory. In addition, the Company believes that its cost of
inventories are recoverable as the Companys realized gross profit margins have remained consistent
with historical periods and management currently expects margins to generally remain in-line with
historical results.
Goodwill and Other Intangible Assets. Under the provisions of Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) 350, IntangiblesGoodwill and Other (SFAS
No. 142), goodwill and intangible assets with indefinite useful lives must be reviewed for
impairment annually or when factors indicating impairment are present. The impairment test is
conducted using an income approach, which considers forecasted operating results discounted at an
estimated weighted average cost of capital (herein referred to as the discount rate). The goodwill
resulting from the April 2002 merger transaction was solely related to the Companys Alside
division, while the goodwill related to the August 2003 acquisition of Gentek Holdings, LLC was
solely related to the acquired entity. Accordingly, the Company maintains two reporting units for
purposes of its goodwill impairment test.
The valuation analysis requires significant judgments and estimates to be made by management,
primarily regarding expected growth rates, the terminal EBITDA multiple and the discount rate.
Expected growth rates were determined based on internally developed forecasts considering future
financial plans of the Company. The terminal EBITDA multiple was established based on an analysis
of comparable public companies debt-free multiples and recent comparable market transaction
multiples. The discount rate used was estimated based on an analysis of comparable companies
weighted average costs of capital which considered market assumptions obtained from independent
sources. Estimates could be materially impacted by factors such as specific industry conditions
and changes in growth trends. The assumptions used were managements best estimates based on
projected results and market conditions as of the date of testing, which was the beginning of the
fourth quarter of 2009.
The Company also performs an impairment analysis over its intangible assets annually (at the
beginning of the fourth quarter of 2009) or when factors indicating impairment are present. There
were no indicators of impairment noted in 2009 that would require an impairment analysis to be
performed over the Companys finite lived intangible assets.
The valuation analyses performed over the Companys goodwill reporting units and indefinite
lived intangible assets resulted in estimated fair values that exceeded their carrying values. As a
result, both reporting units and all indefinite lived intangible assets passed Step 1 of the
impairment analysis which did not indicate potential impairment.
45
Given the significant amount of goodwill and other intangible assets as a result of the April
2002 merger transaction and the August 2003 acquisition of Gentek, any future impairment of
goodwill and other intangible assets could have an adverse effect on the Companys results of
operations and financial position.
Pensions. The Companys 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 and market returns on plan assets. Changes in the related pension benefit costs
may occur in the future due to changes in assumptions. See Note 15 of the consolidated financial
statements for further analysis regarding the sensitivity of the key assumptions applied in the
actuarial valuations.
Product Warranty Costs and Service Returns. Consistent with industry practice, the Company
provides to homeowners limited warranties on certain products, primarily related to window and
siding product categories. Warranties are of varying lengths of time from the date of purchase up
to and including lifetime. Warranties cover product failures such as stress cracks and seal
failures for windows and fading and peeling for siding products, as well as manufacturing defects.
The Company has various options for remedying product warranty claims including repair, refinishing
or replacement and directly incurs the cost of these remedies. Warranties also become reduced under
certain conditions of time and change in home ownership. Certain metal coating suppliers provide
warranties on materials sold to the Company that mitigate the costs incurred by the Company.
Reserves for future warranty costs are provided based on managements estimates of such future
costs using historical trends of claims experience, sales history of products to which such costs
relate, and other factors. An independent actuary assists the Company in determining reserve
amounts related to significant specific product failures.
CERTAIN FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this report regarding the
prospects of the industry and the Companys prospects, plans, financial position and business
strategy may constitute forward-looking statements. In addition, forward-looking statements
generally can be identified by the use of forward-looking terminology such as may, should,
expect, intend, estimate, anticipate, believe, predict, potential or continue or
the negatives of these terms or variations of them or similar terminology. Although 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. Such statements reflect the
current views of the Companys management with respect to its operations, results of operations and
future financial performance. The following factors are among those that may cause actual results
to differ materially from the forward-looking statements:
|
|
|
the Companys operations and results of operations; |
|
|
|
further declines in home building and remodeling industries, economic conditions and
changes in interest rates, foreign currency exchange rates and other conditions; |
|
|
|
further deteriorations in availability of consumer credit, employment trends, levels of
consumer confidence and spending, and consumer preferences; |
|
|
|
changes in raw material costs and availability; |
|
|
|
market acceptance of price increases; |
|
|
|
further decline in national and regional trends in new housing starts and home
remodeling; |
|
|
|
changes in weather conditions; |
|
|
|
the Companys ability to comply with certain financial covenants in Associated
Materials ABL Facility with Wells Fargo Securities, LLC (formerly known as Wachovia
Capital Markets) and CIT Capital Securities LLC, as joint lead arrangers, Wachovia Bank,
N.A., as agent, and the lenders party thereto and the indentures governing its 9.875% notes
and 11.25% notes; |
46
|
|
|
the Companys ability to make distributions, payments or loans to its parent company to
allow it to make required payments on its debt; |
|
|
|
the ability of the Company and its parent company to refinance indebtedness when
required; |
|
|
|
increases in competition from other manufacturers of vinyl and metal exterior
residential building products as well as alternative building products; |
|
|
|
further decline in market demand; |
|
|
|
increases in the Companys indebtedness; |
|
|
|
increases in costs of environmental compliance or environmental liabilities; |
|
|
|
increases in unanticipated warranty or product liability claims; |
|
|
|
increases in capital expenditure requirements; and |
|
|
|
the other factors discussed under Item 1A. Risk Factors 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 or revise these forward-looking statements, whether as a result of new information, future
events or otherwise, unless the securities laws require it to do so.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company has outstanding borrowings under Associated Materials ABL Facility and may incur
additional borrowings from time to time for general corporate purposes, including working capital
and capital expenditures. The interest rate applicable to outstanding loans under the ABL Facility
is, at Associated Materials option, equal to either a United States or Canadian adjusted base rate
plus an applicable margin ranging from 1.25% to 2.25%, or LIBOR plus an applicable margin ranging
from 3.00% to 4.00%, with the applicable margin in each case depending on Associated Materials
quarterly average excess availability (as defined). At January 2, 2010, Associated Materials had
borrowings outstanding of $10.0 million under the ABL Facility. The effect of a 1.00% increase or
decrease in interest rates would increase or decrease total annual interest expense by
approximately $0.1 million.
The Company has $431.0 million of senior discount notes due 2014 that bear a fixed interest
rate of 11.25%. The fair value of the 11.25% notes is sensitive to changes in interest rates. In
addition, the fair value is affected by the Companys overall credit rating, which could be
impacted by changes in the Companys future operating results. The fair value of the 11.25% notes
at January 2, 2010 was $415.9 million based upon their quoted market price.
The Company has $200.0 million aggregate principal at maturity in 2016 of senior secured
second lien notes that bear a fixed interest rate of 9.875%. The fair value of the 9.875% notes is
sensitive to changes in interest rates. In addition, the fair value is affected by the Companys
overall credit rating, which could be impacted by changes in the Companys future operating
results. As the Companys offer to exchange all of its outstanding privately placed 9.875% notes
for newly registered 9.875% notes was not completed until February 2010, the fair value of the
9.875% notes at January 2, 2010 was estimated to be $197.5 million based upon the pricing
determined in the private offering of the 9.875% notes at the time of issuance in November 2009.
47
FOREIGN CURRENCY EXCHANGE RATE RISK
The Companys revenues are primarily from domestic customers and are realized in U.S. dollars.
However, the Company realizes revenues from sales made through Genteks Canadian distribution
centers in Canadian dollars. The Companys Canadian manufacturing facilities acquire raw materials
and supplies from U.S. vendors, which results in foreign currency transactional gains and losses
upon settlement of the obligations. Payment terms among Canadian manufacturing facilities and these
vendors are short-term in nature. The Company may, from time to time, enter into foreign exchange
forward contracts with maturities of less than three months to reduce its exposure to
fluctuations in the Canadian dollar. At January 2, 2010, the Company was a party to foreign
exchange forward contracts for Canadian dollars, the value of which was immaterial at January 2,
2010.
For the year ended January 2, 2010, the Company experienced foreign currency translation gains totaling
$10.8 million, net of tax, which were included in accumulated other comprehensive loss. A 10%
strengthening or weakening from the levels experienced during 2009 of the U.S. dollar relative to
the Canadian dollar would have resulted in a $1.9 million decrease or increase, respectively, in
net income for the year ended January 2, 2010.
COMMODITY PRICE RISK
See Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Effects of Inflation for a discussion of the market risk related to the Companys
principal raw materials vinyl resin, aluminum, and steel.
48
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
AMH HOLDINGS, LLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Member of
AMH Holdings, LLC
We have audited the accompanying consolidated balance sheet of AMH Holdings, LLC and subsidiaries
(the Company) as of January 2, 2010, and the related consolidated statements of operations,
members equity (deficit) and comprehensive income (loss), and cash flows for the year then ended. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (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. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present fairly, in all
material respects, the financial position of AMH Holdings, LLC and subsidiaries at January 2, 2010,
and the results of their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
April 2, 2010
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Member of
AMH Holdings, LLC
We have audited the accompanying consolidated balance sheet of AMH Holdings, LLC and subsidiaries
as of January 3, 2009, and the related consolidated statements of operations, members equity and
comprehensive income, and cash flows for each of the two years in the period ended January 3, 2009.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of AMH Holdings, LLC and subsidiaries at
January 3, 2009, and the consolidated results of their operations and their cash flows for the two
years in the period ended January 3, 2009 in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Akron, Ohio
March 31, 2009
51
AMH HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
55,855 |
|
|
$ |
6,709 |
|
Accounts receivable, net of allowance for
doubtful accounts of $8,015 at January 2,
2010 and $13,160 at January 3, 2009 |
|
|
114,355 |
|
|
|
116,878 |
|
Inventories |
|
|
115,394 |
|
|
|
141,170 |
|
Deferred income taxes |
|
|
3,341 |
|
|
|
12,183 |
|
Prepaid expenses |
|
|
8,945 |
|
|
|
10,486 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
297,890 |
|
|
|
287,426 |
|
Property, plant and equipment, net |
|
|
109,037 |
|
|
|
115,156 |
|
Goodwill |
|
|
231,263 |
|
|
|
231,358 |
|
Other intangible assets, net |
|
|
96,081 |
|
|
|
99,131 |
|
Receivable from parent |
|
|
27,237 |
|
|
|
|
|
Other assets |
|
|
24,217 |
|
|
|
17,650 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
785,725 |
|
|
$ |
750,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
87,580 |
|
|
$ |
54,520 |
|
Payable to parent |
|
|
14,848 |
|
|
|
10,526 |
|
Accrued liabilities |
|
|
73,087 |
|
|
|
54,449 |
|
Deferred income taxes |
|
|
2,312 |
|
|
|
|
|
Income taxes payable |
|
|
1,112 |
|
|
|
6,578 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
178,939 |
|
|
|
126,073 |
|
Deferred income taxes |
|
|
34,977 |
|
|
|
45,346 |
|
Other liabilities |
|
|
61,326 |
|
|
|
53,655 |
|
Long-term debt |
|
|
638,552 |
|
|
|
659,095 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Members equity (deficit): |
|
|
|
|
|
|
|
|
Membership interest |
|
|
155,981 |
|
|
|
150,043 |
|
Accumulated other comprehensive loss |
|
|
(7,810 |
) |
|
|
(18,813 |
) |
Accumulated deficit |
|
|
(276,240 |
) |
|
|
(264,678 |
) |
|
|
|
|
|
|
|
Total members deficit |
|
|
(128,069 |
) |
|
|
(133,448 |
) |
|
|
|
|
|
|
|
Total liabilities and members deficit |
|
$ |
785,725 |
|
|
$ |
750,721 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
52
AMH HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Net sales |
|
$ |
1,046,107 |
|
|
$ |
1,133,956 |
|
|
$ |
1,204,056 |
|
Cost of sales |
|
|
765,691 |
|
|
|
859,107 |
|
|
|
899,839 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
280,416 |
|
|
|
274,849 |
|
|
|
304,217 |
|
Selling, general and administrative expenses |
|
|
204,610 |
|
|
|
212,025 |
|
|
|
208,001 |
|
Manufacturing restructuring costs |
|
|
5,255 |
|
|
|
1,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
70,551 |
|
|
|
61,041 |
|
|
|
96,216 |
|
Interest expense, net |
|
|
72,626 |
|
|
|
70,777 |
|
|
|
69,703 |
|
Net gain on debt extinguishment |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
Foreign currency (gain) loss |
|
|
(184 |
) |
|
|
1,809 |
|
|
|
(227 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(1,773 |
) |
|
|
(11,545 |
) |
|
|
26,740 |
|
Income taxes |
|
|
5,520 |
|
|
|
57,598 |
|
|
|
10,986 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,293 |
) |
|
$ |
(69,143 |
) |
|
$ |
15,754 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
53
AMH HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
(DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Common |
|
|
Capital in |
|
|
Membership |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Members |
|
|
|
Stock |
|
|
Excess Of Par |
|
|
Interest |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
Balance at December 30, 2006 |
|
|
|
|
|
$ |
150,043 |
|
|
$ |
|
|
|
$ |
(194,960 |
) |
|
$ |
(3,207 |
) |
|
$ |
(48,124 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,754 |
|
|
|
|
|
|
|
15,754 |
|
Unrecognized prior service cost
and net loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(755 |
) |
|
|
(755 |
) |
Foreign currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,141 |
|
|
|
11,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,140 |
|
Conversion to limited liability
corporation |
|
|
|
|
|
|
(150,043 |
) |
|
|
150,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,018 |
) |
|
|
|
|
|
|
(8,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007 |
|
|
|
|
|
|
|
|
|
|
150,043 |
|
|
|
(187,224 |
) |
|
|
7,179 |
|
|
|
(30,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,143 |
) |
|
|
|
|
|
|
(69,143 |
) |
Unrecognized prior service cost
and net loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,477 |
) |
|
|
(5,477 |
) |
Deferred tax valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,900 |
) |
|
|
(3,900 |
) |
Foreign currency translation
adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,615 |
) |
|
|
(16,615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,135 |
) |
Dividends to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,311 |
) |
|
|
|
|
|
|
(8,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2009 |
|
|
|
|
|
|
|
|
|
|
150,043 |
|
|
|
(264,678 |
) |
|
|
(18,813 |
) |
|
|
(133,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,293 |
) |
|
|
|
|
|
|
(7,293 |
) |
Unrecognized prior service cost
and net loss, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217 |
|
|
|
217 |
|
Foreign currency translation
adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,786 |
|
|
|
10,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,710 |
|
Capital contribution from parent
of 11.25% notes |
|
|
|
|
|
|
|
|
|
|
5,938 |
|
|
|
|
|
|
|
|
|
|
|
5,938 |
|
Dividends to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,269 |
) |
|
|
|
|
|
|
(4,269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2010 |
|
|
|
|
|
$ |
|
|
|
$ |
155,981 |
|
|
$ |
(276,240 |
) |
|
$ |
(7,810 |
) |
|
$ |
(128,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
54
AMH HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(7,293 |
) |
|
$ |
(69,143 |
) |
|
$ |
15,754 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
22,169 |
|
|
|
22,698 |
|
|
|
22,062 |
|
Deferred income taxes |
|
|
1,444 |
|
|
|
41,905 |
|
|
|
(18,807 |
) |
Provision for losses on accounts receivable |
|
|
10,363 |
|
|
|
8,000 |
|
|
|
3,316 |
|
Loss on sale or disposal of assets other than by sale |
|
|
509 |
|
|
|
2,060 |
|
|
|
481 |
|
Net gain on debt extinguishment |
|
|
(118 |
) |
|
|
|
|
|
|
|
|
Non-cash interest income |
|
|
(418 |
) |
|
|
|
|
|
|
|
|
Non-cash portion of manufacturing restructuring costs |
|
|
5,255 |
|
|
|
1,577 |
|
|
|
|
|
Amortization of deferred financing costs and accretion
on senior discount notes |
|
|
11,689 |
|
|
|
49,828 |
|
|
|
45,167 |
|
Amortization of management fee |
|
|
500 |
|
|
|
500 |
|
|
|
500 |
|
Changes in operating assets and liabilities, adjusted
for the effects of the acquisition of supply center: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,909 |
) |
|
|
5,679 |
|
|
|
(2,168 |
) |
Inventories |
|
|
30,392 |
|
|
|
(13,532 |
) |
|
|
3,619 |
|
Prepaid expenses |
|
|
1,326 |
|
|
|
(391 |
) |
|
|
(2,134 |
) |
Accounts payable |
|
|
28,794 |
|
|
|
(18,642 |
) |
|
|
(2,474 |
) |
Accrued liabilities |
|
|
16,892 |
|
|
|
(8,567 |
) |
|
|
(1,487 |
) |
Income taxes receivable/payable and payable to parent |
|
|
(1,286 |
) |
|
|
(834 |
) |
|
|
7,213 |
|
Other assets |
|
|
2,315 |
|
|
|
(1,739 |
) |
|
|
1,516 |
|
Other liabilities |
|
|
2,262 |
|
|
|
(3,137 |
) |
|
|
(1,207 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
121,886 |
|
|
|
16,262 |
|
|
|
71,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(8,733 |
) |
|
|
(11,498 |
) |
|
|
(12,393 |
) |
AMH II intercompany loan |
|
|
(26,819 |
) |
|
|
|
|
|
|
|
|
Acquisition of supply center |
|
|
|
|
|
|
|
|
|
|
(801 |
) |
Proceeds from sale of assets |
|
|
|
|
|
|
25 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(35,552 |
) |
|
|
(11,473 |
) |
|
|
(13,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net (repayments) / borrowings under ABL Facility |
|
|
(46,000 |
) |
|
|
56,000 |
|
|
|
|
|
Repayments of term loan |
|
|
|
|
|
|
(61,000 |
) |
|
|
(45,000 |
) |
Issuance of senior notes |
|
|
217,514 |
|
|
|
|
|
|
|
|
|
Cash paid to redeem senior notes |
|
|
(189,544 |
) |
|
|
|
|
|
|
|
|
Financing costs |
|
|
(16,455 |
) |
|
|
(5,371 |
) |
|
|
|
|
Dividends paid |
|
|
(4,269 |
) |
|
|
(8,311 |
) |
|
|
(8,018 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(38,754 |
) |
|
|
(18,682 |
) |
|
|
(53,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,566 |
|
|
|
(1,001 |
) |
|
|
1,430 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
49,146 |
|
|
|
(14,894 |
) |
|
|
6,588 |
|
Cash and cash equivalents at beginning of year |
|
|
6,709 |
|
|
|
21,603 |
|
|
|
15,015 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
55,855 |
|
|
$ |
6,709 |
|
|
$ |
21,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
44,890 |
|
|
$ |
21,091 |
|
|
$ |
24,741 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
6,064 |
|
|
$ |
16,860 |
|
|
$ |
22,594 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
55
AMH HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
NATURE OF OPERATIONS
AMH Holdings, LLC (AMH), formerly AMH Holdings, Inc., was created on February 19, 2004. AMH
has no material assets or operations other than its 100% ownership of Associated Materials
Holdings, LLC (Holdings), which in turn has no material assets or operations other than its 100%
ownership of Associated Materials, LLC (Associated Materials). AMH, Holdings and Associated Materials are collectively
referred to as the Company. The Company is a wholly owned subsidiary of AMH Holdings II, Inc.
(AMH II), which is controlled by affiliates of Investcorp S.A. (Investcorp) and Harvest
Partners, L.P. (Harvest Partners). Holdings, AMH and AMH II do not have material assets or
operations other than a direct or indirect ownership of the membership interest of Associated
Materials.
Associated
Materials, was originally formed in Delaware in 1983
and is a leading, vertically integrated manufacturer and distributor of exterior residential
building products in the United States and Canada. Associated Materials core products include
vinyl windows, vinyl siding, aluminum trim coil, and aluminum and steel siding and accessories.
BASIS OF PRESENTATION
The Company operates on a 52/53 week fiscal year that ends on the Saturday closest to December
31st. The Companys 2009, 2008, and 2007 fiscal years ended on January 2, 2010, January 3, 2009,
and December 29, 2007, respectively. The fiscal year ended January 3, 2009 included 53 weeks of
operations, with the additional week recorded in the fourth quarter of fiscal 2008. The fiscal
years ended January 2, 2010 and December 29, 2007 included 52 weeks of operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with U.S. generally
accepted accounting principles requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company
evaluates its estimates, including those related to customer programs and incentives, bad debts,
inventories, warranties, valuation allowance for deferred tax assets, share-based compensation 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.
REVENUE RECOGNITION
The Company primarily sells and distributes its products through two channels: direct sales
from its manufacturing facilities to independent distributors and dealers and sales to contractors
through its company-operated supply centers. Direct sales revenue is recognized when the Companys
manufacturing facility ships the product. Sales to contractors are recognized either when the
contractor receives product directly from the supply centers or when the supply centers deliver the
product to the contractors job site. For both direct sales to independent distributors and dealers
and sales generated from the Companys supply centers, revenue is not recognized until
collectibility is reasonably assured. A substantial portion of the Companys sales is in the repair
and replacement segment of the building products industry. Therefore, vinyl windows are
manufactured to specific measurement requirements received from the Companys customers. In 2009
and 2008, sales to one customer
represented approximately 13% and 11% of total net sales, respectively. No individual
customer accounted for 10% or more of the Companys total net sales during 2007.
56
Revenues are recorded net of estimated returns, customer incentive programs and other
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. On contracts involving installation, revenue is
recognized when the installation is complete. The Company collects sales, use, and value added
taxes that are imposed by governmental authorities on and concurrent with sales to the Companys
customers. Revenues are presented net of these taxes as the obligation is included in accrued
liabilities until the taxes are remitted to the appropriate taxing authorities.
The Company offers certain sales incentives to customers who become eligible based on the
level of purchases made during the calendar year and are accrued as earned throughout the year.
The sales incentives programs are considered customer volume rebates, which are typically computed
as a percentage of customer sales, and in certain instances the rebate percentage may increase as
customers achieve sales hurdles. Volume rebates are accrued throughout the year based on
management estimates of customers annual sales volumes and the expected annual rebate percentage
achieved. For these programs, the Company does not receive an identifiable benefit in exchange for
the consideration, and therefore, the Company characterizes the volume rebate to the customer as a
reduction of revenue in the Companys consolidated statement of operations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months
or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company records accounts receivable at selling prices which are fixed based on purchase
orders or contractual arrangements. The Company maintains an allowance 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 Companys
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Account balances are charged off against the allowance for
doubtful accounts after all means of collection have been exhausted and the potential for recovery
is considered remote. Changes in the allowance for doubtful accounts on accounts receivable consist
of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
13,160 |
|
|
$ |
9,363 |
|
|
$ |
8,698 |
|
Provision for losses |
|
|
10,363 |
|
|
|
8,000 |
|
|
|
3,316 |
|
Losses sustained (net of recoveries) |
|
|
(15,508 |
) |
|
|
(4,203 |
) |
|
|
(2,651 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
8,015 |
|
|
$ |
13,160 |
|
|
$ |
9,363 |
|
|
|
|
|
|
|
|
|
|
|
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.
The Company has a contract with its resin supplier through December 2011 to supply
substantially all of its vinyl resin requirements. The Company believes that other suppliers could
also meet its requirements for vinyl resin beyond 2011 on commercially acceptable terms.
57
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The cost of maintenance and repairs of
property, plant and equipment is charged to operations in the period incurred. 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 40 years |
|
Computer equipment |
|
|
3 to 5 years |
|
Machinery and equipment |
|
|
3 to 15 years |
|
LONG-LIVED ASSETS WITH DEPRECIABLE OR AMORTIZABLE LIVES
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. Depreciation on assets held for
sale is discontinued and such assets are reported at the lower of the carrying amount or fair value
less costs to sell.
GOODWILL AND OTHER INTANGIBLE ASSETS WITH INDEFINITE LIVES
The Company reviews goodwill and other intangible assets with indefinite lives for impairment
on an annual basis, or more frequently if events or circumstances change that would impact the
value of these assets, in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 350, IntangiblesGoodwill and Other (SFAS No. 142). The impairment
test is conducted using an income approach. As the Company does not have a market for its equity,
management performs the annual impairment analysis utilizing a discounted cash flow model, which
considers forecasted operating results discounted at an estimated weighted average cost of capital.
The Company conducted its impairment test at the beginning of the fourth quarter of 2009 noting no
impairment to its goodwill or other intangible assets with indefinite lives.
PRODUCT WARRANTY COSTS AND SERVICE RETURNS
Consistent with industry practice, the Company provides to homeowners limited warranties on
certain products, primarily related to window and siding product categories. Warranties are of
varying lengths of time from the date of purchase up to and including lifetime. Warranties cover
product failures such as stress cracks and seal failures for windows and fading and peeling for
siding products, as well as manufacturing defects. The Company has various options for remedying
product warranty claims including repair, refinishing or replacement and directly incurs the cost
of these remedies. Warranties also become reduced under certain conditions of time and change in
home ownership. Certain metal coating suppliers provide warranties on materials sold to the Company
that mitigate the costs incurred by the Company. Reserves for future warranty costs are provided
based on managements estimates of such future costs using historical trends of claims experience,
sales history of products to which such costs relate, and other factors. An independent actuary
assists the Company in determining reserve amounts related to significant specific product
failures. The provision for warranties is reported within cost of sales in the consolidated
statements of operations.
A reconciliation of warranty reserve activity is as follows for the years ended January 2,
2010, January 3, 2009, and December 29, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Balance at the beginning of the year |
|
$ |
29,425 |
|
|
$ |
28,684 |
|
|
$ |
25,035 |
|
Provision for warranties issued |
|
|
9,421 |
|
|
|
8,658 |
|
|
|
12,395 |
|
Claims paid |
|
|
(6,603 |
) |
|
|
(6,922 |
) |
|
|
(9,570 |
) |
Foreign currency translation |
|
|
773 |
|
|
|
(995 |
) |
|
|
824 |
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year |
|
$ |
33,016 |
|
|
$ |
29,425 |
|
|
$ |
28,684 |
|
|
|
|
|
|
|
|
|
|
|
58
INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (ASC
740), 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. It 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. At the beginning of its 2007 fiscal year, the Company began applying the
provisions of the ASC 740 as it relates to the measurement and recognition of tax benefits
associated with uncertain tax positions. The Company recognizes interest and penalties related to
uncertain tax positions within income tax expense.
DERIVATIVES AND HEDGING ACTIVITIES
In accordance with FASB ASC 815, Derivatives and Hedging (SFAS No. 133), all of the Companys
derivative instruments are recognized on the balance sheet at their fair value. The Company uses
techniques designed to mitigate the short-term effect of exchange rate fluctuations of the Canadian
dollar on its operations by entering into foreign exchange forward contracts. The Company does not
speculate in foreign currencies or derivative financial instruments. Gains or losses on foreign
exchange forward contracts are recorded within foreign currency (gain) loss on the accompanying
consolidated statements of operations. At January 2, 2010, the Company was a party to foreign
exchange forward contracts for Canadian dollars. The value of these contracts at January 2, 2010
was immaterial.
STOCK PLANS
On January 1, 2006, the Company adopted SFAS No. 123 (Revised), Share-Based Payment, to
account for employee stock-based compensation. SFAS No. 123 (Revised) requires companies that used
the minimum value method for pro forma disclosure purposes in accordance with SFAS No. 123 to adopt
the new standard prospectively. As a result, the Company continues to account for stock options
granted prior to January 1, 2006 using the APB Opinion No. 25 intrinsic value method, unless such
options are subsequently modified, repurchased or cancelled. For stock options granted after
January 1, 2006, the Company recognizes expense for all employee stock-based compensation awards
using a fair value method in the financial statements over the requisite service period, in
accordance with FASB ASC 718, Compensation Stock Compensation (SFAS No. 123 (Revised)).
COST OF SALES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For products manufactured by the Company, cost of sales includes the purchase cost of raw
materials, net of vendor rebates, payroll and benefit costs for direct and indirect labor incurred
at the Companys manufacturing locations including purchasing, receiving and inspection, inbound
freight charges, freight charges to deliver product to the Companys supply centers, and freight
charges to deliver product to the Companys independent distributor and dealer customers. It also
includes all variable and fixed costs incurred to operate and maintain the manufacturing locations
and machinery and equipment, such as lease costs, repairs and maintenance, utilities and
depreciation. For third-party manufactured products, which are sold through the Companys supply
centers such as roofing materials, insulation and installation equipment and tools, cost of sales
includes the purchase cost of the product, net of vendor rebates, as well as inbound freight
charges.
Selling, general and administrative expenses include payroll and benefit costs including
incentives and commissions of its supply center employees, corporate employees and sales
representatives, building lease costs of its supply centers, delivery vehicle costs and other
delivery charges incurred to deliver product from its supply centers to its contractor customers,
sales vehicle costs, marketing costs, customer sales rewards, other administrative expenses such as
supplies, legal, accounting, consulting, travel and entertainment as well as all other costs to
operate its supply centers and corporate office. The customer sales rewards programs offer
customers the ability to earn points based on purchases, which can be redeemed for products or
services procured through independent third-party suppliers. The costs of the rewards programs are
accrued as earned throughout the year based on estimated payouts under the program. Total customer
rewards costs reported as a component of selling, general and administrative expenses for each of
the years ended January 2, 2010, January 3, 2009, and December 29, 2007 were less than 1% of net
sales. Shipping and handling costs included in selling, general and administrative expense
totaled approximately $26.4 million, $28.9 million and $35.1 million for the years ended
January 2, 2010, January 3, 2009, and December 29, 2007, respectively.
59
LEASE OBLIGATIONS
Lease expense for certain operating leases that have escalating rentals over the term of the
lease is recorded on a straight-line basis over the life of the lease, which commences on the date
the Company has the right to control the property. The cumulative expense recognized on a
straight-line basis in excess of the cumulative payments is included in accrued liabilities in the
consolidated balance sheets. Capital improvements that may be required to make a building suitable
for the Companys use are incurred by the landlords and are made prior to the Company having
control of the property (lease commencement date), and are therefore, incorporated into the
determination of the lease rental rate.
MARKETING AND ADVERTISING
The Company expenses marketing and advertising costs as incurred. Marketing and advertising
expense was $12.5 million, $13.2 million and $12.3 million for the years ended January 2, 2010,
January 3, 2009, and December 29, 2007, respectively. Marketing materials included in
prepaid expenses were $2.8 million and $2.9 million at January 2, 2010 and January 3, 2009,
respectively.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Companys Canadian subsidiary are
measured using Canadian dollars as the functional currency. Assets and liabilities of the
subsidiary are translated into U.S. dollars at the exchange rate in effect at each reporting period
end. Income statement and cash flow amounts are translated into U.S. dollars at the average
exchange rates prevailing during the year. Accumulated other comprehensive income (loss) in
members equity (deficit) includes translation adjustments arising from the use of different exchange rates
from period to period. Included in net income are the gains and losses arising from transactions
denominated in a currency other than Canadian dollars occurring in the Companys Canadian
subsidiary.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting PrinciplesA Replacement of FASB Statement No. 162, (now
codified within ASC 105, Generally Accepted Accounting
Principles). While the implementation of the
ASC was not intended to change U.S. generally accepted accounting principles (GAAP), it has
changed the way the Company references these accounting principles in its consolidated financial
statements and accompanying notes. The ASC became effective for interim or annual reporting periods
ending after September 15, 2009. Although the adoption of the ASC has changed the Companys
disclosures, there have not been any changes to the content of the Companys financial statements
or disclosures as a result of its implementation.
Effective July 1, 2009, the Company adopted the FASB ASC. The ASC is the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The
content of the ASC carries the same level of authority, thereby modifying the previous GAAP
hierarchy to include only two levels of GAAP: authoritative and nonauthoritative. The ASC is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. Adoption of the ASC did not result in a change in current accounting practice.
In February 2010, the FASB issued Accounting Standards Update (ASU) 2010-9, Subsequent
Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-9).
ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is
not required to disclose the date through which subsequent events have been evaluated. This change
alleviates potential conflicts between Subtopic 855-10 and the SECs requirements. ASU 2010-9 is
effective for interim and annual periods ending after June 15, 2010. The Company does not expect
the adoption of ASU 2010-09 to have a material impact on its consolidated results of operations or
financial position. The Company has evaluated for subsequent events and concluded that there were
no significant subsequent events requiring recognition or disclosure.
60
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements a
consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 amends the guidance
in ASC 605, Revenue Recognition. ASU No. 2009-13 eliminates the residual method of accounting for
revenue on undelivered products and instead, requires companies to allocate revenue to each of the
deliverable products based on their relative selling price. In addition, this ASU expands the
disclosure requirements surrounding multiple-deliverable arrangements. ASU No. 2009-13 will be
effective for revenue arrangements entered into for fiscal years beginning on or after June 15,
2010. The Company is currently evaluating the impact that ASU No. 2009-13 will have on its
financial position, results of operations and cash flows.
In August 2009, the FASB issued ASU 2009-5, Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value (ASU 2009-5). ASU 2009-5 amends Subtopic 820-10, Fair
Value Measurements and DisclosuresOverall, related to the fair value measurement of liabilities.
ASU 2009-5 provides further guidance concerning the measurement of a liability at fair value when
there is a lack of observable market information, particularly in relation to a liability whose
transfer is contractually restricted. The amendment provides additional guidance on the use of an
appropriate valuation technique that reflects the quoted price of an identical or similar liability
when traded as an asset and clarifies the circumstances under which adjustments to such price may
be required in estimating the fair value of the liability. ASU 2009-5 was effective for the
Company for interim and annual periods ending after October 3, 2009. The adoption of ASU 2009-5 did
not have a material impact on the Companys financial position, results of operations and cash
flows.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (now codified within ASC 855,
Subsequent Events (ASC 855)). This portion of ASC 855 establishes the general standards of
accounting for, and disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855 was effective for the
Company on April 5, 2009. The adoption of ASC 855 did not have a material impact on the Companys
financial position, results of operations and cash flows.
In April 2009, the FASB issued FSP 107-1 and Accounting Principles Board 28-1, Interim
Disclosures about Fair Value of Financial Instruments (now codified within ASC 825, Financial
Instruments (ASC 825)). This portion of ASC 825 requires disclosures about fair value of
financial instruments in interim financial statements as well as in annual financial statements.
ASC 825 was effective for interim periods ending after June 15, 2009. The adoption of ASC 825 did
not have a material impact on the Companys financial position, results of operations and cash
flows.
In December 2008, the FASB issued an update to ASC 715, Compensation Retirement Benefits
(ASC 715), regarding employers disclosures about postretirement benefit plan assets. ASC 715
requires disclosure of additional information about investment allocation, fair values of major
categories of assets, the development of fair value measurements, and concentrations of risk. The
amendment is effective for fiscal years ending after December 15, 2009; however, earlier
application is permitted. The Company adopted the amendment upon its effective date and have
reported the required disclosures for the fiscal year ended January 2, 2010.
In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible
Assets (now codified within ASC 350, IntangiblesGoodwill and Other (ASC 350)). This portion of
ASC 350 provides guidance for determining the useful life of a recognized intangible asset and
requires enhanced disclosures so that users of financial statements are able to assess the extent
to which the expected future cash flows associated with the asset are affected by the Companys
intent and/or ability to renew or extend the arrangement. ASC 350 was effective for financial
statements issued for fiscal years and interim periods beginning after December 15, 2008. The
adoption of ASC 350 did not have a material impact on the Companys financial position, results of
operations and cash flows.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (now codified within
ASC 805, Business Combinations (ASC 805)). This portion of ASC 805 establishes principles and
requirements for how the acquirer in a business combination recognizes and measures in its
financial statements the fair value of identifiable assets acquired, the liabilities assumed and
any noncontrolling interest in the acquiree at the acquisition date. ASC 805 significantly changes
the accounting for business combinations in a number of areas, including the treatment of
contingent consideration, preacquisition contingencies, transaction costs and restructuring costs.
In addition, under ASC 805, changes in an acquired entitys deferred tax assets and uncertain tax
positions after the measurement
period will impact income tax expense. ASC 805 will apply to any acquisitions the Company
completes on or after December 15, 2008. The adoption of ASC 805 did not have a material impact on
the Companys financial position, results of operations and cash flows.
61
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (now codified within
ASC 820, Fair Value Measurements and Disclosures (ASC 820)). This portion of ASC 820 provides
guidance for using fair value to measure assets and liabilities. Under ASC 820, fair value refers
to the price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between
market participants at the measurement date. This guidance within ASC 820 became effective for
financial statements issued for fiscal years beginning after November 15, 2007; however, the FASB
provided a one year deferral for implementation of the standard for non-recurring, non-financial
assets and liabilities. ASC 820 classifies the inputs used to measure fair value into the following
hierarchy:
|
Level 1 |
|
Unadjusted quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2 |
|
Unadjusted quoted prices in active markets for similar assets or liabilities, or
unadjusted quoted prices for identical or similar assets or liabilities in markets that are
not active, or inputs other than quoted prices that are observable for the asset or
liability. |
|
|
Level 3 |
|
Unobservable inputs for the asset or liability. |
The Companys adoption of this guidance for non-financial assets and non-financial liabilities
in 2009 did not have a material effect on its financial position, results of operations and cash
flows.
2. RELATED PARTIES
Associated Materials entered into a management advisory agreement with Investcorp
International Inc. (III) for management advisory, strategic planning and consulting services, for
which Associated Materials paid III the total due under the agreement of $6.0 million on December
22, 2004. As described in the management advisory agreement with III, $4.0 million of this
management fee relates to services to be provided during the first year of the agreement, with $0.5
million related to services to be provided each year of the remaining four year term of the
agreement. The term of the management advisory agreement ended on December 22, 2009. The Company
expensed the prepaid management fee in accordance with the services provided over the life of the
agreement and recorded $0.5 million of expense in connection with this agreement for each of the
years ended January 2, 2010, January 3, 2009, and December 29, 2007, which is included in selling,
general and administrative expenses in the consolidated statements of operations.
On November 5, 2009, Associated Materials entered into a financing advisory services agreement
with III, which financing advisory services agreement provided for the payment to III of a one-time
fee in exchange for certain financing advisory services. In connection with such agreement, a fee,
equal to 0.667%, or approximately $1.3 million, of the total proceeds of the 9.875% Senior Secured
Second Lien Notes due 2016 (the 9.875% notes) offering was paid to III upon the issuance of the
9.875% notes. The fee was capitalized as a debt issuance cost and is recorded within other assets
on the consolidated balance sheet.
Associated Materials entered into an amended and restated management agreement with Harvest
Partners in December 2004 for financial advisory and strategic planning services. For these
services, Harvest Partners receives an annual fee payable on a quarterly basis in advance,
beginning on the date of execution of the original agreement. The fee is adjusted on a yearly basis
in accordance with the U.S. Consumer Price Index. Associated Materials paid approximately $0.9
million, $0.9 million and $0.8 million of management fees to Harvest Partners for the years ended
January 2, 2010, January 3, 2009, and December 29, 2007, respectively, which are included in
selling, general and administrative expenses in the consolidated statements of operations. The
agreement also provides that Harvest Partners will receive transaction fees in connection with
financings, acquisitions and divestitures of the Company. Such fees will be a percentage of the
applicable transaction. In December 2004, Harvest Partners and III entered into an agreement
pursuant to which they agreed that any transaction fee that becomes payable under the amended
management agreement after December 22, 2004 will be shared equally by Harvest Partners and III.
The initial term of the management agreement concluded on March 31, 2007. The term has been
automatically renewed for one-year periods since that date and will continue to automatically renew
for one-year periods on March 31st of each year provided written notice of termination has not
been given by Harvest Partners at least three years prior to the end of the applicable term.
62
On November 5, 2009, Associated Materials entered into a financing advisory services agreement
with Harvest Partners, which finance advisory services agreement provided for the payment to
Harvest Partners of a one-time fee in exchange for certain financing advisory services. In
connection with such agreement, a fee equal to 0.333%, or approximately $0.7 million, of the total
proceeds of the 9.875% notes offering was paid to Harvest Partners upon the issuance of the 9.875%
notes. The fee was capitalized as a debt issuance cost and is recorded within other assets on the
consolidated balance sheet.
As of January 2, 2010 and January 3, 2009, the Company has a payable to its direct parent
company totaling approximately $14.8 million and $10.5 million, respectively. The balances
outstanding with its direct parent company relates primarily to amounts owed under the Companys
tax sharing agreement with its direct parent company, which include the Company on its consolidated
tax return, totaling $16.0 million and $11.7 million at January 2, 2010 and January 3, 2009,
respectively, offset by $1.2 million of amounts due for fees paid by the Company on behalf of its
direct parent company in connection with its formation.
In June 2009, at the time Associated Materials entered into the purchase agreement pursuant to which it
issued its 15% Senior Subordinated Notes due 2012 (the 15% notes) (which were redeemed and
discharged in connection with the issuance of its 9.875% notes in November 2009), Associated
Materials entered into an intercompany loan agreement with AMH II, pursuant to which Associated
Materials agreed to periodically make loans to AMH II in an amount not to exceed an aggregate
outstanding principal amount of approximately $33.0 million at any one time, plus accrued interest.
Interest accrues at a rate of 3% per annum and is added to the then outstanding principal amount on
a semi-annual basis. The principal amount and accrued but unpaid interest thereon will mature on
May 1, 2015. As of January 2, 2010, the principal amount of borrowings by AMH II under this
intercompany loan agreement and accrued interest thereon was $27.2 million. The Company believes
that AMH II will have the ability to repay the loan in accordance with its stated terms. Due to the
related party nature and the underlying terms of the intercompany loan with AMH II, the Company has
deemed it not practical to assign and disclose a fair value estimate.
3. INVENTORIES
Inventories consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
Raw materials |
|
$ |
28,693 |
|
|
$ |
25,779 |
|
Work-in-progress |
|
|
8,552 |
|
|
|
17,316 |
|
Finished goods and purchased stock |
|
|
78,149 |
|
|
|
98,075 |
|
|
|
|
|
|
|
|
|
|
$ |
115,394 |
|
|
$ |
141,170 |
|
|
|
|
|
|
|
|
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the purchase price in excess of the fair value of the tangible and
intangible net assets acquired in a business combination. Goodwill of $231.3 million as of January
2, 2010 consists of $194.8 million from the April 2002 merger transaction and $36.5 million from
the August 2003 acquisition of Gentek. Goodwill of $231.4 million as of January 3, 2009 consists of
$194.8 million from the April 2002 merger transaction and $36.6 million from the August 2003
acquisition of Gentek. The impact of foreign currency translation decreased the carrying value of
Gentek goodwill by approximately $0.1 million in 2009. None of the Companys goodwill is
deductible for income tax purposes. The Companys other intangible assets consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
January 2, 2010 |
|
|
January 3, 2009 |
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Period |
|
|
|
|
|
|
Accumulated |
|
|
Carrying |
|
|
|
|
|
|
Accumulated |
|
|
Carrying |
|
|
|
(In Years) |
|
|
Cost |
|
|
Amortization |
|
|
Value |
|
|
Cost |
|
|
Amortization |
|
|
Value |
|
Trademarks |
|
|
15 |
|
|
$ |
28,070 |
|
|
$ |
14,087 |
|
|
$ |
13,983 |
|
|
$ |
28,070 |
|
|
$ |
12,187 |
|
|
$ |
15,883 |
|
Patents |
|
|
10 |
|
|
|
6,230 |
|
|
|
4,781 |
|
|
|
1,449 |
|
|
|
6,230 |
|
|
|
4,160 |
|
|
|
2,070 |
|
Customer base |
|
|
7 |
|
|
|
5,137 |
|
|
|
4,498 |
|
|
|
639 |
|
|
|
4,836 |
|
|
|
3,668 |
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortized intangible assets |
|
|
|
|
|
|
39,437 |
|
|
|
23,366 |
|
|
|
16,071 |
|
|
|
39,136 |
|
|
|
20,015 |
|
|
|
19,121 |
|
Non-amortized trade names |
|
|
|
|
|
|
80,010 |
|
|
|
|
|
|
|
80,010 |
|
|
|
80,010 |
|
|
|
|
|
|
|
80,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
119,447 |
|
|
$ |
23,366 |
|
|
$ |
96,081 |
|
|
$ |
119,146 |
|
|
$ |
20,015 |
|
|
$ |
99,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
The Companys non-amortized intangible assets consist of the Alside®, Revere® and Gentek®
trade names and are tested for impairment at least annually.
Finite lived intangible assets are amortized on a straight-line basis over their estimated
useful lives. Amortization expense related to other intangible assets was approximately $3.1
million, $3.2 million, and $3.4 million for the years ended January 2, 2010, January 3, 2009, and
December 29, 2007, respectively. The foreign currency translation impact on accumulated
amortization of intangibles was approximately $0.3 million in 2009. Amortization expense for
fiscal years 2010, 2011, 2012, 2013 and 2014 is estimated to be $2.8 million, $2.7 million, $2.2
million, $1.9 million and $1.9 million, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
5,963 |
|
|
$ |
5,533 |
|
Buildings |
|
|
59,277 |
|
|
|
54,239 |
|
Machinery and equipment |
|
|
144,866 |
|
|
|
135,831 |
|
Construction in process |
|
|
1,099 |
|
|
|
1,065 |
|
|
|
|
|
|
|
|
|
|
|
211,205 |
|
|
|
196,668 |
|
Less accumulated depreciation |
|
|
102,168 |
|
|
|
81,512 |
|
|
|
|
|
|
|
|
|
|
$ |
109,037 |
|
|
$ |
115,156 |
|
|
|
|
|
|
|
|
Depreciation expense was approximately $19.1 million, $19.5 million and $18.7 million for the
years ended January 2, 2010, January 3, 2009, and December 29, 2007, respectively.
During 2008, the Company enhanced its controls surrounding the physical verification of
property, plant and equipment and recorded a $1.8 million loss upon disposal of assets other than
by sale. The loss is reported within selling, general and administrative expenses on the
accompanying consolidated statement of operations.
6. ACCRUED AND OTHER LIABILITIES
Accrued liabilities consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
Employee compensation |
|
$ |
16,648 |
|
|
$ |
11,600 |
|
Sales promotions and incentives |
|
|
14,810 |
|
|
|
15,639 |
|
Warranty reserves |
|
|
6,415 |
|
|
|
7,288 |
|
Employee benefits |
|
|
5,769 |
|
|
|
6,314 |
|
Interest |
|
|
19,397 |
|
|
|
3,461 |
|
Taxes other than income |
|
|
3,107 |
|
|
|
3,507 |
|
Other |
|
|
6,941 |
|
|
|
6,640 |
|
|
|
|
|
|
|
|
|
|
$ |
73,087 |
|
|
$ |
54,449 |
|
|
|
|
|
|
|
|
64
Other liabilities consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
Pensions and other postretirement plans |
|
$ |
30,099 |
|
|
$ |
29,291 |
|
Warranty reserves |
|
|
26,601 |
|
|
|
22,137 |
|
Other |
|
|
4,626 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
$ |
61,326 |
|
|
$ |
53,655 |
|
|
|
|
|
|
|
|
7. LONG-TERM DEBT
Long-term debt consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
9.875% notes |
|
$ |
197,552 |
|
|
$ |
|
|
9.75% notes |
|
|
|
|
|
|
165,000 |
|
11.25% notes |
|
|
431,000 |
|
|
|
438,095 |
|
Borrowings under the ABL Facility |
|
|
10,000 |
|
|
|
56,000 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
638,552 |
|
|
$ |
659,095 |
|
|
|
|
|
|
|
|
9.875% Notes
In June 2009, Associated Materials issued $20.0 million of its 15% notes in a private
placement to certain institutional investors as part of a note exchange by AMH II described below.
Net proceeds were approximately $15 million from the issuance of the 15% notes, net of funding fees
and other transaction expenses.
On November 5, 2009, Associated Materials issued in a private offering $200.0 million of its
9.875% notes. The 9.875% notes were issued by Associated Materials and Associated Materials
Finance, Inc., a wholly owned subsidiary of Associated Materials (collectively, the Issuers).
The 9.875% notes were issued at a price of 98.757%. The net proceeds from the offering were used
to discharge and redeem Associated Materials outstanding 9 3/4% Senior Subordinated Notes due 2012
(the 9.75% notes) and its outstanding 15% notes, and to pay fees and expenses related to the
offering. The discharge was accomplished, effective upon closing of the offering of the 9.875%
notes, by a deposit with the relevant trustees of funds sufficient to redeem the 9.75% notes and
the 15% notes at a redemption price of 101.625% and 101%, respectively. Such funds were used to
redeem the 9.75% notes and 15% notes on December 7, 2009.
As a result of these transactions,
Associated Materials recorded a loss on debt extinguishment of approximately
$8.8 million, which primarily consisted of call premiums of approximately
$2.9 million, interest from November 5, 2009 to December 7, 2009
(the redemption date of the 9.75% notes and the 15% notes) of approximately
$1.6 million and the write-off of the remaining unamortized financing
costs of approximately $4.2 million related to Associated Materials’
previously outstanding 9.75% notes and 15% notes.
At January 2, 2010, the accreted balance
of the 9.875% notes, net of the original issue discount, was $197.6 million. Interest on the 9.875%
notes will be payable semi-annually on May 15th and November 15th of each year, commencing May 15,
2010. During 2009, scheduled semi-annual interest payments on the 9.75% notes were made on April
15th and October 15th, and scheduled quarterly interest payments on the 15% notes were made on July
15th and October 15th.
The Issuers are required to redeem the 9.875% notes no later than December 1, 2013, if as of
October 15, 2013, AMHs 11 1/4% Senior Discount Notes due 2014 (the 11.25% notes) remain
outstanding, unless discharged or defeased, or if any indebtedness incurred by the Issuers or any
of their holding companies to refinance such AMH 11.25% notes matures prior to the maturity date of
the 9.875% notes. As of January 2, 2010, AMH had $431.0 million in aggregate principal amount of
its 11.25% notes outstanding. Prior to November 15, 2012, the Issuers may redeem all or a portion
of the 9.875% notes at any time or from time to time at a price equal to 100% of the principal
amount of the 9.875% notes plus accrued and unpaid interest, plus a make-whole premium.
Beginning on November 15, 2012, the Issuers may redeem all or a portion of the 9.875% notes at a
redemption price of 107.406%. The redemption price declines to 104.938% at November 15, 2013, to
102.469% at November 15, 2014 and to 100% on November 15, 2015 for the remaining life of the 9.875%
notes. In addition, on or prior to November 15, 2012, the Issuers may redeem up to 35% of the
9.875% notes using the proceeds of certain equity offerings at a redemption price equal to 100% of
the aggregate principal amount thereof, plus a premium equal to the interest rate per annum on the
9.875% notes, plus accrued and unpaid interest, if any, to the date of redemption.
65
The 9.875% notes are guaranteed on a senior basis by all of Associated Materials existing and
future domestic restricted subsidiaries, other than Associated Materials Finance, Inc. (the
Subsidiary Guarantors), that guarantee or
are otherwise obligors under Associated Materials asset-based credit facility (the ABL
Facility). The 9.875% notes and related guarantees are secured, subject to certain permitted
liens, by second-priority liens on the assets that secure the U.S. portion of the ABL Facility,
namely all of the Issuers and their U.S. subsidiaries tangible and intangible assets.
The indenture governing the 9.875% notes contains covenants that, among other things, limit
the ability of the Issuers and of certain restricted subsidiaries to incur additional indebtedness,
make loans or advances to or other investments in subsidiaries and other entities, sell its assets
or declare dividends. If an event of default occurs, the trustee or holders of 25% or more in
aggregate principal amount of the notes may accelerate the notes. If an event of default relates to
certain events of bankruptcy, insolvency or reorganization, the 9.875% notes will automatically
accelerate without any further action required by the trustee or holders of the 9.875% notes.
As Associated Materials offer to exchange all of its outstanding privately placed 9.875%
notes for newly registered 9.875% Senior Secured Second Lien Notes due 2016 was not completed until
February 2010, the fair value of Associated Materials 9.875% notes at January 2, 2010 was
estimated to be $197.5 million based upon the pricing determined in the private offering of the
9.875% notes at the time of issuance in November 2009.
ABL Facility
On October 3, 2008, Associated Materials, Gentek Building Products, Inc. and Associated
Materials Canada Limited (formerly known as Gentek Building Products Limited), as borrowers,
entered into the ABL Facility with Wells Fargo Securities, LLC (formerly known as Wachovia Capital
Markets, LLC) and CIT Capital Securities LLC, as joint lead arrangers, Wachovia Bank, N.A., as
agent and the lenders party to the facility. Pursuant to a reorganization of certain Canadian
subsidiaries of Associated Materials occurring in August and September of 2009 (the Canadian
Reorganization), Gentek Building Products Limited Partnership, a newly formed Canadian operating
entity, was added as a borrower under the Canadian portion of the ABL Facility. The ABL Facility
provides for a senior secured asset-based revolving credit facility of up to $225.0 million,
comprising a $165.0 million U.S. facility and a $60.0 million Canadian facility, in each case
subject to borrowing base availability under the applicable facility. Pursuant to an amendment to
the ABL Facility (the ABL Facility Amendment) entered into in connection with the issuance of
Associated Materials 9.875% notes, effective November 5, 2009, the maturity date of the ABL
Facility was changed to mean the earliest of (i) October 3, 2013 and (ii) the date three months
prior to the stated maturity date of the 9.875% notes (as amended, supplemented or replaced), if
any such notes remain outstanding at such date, taking into account any stated maturity dates which
may be contingent, conditional or alternative. As of January 2, 2010, there was $10.0 million
drawn under the ABL Facility and $139.8 million available for additional borrowing.
The obligations of Associated Materials, Gentek Building Products, Inc., Associated Materials
Canada Limited, and Gentek Building Products Limited Partnership as borrowers under the ABL
Facility, are jointly and severally guaranteed by Holdings and by Associated Materials wholly
owned domestic subsidiaries, Gentek Holdings, LLC and Associated Materials Finance, Inc. (formerly
Alside, Inc.). Such obligations and guaranties are also secured by (i) a security interest in
substantially all of the owned real and personal assets (tangible and intangible) of Associated
Materials, Holdings, Gentek Building Products, Inc., Gentek Holdings, LLC and Associated Materials
Finance, Inc. and (ii) a pledge of up to 65% of the voting stock of Associated Materials Canada
Limited and Gentek Canada Holdings Limited. The obligations of Associated Materials Canada Limited
and Gentek Building Products Limited Partnership are further secured by a security interest in
their owned real and personal assets (tangible and intangible) and are guaranteed by Gentek Canada
Holdings Limited, an entity formed as part of the Canadian Reorganization.
The interest rate applicable to outstanding loans under the ABL Facility is, at Associated
Materials option, equal to either a U.S. or Canadian adjusted base rate or a Eurodollar base rate
plus an applicable margin. Pursuant to the ABL Facility Amendment, the applicable margin related
to adjusted base rate loans was changed, effective November 5, 2009, from the then current range of
0.75% to 1.75% to an amended range of 1.25% to 2.25%, and the applicable margin related to LIBOR
loans was changed from the then current range of 2.50% to 3.50% to an amended range of 3.00% to
4.00%, with the applicable margin in each case depending on the Associated Materials quarterly
average excess availability.
66
As of January 2, 2010, the per annum interest rate applicable to borrowings under the ABL
Facility was 5.0%. The weighted average interest rate for borrowings under the ABL Facility and
Associated Materials prior credit facility, as applicable, were 4.2%, 5.6% and 7.8% for the years
ended January 2, 2010, January 3, 2009 and December 29, 2007, respectively. As of January 2, 2010,
Associated Materials had letters of credit outstanding of $9.1 million primarily securing
deductibles of various insurance policies. Associated Materials is required to pay a commitment
fee of 0.50% to 0.75% per annum on any unused amounts under the ABL Facility.
The ABL Facility does not require Associated Materials to comply with any financial
maintenance covenants, unless it has less than $28.1 million of aggregate excess availability at
any time (or less than $20.6 million of excess availability under the U.S. facility or less than
$7.5 million of excess availability under the Canadian facility), during which time Associated
Materials is subject to compliance with a fixed charge coverage ratio covenant of 1.1 to 1. As of
January 2, 2010, Associated Materials exceeded the minimum aggregate excess availability
thresholds, and therefore, was not required to comply with this maintenance covenant.
Under the ABL Facility restricted payments covenant, subject to specified exceptions,
Holdings, Associated Materials and its restricted subsidiaries cannot make restricted payments,
such as dividends or distributions on equity, redemptions or repurchases of equity, or payments of
certain management or advisory fees or other extraordinary forms of compensation, unless prior
written notice is given and certain EBITDA and availability thresholds are met. If an event of
default under the ABL Facility occurs and is continuing, amounts outstanding under the ABL Facility
may be accelerated upon notice, in which case the obligations of the lenders to make loans and
arrange for letters of credit under the ABL Facility would cease. If an event of default relates
to certain events of bankruptcy, insolvency or reorganization of Holdings, Associated Materials, or
the other borrowers and guarantors under the ABL Facility, the payment obligations of the borrowers
under the ABL Facility will become automatically due and payable without any further action
required.
11.25% Notes
In March, 2004, AMH issued $446 million aggregate principal at maturity in 2014 of 11.25%
notes. Prior to March 1, 2009, interest accrued at a rate of 11.25% per annum on the 11.25% notes
in the form of an increase in the accreted value of the 11.25% notes. Since March 1, 2009, cash
interest has been accruing at a rate of 11.25% per annum on the 11.25% notes and is payable
semi-annually in arrears on March 1st and September 1st of each year, with the first payment of
cash interest under the 11.25% notes paid on September 1, 2009. During the second quarter of 2009,
AMH II purchased $15.0 million par value of AMHs 11.25% notes directly from the AMH debtholders
with funds loaned from Associated Materials for approximately $5.9 million. In exchange for the
purchased 11.25% notes, AMH II was granted additional equity interests in AMH. As a result, AMH
recorded a gain on debt extinguishment of $8.9 million for the year ended January 2, 2010.
The 11.25% notes mature on March 1, 2014. The 11.25% notes are structurally subordinated to
all existing and future debt and other liabilities of AMHs existing and future subsidiaries,
including Associated Materials and Holdings. As of January 2, 2010, AMH had $431.0 million in
aggregate principal amount, including accreted interest, of its 11.25% notes outstanding.
Parent Company Indebtedness
In connection with a December 2004 recapitalization transaction, AMHs parent company AMH II
was formed, and AMH II subsequently issued $75 million of 13.625% Senior Notes due 2014 (the
13.625% notes). In June 2009, AMH II entered into an exchange agreement pursuant to which it
paid $20.0 million in cash and issued $13.066 million original principal amount of its 20% Senior
Notes due 2014 (the 20% notes) in exchange for all of its outstanding 13.625% notes. Interest on
AMH IIs 20% notes is payable in cash semi-annually in arrears or may be added to the then
outstanding principal amount of the 20% notes and paid at maturity on December 1, 2014. In
accordance with the principles described in FASB ASC 470-60, Troubled Debt Restructurings by
Debtors (ASC 470-60), AMH II recorded a troubled debt restructuring gain of approximately $19.2
million during the second quarter of 2009. In November 2009, Associated Materials redeemed and
discharged its 15% notes that were issued in June 2009. As a result of applying ASC 470-60 on a
consolidated basis, AMH II recorded an additional debt restructuring gain of $10.3 million during
the fourth quarter of 2009. The additional gain primarily consisted of the write-off of all future
accrued interest of Associated Materials 15% notes that were redeemed and discharged in
connection with Associated Materials issuance of its 9.875% notes. As of January 2, 2010,
AMH II has recorded liabilities for the $13.066 million original principal amount and $23.7 million
of accrued interest related to all future interest payments on its 20% notes in accordance with ASC
470-60. As of January 2, 2010, total AMH II debt, including that of its consolidated subsidiaries,
was approximately $675.4 million, which includes $23.7 million of accrued interest related to all
future interest payments on AMH IIs 20% notes.
67
Because AMH II has no independent operations, it is dependent upon distributions, payments and
loans from Associated Materials to service its indebtedness under the 20% notes. However, unlike
AMH IIs previously outstanding 13.625% notes, all of which were exchanged for the 20% notes in
June 2009, interest on AMH IIs 20% notes may be added to the then outstanding principal amount of
the 20% notes and paid at maturity on December 1, 2014. If Associated Materials and AMH were
unable to or were precluded from making restricted payments, either under their debt agreements or
pursuant to statutory limitations on the payment of dividends, AMH would not be able to dividend or
otherwise upstream sufficient funds to AMH II to allow AMH II to make the payments due on its 20%
notes at maturity. Under such a scenario, AMH II would have to find alternative sources of
liquidity to meet its obligations under the 20% notes. AMH does not guarantee the 20% notes and
has no obligation to make any payments with respect thereto.
If Associated Materials were unable to meet its indebtedness obligations with respect to the
ABL Facility or the 9.875% notes, or if either of AMH or AMH II, were not able to meet its
indebtedness obligations under the 11.25% notes or the 20% notes, as the case may be, or if an
event of default were otherwise to occur with respect to any of such indebtedness obligations, and
such indebtedness obligations could not be refinanced or amended to eliminate the default, then the
lenders under the ABL Facility (in the case of an event of default under that facility) or the
holders of the applicable series of notes (in the case of an event of default under those notes),
could declare the applicable indebtedness obligations due and payable and exercise any remedies
available to them. Any event of default under the 9.875% notes could in turn trigger a
cross-default under the ABL Facility, and any acceleration of the ABL Facility, the 9.875% notes or
the 11.25% notes could, in turn, result in an event of default under the other indebtedness
obligations of the relevant obligor on such indebtedness and its parent companies, allowing the
holders of such indebtedness likewise to declare all such indebtedness obligations due and payable
and exercise any remedies available to them.
In 2009, 2008
and 2007, AMH declared dividends of approximately $4.3 million, $8.3 million and
$8.0 million, respectively, to fund AMH IIs scheduled
interest payments on its 13.625% notes, which are no longer outstanding. AMH IIs 13.625%
notes were exchanged in June 2009
as part of AMH IIs debt restructuring.
In June 2009, at the time Associated Materials entered into the purchase agreement pursuant to
which it issued its 15% notes (which were redeemed and discharged in connection with Associated
Materials issuance of its 9.875% notes in November 2009), Associated Materials entered into an
intercompany loan agreement with AMH II, pursuant to which Associated Materials agreed to
periodically make loans to AMH II in an amount not to exceed an aggregate outstanding principal
amount of approximately $33.0 million at any one time, plus accrued interest. Interest accrues at a
rate of 3% per annum and is added to the then outstanding principal amount on a semi-annual basis.
The principal amount and accrued but unpaid interest thereon will mature on May 1, 2015. As of
January 2, 2010, the principal amount of borrowings by AMH II under this intercompany loan
agreement and accrued interest thereon was $27.2 million. Associated Materials believes that AMH II
will have the ability to repay the loan in accordance with its stated terms. Due to the related
party nature and the underlying terms of the intercompany loan with AMH II, Associated Materials
has deemed it not practical to assign and disclose a fair value estimate.
8. COMMITMENTS AND CONTINGENCIES
Commitments for future minimum lease payments under non-cancelable operating leases,
principally for manufacturing and distribution facilities and certain equipment, are as follows (in
thousands):
|
|
|
|
|
2010 |
|
$ |
33,740 |
|
2011 |
|
|
28,748 |
|
2012 |
|
|
23,640 |
|
2013 |
|
|
19,510 |
|
2014 |
|
|
14,787 |
|
Thereafter |
|
|
25,724 |
|
|
|
|
|
Total future minimum lease payments |
|
$ |
146,149 |
|
|
|
|
|
68
Lease expense was approximately $38.2 million, $37.2 million and $36.0 million for the years
ended January 2, 2010, January 3, 2009, and December 29, 2007, respectively. The Companys facility
lease agreements typically contain renewal options.
As of January 2, 2010, approximately 22% of the Companys employees are covered by collective
bargaining agreements.
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 Companys existing insurance coverage, is
expected to have a material adverse effect on the Companys financial position, results of
operations or liquidity. From time to time, the Company is involved in proceedings and potential
proceedings relating to environmental and product liability matters.
Certain environmental laws, including the federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, (CERCLA), and comparable state laws, impose
strict, and in certain circumstances, joint and several, liability upon specified responsible
parties, which include certain former owners and operators of waste sites designated for clean up
by environmental regulators. A facility in Lumber City, Georgia, initially owned by USX Corporation
(USX), subsequently owned by the Company and then subsequently owned by Amercord, Inc., a company
in which the Company held a minority interest, is subject to a Consent Order. The Consent Order was
entered into by Amercord, Inc. with the Georgia Department of Natural Resources in 1994, and
required Amercord, Inc. to conduct soil and groundwater investigation and perform required
remediation. The Company was not a party to the Consent Order. Additionally, the Company believes
that soil and groundwater in certain areas of the site (including the area of two industrial waste
landfills) were being investigated by the United States Environmental Protection Agency (EPA)
under CERCLA to determine whether remediation of those areas may be required and whether the site
should be listed on the state or federal list of priority sites requiring remediation. Amercord,
Inc. is no longer an operating entity and does not have adequate financial resources to perform any
further investigation and remediation activities that may be required. If substantial remediation
is required, claims may be made against the Company, which could result in material expenditures.
If costs related to the remediation of this site are incurred, the Company and USX have agreed to
share in those costs; however, there can be no assurance that USX can or will make the payments.
Currently, it is not probable that the outcome of this matter will result in a liability to the
Company, and further, the amount of liability cannot be reasonably estimated. The Company believes
this matter will not have a material adverse effect on its financial position, results of
operations or liquidity.
The Woodbridge, New Jersey facility is currently the subject of an investigation and/or
remediation before the New Jersey Department of Environmental Protection (NJDEP) under ISRA Case
No. E20030110 for Gentek Building Products, Inc. (Gentek U.S.). The facility is currently leased
by Gentek U.S. Previous operations at the facility resulted in soil and groundwater contamination
in certain areas of the property. In 1999, the property owner and Gentek U.S. signed a remediation
agreement with NJDEP, pursuant to which the property owner and Gentek U.S. agreed to continue an
investigation/remediation that had been commenced pursuant to a Memorandum of Agreement with NJDEP.
Under the remediation agreement, NJDEP required posting of a remediation funding source of
approximately $100,000 that was provided by Gentek U.S. under a self-guarantee. Although
investigations at this facility are ongoing and it appears probable that a liability will be
incurred, the Company cannot currently estimate the amount of liability that may be associated with
this facility as the delineation process has not been completed. The Company believes that this
matter will not have a material adverse effect on its financial position, results of operations or
liquidity.
The Company handles other environmental claims in the ordinary course of business and
maintains product liability insurance covering certain types of claims. Although it is difficult to
estimate the Companys potential exposure to these matters, the Company believes that the
resolution of these matters will not have a material adverse effect on the Companys financial
position, results of operations or liquidity.
69
9. INCOME TAXES
Income tax expense (benefit) for the periods presented consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, 2010 |
|
|
January 3, 2009 |
|
|
December 29, 2007 |
|
|
|
Current |
|
|
Deferred |
|
|
Current |
|
|
Deferred |
|
|
Current |
|
|
Deferred |
|
Federal |
|
$ |
(1,050 |
) |
|
$ |
(847 |
) |
|
$ |
6,712 |
|
|
$ |
36,130 |
|
|
$ |
15,666 |
|
|
$ |
(14,004 |
) |
State |
|
|
459 |
|
|
|
27 |
|
|
|
731 |
|
|
|
5,787 |
|
|
|
1,707 |
|
|
|
(5,368 |
) |
Foreign |
|
|
4,667 |
|
|
|
2,264 |
|
|
|
8,250 |
|
|
|
(12 |
) |
|
|
12,420 |
|
|
|
565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,076 |
|
|
$ |
1,444 |
|
|
$ |
15,693 |
|
|
$ |
41,905 |
|
|
$ |
29,793 |
|
|
$ |
(18,807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes from the Companys U.S. entities and Canadian subsidiary totaled
$(27.4) million and $25.6 million, respectively, for the year ended January 2, 2010. Income (loss)
before taxes from the Companys U.S. entities and Canadian subsidiary totaled $(39.9) million and
$28.4 million, respectively, for the year ended January 3, 2009. Income (loss) before taxes from
the Companys U.S. entities and Canadian subsidiary totaled $(10.7) million and $37.5 million,
respectively, for the year ended December 29, 2007.
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 Companys deferred income taxes are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
|
2010 |
|
|
2009 |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Medical benefits |
|
$ |
2,152 |
|
|
$ |
2,120 |
|
Bad debt expense |
|
|
3,322 |
|
|
|
5,272 |
|
Pension and other postretirement plans |
|
|
8,377 |
|
|
|
8,478 |
|
Inventory costs |
|
|
1,397 |
|
|
|
1,832 |
|
Interest |
|
|
71,162 |
|
|
|
66,869 |
|
Warranty costs |
|
|
11,712 |
|
|
|
10,709 |
|
Net operating loss carryforwards |
|
|
|
|
|
|
554 |
|
Foreign tax credit carryforwards |
|
|
8,427 |
|
|
|
8,035 |
|
Accrued expenses and other |
|
|
5,344 |
|
|
|
3,254 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
111,893 |
|
|
|
107,123 |
|
Valuation allowance |
|
|
(76,270 |
) |
|
|
(72,933 |
) |
|
|
|
|
|
|
|
Net deferred income tax assets |
|
|
35,623 |
|
|
|
34,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
22,657 |
|
|
|
24,113 |
|
Intangible assets |
|
|
37,117 |
|
|
|
38,250 |
|
Tax liability on unremitted foreign earnings |
|
|
6,545 |
|
|
|
4,990 |
|
Other |
|
|
3,252 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
|
69,571 |
|
|
|
67,353 |
|
|
|
|
|
|
|
|
Net deferred income tax liabilities |
|
$ |
(33,948 |
) |
|
$ |
(33,163 |
) |
|
|
|
|
|
|
|
The Company has foreign tax credit carryforwards of $8.4 million as of January 2, 2010, which
begin to expire in 2017.
70
The Company has valuation allowances as of January 2, 2010 and January 3, 2009 of $76,270 and
$72,933, respectively, against its deferred tax assets. ASC 740 requires that a valuation allowance
be recorded against deferred tax assets when it is more likely than not that some or all of a
companys deferred tax assets will not be realized based on available positive and negative
evidence. After reviewing all available positive and negative
evidence as of January 2, 2010 and January 3, 2009, the Company recorded a full valuation
allowance against its U.S. net federal deferred tax assets. The net valuation allowance provided
against these U.S. net deferred tax assets during 2009 increased by $3.3 million. Of this amount,
$5.3 million was recorded as an increase in the current year provision for income taxes and ($2.0)
million was recorded in other comprehensive income. The Company reviews all valuation allowances
related to deferred tax assets and will reverse these valuation allowances, partially or totally,
when, and if, appropriate under ASC 740. The establishment of a valuation allowance does not have
an impact on cash, nor does such an allowance preclude the Company from using its deferred tax
assets in future periods. Based upon the review of historical earnings, trends, and forecasted
earnings, the Company believes the valuation allowances provided are appropriate.
The reconciliation of the statutory rate to the Companys effective income tax rate for the
periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income tax, net of federal income tax benefit |
|
|
17.9 |
|
|
|
(3.8 |
) |
|
|
(8.4 |
) |
Tax liability on remitted and unremitted foreign earnings |
|
|
(44.4 |
) |
|
|
(20.8 |
) |
|
|
18.6 |
|
Sec. 199 manufacturing deduction |
|
|
|
|
|
|
|
|
|
|
(3.6 |
) |
Foreign rate differential |
|
|
43.7 |
|
|
|
6.7 |
|
|
|
(0.5 |
) |
Valuation allowance |
|
|
(279.1 |
) |
|
|
(515.8 |
) |
|
|
|
|
Nondeductible interest |
|
|
(40.3 |
) |
|
|
(5.7 |
) |
|
|
2.2 |
|
Nondeductible meals and entertainment |
|
|
(16.9 |
) |
|
|
(3.3 |
) |
|
|
1.3 |
|
Other |
|
|
(27.2 |
) |
|
|
8.7 |
|
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
Effective rate |
|
|
(311.3 |
)% |
|
|
(499.0 |
)% |
|
|
41.1 |
% |
|
|
|
|
|
|
|
|
|
|
The Company intends to remit all current and future earnings of its foreign subsidiary to the
U.S. parent. The Company recorded approximately $0.8 million, $2.4 million and $5.0 million in
incremental income tax expense for the years ended January 2, 2010, January 3, 2009, and December
29, 2007, respectively, for the estimated U.S. income tax liability on the earnings of its foreign
subsidiary, which will become payable when dividends are declared and paid to the U.S. parent. The
cumulative amount of unremitted earnings prior to January 1, 2005 of the Companys foreign
subsidiary was $18.3 million as of January 2, 2010, which the Company has deemed indefinitely
reinvested in its foreign operations, and as a result, no provision has been made for U.S. income
taxes. The repatriation of these funds would result in approximately $0.7 million of incremental
income tax expense.
A reconciliation of the unrecognized tax benefits for the periods presented is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Unrecognized tax benefits, beginning of year |
|
$ |
914 |
|
|
$ |
513 |
|
|
$ |
1,596 |
|
Gross increases for tax positions of prior years |
|
|
50 |
|
|
|
914 |
|
|
|
|
|
Gross decreases for tax positions of prior years |
|
|
|
|
|
|
|
|
|
|
(874 |
) |
Settlements |
|
|
|
|
|
|
(513 |
) |
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year |
|
$ |
964 |
|
|
$ |
914 |
|
|
$ |
513 |
|
|
|
|
|
|
|
|
|
|
|
As of January 2, 2010 and January 3, 2009, the Company had approximately $0.3 million and $0.1
million, respectively, of accrued interest related to uncertain tax positions.
The Company had unrecognized tax benefits and accrued interest that would affect the Companys
effective tax rate if recognized of approximately $0.9 million and $0.7 million as of January 2,
2010 and January 3, 2009, respectively. The Company is currently undergoing examinations of its
non-U.S. federal and certain state income tax returns. The final outcome of these reviews are not
yet determinable; however, management anticipates that adjustments to unrecognized tax benefits, if
any, would not result in a material change to the results of operations,
financial condition, or liquidity. As of January 2, 2010, the Company is subject to U.S.
federal income tax examinations for the tax years 2006 through 2008, and to non-U.S. income tax
examinations for the tax years of 2004 through 2008. In addition, the Company is subject to state
and local income tax examinations for the tax years 2005 through 2008.
71
The Company and its subsidiaries are included in the consolidated income tax returns filed by
AMH II, its direct parent company. The Company and each of its subsidiaries entered into a tax
sharing agreement with AMH II under which federal income taxes are computed by the Company and each
of its subsidiaries on a separate return basis.
10. MEMBERS EQUITY (DEFICIT)
As discussed in Note 1, AMH is a wholly owned subsidiary of AMH II. On December 28, 2007, the
Company converted from a Delaware corporation to a Delaware limited liability company. As part of
the conversion, all of the then outstanding common stock of the Company was converted into a
membership interest in the Company, whereby AMH II remained the sole equity holder of the Company.
The Companys contributed capital consists primarily of $150 million of cash contributions from
Investcorp.
Prior to the conversion, the Company had the authority to issue 1,000 shares of $0.01 par
value common stock, all of which were issued and outstanding at December 30, 2006.
On June 25, 2009, the Company issued $5.9 million of new limited liability
company interests in the Company to AMH II in exchange for $15.0 million par value
of the Companys 11.25% notes, which had been purchased by AMH II at a discount
directly from the debtholders in privately negotiated transactions.
The Company reports comprehensive income (loss) in its consolidated statement of members
equity and comprehensive income (loss). Comprehensive income (loss) includes net income and other
non-owner changes in equity (deficit) during the period. Comprehensive income for the year ended January 2,
2010 includes unrecognized prior service cost and net losses from the Companys pension and
postretirement benefit plans of approximately $0.2 million, net of related taxes of ($1.2) million, as well as foreign currency translation adjustments of approximately $10.8 million, net of
related taxes of $0.0 million. Comprehensive loss for the year ended January 3, 2009 includes
unrecognized prior service cost and net losses from the Companys pension and postretirement
benefit plans of approximately $5.5 million, net of related taxes of approximately $3.5 million, as
well as foreign currency translation adjustments of approximately $16.6 million. Comprehensive
income for the year ended December 29, 2007 includes unrecognized prior service cost and net losses
from the Companys pension and postretirement benefit plans of approximately ($0.8) million, net of
related taxes of approximately $0.2 million, as well as foreign currency translation adjustments of
approximately $11.1 million.
The components of accumulated other comprehensive income (loss) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Pension liability adjustments, net of tax |
|
$ |
(17,723 |
) |
|
$ |
(17,940 |
) |
|
$ |
(12,463 |
) |
Foreign currency translation adjustments, net of tax |
|
|
9,913 |
|
|
|
(873 |
) |
|
|
19,642 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
$ |
(7,810 |
) |
|
$ |
(18,813 |
) |
|
$ |
7,179 |
|
|
|
|
|
|
|
|
|
|
|
11. STOCK PLANS
In June 2002, Holdings adopted the Associated Materials Holdings Inc. 2002 Stock Option Plan
(the 2002 Plan). In March 2004, AMH assumed the 2002 Plan and all outstanding options under the
plan. Options under the 2002 Plan were converted from the right to purchase shares of Holdings
common stock into a right to purchase shares of AMH common stock with each option providing for the
same number of shares and at the same exercise price as the original options. The Board of
Directors of AMH II administers the 2002 Plan and selects eligible executives, directors, and
employees of, and consultants to, AMH and its affiliates, (including the Company), to receive
options. The Board of Directors of AMH II also will determine the number and type of shares of
stock covered by options granted under the plan, the terms under which options may be exercised,
the exercise price of the options and other terms and conditions of the options in accordance with
the provisions of the 2002 Plan. In 2002, the Board of Directors authorized 467,519 shares of
common stock and 55,758 shares of preferred stock under this plan. An option holder may pay the
exercise price of an option by any legal manner that the Board of Directors permits. Option holders
generally may not transfer their options except in the event of death. If AMH undergoes a change in
control, as defined in the 2002 Plan, all outstanding time-vesting options become immediately fully
exercisable, while the performance-based options may become immediately exercisable upon
achievement of certain specified criteria. The Board of Directors of AMH II may adjust outstanding
options by substituting stock or other securities of any successor or another party to the change
in control transaction, or cash out such outstanding options, in any such case, generally based on
the consideration received by its stockholders in the transaction. Subject to particular
limitations specified in the 2002 Plan, the Board of Directors may amend or terminate the plan. The
2002 Plan will terminate no later than 10 years following its effective date; however, any options
outstanding under the option plan will remain outstanding in accordance with their terms.
72
Options granted under the 2002 Plan were granted at fair market value on the grant date and
are exercisable under varying terms for up to ten years. The options outstanding under the 2002
Plan as of January 2, 2010, which were originally granted as options to purchase Holdings stock,
allow option holders to purchase shares of AMH common stock at the fair market value on the date of
grant, which vested over time.
In December 2004, AMH amended the 2002 Plan to provide that each option that remains
outstanding under the 2002 Plan will be exercisable for two shares of the Class B non-voting common
stock of AMH. In addition, each holder of such options entered into an agreement with AMH II
whereby such option holders agreed, upon the exercise of any such options under the 2002 Plan, to
automatically contribute to AMH II the AMH shares issued upon any such option exercise, in exchange
for an equivalent number and class of shares of AMH II.
Also, in December 2004, AMH II adopted the AMH Holdings II, Inc. 2004 Stock Option Plan (2004
Plan). The Compensation Committee of the Board of Directors of AMH II administers the AMH II Plan
and selects executives, other employees, directors of, and consultants to, AMH II and its
affiliates, (including the Company), to receive options. The Compensation Committee will also
determine what form the option will take, the numbers of shares, the exercise price (which shall
not be less than fair market value), the periods for which the options will be outstanding, terms,
conditions, performance criteria as well as certain other criteria. The total number of shares of
common stock that may be delivered pursuant to options granted under the plan is 469,782 shares of
AMH II non-voting common stock. Option holders generally may not transfer their options except in
the event of their death. If AMH II undergoes a change in control, as defined in the 2004 Plan, the
Compensation Committee in its discretion may provide that any outstanding option shall be
accelerated and become immediately exercisable as to all or a portion of the shares of common
stock. The Board of Directors of AMH II may adjust outstanding options by substituting stock or
other securities of any successor or another party to the change in control transaction, or cash
out such outstanding options, in any such case, generally based on the consideration received by
its stockholders in the transaction. Subject to particular limitations specified in the 2004 Plan,
the Board of Directors may amend or terminate the 2004 Plan. The 2004 Plan will terminate no later
than 10 years following its effective date; however, any options outstanding under the option plan
will remain outstanding in accordance with their terms.
Options granted in 2006 and 2005 under the 2004 Plan were granted at or above fair market
value on the date of grant. These options to purchase shares of AMH II common stock will vest 100%
on the eighth anniversary from the date of grant provided that the option vesting may be
accelerated upon the occurrence of a liquidity event, as defined in the Plan, and the achievement
of a specified internal rate of return on the funds invested by Investcorp. As discussed below,
certain of these options were exchanged in 2008 for new options having different terms.
In May 2008, certain options previously issued to executive officers and certain employees of
the Company under the 2002 Plan and the 2004 Plan were exchanged for new options providing for a
lower exercise price and certain other modified terms. As a result of the exchange, options for an
aggregate of 165,971 shares of AMH II common stock having a weighted average exercise price of
$46.59 per share were exchanged for new options having an exercise price of $1.00 per share (which
exercise price exceeded the fair market value on the date of grant). In addition, new option grants
were issued to certain individuals who previously did not hold stock options. Approximately 35% of
the new options issued vest ratably over a five year period (time-based options), subject to such
time-based options immediately vesting upon a change of control, as defined in the 2004 Plan. The
remainder of the new options become exercisable if a liquidity event, as defined in the option
agreements, occurs and certain specified returns on investment are realized by Investcorp and
Harvest Partners in connection with the liquidity event; provided that if a liquidity event had
occurred on or prior to December 31, 2009, these options (together with the time-based options)
would have immediately vested without regard to realized investment returns. A liquidity event is
generally defined as an initial public offering yielding at least $150.0 million of net proceeds or
a sale to an unaffiliated third person of over 50% of the stock or assets of the Company. The
number of shares underlying the
new options is subject to adjustment in the event Investcorp converts its preferred stock of
AMH II into common stock, with the adjusted number of shares dependent on the fair market value of
AMH II common stock at the time of such conversion.
73
The exchange of options was treated as a modification of the terms of the original options in
accordance with FASB ASC 718, Compensation Stock Compensation (ASC 718). Upon the application
of ASC 718, the Company did not have any unrecognized compensation cost related to the original
options that were exchanged. Based on the calculated fair value per option of $0.00 as determined
at the date of grant for the 2008 option award, there was no incremental compensation expense
between the fair value of the new options and the fair value of the original options on the date of
modification.
Transactions during the years ended January 2, 2010, January 3, 2009, and December 29, 2007
under these plans are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
|
|
Average |
|
|
Contractual Term |
|
|
|
Shares |
|
|
Exercise Price |
|
|
(years) |
|
Options outstanding December 30, 2006 |
|
|
509,012 |
|
|
$ |
33.73 |
|
|
|
|
|
Granted under 2004 Plan |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Expired or canceled |
|
|
(259,410 |
) |
|
|
27.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 29, 2007 |
|
|
249,602 |
|
|
|
39.97 |
|
|
|
|
|
Granted under 2004 Plan |
|
|
287,455 |
|
|
|
1.00 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Share exchange |
|
|
(165,971 |
) |
|
|
46.59 |
|
|
|
|
|
Expired or canceled |
|
|
(5,499 |
) |
|
|
18.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding January 3, 2009 |
|
|
365,587 |
|
|
|
6.64 |
|
|
|
|
|
Granted under 2004 Plan |
|
|
34,853 |
|
|
|
1.00 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Expired or canceled |
|
|
(52,769 |
) |
|
|
3.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding January 2, 2010 |
|
|
347,671 |
|
|
$ |
6.58 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable January 2, 2010 |
|
|
42,072 |
|
|
$ |
10.89 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
The total fair value of options vested during the years ended January 2, 2010, January 3,
2009, and December 29, 2007 was approximately $0.0 million, $0.0 million, and $0.1 million,
respectively.
The weighted average fair value at date of grant for options granted during 2009 and 2008 was
$0.00. The fair value of the options was estimated at the date of the grant using the Black-Scholes
method with the following assumptions for 2009: dividend yield of 0.0%, annual risk-free interest
rate of 3.37%, an expected life of the option of 6.0 years, and expected volatility of 49.1%. The
fair value of the options was estimated at the date of the grant using the Black-Scholes method
with the following assumptions for 2008: dividend yield of 0.0%, annual risk-free interest rate of
3.46%, an expected life of the option of 6.5 years, and expected volatility of 39.0%. The expected
lives of the awards are based on historical exercise patterns and the terms of the options. The
annual risk-free interest rate is based on zero coupon treasury bond rates corresponding to the
expected life of the awards. Due to the fact that AMH IIs shares are not publicly traded, the
expected volatility assumption was derived by referring to changes in the common stock prices of
several peer companies (with respect to industry, size and leverage) over the same timeframe as the
expected life of the awards. The expected dividend yield is based on the Companys historical and
expected future dividend policy.
12. MANUFACTURING RESTRUCTURING COSTS
During the first quarter of 2008, the Company committed to, and subsequently completed,
relocating a portion of its vinyl siding production from Ennis, Texas to its vinyl manufacturing
facilities in West Salem, Ohio and Burlington, Ontario. In addition, during 2008, the Company
transitioned the majority of distribution of its U.S. vinyl siding products to a center located in
Ashtabula, Ohio and committed to a plan to discontinue use of its
warehouse facility adjacent to its Ennis, Texas vinyl manufacturing facility. The Company
incurred expense of $1.8 million for the fiscal year ended January 3, 2009 associated with these
restructuring efforts, which was comprised of asset impairment costs of $0.7 million, costs
incurred to relocate manufacturing equipment of $0.7 million and costs associated with the
transition of distribution operations of $0.4 million. Additionally, the Company recorded $0.9
million of inventory markdown costs associated with these restructuring efforts within cost of
goods sold during the second quarter of 2008.
74
The Company discontinued its use of the warehouse facility adjacent to the Ennis manufacturing
plant during the second quarter of 2009. As a result, the related lease costs associated with the
discontinued use of the warehouse facility were recorded as a restructuring charge of approximately
$5.3 million during the second quarter of 2009.
The following is a reconciliation of the manufacturing restructuring liability for the fiscal
year ended January 2, 2010 (in thousands):
|
|
|
|
|
|
|
Year Ended |
|
|
|
January
2, 2010 |
|
Beginning liability |
|
$ |
|
|
Additions |
|
|
5,332 |
|
Accretion of related lease obligations |
|
|
76 |
|
Payments |
|
|
(372 |
) |
|
|
|
|
Ending liability as of January 2, 2010 |
|
$ |
5,036 |
|
|
|
|
|
Of the remaining restructuring liability as of January 2, 2010, approximately $1.2 million is
expected to be paid in 2010. Amounts related to the ongoing facility obligations will continue to
be paid over the lease term, which ends April 2020.
13. EMPLOYEE TERMINATION COSTS
Throughout 2009, due to economic conditions and as a cost control measure, the Company reduced
its workforce and placed a number of employees on temporary lay-off status. During the second and
third quarters of 2009, several of these employees were re-instated to an active status. During
the third quarter of 2009, the Company determined it would not recall the remaining employees. As
a result, the Company recorded a one-time charge of $1.2 million in employee termination costs for
the fiscal year ended January 2, 2010 within selling, general and administrative expense in the
consolidated statements of operations. Payments of approximately $0.7 million were made during
2009 to the former employees, with the remaining liability of $0.5 million expected to be paid in
2010.
14. BUSINESS SEGMENTS
The Company is in the single business of manufacturing and distributing exterior residential
building products. The Company operates principally in the United States and Canada. Revenue from
customers outside the United States was approximately $228 million, $249 million and $241 million
in 2009, 2008, and 2007, respectively, and was primarily derived from customers in Canada. The
Companys remaining revenue totaling $818 million, $885 million and $963 million in 2009, 2008, and
2007, respectively, was derived from U.S. customers. The following table sets forth for the periods
presented a summary of net sales by principal product offering (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
January 2, |
|
|
January 3, |
|
|
December 29, |
|
|
|
2010 |
|
|
2009 |
|
|
2007 |
|
Vinyl windows |
|
$ |
389,293 |
|
|
$ |
380,260 |
|
|
$ |
410,164 |
|
Vinyl siding products |
|
|
210,212 |
|
|
|
254,563 |
|
|
|
285,303 |
|
Metal products |
|
|
167,749 |
|
|
|
213,163 |
|
|
|
225,846 |
|
Third-party manufactured products |
|
|
210,806 |
|
|
|
210,633 |
|
|
|
205,445 |
|
Other products and services |
|
|
68,047 |
|
|
|
75,337 |
|
|
|
77,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,046,107 |
|
|
$ |
1,133,956 |
|
|
$ |
1,204,056 |
|
|
|
|
|
|
|
|
|
|
|
At
January 2, 2010, long-lived assets totaled approximately
$33.9 million in Canada and $75.1 million in the U.S. At
January 3, 2009, those amounts were $31.6 million and
$83.5 million, respectively.
75
15. RETIREMENT PLANS
The Companys 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
Companys Gentek subsidiary sponsors a defined benefit pension plan for hourly union employees at
its Woodbridge, New Jersey plant (together with the Alside sponsored defined benefit plans, the
Domestic Plans) as well as a defined benefit pension plan covering Gentek Canadian salaried
employees and hourly union employees at the Lambeth, Ontario plant, a defined benefit pension plan
for the hourly union employees at its Burlington, Ontario plant and a defined benefit pension plan
for the hourly union employees at its Pointe Claire, Quebec plant (the Foreign Plans). Accrued
pension liabilities are included in accrued and other long-term liabilities in the accompanying
balance sheets. The actuarial valuation measurement date for the defined benefit pension plans is
December 31st.
The Companys Alside division also sponsors an unfunded post-retirement healthcare plan which
covers hourly workers at its former steel siding plant in Cuyahoga Falls, Ohio. With the closure of
this facility in 1991, no additional employees are eligible to participate in this plan. The annual
cost of this plan was approximately $0.3 million for each of the years ended January 2, 2010,
January 3, 2009, and December 29, 2007. The accumulated post-retirement benefit obligation
associated with this plan was approximately $4.6 million and $4.7 million at January 2, 2010 and
January 3, 2009, respectively. In determining the benefit obligation at January 2, 2010 and January
3, 2009, a discount rate of 5.28% and 6.31%, respectively, was assumed. The assumed health care
cost trend rates at January 2, 2010 for 2010 were 8.5% for medical claims, 5.0% for dental claims
and 8.5% for prescription drugs claims, with an ultimate trend rate for medical, dental and
prescription drugs claims of 5.0% by 2017, 2010 and 2017, respectively. A 1% increase or decrease
in the assumed health care cost trend rates would have resulted in a $0.4 million increase or
decrease of the accumulated post-retirement benefit obligation at January 2, 2010.
76
Information regarding the Companys defined benefit pension plans is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
Accumulated Benefit Obligation |
|
$ |
55,107 |
|
|
$ |
54,978 |
|
|
$ |
50,958 |
|
|
$ |
34,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change In Projected Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
$ |
51,093 |
|
|
$ |
39,218 |
|
|
$ |
51,464 |
|
|
$ |
57,188 |
|
Service cost |
|
|
572 |
|
|
|
1,440 |
|
|
|
574 |
|
|
|
2,073 |
|
Interest cost |
|
|
3,127 |
|
|
|
3,205 |
|
|
|
2,973 |
|
|
|
3,003 |
|
Plan amendments |
|
|
|
|
|
|
267 |
|
|
|
27 |
|
|
|
|
|
Actuarial loss / (gain) |
|
|
3,257 |
|
|
|
6,458 |
|
|
|
(1,313 |
) |
|
|
(11,770 |
) |
Employee contributions |
|
|
|
|
|
|
360 |
|
|
|
|
|
|
|
333 |
|
Benefits paid |
|
|
(2,806 |
) |
|
|
(2,767 |
) |
|
|
(2,632 |
) |
|
|
(1,567 |
) |
Effect of foreign exchange |
|
|
|
|
|
|
6,797 |
|
|
|
|
|
|
|
(10,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
|
55,243 |
|
|
|
54,978 |
|
|
|
51,093 |
|
|
|
39,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change In Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year |
|
$ |
31,946 |
|
|
$ |
34,768 |
|
|
$ |
40,712 |
|
|
$ |
47,517 |
|
Actual return on plan assets |
|
|
7,513 |
|
|
|
5,858 |
|
|
|
(9,430 |
) |
|
|
(6,764 |
) |
Employer contributions |
|
|
1,787 |
|
|
|
3,318 |
|
|
|
3,296 |
|
|
|
3,914 |
|
Employee contributions |
|
|
|
|
|
|
360 |
|
|
|
|
|
|
|
333 |
|
Benefits paid |
|
|
(2,806 |
) |
|
|
(2,767 |
) |
|
|
(2,632 |
) |
|
|
(1,567 |
) |
Effect of foreign exchange |
|
|
|
|
|
|
5,938 |
|
|
|
|
|
|
|
(8,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year |
|
|
38,440 |
|
|
|
47,475 |
|
|
|
31,946 |
|
|
|
34,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
$ |
(16,803 |
) |
|
$ |
(7,503 |
) |
|
$ |
(19,147 |
) |
|
$ |
(4,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
$ |
(16,803 |
) |
|
$ |
(7,503 |
) |
|
$ |
(19,147 |
) |
|
$ |
(4,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used to determine benefit obligations at December 31st are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
Domestic |
|
Foreign |
|
Domestic |
|
Foreign |
|
|
Plans |
|
Plans |
|
Plans |
|
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.77 |
% |
|
|
6.25 |
% |
|
|
6.28 |
% |
|
|
7.36 |
% |
Salary increases |
|
|
3.75 |
% |
|
|
3.50 |
% |
|
|
3.75 |
% |
|
|
3.50 |
% |
The related weighted average assumptions used to determine net periodic pension cost for the
years ended January 2, 2010, January 3, 2009 and December 29, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
|
|
Domestic |
|
Foreign |
|
Domestic |
|
Foreign |
|
Domestic |
|
Foreign |
|
|
Plans |
|
Plans |
|
Plans |
|
Plans |
|
Plans |
|
Plans |
Discount rate |
|
|
6.28 |
% |
|
|
7.36 |
% |
|
|
5.94 |
% |
|
|
5.50 |
% |
|
|
5.76 |
% |
|
|
5.25 |
% |
Long-term rate of return on assets |
|
|
8.50 |
% |
|
|
7.00 |
% |
|
|
8.50 |
% |
|
|
7.00 |
% |
|
|
8.50 |
% |
|
|
7.75 |
% |
Salary increases |
|
|
3.75 |
% |
|
|
3.50 |
% |
|
|
3.75 |
% |
|
|
3.50 |
% |
|
|
3.75 |
% |
|
|
3.50 |
% |
The discounts rates used for the Companys domestic plans were set on a plan by plan basis and
reflect the market rate for high quality fixed income U.S. debt instruments that are rated AA or
higher by a recognized ratings agency as of the annual measurement date. The discount rate is
subject to change each year. In selecting the
assumed discount rate, the Company considered current available rates of return expected to be
available during the period to maturity of the pension and other postretirement benefit
obligations.
77
The discount rate for the Companys foreign plans was selected on the same basis as described
above for the domestic plans, except that discount rate was evaluated using the spot rates
generated by a Canadian corporate AA bond yield curve.
Included in
accumulated other comprehensive loss at January 2, 2010 are net actuarial losses
of approximately $17.0 million, which is net of tax of $12.0 million, and prior service costs of
approximately $0.7 million, which is net of tax of $0.4 million, associated with the Companys
pension and other postretirement plans. Included in accumulated other comprehensive loss at January
3, 2009 are net actuarial losses of approximately $17.4 million, which is net of tax of $10.8
million, and prior service costs of approximately $0.6 million, which is net of tax of $0.3
million, associated with the Companys pension and other postretirement plans. Approximately $0.9
million of net actuarial losses, which is net of tax of $0.5 million, and approximately $0.1
million of prior service costs, which is net of tax, included in accumulated other comprehensive
loss are expected to be recognized in net periodic pension cost during the 2010 fiscal year.
The net periodic pension cost for the years ended January 2, 2010, January 3, 2009 and
December 29, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
Domestic |
|
|
Foreign |
|
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
|
Plans |
|
Service cost |
|
$ |
572 |
|
|
$ |
1,440 |
|
|
$ |
574 |
|
|
$ |
2,073 |
|
|
$ |
533 |
|
|
$ |
2,188 |
|
Interest cost |
|
|
3,127 |
|
|
|
3,205 |
|
|
|
2,972 |
|
|
|
3,003 |
|
|
|
2,913 |
|
|
|
2,813 |
|
Expected return on assets |
|
|
(2,687 |
) |
|
|
(2,701 |
) |
|
|
(3,477 |
) |
|
|
(3,514 |
) |
|
|
(3,323 |
) |
|
|
(3,342 |
) |
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
30 |
|
|
|
40 |
|
|
|
30 |
|
|
|
31 |
|
|
|
23 |
|
|
|
31 |
|
Cumulative net loss |
|
|
1,512 |
|
|
|
58 |
|
|
|
572 |
|
|
|
96 |
|
|
|
635 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
2,554 |
|
|
$ |
2,042 |
|
|
$ |
671 |
|
|
$ |
1,689 |
|
|
$ |
781 |
|
|
$ |
1,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys financial objectives with respect to its pension plan assets are to provide
growth, income of plan assets and benefits to its plan participants. The plan assets must be
invested with care, skill and diligence to maximize investment returns within reasonable and
prudent levels of risk, and to maintain sufficient liquidity to meet benefit obligations on a
timely basis.
The Companys investment objectives are to exceed the discount rate associated with the plan
and the composite performance of the security markets with similar investment objectives and risk
tolerances. The expected return on plan assets takes into consideration expected long-term
inflation, historical returns and estimated future long-term returns based on capital market
assumptions applied to the asset allocation strategy. The expected return on plan assets
assumption considers asset returns over a full market cycle.
The asset allocation strategy is determined through a detailed analysis of assets and
liabilities by plan and is consistent with the investment objectives and risk tolerances. These
asset allocation strategies are developed as a result of examining historical relationships of risk
and return among asset classes, accumulated benefit obligations of the respective plans, benefits
expected to be paid from the plans over the next five years and expected contributions to the
respective plans. The strategies are designed to provide the highest probability of meeting or
exceeding the plans return objectives at the lowest possible risk.
Plan asset investment policies are based on target allocations. The target allocations for the
Domestic Plans are 60% equities, 30% fixed income and 10% cash and cash equivalents. The target
allocations for the Foreign Plans are 60% equities and 40% fixed income. The portfolios are
periodically rebalanced when significant differences occur from target.
78
The fair values of the Companys domestic pension plans as of December 31, 2009 by asset
category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Assets/Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
Asset Category |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
Equity Securities |
|
$ |
25,232 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,232 |
|
Mutual Funds |
|
|
|
|
|
|
4,447 |
|
|
|
|
|
|
|
4,447 |
|
Government Securities |
|
|
|
|
|
|
6,530 |
|
|
|
|
|
|
|
6,530 |
|
Money Funds |
|
|
|
|
|
|
2,177 |
|
|
|
|
|
|
|
2,177 |
|
Cash |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,286 |
|
|
$ |
13,154 |
|
|
$ |
|
|
|
$ |
38,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Companys foreign pension plans as of December 31, 2009 by asset
category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
Active Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Assets/Liabilities |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
Asset Category |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
Pooled Funds |
|
$ |
|
|
|
$ |
47,162 |
|
|
$ |
|
|
|
$ |
47,162 |
|
Cash |
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
313 |
|
|
$ |
47,162 |
|
|
$ |
|
|
|
$ |
47,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a description of the inputs and valuation methodologies used to measure the fair
value of the Companys plan assets.
Equity Securities
Equity securities classified as Level 1 investments primarily include common stock of large,
medium and small sized corporations and international equities. These investments are comprised of
securities listed on an exchange, market or automated quotation system for which quotations are
readily available. The valuation of these securities was determined based on the closing price
reported on the active market on which the individual securities were traded.
Mutual Funds and Government Securities
Mutual funds and government securities classified as Level 2 investments primarily include
government debt securities and bonds. The valuation of investments classified as Level 2 were
determined using a market approach based upon quoted prices for similar assets and liabilities in
active markets based on pricing models which incorporate information from market sources and
observed market movements.
Money Funds
Money funds classified as Level 2 investments seek to maintain the net asset value (NAV) per
share at $1.00. Money funds are valued under the amortized cost method which approximates current
market value. Under this method, the securities are valued at cost when purchased and thereafter,
a constant proportionate amortization of any discount or premium is recorded until the maturity of
the security.
79
Pooled Funds
Pooled funds held by the Companys foreign plans classified as Level 2 investments are
reported at their NAV. These pooled funds use the close or last trade price as fair value of the
investments to determine the daily
transactional NAV for purchases and redemptions by its unitholders as determined by the funds
trustee based on the underlying securities in the fund.
Estimated future benefit payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
Foreign |
|
|
Plans |
|
Plans |
2010 |
|
$ |
2,512 |
|
|
$ |
1,493 |
|
2011 |
|
|
2,612 |
|
|
|
1,777 |
|
2012 |
|
|
2,847 |
|
|
|
2,043 |
|
2013 |
|
|
3,038 |
|
|
|
2,262 |
|
2014 |
|
|
3,252 |
|
|
|
2,756 |
|
2015 2019 |
|
|
18,510 |
|
|
|
20,664 |
|
The 2008 decline in market conditions resulted in significant decreased valuations of the
Companys pension plan assets. Based on the partial recovery of plan asset returns towards the end
of 2009, the plans actuarial valuations and current pension funding legislation, the Company does
not currently anticipate significant changes to current cash contribution levels in 2010. The
Company expects to make $1.9 million and $3.9 million of contributions to the Domestic and Foreign
Plans, respectively, in 2010. However, the Company currently anticipates additional cash
contributions may be required in 2010 to avoid certain funding-based benefit limitations as
required under current pension law. Although a continued decline in market conditions, changes in
current pension law and uncertainties regarding significant assumptions used in the actuarial
valuations may have a material impact on future required contributions to the Companys pension
plans, the Company currently does not expect funding requirements to have a material adverse impact
on current or future liquidity.
The actuarial valuations require significant estimates and assumptions to be made by
management, primarily the funding interest rate, discount rate and expected long-term return on
plan assets. These assumptions are all susceptible to changes in market conditions. The funding
interest rate and discount rate are based on representative bond yield curves maintained and
monitored by an independent third party. In determining the expected long-term rate of return on
plan assets, the Company considers historical market and portfolio rates of return, asset
allocations and expectations of future rates of return.
80
Considering fiscal 2009 results, the table below provides a sensitivity analysis of the impact
the significant assumptions would have on fiscal 2010 pension expense and funding requirements (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
Effect on Fiscal Year 2010 |
|
|
|
Point |
|
|
Annual |
|
|
Cash |
|
Assumption |
|
Change |
|
|
Expense |
|
|
Contributions |
|
|
Domestic Plans |
|
|
|
|
|
|
|
|
|
|
|
|
Funding interest rate |
|
+/- 100 basis point |
|
|
$0 / $0 |
|
|
$0 / $0 |
|
Discount rate |
|
+/- 100 basis point |
|
|
(341) / 314 |
|
|
0 / 0 |
|
Long-term rate of return on assets |
|
+/- 100 basis point |
|
|
(382) / 382 |
|
|
0 / 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Plans |
|
|
|
|
|
|
|
|
|
|
|
|
Funding interest rate |
|
+/- 100 basis point |
|
|
0 / 0 |
|
|
(469) / 617 |
|
Discount rate |
|
+/- 100 basis point |
|
|
(387) / 459 |
|
|
0 / 0 |
|
Long-term rate of return on assets |
|
+/- 100 basis point |
|
|
(489) / 489 |
|
|
0 / 0 |
|
The Company sponsors defined contribution plans, which are qualified as tax-exempt plans. The
plans cover all full-time, non-union employees with matching contributions up to 4% of eligible
compensation in both the United States and Canada, depending on length of service and levels of
contributions. In April 2009, the Company temporarily suspended its matching contribution to the
defined contribution plans as a result of the Companys cost
savings initiatives to mitigate the effect of the poor market and economic conditions. The
Companys pre-tax contributions to its defined contribution plans were approximately $0.9 million,
$2.8 million, and $2.7 million for the years ended January 2, 2010, January 3, 2009 and December
29, 2007, respectively.
81
16. SUBSIDIARY GUARANTORS
Associated Materials payment obligations under its 9.875% notes are fully and unconditionally
guaranteed, jointly and severally on a senior subordinated basis, by its domestic wholly owned
subsidiaries, Gentek Holdings, LLC and Gentek Building Products, Inc. Associated Materials
Finance, Inc. (formerly Alside, Inc.) is a co-issuer of the 9.875% notes and is a domestic wholly
owned subsidiary of Associated Materials having no operations, revenues or cash flows for the
periods presented. Associated Materials Canada Limited, Gentek Canada Holdings Limited and Gentek
Buildings Products Limited Partnership are Canadian companies and do not guarantee the 9.875%
notes. The Subsidiary Guarantors of the previously outstanding 9.75% notes are the same as those
for the 9.875% notes, except that Associated Materials Finance, Inc. is a co-issuer of the 9.875%
notes, but was a subsidiary guarantor of the previously outstanding 9.75% notes. In the opinion of
management, separate financial statements of the respective Subsidiary Guarantors would not provide
additional material information, which would be useful in assessing the financial composition of
the Subsidiary Guarantors. None of the Subsidiary Guarantors have 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.
ASSOCIATED
MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING
BALANCE SHEET
January 2, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
5,867 |
|
|
$ |
|
|
|
$ |
82 |
|
|
$ |
49,906 |
|
|
$ |
|
|
|
$ |
55,855 |
|
Accounts receivable, net |
|
|
81,178 |
|
|
|
|
|
|
|
8,728 |
|
|
|
24,449 |
|
|
|
|
|
|
|
114,355 |
|
Intercompany receivables |
|
|
|
|
|
|
|
|
|
|
76,138 |
|
|
|
3,045 |
|
|
|
(79,183 |
) |
|
|
|
|
Inventories |
|
|
80,654 |
|
|
|
|
|
|
|
6,613 |
|
|
|
28,127 |
|
|
|
|
|
|
|
115,394 |
|
Deferred income taxes |
|
|
8,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188 |
) |
|
|
8,646 |
|
Prepaid expenses |
|
|
6,542 |
|
|
|
|
|
|
|
1,263 |
|
|
|
1,140 |
|
|
|
|
|
|
|
8,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
183,075 |
|
|
|
|
|
|
|
92,824 |
|
|
|
106,667 |
|
|
|
(79,371 |
) |
|
|
303,195 |
|
Property, plant and equipment, net |
|
|
73,086 |
|
|
|
|
|
|
|
2,033 |
|
|
|
33,918 |
|
|
|
|
|
|
|
109,037 |
|
Goodwill |
|
|
194,813 |
|
|
|
|
|
|
|
36,450 |
|
|
|
|
|
|
|
|
|
|
|
231,263 |
|
Other intangible assets, net |
|
|
86,561 |
|
|
|
|
|
|
|
9,465 |
|
|
|
55 |
|
|
|
|
|
|
|
96,081 |
|
Investment in subsidiaries |
|
|
197,163 |
|
|
|
|
|
|
|
92,409 |
|
|
|
|
|
|
|
(289,572 |
) |
|
|
|
|
Receivable from AMH II |
|
|
27,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,237 |
|
Intercompany receivable |
|
|
|
|
|
|
197,552 |
|
|
|
|
|
|
|
|
|
|
|
(197,552 |
) |
|
|
|
|
Other assets |
|
|
18,185 |
|
|
|
|
|
|
|
|
|
|
|
1,799 |
|
|
|
|
|
|
|
19,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
780,120 |
|
|
$ |
197,552 |
|
|
$ |
233,181 |
|
|
$ |
142,439 |
|
|
$ |
(566,495 |
) |
|
$ |
786,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities And Members Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
54,618 |
|
|
$ |
|
|
|
$ |
9,111 |
|
|
$ |
23,851 |
|
|
$ |
|
|
|
$ |
87,580 |
|
Intercompany payables |
|
|
79,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,183 |
) |
|
|
|
|
Payable to parent |
|
|
21,664 |
|
|
|
|
|
|
|
1,535 |
|
|
|
|
|
|
|
|
|
|
|
23,199 |
|
Accrued liabilities |
|
|
41,699 |
|
|
|
|
|
|
|
6,118 |
|
|
|
9,108 |
|
|
|
|
|
|
|
56,925 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
188 |
|
|
|
2,312 |
|
|
|
(188 |
) |
|
|
2,312 |
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112 |
|
|
|
|
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
197,164 |
|
|
|
|
|
|
|
16,952 |
|
|
|
36,383 |
|
|
|
(79,371 |
) |
|
|
171,128 |
|
Deferred income taxes |
|
|
39,973 |
|
|
|
|
|
|
|
2,314 |
|
|
|
1,016 |
|
|
|
|
|
|
|
43,303 |
|
Other liabilities |
|
|
31,943 |
|
|
|
|
|
|
|
16,752 |
|
|
|
12,631 |
|
|
|
|
|
|
|
61,326 |
|
Long-term debt |
|
|
207,552 |
|
|
|
197,552 |
|
|
|
|
|
|
|
|
|
|
|
(197,552 |
) |
|
|
207,552 |
|
Members equity |
|
|
303,488 |
|
|
|
|
|
|
|
197,163 |
|
|
|
92,409 |
|
|
|
(289,572 |
) |
|
|
303,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
780,120 |
|
|
$ |
197,552 |
|
|
$ |
233,181 |
|
|
$ |
142,439 |
|
|
$ |
(566,495 |
) |
|
$ |
786,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Year Ended January 2, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
772,653 |
|
|
$ |
|
|
|
$ |
144,365 |
|
|
$ |
270,317 |
|
|
$ |
(141,228 |
) |
|
$ |
1,046,107 |
|
Cost of sales |
|
|
562,715 |
|
|
|
|
|
|
|
137,821 |
|
|
|
206,383 |
|
|
|
(141,228 |
) |
|
|
765,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
209,938 |
|
|
|
|
|
|
|
6,544 |
|
|
|
63,934 |
|
|
|
|
|
|
|
280,416 |
|
Selling, general and
administrative expense |
|
|
164,202 |
|
|
|
|
|
|
|
2,693 |
|
|
|
37,715 |
|
|
|
|
|
|
|
204,610 |
|
Manufacturing restructuring costs |
|
|
5,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
40,481 |
|
|
|
|
|
|
|
3,851 |
|
|
|
26,219 |
|
|
|
|
|
|
|
70,551 |
|
Interest expense, net |
|
|
21,984 |
|
|
|
|
|
|
|
|
|
|
|
767 |
|
|
|
|
|
|
|
22,751 |
|
Loss on debt extinguishment |
|
|
8,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,779 |
|
Foreign currency (gain) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(184 |
) |
|
|
|
|
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
9,718 |
|
|
|
|
|
|
|
3,851 |
|
|
|
25,636 |
|
|
|
|
|
|
|
39,205 |
|
Income taxes |
|
|
6,238 |
|
|
|
|
|
|
|
1,964 |
|
|
|
6,930 |
|
|
|
|
|
|
|
15,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity income from
subsidiaries |
|
|
3,480 |
|
|
|
|
|
|
|
1,887 |
|
|
|
18,706 |
|
|
|
|
|
|
|
24,073 |
|
Equity income from subsidiaries |
|
|
20,593 |
|
|
|
|
|
|
|
18,706 |
|
|
|
|
|
|
|
(39,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
24,073 |
|
|
$ |
|
|
|
$ |
20,593 |
|
|
$ |
18,706 |
|
|
$ |
(39,299 |
) |
|
$ |
24,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended January 2, 2010
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
84,640 |
|
|
$ |
|
|
|
$ |
18,418 |
|
|
$ |
43,072 |
|
|
$ |
146,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(7,643 |
) |
|
|
|
|
|
|
(32 |
) |
|
|
(1,058 |
) |
|
|
(8,733 |
) |
AMH II intercompany loan |
|
|
(26,819 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,819 |
) |
Other |
|
|
(383 |
) |
|
|
|
|
|
|
383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(34,845 |
) |
|
|
|
|
|
|
351 |
|
|
|
(1,058 |
) |
|
|
(35,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments under ABL Facility |
|
|
(46,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,000 |
) |
Issuance of senior notes |
|
|
217,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,514 |
|
Cash paid to redeem senior notes |
|
|
(189,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,544 |
) |
Financing costs |
|
|
(16,361 |
) |
|
|
|
|
|
|
|
|
|
|
(94 |
) |
|
|
(16,455 |
) |
Dividends paid |
|
|
(28,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,513 |
) |
Intercompany transactions |
|
|
14,012 |
|
|
|
|
|
|
|
(18,784 |
) |
|
|
4,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(48,892 |
) |
|
|
|
|
|
|
(18,784 |
) |
|
|
4,678 |
|
|
|
(62,998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,566 |
|
|
|
1,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
903 |
|
|
|
|
|
|
|
(15 |
) |
|
|
48,258 |
|
|
|
49,146 |
|
Cash and cash equivalents at beginning of year |
|
|
4,964 |
|
|
|
|
|
|
|
97 |
|
|
|
1,648 |
|
|
|
6,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
5,867 |
|
|
$ |
|
|
|
$ |
82 |
|
|
$ |
49,906 |
|
|
$ |
55,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
January 3, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,964 |
|
|
$ |
|
|
|
$ |
97 |
|
|
$ |
1,648 |
|
|
$ |
|
|
|
$ |
6,709 |
|
Accounts receivable, net |
|
|
82,479 |
|
|
|
|
|
|
|
13,251 |
|
|
|
21,148 |
|
|
|
|
|
|
|
116,878 |
|
Intercompany receivables |
|
|
|
|
|
|
|
|
|
|
57,426 |
|
|
|
7,742 |
|
|
|
(65,168 |
) |
|
|
|
|
Inventories |
|
|
92,802 |
|
|
|
|
|
|
|
14,892 |
|
|
|
33,476 |
|
|
|
|
|
|
|
141,170 |
|
Income taxes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,057 |
|
|
|
(1,057 |
) |
|
|
|
|
Deferred income taxes |
|
|
9,196 |
|
|
|
|
|
|
|
2,482 |
|
|
|
505 |
|
|
|
|
|
|
|
12,183 |
|
Prepaid expenses |
|
|
7,887 |
|
|
|
|
|
|
|
1,194 |
|
|
|
1,405 |
|
|
|
|
|
|
|
10,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
197,328 |
|
|
|
|
|
|
|
89,342 |
|
|
|
66,981 |
|
|
|
(66,225 |
) |
|
|
287,426 |
|
Property, plant and equipment, net |
|
|
80,567 |
|
|
|
|
|
|
|
2,975 |
|
|
|
31,614 |
|
|
|
|
|
|
|
115,156 |
|
Goodwill |
|
|
194,814 |
|
|
|
|
|
|
|
36,544 |
|
|
|
|
|
|
|
|
|
|
|
231,358 |
|
Other intangible assets, net |
|
|
88,828 |
|
|
|
|
|
|
|
9,970 |
|
|
|
333 |
|
|
|
|
|
|
|
99,131 |
|
Investment in subsidiaries |
|
|
169,112 |
|
|
|
|
|
|
|
65,508 |
|
|
|
|
|
|
|
(234,620 |
) |
|
|
|
|
Other assets |
|
|
10,448 |
|
|
|
|
|
|
|
19 |
|
|
|
1,751 |
|
|
|
|
|
|
|
12,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
741,097 |
|
|
$ |
|
|
|
$ |
204,358 |
|
|
$ |
100,679 |
|
|
$ |
(300,845 |
) |
|
$ |
745,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities And Members Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
32,150 |
|
|
$ |
|
|
|
$ |
5,191 |
|
|
$ |
17,179 |
|
|
$ |
|
|
|
$ |
54,520 |
|
Intercompany payables |
|
|
65,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65,168 |
) |
|
|
|
|
Payable to parent |
|
|
9,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,326 |
|
Accrued liabilities |
|
|
37,030 |
|
|
|
|
|
|
|
9,252 |
|
|
|
8,167 |
|
|
|
|
|
|
|
54,449 |
|
Income taxes payable |
|
|
6,494 |
|
|
|
|
|
|
|
1,545 |
|
|
|
|
|
|
|
(1,057 |
) |
|
|
6,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
150,168 |
|
|
|
|
|
|
|
15,988 |
|
|
|
25,346 |
|
|
|
(66,225 |
) |
|
|
125,277 |
|
Deferred income taxes |
|
|
40,710 |
|
|
|
|
|
|
|
3,486 |
|
|
|
2,231 |
|
|
|
|
|
|
|
46,427 |
|
Other liabilities |
|
|
30,289 |
|
|
|
|
|
|
|
15,772 |
|
|
|
7,594 |
|
|
|
|
|
|
|
53,655 |
|
Long-term debt |
|
|
221,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,000 |
|
Members equity |
|
|
298,930 |
|
|
|
|
|
|
|
169,112 |
|
|
|
65,508 |
|
|
|
(234,620 |
) |
|
|
298,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity |
|
$ |
741,097 |
|
|
$ |
|
|
|
$ |
204,358 |
|
|
$ |
100,679 |
|
|
$ |
(300,845 |
) |
|
$ |
745,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Year Ended January 3, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
792,190 |
|
|
$ |
|
|
|
$ |
217,002 |
|
|
$ |
315,171 |
|
|
$ |
(190,407 |
) |
|
$ |
1,133,956 |
|
Cost of sales |
|
|
596,894 |
|
|
|
|
|
|
|
208,886 |
|
|
|
243,734 |
|
|
|
(190,407 |
) |
|
|
859,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
195,296 |
|
|
|
|
|
|
|
8,116 |
|
|
|
71,437 |
|
|
|
|
|
|
|
274,849 |
|
Selling, general and
administrative expense |
|
|
161,443 |
|
|
|
|
|
|
|
10,374 |
|
|
|
40,208 |
|
|
|
|
|
|
|
212,025 |
|
Manufacturing restructuring costs |
|
|
1,133 |
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
|
|
|
|
1,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
32,720 |
|
|
|
|
|
|
|
(2,258 |
) |
|
|
30,579 |
|
|
|
|
|
|
|
61,041 |
|
Interest expense (income), net |
|
|
23,978 |
|
|
|
|
|
|
|
(12 |
) |
|
|
341 |
|
|
|
|
|
|
|
24,307 |
|
Foreign currency loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,809 |
|
|
|
|
|
|
|
1,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
8,742 |
|
|
|
|
|
|
|
(2,246 |
) |
|
|
28,429 |
|
|
|
|
|
|
|
34,925 |
|
Income taxes |
|
|
2,811 |
|
|
|
|
|
|
|
2,601 |
|
|
|
8,277 |
|
|
|
|
|
|
|
13,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity
income from subsidiaries |
|
|
5,931 |
|
|
|
|
|
|
|
(4,847 |
) |
|
|
20,152 |
|
|
|
|
|
|
|
21,236 |
|
Equity income from subsidiaries |
|
|
15,305 |
|
|
|
|
|
|
|
20,152 |
|
|
|
|
|
|
|
(35,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,236 |
|
|
$ |
|
|
|
$ |
15,305 |
|
|
$ |
20,152 |
|
|
$ |
(35,457 |
) |
|
$ |
21,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended January 3, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash provided by (used in) operating activities |
|
$ |
11,763 |
|
|
$ |
|
|
|
$ |
(1,539 |
) |
|
$ |
6,038 |
|
|
$ |
16,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(6,773 |
) |
|
|
|
|
|
|
(217 |
) |
|
|
(4,508 |
) |
|
|
(11,498 |
) |
Proceeds from sale of assets |
|
|
20 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(6,753 |
) |
|
|
|
|
|
|
(212 |
) |
|
|
(4,508 |
) |
|
|
(11,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under the ABL Facility |
|
|
56,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,000 |
|
Repayments of term loan |
|
|
(61,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,000 |
) |
Dividends |
|
|
(8,311 |
) |
|
|
|
|
|
|
8,873 |
|
|
|
(8,873 |
) |
|
|
(8,311 |
) |
Financing costs |
|
|
(3,913 |
) |
|
|
|
|
|
|
|
|
|
|
(1,458 |
) |
|
|
(5,371 |
) |
Intercompany transactions |
|
|
10,771 |
|
|
|
|
|
|
|
(7,396 |
) |
|
|
(3,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(6,453 |
) |
|
|
|
|
|
|
1,477 |
|
|
|
(13,706 |
) |
|
|
(18,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,001 |
) |
|
|
(1,001 |
) |
Net decrease in cash and cash equivalents |
|
|
(1,443 |
) |
|
|
|
|
|
|
(274 |
) |
|
|
(13,177 |
) |
|
|
(14,894 |
) |
Cash and cash equivalents at beginning of year |
|
|
6,407 |
|
|
|
|
|
|
|
371 |
|
|
|
14,825 |
|
|
|
21,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
4,964 |
|
|
$ |
|
|
|
$ |
97 |
|
|
$ |
1,648 |
|
|
$ |
6,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For The Year Ended December 29, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
Reclassification/ |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
Net sales |
|
$ |
840,742 |
|
|
$ |
|
|
|
$ |
216,378 |
|
|
$ |
312,217 |
|
|
$ |
(165,281 |
) |
|
$ |
1,204,056 |
|
Cost of sales |
|
|
621,439 |
|
|
|
|
|
|
|
203,620 |
|
|
|
240,061 |
|
|
|
(165,281 |
) |
|
|
899,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
219,303 |
|
|
|
|
|
|
|
12,758 |
|
|
|
72,156 |
|
|
|
|
|
|
|
304,217 |
|
Selling, general and
administrative expense |
|
|
155,549 |
|
|
|
|
|
|
|
17,777 |
|
|
|
34,675 |
|
|
|
|
|
|
|
208,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
63,754 |
|
|
|
|
|
|
|
(5,019 |
) |
|
|
37,481 |
|
|
|
|
|
|
|
96,216 |
|
Interest expense, net |
|
|
27,645 |
|
|
|
|
|
|
|
69 |
|
|
|
229 |
|
|
|
|
|
|
|
27,943 |
|
Foreign currency gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227 |
) |
|
|
|
|
|
|
(227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
36,109 |
|
|
|
|
|
|
|
(5,088 |
) |
|
|
37,479 |
|
|
|
|
|
|
|
68,500 |
|
Income taxes |
|
|
12,699 |
|
|
|
|
|
|
|
3,161 |
|
|
|
12,985 |
|
|
|
|
|
|
|
28,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity
income from subsidiaries |
|
|
23,410 |
|
|
|
|
|
|
|
(8,249 |
) |
|
|
24,494 |
|
|
|
|
|
|
|
39,655 |
|
Equity income from subsidiaries |
|
|
16,245 |
|
|
|
|
|
|
|
24,494 |
|
|
|
|
|
|
|
(40,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,655 |
|
|
$ |
|
|
|
$ |
16,245 |
|
|
$ |
24,494 |
|
|
$ |
(40,739 |
) |
|
$ |
39,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSOCIATED MATERIALS, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 29, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Non-Guarantor |
|
|
|
|
|
|
Parent |
|
|
Co-Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash provided by (used in) operating activities |
|
$ |
42,537 |
|
|
$ |
|
|
|
$ |
(591 |
) |
|
$ |
29,405 |
|
|
$ |
71,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of supply center |
|
|
(801 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(801 |
) |
Additions to property, plant and equipment |
|
|
(8,991 |
) |
|
|
|
|
|
|
(1,220 |
) |
|
|
(2,182 |
) |
|
|
(12,393 |
) |
Proceeds from sale of assets |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,773 |
) |
|
|
|
|
|
|
(1,220 |
) |
|
|
(2,182 |
) |
|
|
(13,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of term loan |
|
|
(45,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,000 |
) |
Dividends |
|
|
(8,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,018 |
) |
Intercompany transactions |
|
|
16,647 |
|
|
|
|
|
|
|
490 |
|
|
|
(17,137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(36,371 |
) |
|
|
|
|
|
|
490 |
|
|
|
(17,137 |
) |
|
|
(53,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,430 |
|
|
|
1,430 |
|
Net (decrease) increase in cash and cash equivalents |
|
|
(3,607 |
) |
|
|
|
|
|
|
(1,321 |
) |
|
|
11,516 |
|
|
|
6,588 |
|
Cash and cash equivalents at beginning of year |
|
|
10,014 |
|
|
|
|
|
|
|
1,692 |
|
|
|
3,309 |
|
|
|
15,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
6,407 |
|
|
$ |
|
|
|
$ |
371 |
|
|
$ |
14,825 |
|
|
$ |
21,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
During the fiscal period covered by this report, the Companys management, with the
participation of the Chief Executive Officer and Chief Financial Officer, completed an evaluation
of the effectiveness of the design and operation of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934,
as amended (the Exchange Act). Based upon this evaluation, for the reasons discussed below, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of
the fiscal period covered by this report, the disclosure controls and procedures were not 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 the time
periods specified by the Securities and Exchange Commissions rules and forms and that such
information is accumulated and communicated to management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.
As of January 2, 2010, the Company did not maintain effective controls over the completeness
and accuracy of the income tax provision and the related balance sheet accounts. The Companys
income tax accounting in 2009 had significant complexity due to multiple debt transactions during
the year including the restructuring of debt at a direct parent company, the impact of repatriation
of foreign earnings and the related foreign tax credit calculations, changes in the valuation
allowance for deferred tax assets, and the related impact of the Companys tax sharing agreement
described in Note 9 to the consolidated financial statements. Specifically, the Companys controls
over the processes and procedures related to the calculation and review of the annual tax provision
were not adequate to ensure that the income tax provision was prepared in accordance with generally
accepted accounting principles. Additionally, these control deficiencies could result in a
misstatement of the income tax provision, the related balance sheet accounts and note disclosures
that would result in a material misstatement to the annual consolidated financial statements that
would not be prevented or detected. Accordingly, management has concluded as a result of these
control deficiencies that a material weakness in the Companys internal control over financial
reporting existed as of January 2, 2010. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the Companys annual or interim financial statements
will not be prevented or detected on a timely basis.
In light of the material weakness identified, the Company performed additional analyses to
ensure the consolidated financial statements were prepared in accordance with generally accepted
accounting principles. Accordingly, management believes that the consolidated financial statements
included in this Annual Report on Form 10-K, fairly present, in all material respects, the
Companys financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
Income Tax Material Weakness Remediation Plan
The Company plans to engage an independent registered public accounting firm (other than its
auditors, Deloitte & Touche LLP) in 2010 to perform additional detail reviews of complex
transactions, the income tax calculations and disclosures, and to advise the Company on matters
beyond its in-house expertise.
Management will continue to evaluate the design and effectiveness of the enhanced internal
controls, and once placed in operation for a sufficient period of time, these internal controls
will be subject to appropriate testing in order to determine whether they are operating
effectively.
88
Until the appropriate testing of the change in controls from these enhanced internal controls
is complete, management will continue to perform the evaluations and analyses believed to be
adequate to provide reasonable assurance that there are no material misstatements of the Companys
consolidated financial statements.
Remediation of Material Weakness Identified in Prior Periods
As previously disclosed in the Companys Form 10-Q for the quarter ended July 4, 2009,
management determined during the second quarter of 2009 that it did not maintain operating
effectiveness of certain internal controls over financial reporting for establishing the Companys
allowance for doubtful accounts, the deferral of revenue for specific customer shipments until
collectibility is reasonably assured, and accounting for restructuring costs. Management
concluded that as a result of these control deficiencies, a material weakness in the Companys
internal control over financial reporting existed as of July 4, 2009.
During the third quarter of 2009, management substantially completed the remediation efforts
and the following remediation actions were implemented by the Company to ensure the accuracy of the
Companys consolidated financial statements and prevent or detect potential material misstatements
on a timely basis. The Company enhanced documentation supporting the Companys allowance for
doubtful accounts and review of past due customer accounts. In August 2009, the Company hired a
Vice President National Credit Manager, reporting directly to the Chief Financial Officer, who
works directly with the financial reporting staff as part of the processes related to the review
and assessment of past due customer accounts, the required allowance for doubtful accounts, and the
identification of revenue for which deferral treatment is appropriate. Additionally, the Company
enhanced its internal review procedures for accounting for restructuring costs and other
non-recurring items.
During the fourth quarter of 2009, these revised internal controls and procedures were tested
and determined to be operating effectively. As a result, management has concluded as of January 2,
2010 that the Company has remediated the material weakness identified during the second quarter
related to the operating effectiveness of certain internal controls over financial reporting for
establishing the Companys allowance for doubtful accounts, the deferral of revenue for specific
customer shipments until collectibility is reasonably assured, and accounting for restructuring
costs.
Other Changes
Except as noted above, there have been no other changes to the Companys internal control over
financial reporting during the year ended January 2, 2010 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.
Managements Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with U.S. generally accepted
accounting principles. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the internal control system are
achieved. Because of the inherent limitations in any internal control system, no evaluation of
controls can provide absolute assurance that all control issues, if any, within a company have been
detected. Accordingly, the Companys disclosure controls and procedures are designed to provide
reasonable, not absolute, assurance that the objectives of the disclosure control system are met.
89
The management of the Company assessed the effectiveness of the Companys internal control
over financial reporting as of January 2, 2010 using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated
Framework. Based on this assessment, management has determined that the Companys internal
control over financial reporting was not effective as of January 2, 2010 and the Company did not
maintain effective controls over the completeness and accuracy of the income tax provision and the
related balance sheet accounts as indicated above.
This Annual Report on Form 10-K does not include an attestation report of the Companys
independent registered public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by the Companys independent registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit
the Company to provide only managements report in this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
90
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information about the Board of Directors of AMH II and the
Companys executive officers.
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Name |
|
Age |
|
Position(s) |
Thomas N. Chieffe
|
|
|
52 |
|
|
President, Chief Executive Officer and Director |
Warren J. Arthur
|
|
|
42 |
|
|
Senior Vice President of Operations |
Stephen E. Graham (1)
|
|
|
52 |
|
|
Vice President-Chief Financial Officer, Treasurer and Secretary |
Robert M. Franco
|
|
|
56 |
|
|
President of AMI Distribution |
John F. Haumesser
|
|
|
45 |
|
|
Vice President of Human Resources |
Lars C. Haegg
|
|
|
44 |
|
|
Director, Chairman of the Audit Committee |
Ira D. Kleinman
|
|
|
53 |
|
|
Director, Chairman of the Board of Directors |
Kevin C. Nickelberry
|
|
|
39 |
|
|
Director |
Dana R. Snyder
|
|
|
63 |
|
|
Director and Former Interim President and Chief Executive
Officer |
Dennis W. Vollmershausen
|
|
|
66 |
|
|
Director |
Christopher D. Whalen
|
|
|
35 |
|
|
Director |
|
|
|
(1) |
|
Cynthia L. Sobe resigned June 2, 2009, effective June 22, 2009, as Vice President Chief
Financial Officer, Treasurer and Secretary. Mr. Graham was appointed as Ms. Sobes
replacement effective June 22, 2009. |
Through its direct ownership of the Companys membership interest, the Board of Directors of
AMH II controls the actions taken by the Company. The Company converted to a limited liability
company in December 2007, and as a result, the Company no longer maintains a separate Board of
Directors. AMH IIs directors are elected on an annual basis, with terms expiring as of the annual
meeting of AMH II stockholders. All of the officers serve at the discretion of AMH IIs Board of
Directors. During 2009, eight Board of Directors meetings were held. Set forth below is a brief
description of the business experience of the AMH II directors and the Companys executive
officers.
Thomas N. Chieffe, Age 52. Mr. Chieffe joined the Company in October 2006 as the Companys
President and Chief Executive Officer and was also appointed director of AMH II. Prior to joining
the Company, Mr. Chieffe worked for Masco Corporation from 1993 to 2006 in various leadership
positions, including Group Vice President, Retail Cabinets, from 2005 to 2006, President and Chief
Executive Officer of Kraftmaid Cabinetry, Inc., from 2001 to 2005, General Manager of Kraftmaid
from 1999 to 2001, Executive Vice President of Operations for Kraftmaid from 1996 to 1999, and
Group Controller from 1993 to 1996. Mr. Chieffe also serves as a director for Monessen Hearth
Systems. Mr. Chieffes experience in the consumer and building products industries provide the
Board with valuable insight regarding strategic decisions and overall direction of the Company.
Mr. Chieffes detailed knowledge of the Companys operations, finances, strategies and industry
qualify him to serve as the Companys President and Chief Executive Officer and as a member of the
Board of Directors of AMH II.
Warren J. Arthur, Age 42. Mr. Arthur has been Senior Vice President of Operations of the
Company since March 2008. Mr. Arthur joined the Company in 2006 as Vice President Purchasing and
Supply Chain. Prior to joining the Company, Mr. Arthur worked for Laminate Technologies
Corporation from January 2006 to November 2006 as its Chief Operating Officer and for Masco
Corporations Retail Cabinet Group from 1994 to 2005 in various positions, last serving as its Vice
President of Purchasing.
Stephen E. Graham, Age 52. Mr. Graham has been Vice President-Chief Financial Officer,
Treasurer and Secretary of the Company since June 2009. Mr. Graham has 30 years of accounting and
finance experience, including 15 years serving in a Chief Financial Officer capacity. Most
recently, Mr. Graham was the Chief Financial Officer of Wastequip, Inc., an international waste
equipment manufacturer, from 2008 to March 2009 and Executive Vice President and Chief Financial
Officer of Shiloh Industries, Inc., a publicly traded automotive components manufacturer, from 2001
to 2008.
91
Robert M. Franco, Age 56. Mr. Franco has been President of AMI Distribution since April 2008.
Mr. Franco joined the Company in 2002 as President of Alside Supply Centers. Prior to joining the
Company, Mr. Franco was most recently Vice President of the Exterior Systems Business of
Owens-Corning, Inc., where he had worked in a variety of key management positions for over 20
years.
John F. Haumesser, Age 45. Mr. Haumesser joined the Company in February 2001 as Vice President
of Human Resources. Prior to joining the Company, Mr. Haumesser was Director of Human Resources for
the North American Building Products Division of Pilkington, PLC. Prior to joining Pilkington, Mr.
Haumesser held a series of human resources and manufacturing management roles at Case Corporation
and the Aluminum Company of America.
Lars C. Haegg, Age 44. Mr. Haegg has been director of AMH II since December 16, 2008.
Mr. Haegg has been a Managing Director with the New York Office of Investcorp since 2003. Mr. Haegg
is also a member of the Audit Committee and Compensation Committee of the Board of Directors. Mr.
Haeggs experience as the Managing Director of a private equity firm provides the Company with
valuable insight regarding business strategies, debt financing and acquisitions. Mr. Haegg has
extensive business, managerial and executive leadership experience that further qualify him to
serve as a member of the Board of Directors of AMH II.
Ira D. Kleinman, Age 53. Mr. Kleinman has been a director of the Company since 2002. Mr.
Kleinman has also been a director of AMH II since December 2004. Mr. Kleinman has been a General
Partner of Harvest Partners for more than nine years. Mr. Kleinmans experience with Harvest
Partners provides the Board with extensive knowledge of the debt and equity markets and the effect
that strategic decisions will have on the public markets. Mr. Kleinmans leadership, communication
skills, analysis and recommendations regarding the impact of certain strategic decisions on the
Company and its industry qualify him to serve as a member of the Board of Directors of AMH II.
Kevin C. Nickelberry, Age 39. Mr. Nickelberry has been a director of AMH II since January
2007. Mr. Nickelberry has been an executive of Investcorp or one or more of its wholly owned
subsidiaries since 2003. Mr. Nickelberry is currently a Principal with the New York Office of
Investcorp. Prior to joining Investcorp, Mr. Nickelberry held positions at JPMorgan Partners and
Goldman, Sachs and Co. As a Principal of a private equity firm, Mr. Nickelberry has learned to
critically evaluate the performance of companies and offers analysis and evaluation of the
Companys strategies and their impact on the industry and overall marketplace. Mr. Nickelberrys
skills and understanding of the public debt and equity markets qualify him to serve as a member of
the Board of Directors of AMH II.
Dana R. Snyder, Age 63. Mr. Snyder has been a director of AMH II since December 2004. From
July through September 2006, Mr. Snyder served as the Companys Interim President and Chief
Executive Officer. Previously, Mr. Snyder was an executive with Ply Gem Industries, Inc. and The
Stolle Corporation. Mr. Snyders valuable experience in general management, manufacturing
operations, sales and marketing, as well as cost reduction and acquisitions adds value and
extensive knowledge regarding the Companys industry and evaluation of certain strategic
alternatives. In addition, he has experience evaluating the financial and operational performances
of companies within the building products industry. Mr. Snyders tenure as the Interim President
and Chief Executive Officer of the Company has given him an understanding of the financial and
business issues relevant to the Company and make him exceptionally well-qualified as a member of
the Board of Directors of AMH II. Mr. Snyder previously served on the Board of Directors of Werner
Ladder from 2004 -2007.
Dennis W. Vollmershausen, Age 66. Mr. Vollmershausen has been a director of the Company since
2002. Mr. Vollmershausen has also been a director of AMH II since December 2004. He has also been a
director of Wesruth Investments Limited since 1990 and a director of Madill Equipment Inc. from
2004 through February 2008. Previously, he served as the President, Chief Executive Officer and
director of Lund International Holdings, Inc., a manufacturer, marketer and distributor of
aftermarket accessories for the automotive market, until 2007 and Champion Road Machinery, Ltd., a
manufacturer of construction equipment, until 1997. Mr. Vollmershausen also served as the Chairman
of the Board of London Machinery, Inc. from 1989 to 2005. Mr. Vollmershausens financial
background and experiences provide the Board with the financial expertise to evaluate the financial
reporting considerations when evaluating certain strategic initiatives. Mr. Vollmershausens
understanding and knowledge of the Companys business and industry further qualify him to serve as
a member of the Board of Directors of AMH II.
92
Christopher D. Whalen, Age 35. Mr. Whalen has been director of AMH II since December 8, 2008.
Mr. Whalen is a Principal of Harvest Partners, where he has worked since 1999. Previously, Mr.
Whalen held a position at Lehman Brothers, Inc. Mr. Whalen has gained valuable experience related
to public and private equity investments, specializing in mergers and acquisitions. In addition,
Mr. Whalen has a significant understanding of the role played by the Board which has been acquired
through his services on the Boards of several companies, including Natural Products Group,
IntelliRisk and Aquilex. These experiences have given him extensive financial and operational
analysis capabilities which make him a valuable member of the Board of Directors of AMH II.
AUDIT COMMITTEE
The members of AMH IIs audit committee are appointed by AMH IIs Board of Directors. AMH IIs
audit committee currently consists of Lars Haegg, Ira Kleinman and Dennis Vollmershausen. Mr.
Vollmershausen is considered a financial expert under the Sarbanes-Oxley Act of 2002 and the rules
of the SEC. Mr. Haegg serves as the chairman of the audit committee. Mr. Vollmershausen is an
independent member of the committee, as that term is defined under The Nasdaq Stock Market listing
requirements. The Company does not have a class of securities listed on any national securities
exchange; accordingly, the Company is not required to maintain an audit committee comprised
entirely of independent directors within the meaning of Rule 10A-3 under the Exchange Act of
1934, as amended (the Exchange Act). The Company believes the experience and education of the
directors on its audit committee qualifies them to monitor the integrity of its financial
statements, compliance with legal and regulatory requirements, the public accountants
qualifications and independence, the Companys internal controls and procedures for financial
reporting, and the Companys compliance with applicable provisions of the Sarbanes-Oxley Act and
the rules and regulations thereunder. In addition, the audit committee has the ability on its own
to retain independent accountants, financial advisors or other consultants, advisors and experts
whenever it deems appropriate.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Not applicable.
CODE OF ETHICS
The Company has adopted a code of ethics that applies to its principal executive officer and
all senior financial officers, including the chief financial officer, controller, and other persons
performing similar functions. This code of ethics is posted on the Companys website at
http://www.associatedmaterials.com. Any waiver or amendment to this code of ethics will be
timely disclosed on the Companys website. Information contained on the Companys website shall not
be deemed a part of this report.
CORPORATE GOVERNANCE
During the fiscal year ended January 2, 2010, there were no material changes to the procedures
by which security holders may recommend nominees to AMH IIs Board of Directors.
93
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS
Objectives of the Companys Executive Compensation Program
The goals of the Companys executive compensation program are to: (1) attract and retain key
executives, (2) align executive pay with corporate goals and (3) encourage a long-term commitment
to enhance equity value. For purposes of this discussion, the term executive refers to the
Companys named executive officers included under Summary Compensation Table section of this
report.
The Companys key performance indicator is adjusted EBITDA. The Company and its shareholders
utilize adjusted EBITDA as the primary measure of the Companys financial performance. Accordingly,
the Companys compensation programs are designed to reward executives for driving growth of the
Companys adjusted EBITDA, which the Company believes corresponds to the enhancement of equity
value. Adjusted EBITDA as presented elsewhere in this report has the same meaning as the defined
term EBITDA as used in the employment agreements for the Companys executives, provided that
EBITDA, as used in such employment agreements, as compared to adjusted EBITDA, may be subject to
additional adjustments as made in good faith by the Board of Directors of AMH II. For purposes of
the following discussion within the Executive Compensation Discussion and Analysis and the
executive compensation disclosures, EBITDA has the meaning as defined in the employment agreements.
Elements of Compensation
Executive compensation is comprised of one or more of the following elements: (1) base salary,
(2) bonus awards, (3) annual incentive bonus, (4) equity-based compensation consisting of stock
options, (5) other long-term incentives based upon the enhancement of the Companys equity value,
and (6) separation or severance benefits. The Company believes that offering these elements is
necessary to remain competitive in attracting and retaining talented executives. Furthermore, the
annual incentive bonus, equity-based compensation and other long-term incentives align the
executives goals with those of the organization and its members.
Collectively, these elements of the executives total compensation are designed to reward and
influence the executives individual performance and the Companys short-term and long-term
performance. Base salaries and annual incentive bonuses are designed to reward executives for their
performance and the short-term performance of the Company. Bonus awards typically include sign-on
bonuses or incentives to attract executives to the Company, or awards to executives paid at the
discretion of the Board of Directors of AMH II. The Company believes that equity-based compensation
and other long-term incentive compensation ensure that the Companys executives have a continuing
stake in the long-term success of the Company and have incentives to increase equity value.
Separation and severance benefits are commonplace in executive positions, and the offering of such
benefits is necessary to remain competitive in the marketplace. Total compensation for each
executive is reviewed annually by the Compensation Committee of the Board of Directors of AMH II
(the Committee) to ensure that the proportions of the executives short-term incentives and
long-term incentives are properly balanced.
Setting Executive Compensation
The Committee reviews all employment agreements and recommends changes to compensation for the
Companys top management group, including the executives, which are forwarded to AMH IIs Board of
Directors for approval. The Companys Human Resources Department compiles data regarding
compensation paid by other companies for use in the determination of annual salary increases, as
well as for use in the review of the overall compensation structure for executives. The Company
subscribes to a compensation database (Hay Group PayNet Compensation Database) to obtain
compensation data for similarly sized companies based on annual revenues. For the named executives,
the Companys Vice President of Human Resources and the Chief Executive Officer (the CEO) review
the data obtained from the compensation database in conjunction with assessing each executives
performance for the year and prepare recommendations to the Committee with respect to proposed
annual increases for the executives, excluding themselves. The Vice President of Human Resources
provides the Committee with data from the database related to comparable CEO compensation; however,
the Committee develops its own
assessment of the performance of the CEO and, if deemed appropriate, recommends an annual base
salary increase. The following further discusses each component of executive compensation.
94
Base Salary
Base salaries are determined based on (1) a review of salary ranges for similar positions at
companies of similar size based on annual revenues, (2) the specific experience level of the
executive, and (3) expected contributions by the executive toward organizational goals. Annually,
the Committee reviews base salaries of executives to ensure that, along with all other
compensation, base salaries continue to be competitive with respect to similarly sized companies.
As described above, the Committee may also award annual increases in base salary contingent on the
executives individual contributions and performance during the prior year.
Bonus Awards
Bonus awards encompass any bonus provided outside of the annual incentive bonus. Typical bonus
awards include awards used to attract executives to the Company, such as signing bonuses or bonuses
that guarantee a fixed or minimum payout as compared to a payout under the annual incentive bonus
based on defined performance goals. Bonus awards can also be awarded at the discretion of the Board
of Directors of AMH II to recognize extraordinary achievements or contributions to the Company.
Annual Incentive Bonus
Each year the AMH II Board of Directors establishes EBITDA hurdles, including a threshold,
target and maximum hurdle. The EBITDA hurdles are determined by the Board of Directors of AMH II,
giving consideration to the prior year performance of the Company, expected growth in EBITDA,
market conditions that may impact results, and a review of the budget prepared by management. The
EBITDA hurdles are established to motivate superior performance by management to achieve
challenging targets and results that are deemed to be in the best interest of the Company and its
stakeholders and to tie their interest to meeting and exceeding the Companys established financial
goals. Failure to achieve the internal EBITDA hurdles is not necessarily an indication of the
Companys financial performance and financial condition. If the EBITDA results for the period in
question are between either the threshold and target hurdles or the target and maximum hurdles,
linear interpolation is used to calculate the incentive bonus payout. As described above under the
heading, Objectives of the Companys Executive Compensation Program, the Board of Directors of
AMH II may, at its discretion, allow adjustments to EBITDA for non-recurring or unusual amounts,
which may not otherwise be included as an adjustment to derive the Companys adjusted EBITDA as
presented elsewhere in this report.
In 2010, the Companys annual incentive bonus will be determined solely as a percentage of
base salary based on the achievement of defined EBITDA hurdles, which were established by the Board
of Directors of AMH II in March 2010, in a manner consistent with the Companys historical
practice. The Company believes that the EBITDA performance hurdles established under the annual
incentive bonus plan for any current compensation cycle represent confidential financial
information, the disclosure of which could cause the company competitive harm. Accordingly, it is
the Companys practice not to include such information in its public filings until the completion
of the relevant compensation cycle and the public disclosure of the related EBITDA results.
For 2009, the executives annual incentive bonuses were determined solely as a percentage of
base salary based on the achievement of defined EBITDA hurdles, which were established by the Board
of Directors of AMH II in March 2009, in a manner consistent with the Companys historical
practice. For 2009, the threshold, target and maximum EBITDA hurdles were $85 million, $92 million
and $95 million, respectively, and EBITDA (as defined above under the heading, Objectives of the
Companys Executive Compensation Program) was approximately $101.4 million, calculated on the same
basis as adjusted EBITDA for 2009, (as presented under the caption Results of Operations and
elsewhere in this report), but including an additional adjustment of approximately $0.9 million for
cash-settled Harvest Partners management fees not permitted to be added in the computation of
adjusted EBITDA under Associated Materials ABL Facility.
95
For 2008, the executives annual incentive bonuses were solely determined as a percentage of
base salary based on the achievement of defined EBITDA hurdles. For 2008, the threshold, target
and maximum EBITDA hurdles
were $115 million, $125 million and $130 million, respectively, and EBITDA (as defined above
under the heading, Objectives of the Companys Executive Compensation Program) was approximately
$87.8 million, calculated on the same basis as adjusted EBITDA for 2008, (as presented under the
caption Results of Operations and elsewhere in this report), but including an additional
adjustment of approximately $0.9 million for cash-settled Harvest Partners management fees not
permitted to be added in the computation of adjusted EBITDA under Associated Materials ABL
Facility. For 2008, the Companys EBITDA was below the threshold, therefore not generating a bonus
payout. In recognition of the Companys performance in 2008, the Committee elected to grant a
discretionary bonus to management.
For 2007, the executives annual incentive bonus was comprised of three different components:
(1) a percentage of base salary, based on the achievement of defined EBITDA hurdles, (2)
achievement of established cost reduction goals, and (3) a discretionary component. The Company
modified its annual incentive bonus program for 2007 to align the executives incentive
compensation with the Companys multiple short-term initiatives specific to 2007. For the 2007
annual incentive bonus component based on defined EBITDA hurdles, the threshold, target and maximum
EBITDA hurdles were $120 million, $130 million and $140 million, respectively. EBITDA for 2007 (as
defined above under the caption Objectives of the Companys Executive Compensation Program) was
approximately $122.5 million, calculated on the same basis as adjusted EBITDA for 2007 (as
presented under the heading Results of Operations and elsewhere in this report), but including
additional adjustments of (i) approximately $0.8 million for cash-settled Harvest Partners
management fees not permitted to be added in the computation of adjusted EBITDA under the Companys
credit facilities, offset by (ii) approximately $0.2 million for foreign currency gains, required
to be excluded in the computation of adjusted EBITDA under the Companys credit facilities in place
during fiscal 2007, but included in the computation of adjusted EBITDA under Associated Materials
current ABL Facility.
Equity-Based Compensation Stock Options
The Committee awards equity-based compensation to executives based on the expected role of the
executive in increasing equity value. Typically stock options will be awarded upon hiring or
promotion of the executive; however, stock options may be granted at any time at the discretion of
the Board of Directors of AMH II. Mr. Chieffe, Mr. Arthur, Mr. Graham, Mr. Franco, and Mr.
Haumesser have each been granted stock options for the purchase of equity in AMH II. Refer to the
Outstanding Equity Awards at Fiscal Year-End section for a description of the Companys stock
option plans. The number of stock options granted to Mr. Chieffe, Mr. Arthur, Mr. Graham, Mr.
Franco and Mr. Haumesser was determined by the Board of Directors of AMH II such that each
executive received a pre-defined ownership percentage, on a fully diluted basis, of the Company.
The targeted pre-defined ownership percentage was established by the Board of Directors of AMH II
based on management ownership levels in similar private-equity transactions.
Other Long-Term Incentives
Mr. Chieffes amended employment agreement entered into on April 1, 2008, provides for a
special retention incentive bonus of $1.5 million, payable in three equal annual installments
commencing on October 1, 2008. The payment of the special retention incentive bonus shall cease if
Mr. Chieffes employment is terminated by the Company for cause or in the event Mr. Chieffe
voluntarily resigns. Mr. Chieffe would be entitled to the remaining unpaid portion of his special
retention incentive bonus in the event of termination without cause or if he resigns for good
reason, as well as upon the occurrence of certain change in control events.
Separation Compensation
Except for Mr. Chieffe, the executives have entered into employment agreements that provide
for severance and separation payments either in the event that the Company terminates the executive
without cause or, in the event of a change in control, if the employee resigns from the Company
following the occurrence of certain adverse changes to his employment, as defined in the employment
agreements. Mr. Chieffes employment agreement provides for severance and separation payments in
the event he resigns for good reason. Refer to the Grants of Plan-Based Awards, Employment
Agreements and Potential Payments upon Termination or Change in Control sections for additional
discussion of these agreements. The Company believes that offering severance benefits is important
to remain competitive in attracting talent to the Company. In addition, the benefits provided to
the
executive in the event of a change in control are enhanced in comparison to the standard
separation or severance terms included in the executives employment agreement. These enhanced
benefits allow the executive to remain focused on his or her responsibilities and the interests of
the Companys members in the event of corporate changes or a change in control.
96
SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid or earned by each of the named
executive officers for the years ended January 2, 2010, January 3, 2009, and December 29, 2007.
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Change in |
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Pension |
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Value and |
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Non-Equity |
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Nonqualified |
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Incentive Plan |
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Deferred |
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Bonus |
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Stock |
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Option |
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Compensation |
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Compensation |
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All Other |
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Name and Principal Position |
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Year |
|
|
Salary |
|
|
(1) |
|
|
Awards |
|
|
Awards |
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(2) |
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|
Earnings |
|
|
Compensation |
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Total |
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|
Thomas N. Chieffe, (3) |
|
|
2009 |
|
|
$ |
550,000 |
|
|
$ |
500,000 |
(3) |
|
$ |
|
|
|
$ |
|
|
|
$ |
825,000 |
|
|
$ |
|
|
|
$ |
13,999 |
(9) |
|
$ |
1,888,999 |
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President and Chief |
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|
2008 |
|
|
|
537,507 |
|
|
|
555,000 |
(3) |
|
|
|
|
|
|
|
(6) |
|
|
|
|
|
|
|
|
|
|
11,594 |
(9) |
|
|
1,104,101 |
|
Executive Officer |
|
|
2007 |
|
|
|
500,000 |
|
|
|
250,000 |
(3) |
|
|
|
|
|
|
|
|
|
|
237,220 |
|
|
|
|
|
|
|
10,710 |
(9) |
|
|
997,930 |
|
Warren J. Arthur, |
|
|
2009 |
|
|
|
234,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
774 |
(9) |
|
|
485,152 |
|
Senior Vice President of |
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2008 |
|
|
|
218,876 |
|
|
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13,500 |
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|
|
|
|
|
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(6) |
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|
|
|
|
|
|
|
|
|
705 |
(9) |
|
|
233,081 |
|
Operations |
|
|
2007 |
|
|
|
172,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,502 |
|
|
|
|
|
|
|
27,581 |
(10) |
|
|
327,083 |
|
Cynthia L. Sobe, (4) |
|
|
2009 |
|
|
|
113,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,426 |
(9) |
|
|
116,791 |
|
Former Vice President |
|
|
2008 |
|
|
|
225,000 |
|
|
|
13,500 |
|
|
|
|
|
|
|
|
(7) |
|
|
|
|
|
|
|
|
|
|
9,691 |
(9) |
|
|
248,191 |
|
Chief Financial Officer, |
|
|
2007 |
|
|
|
168,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,641 |
|
|
|
|
|
|
|
6,008 |
(9) |
|
|
233,399 |
|
Treasurer and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen E. Graham, (4) (5) |
|
|
2009 |
|
|
|
158,077 |
|
|
|
|
|
|
|
|
|
|
|
|
(8) |
|
|
300,000 |
|
|
|
|
|
|
|
633 |
(9) |
|
|
458,710 |
|
Vice PresidentChief
Financial Officer,
Treasurer and Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert M. Franco, |
|
|
2009 |
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
22,977 |
(11) |
|
|
682,977 |
|
President of |
|
|
2008 |
|
|
|
326,817 |
|
|
|
19,845 |
|
|
|
|
|
|
|
|
(7) |
|
|
|
|
|
|
|
|
|
|
23,948 |
(11) |
|
|
370,610 |
|
AMI Distribution |
|
|
2007 |
|
|
|
311,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,352 |
|
|
|
|
|
|
|
20,508 |
(11) |
|
|
533,110 |
|
John F. Haumesser, |
|
|
2009 |
|
|
|
252,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,000 |
|
|
|
|
|
|
|
4,474 |
(9) |
|
|
508,474 |
|
Vice President of |
|
|
2008 |
|
|
|
249,000 |
|
|
|
15,120 |
|
|
|
|
|
|
|
|
(7) |
|
|
|
|
|
|
|
|
|
|
10,032 |
(9) |
|
|
274,152 |
|
Human Resources |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts characterized as Bonus payments were discretionary awards authorized by the
Committee. For 2008, the Companys EBITDA was below the threshold, therefore, not generating a
bonus payout under the Non-Equity Incentive Plan Compensation. In recognition of the
Companys performance in 2008, the Committee elected to grant a discretionary bonus to
management. |
|
(2) |
|
Amounts included in the column Non-Equity Incentive Plan Compensation reflect the annual
cash incentive bonus approved by the Committee. |
|
(3) |
|
As set forth in his employment agreement, Mr. Chieffe was entitled to a special retention
incentive bonus of $1,500,000 payable in three equal annual installments commencing on October
1, 2008. In addition, Mr. Chieffe was granted a discretionary bonus of $55,000 in 2008. His
2007 bonus award was based on 50% of his base annual salary. |
|
(4) |
|
Ms. Sobe resigned June 2, 2009, effective June 22, 2009, as Vice President Chief Financial
Officer, Treasurer and Secretary. Mr. Graham was appointed as Ms. Sobes replacement effective
June 22, 2009. |
|
(5) |
|
Mr. Graham was appointed as Vice PresidentChief Financial Officer, Treasurer and Secretary,
effective June 22, 2009. Mr. Grahams employment agreement provides for an annual base salary
of $300,000 and eligibility to earn an annual incentive bonus up to 100% of the base salary
contingent upon the achievement of defined EBITDA hurdles with respect to each calendar year.
See Employment AgreementsMr. Graham. |
97
|
|
|
(6) |
|
As described in detail below under the caption Outstanding Equity Awards at Fiscal Year-End
AMH Holdings II, Inc. 2004 Stock Option Plan, in May 2008, Mr. Chieffe and Mr. Arthur were
granted certain options under the 2004 Stock Option Plan. These option grants had no value on
the date of grant as determined in accordance with FASB ASC 718, Compensation Stock
Compensation (ASC 718). |
|
(7) |
|
As described in detail below under the caption Outstanding Equity Awards at Fiscal Year-End
AMH Holdings II, Inc. 2004 Stock Option Plan, in May 2008, Ms. Sobe, Mr. Franco and Mr.
Haumesser, as well as
certain other employees, each exchanged certain previously issued options under the 2002 and
2004 Stock Option Plan for new options under the 2004 Stock Option Plan. These option grants
had no value on the date of grant as determined in accordance with ASC 718. See Note 11 of
the consolidated financial statements for further details regarding the estimated fair value
of the option grants. |
|
(8) |
|
In June 2009, Mr. Graham was granted certain options under the 2004 Stock Option Plan. This
option grant had no value on the date of grant as determined in accordance with ASC 718. |
|
(9) |
|
Includes amounts accrued or allocated under a qualified defined contribution plan available
to all Company employees, and imputed income from group term life coverage provided by the
Company in excess of $50,000. |
|
(10) |
|
Includes imputed income from group term life coverage provided by the Company in excess of
$50,000 and $27,189 of relocation assistance in conjunction with Mr. Arthur joining the
Company in December 2006. |
|
(11) |
|
Includes amounts accrued or allocated under a qualified defined contribution plan available
to all Company employees, imputed income from group term life coverage provided by the Company
in excess of $50,000 and the value of customer incentive trips attended by the executives
spouse including the related tax liability. |
98
GRANTS OF PLAN-BASED AWARDS
The following table summarizes the grants of equity and non-equity plan-based awards made to
executive officers during the year ended January 2, 2010.
|
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|
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|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
All Other |
|
|
Option |
|
|
|
|
|
|
Date |
|
|
|
|
|
|
|
Estimated Future |
|
|
|
|
|
Stock |
|
|
Awards: |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
|
Payouts Under |
|
|
Estimated Future |
|
|
Awards: |
|
|
Number |
|
|
Exercise |
|
|
Value of |
|
|
|
|
|
|
|
Non-Equity |
|
|
Payouts Under |
|
|
Number |
|
|
of |
|
|
or Base |
|
|
Stock |
|
|
|
|
|
|
|
Incentive Plan |
|
|
Equity Incentive |
|
|
of Shares |
|
|
Securities |
|
|
Price of |
|
|
and |
|
|
|
|
|
|
|
Awards |
|
|
Plan Awards |
|
|
of Stock |
|
|
Underlying |
|
|
Option |
|
|
Option |
|
|
|
Grant |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
or Units |
|
|
Options |
|
|
Awards |
|
|
Awards |
|
Name |
|
Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
(#) (1) |
|
|
(#) (2) |
|
|
(#) (3) |
|
|
(#) |
|
|
(#) |
|
|
($/Sh) |
|
|
($) (4) |
|
Thomas N. Chieffe |
|
|
|
|
|
|
110,000 |
|
|
|
550,000 |
|
|
|
825,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren J. Arthur |
|
|
|
|
|
|
50,000 |
|
|
|
150,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cynthia L. Sobe (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen E. Graham (6) |
|
|
6/22/2009 |
|
|
|
60,000 |
|
|
|
180,000 |
|
|
|
300,000 |
|
|
|
7,313 |
|
|
|
20,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.00 |
|
|
|
0.00 |
|
Robert M. Franco |
|
|
|
|
|
|
66,000 |
|
|
|
198,000 |
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John F. Haumesser |
|
|
|
|
|
|
50,400 |
|
|
|
151,200 |
|
|
|
252,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As described in detail below under the caption Outstanding Equity Awards At Fiscal Year-End
AMH Holdings II, Inc. 2004 Stock Option Plan, each option grant contains both time-based
and performance vesting options. Approximately 35% of the options (time-based options) vest
ratably over a five year period, subject to such time-based options immediately vesting upon
the occurrence of a change of control, as defined in the 2004 Stock Option Plan. The
threshold amount presented in this column represents the number of shares currently
underlying such time-based options, assuming that no adjustment (as described in note 3 below)
is made to the number of shares underlying such options. This amount is equivalent to the
minimum number of shares for which options could be exercised, either upon the expiration of
the five-year vesting period or upon the occurrence of a change of control, assuming that no
performance criteria have been met. |
|
(2) |
|
As described in detail below under the caption Outstanding Equity Awards At Fiscal Year-End
AMH Holdings II, Inc. 2004 Stock Option Plan, approximately 65% of the options
(performance-based options) become exercisable if a liquidity event, as defined in the
option agreements, occurs and certain specified returns on investment are realized by the
stockholders of AMH II in connection with such liquidity event; provided that if a liquidity
event had occurred on or prior to January 1, 2010, the performance-based options (along with
the time-based options) would have immediately vested without regard to realized investment
returns. The target amount presented in this column represents the total aggregate number
of shares currently underlying the time-based options and the performance-based options
collectively. Such target amount assumes that no adjustment (as described in note 3 below)
is made to the number of shares underlying such options. |
|
(3) |
|
As described in detail below under the caption Outstanding Equity Awards At Fiscal Year-End
AMH Holdings II, Inc. 2004 Stock Option Plan, the number of shares underlying the
time-based options and the performance-based options is subject to upwards adjustment, in the
event Investcorp converts its preferred stock of AMH II into common stock, with the adjusted
number of shares dependent on the fair market value of AMH II common stock at the time of such
conversion. Because the future fair market value of AMH II is not currently determinable, the
maximum number of shares underlying the options, after accounting for such adjustment, is
similarly not determinable. |
|
(4) |
|
In accordance with ASC 718, the amounts presented in this column for Mr. Graham reflect
the incremental fair value of the issued options. See Note 11 of the consolidated financial
statements for further details regarding the estimated fair value of the option grants. |
|
(5) |
|
Ms. Sobe resigned June 2, 2009, effective June 22, 2009, as Vice President Chief Financial
Officer, Treasurer and Secretary, and as a result, foregoes all future payments under the
Companys non-equity incentive plan awards and equity incentive plan awards. |
|
(6) |
|
Under the terms of Mr. Grahams employment agreement, which became effective June 22, 2009,
Mr. Graham was granted, pursuant to the 2004 Stock Option Plan, options to purchase 20,506
shares of AMH IIs common stock at an exercise price of $1.00 per share. Approximately 35% of
the options vest ratably over a five-year period, subject to such options vesting immediately
upon a change in control, as defined in
the 2004 Stock Option Plan, and the remainder of the options become exercisable if a liquidity
event, as defined in the option agreement, occurs and certain specified returns on investment
are realized in connection with the liquidity event; provided that if a liquidity event would
have been consummated on or before January 1, 2010, all options would have immediately vested
without regard to realized investment returns. See Employment AgreementsMr. Graham. |
99
Amounts in the table above under Estimated Future Payouts Under Non-Equity Incentive Plan
reflect the annual cash incentive bonus based on the achievement of defined EBITDA hurdles
established for each executive. The following table prescribes the annual incentive bonus payout,
stated as an approximate percentage of base salary, for which each of the named executive officers
was eligible for 2009 under the terms of the plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Annual Incentive |
|
|
|
Bonus Payout Percentage |
|
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
Thomas N. Chieffe |
|
|
20 |
% |
|
|
100 |
% |
|
|
150 |
% |
Warren J. Arthur |
|
|
20 |
% |
|
|
60 |
% |
|
|
100 |
% |
Cynthia L. Sobe (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Stephen E. Graham (2) |
|
|
20 |
% |
|
|
60 |
% |
|
|
100 |
% |
Robert M. Franco |
|
|
20 |
% |
|
|
60 |
% |
|
|
100 |
% |
John F. Haumesser |
|
|
20 |
% |
|
|
60 |
% |
|
|
100 |
% |
|
|
|
(1) |
|
Ms. Sobe resigned June 2, 2009, effective June 22, 2009, as Vice PresidentChief
Financial Officer, Treasurer and Secretary. |
|
(2) |
|
Mr. Graham was appointed Vice PresidentChief Financial Officer, Treasurer and
Secretary, effective June 22, 2009. See Employment AgreementsMr. Graham. |
Total compensation for each executive is reviewed annually by the Committee to ensure that the
proportions of the executives salary, bonus and short-term incentives are properly balanced, and
that compensation is aligned with the Companys performance. For the year ended January 2, 2010,
salaries and discretionary bonuses comprised the following percentage of total compensation for
each of the Companys executives:
|
|
|
|
|
|
|
Salary and Bonus as a |
|
|
|
% of Total Compensation |
|
Thomas N. Chieffe |
|
|
56 |
% |
Warren J. Arthur |
|
|
48 |
% |
Cynthia L. Sobe (1) |
|
|
97 |
% |
Stephen E. Graham (2) |
|
|
34 |
% |
Robert M. Franco |
|
|
48 |
% |
John F. Haumesser |
|
|
50 |
% |
|
|
|
(1) |
|
Ms. Sobe resigned June 2, 2009, effective June 22, 2009, as Vice PresidentChief
Financial Officer, Treasurer and Secretary. |
|
(2) |
|
Mr. Graham was appointed Vice PresidentChief Financial Officer, Treasurer and
Secretary, effective June 22, 2009. See Employment AgreementsMr. Graham. |
EMPLOYMENT AGREEMENTS
As a matter of practice, the Company enters into employment agreements with its executive
officers that establish minimum salary levels, outline the terms of their discretionary and annual
incentive bonus, and provide for severance and other separation benefits in the event of
termination or a change in control. The following is a summary of the significant terms of the
named executive officers employment agreements.
100
Mr. Chieffe
Mr. Chieffe initially entered into an employment agreement with the Company effective as of
August 21, 2006. This agreement was amended and restated in its entirety as of April 1, 2008, and
further amended and restated in its
entirety as of February 17, 2010. Under the terms of his employment agreement, Mr. Chieffe
serves as the Companys President and Chief Executive Officer. The initial term of the amended and
restated employment agreement is two years. The terms of the amended and restated employment
agreement provide that on the second anniversary of the effective date of the employment agreement
and each successive anniversary thereof, the term of the employment agreement will automatically
extend by one year unless the Company gives to Mr. Chieffe a notice not to extend the employment
term. The amended and restated employment agreement provides for an initial base salary of $550,000
per year, subject to annual review and which may not be decreased, eligibility to earn an annual
incentive bonus calculated as a specified percentage of his base salary contingent upon the
achievement of defined EBITDA hurdles with respect to each calendar year, participation in the
stock plan established by AMH II, and a special retention incentive bonus of $1.5 million, payable
in three equal annual installments commencing on October 1, 2008. The payment of the special
retention incentive bonus shall cease if Mr. Chieffes employment is terminated by the Company for
cause or in the event Mr. Chieffe voluntarily resigns. Mr. Chieffe would be entitled to the
remaining unpaid portion of his special retention incentive bonus in the event of termination
without cause or if he resigns for good reason, as well as the occurrence of certain change in
control events. Further, the amended employment agreement replaced Mr. Chieffes long-term
performance-based and transaction bonuses with participation in the stock option plans established
by AMH II.
The amended and restated employment agreement provides that if Mr. Chieffes employment is
involuntarily terminated by the Company without cause of if Mr. Chieffe resigns for good reason, he
will be entitled to the following severance compensation: (1) severance equal to his base salary
immediately prior to the date of termination of his employment for 24 months, (2) continued medical
and dental benefits consistent with the terms in effect for active employees of the Company for 24
months, subject to reduction to the extent comparable benefits are actually received by Mr. Chieffe
from another employer during this period, (3) a pro rata portion of any annual incentive bonus
payable for the year of termination, and (4) the remaining unpaid portion of his special retention
incentive bonus. The amended and restated employment agreement also provides that if Mr. Chieffes
employment is involuntarily terminated by the Company without cause or if Mr. Chieffe elects to
resign upon the occurrence of certain adverse changes to his employment, in each case, within two
years following a change in control, Mr. Chieffe will be entitled to the following severance
compensation and benefits in lieu of his normal severance described above: (1) a lump sum payment
in an amount equal to (A) two times Mr. Chieffes base salary and (B) two times Mr. Chieffes
annual incentive pay (equal to the highest amount of incentive pay earned in a any year during the
preceding three years), (2) if the termination occurs after June 30 in any year, a prorated portion
of his annual incentive pay for that calendar year, (3) the remaining unpaid portion of his special
retention incentive bonus, (4) for a period of 24 months, medical and dental insurance benefits
consistent with the terms in effect for active employees of the Company during this period, subject
to reduction to the extent comparable benefits are actually received by Mr. Chieffe from another
employer during this period, and (5) the cost of employee outplacement services equal to $30,000.
Mr. Chieffes amended and restated employment agreement also provides that he is subject to various
restrictive covenants, including confidentiality and non-disparagement covenants, as well as a
covenant not to solicit the employees of the Company and a non-competition covenant, in both cases
for the period during which Mr. Chieffe is employed by the Company and for the two-year period
thereafter. In addition, as a condition to receiving any severance payments or benefits,
Mr. Chieffe will be required to execute a general release of claims in favor of the Company and its
affiliates.
Mr. Arthur
Mr. Arthur entered into an employment agreement with the Company effective as of April 1,
2008. This agreement was amended and restated in its entirety February 17, 2010. Under the terms of
his amended and restated employment agreement, Mr. Arthur serves as the Companys Senior Vice
President of Operations. The term of the amended and restated employment agreement is one year. The
terms of the amended and restated employment agreement provide that beginning on April 1, 2009, and
each successive year thereafter, the term of the employment agreement will automatically extend by
one year unless the Company gives Mr. Arthur a notice not to extend the employment term. The
amended and restated employment agreement provides for a base salary of $250,000 per year, subject
to annual review and which may not be decreased and the eligibility to earn an annual incentive
bonus calculated as a specified percentage of his base salary contingent upon the achievement of
defined EBITDA hurdles with respect to each calendar year, and allows for the participation in the
stock plan established by AMH II. The amended and restated employment agreement provides that if
Mr. Arthurs employment is involuntarily terminated
101
by the Company without cause, he will be
entitled to the following severance compensation: (1) severance equal to the base salary immediately prior to the date of termination of employment for 12 months,
(2) continued medical and dental benefits consistent with the terms in effect for active employees
of the Company over the severance period, subject to reduction to the extent comparable benefits
are actually received from another employer during this period, and (3) a pro rata portion of any
annual incentive bonus payable for the year of termination. The terms of the amended and restated
employment agreement also provides that if Mr. Arthurs employment is involuntarily terminated by
the Company without cause or if Mr. Arthur elects to resign following the occurrence of certain
adverse changes to his employment, in each case, within two years following a change in control,
Mr. Arthur will be entitled to the following severance compensation and benefits in lieu of his
normal severance described above: (1) a lump sum payment in an amount equal to (A) two times Mr.
Arthurs base salary, and (B) two times Mr. Arthurs incentive pay (equal to the highest amount of
incentive pay earned in any year during the preceding three years), (2) if the termination occurs
after June 30, in any year, a prorated portion of his incentive pay for that calendar year, (3)
continued medical, dental and life insurance benefits for 24 months, subject to reduction to the
extent comparable benefits are actually received by Mr. Arthur during this period from another
employer, and (4) the cost of employee outplacement services equal to $30,000. Mr. Arthurs amended
and restated employment agreement also provides that he is subject to various restrictive
covenants, including confidentiality and non-disparagement covenants, as well as a covenant not to
solicit the employees of the Company and a non-competition covenant, in both cases for the period
during which Mr. Arthur is employed by the Company and for the two-year period thereafter. In
addition, as a condition to receiving any severance payments or benefits, Mr. Arthur will be
required to execute a general release of claims in favor of the Company and its affiliates.
Mr. Graham
Mr. Graham entered into an employment agreement with the Company effective as of June 22,
2009. This agreement was amended and restated in its entirety February 17, 2010. Under the terms of
his amended and restated employment agreement, Mr. Graham serves as the Companys Vice
President-Chief Financial Officer, Treasurer and Secretary. Mr. Grahams amended and restated
employment agreement provides for an initial base salary of $300,000 per year, subject to annual
review and which may not be decreased and the eligibility to earn an annual incentive bonus up to
100% of the base salary contingent upon the achievement of defined EBITDA hurdles with respect to
each calendar year, and allows for the participation in the stock option plan established by AMH
II. Mr. Grahams amended and restated employment agreement provides that if Mr. Grahams employment
is involuntarily terminated by the Company without cause following the initial 12 months of
employment, he will be entitled to the following severance compensation: (1) severance equal to the
base salary immediately prior to the date of termination of employment for 12 months, (2) continued
medical and dental benefits consistent with the terms in effect for active employees of the Company
over the severance period, subject to reduction to the extent comparable benefits are actually
received from another employer during this period, and (3) a pro rata portion of any annual
incentive bonus payable for the year of termination. The amended and restated employment agreement
also provides that if Mr. Grahams employment is involuntarily terminated by the Company without
cause or if Mr. Graham elects to resign following the occurrence of certain adverse changes to his
employment, in each case, within two years following a change in control, Mr. Graham will be
entitled to the following severance compensation and benefits in lieu of his normal severance
described above: (1) a lump sum payment in an amount equal to (A) two times the base salary, and
(B) two times the annual incentive pay (equal to the highest amount of incentive pay earned in any
year during the preceding three years), (2) if the termination occurs after June 30 in any year, a
prorated portion of the annual incentive pay for that calendar year, (3) for a period of 24 months,
medical and dental insurance benefits consistent with the terms in effect for active employees of
the Company during this period, subject to reduction to the extent comparable benefits are actually
received by from another employer during this period, and (4) the cost of employee outplacement
services equal to $30,000. Mr. Grahams amended and restated employment agreement also provides
that he is subject to various other restrictive covenants, including confidentiality and
non-disparagement covenants, as well as a covenant not to solicit the employees of the Company and
a non-competition covenant, in both cases for the period during which Mr. Graham is employed by the
Company and for the two-year period thereafter. In addition, as a condition to receiving any
severance payments or benefits, Mr. Graham will be required to execute a general release of claims
in favor of the Company and its affiliates.
102
Mr. Franco
Mr. Franco entered into an employment agreement with the Company effective as of August 21,
2002. This agreement was first amended and restated in its entirety as of July 27, 2004, further
amended and restated in its entirety as of March 30, 2006, further amended and restated in its
entirely as of April 1, 2008, and further amended and restated in its entirety as of February 17,
2010. Under the terms of his amended and restated employment agreement, Mr. Franco serves as the
Companys President of AMI Distribution. The initial term of the amended and restated employment
agreement is two years. The terms of the amended and restated employment agreement provide that
beginning on April 1, 2009, and each successive year thereafter, the term of the employment
agreement will automatically extend by one year unless the Company gives Mr. Franco a notice not to
extend the employment term. The amended and restated employment agreement provides for an initial
base salary of $330,000 per year, subject to annual review and which may not be decreased. The
amended and restated employment agreement provides that if Mr. Francos employment is involuntarily
terminated by the Company without cause, he will be entitled to the following severance
compensation: (1) severance equal to the base salary immediately prior to the date of termination
of employment for 12 months or the remaining employment term, whichever is longer, (2) continued
medical and dental benefits consistent with the terms in effect for active employees of the Company
over the severance period, subject to reduction to the extent comparable benefits are actually
received from another employer during this period, and (3) a pro rata portion of any annual
incentive bonus payable for the year of termination. The terms of the amended and restated
employment agreement also provides that if Mr. Francos employment is involuntarily terminated by
the Company without cause or if Mr. Franco elects to resign following the occurrence of certain
adverse changes to his employment, in each case, within two years following a change in control,
Mr. Franco will be entitled to the following severance compensation and benefits in lieu of his
normal severance described above: (1) a lump sum payment in an amount equal to (A) two times Mr.
Francos base salary, and (B) two times Mr. Francos incentive pay (equal to the highest amount of
incentive pay earned in any year during the preceding three years), (2) if the termination occurs
after June 30, in any year, a prorated portion of his incentive pay for that calendar year, (3)
continued medical, dental and life insurance benefits for 24 months, subject to reduction to the
extent comparable benefits are actually received by Mr. Franco during this period from another
employer, and (4) the cost of employee outplacement services equal to $30,000. Mr. Francos
amended and restated employment agreement also provides that he is subject to various restrictive
covenants, including confidentiality and non-disparagement covenants, as well as a covenant not to
solicit the employees of the Company and a non-competition covenant, in both cases for the period
during which Mr. Franco is employed by the Company and for the two-year period thereafter. In
addition, as a condition to receiving any severance payments or benefits, Mr. Franco will be
required to execute a general release of claims in favor of the Company and its affiliates.
Mr. Haumesser
Mr. Haumesser entered into an employment agreement with the Company effective as of August 21,
2002. This agreement was first amended and restated in its entirety as of July 27, 2004, further
amended and restated in its entirety as of March 30, 2006, further amended and restated in its
entirety as of April 1, 2008 and further amended and restated in its entirety as of February 17,
2010. Under the terms of his amended and restated employment agreement, Mr. Haumesser serves as
the Companys Vice President of Human Resources. The initial term of the amended and restated
employment agreement is one year. The terms of the amended and restated employment agreement
provide that beginning on April 1, 2009, and each successive year thereafter, the term of the
employment agreement will automatically extend by one year unless the Company gives Mr. Haumesser a
notice not to extend the employment term. The amended and restated employment agreement provides
for an initial base salary of $252,000 per year, subject to annual review and which may not be
decreased. The amended and restated employment agreement provides that if Mr. Haumessers
employment is involuntarily terminated by the Company without cause, he will be entitled to the
following severance compensation: (1) severance equal to the base salary immediately prior to the
date of termination of employment for 12 months, (2) continued medical and dental benefits
consistent with the terms in effect for active employees of the Company over the severance period,
subject to reduction to the extent comparable benefits are actually received from another employer
during this period, and (3) a pro rata portion of any annual incentive bonus payable for the year
of termination. The terms of the amended and restated employment agreement also provides that if
Mr. Haumessers employment is involuntarily terminated by the Company without cause or if Mr.
Haumesser elects to resign following the occurrence of certain adverse changes to his employment,
in each case, within two years following a change in control, Mr. Haumesser will be entitled to the
following severance compensation and benefits in lieu of his normal severance described above: (1)
a lump sum payment in an amount equal to (A) two times Mr. Haumessers base salary, and (B) two
times Mr. Haumessers incentive pay (equal to the highest amount of incentive pay earned in any
year during the preceding
three years), (2) if the termination occurs after June 30, in any year, a prorated portion of
his incentive pay for that calendar year, (3) continued medical, dental and life insurance benefits
for 24 months, subject to reduction to the extent comparable benefits are actually received by Mr.
Haumesser during this period from another employer, and (4) the cost of employee outplacement
services equal to $30,000. As a condition to any severance payments, Mr. Haumesser agrees not to
compete with the Company for two years after separation from the Company. Mr. Haumessers amended
and restated employment agreement also provides that he is subject to various restrictive
covenants, including confidentiality and non-disparagement covenants, as well as a covenant not to
solicit the employees of the Company and a non-competition covenant, in both cases for the period
during which Mr. Haumesser is employed by the Company and for the two-year period thereafter. In
addition, as a condition to receiving any severance payments or benefits, Mr. Haumesser will be
required to execute a general release of claims in favor of the Company and its affiliates.
103
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
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Option Awards |
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Stock Awards |
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Equity |
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Incentive |
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Equity |
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Plan |
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Incentive |
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Awards: |
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Plan Awards: |
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Equity |
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Number |
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Market |
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Incentive |
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of Unearned |
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or Payout |
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Number |
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Plan Awards: |
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Shares, |
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Value of |
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of |
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Number of |
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Number |
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Number of |
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Value of |
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Units or |
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Unearned |
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Securities |
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Securities |
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of Securities |
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Shares or |
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Shares or |
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Other |
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Shares, |
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Underlying |
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Underlying |
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Underlying |
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Units of |
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Units of |
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Rights That |
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Units or |
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Unexercised |
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Unexercised |
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Unexercised |
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Option |
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Stock That |
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Stock That |
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Have |
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Other |
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Options |
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Options |
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Unearned |
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Exercise |
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Option |
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Have Not |
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Have Not |
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Not |
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Rights That |
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(#) |
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(#) |
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Options |
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Price |
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Expiration |
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Vested |
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Vested |
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Vested |
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Have Not |
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Name |
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Exercisable |
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Unexercisable |
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($) |
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Date |
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($) |
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(#) |
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Vested ($) |
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Thomas N. Chieffe |
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6,578 |
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85,653 |
(1) |
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1.00 |
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5/30/2018 |
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Warren J. Arthur |
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1,754 |
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22,841 |
(1) |
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1.00 |
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5/30/2018 |
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Cynthia L. Sobe (2) |
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Stephen E. Graham (3) |
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20,506 |
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1.00 |
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6/22/2019 |
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Robert M. Franco |
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2,924 |
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38,068 |
(1) |
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1.00 |
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5/30/2018 |
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John F. Haumesser |
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1,827 |
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23,793 |
(1) |
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1.00 |
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5/30/2018 |
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(1) |
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Approximately 35% of the options issued in 2008 vest ratably over a five year period
(time-based options), subject to such options immediately vesting upon a change of control,
as defined in the 2004 Stock Option Plan. The remainder of the options become exercisable if
a liquidity event, as defined in the option agreements, occurs and certain specified returns
on investment are realized by Investcorp and Harvest Partners in connection with the liquidity
event (provided that if a liquidity event had occurred prior to December 31, 2009, these
options (together with the time-based options) would have immediately vested without regard to
realized investment returns). The number of shares underlying the options is subject to
adjustment in the event Investcorp converts its preferred shares of AMH II into common shares,
with the adjusted number of shares dependent on the level of achieved investment hurdles. |
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(2) |
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In connection with Ms. Sobes resignation from the Company, her outstanding option awards were
cancelled. |
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(3) |
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Under the terms of Mr. Grahams employment agreement, Mr. Graham was granted, pursuant to
the 2004 Stock Option Plan, options to purchase 20,506 shares of AMH IIs common stock at an
exercise price of $1.00 per share. Approximately 35% of the options vest ratably over a
five-year period, subject to such options vesting immediately upon a change in control, as
defined in the 2004 Stock Option Plan, and the remainder of the options become exercisable if
a liquidity event, as defined in the option agreement, occurs and certain specified returns on
investment are realized in connection with the liquidity event; provided that if a liquidity
event would have been consummated on or before January 1, 2010, all options would have
immediately vested without regard to realized investment returns. Mr. Grahams options expire
on June 22, 2019. See ManagementEmployment AgreementsMr. Graham. |
Options have been issued to the Companys executive officers under the Associated Materials
Holdings Inc. 2002 Stock Option Plan and the AMH Holdings II, Inc. 2004 Stock Option Plan. Below is
a summary of these stock option plans.
Associated Materials Holdings Inc. 2002 Stock Option Plan
In June 2002, Holdings adopted the Associated Materials Holdings Inc. 2002 Stock Option Plan.
In March 2004, AMH assumed the 2002 Plan and all outstanding options under the plan. Options under
the 2002 Plan were converted from the right to purchase shares of Holdings common stock into a
right to purchase shares of AMH common stock with each option providing for the same number of
shares and at the same exercise price as the original options. The Committee administers the 2002
Plan and selects eligible executives, directors, and employees of, and consultants to, AMH and its
affiliates, (including the Company), to receive options. The Board of Directors of AMH II also will
determine the number and type of shares of stock covered by options granted under the plan, the
terms under which options may be exercised, the exercise price of the options and other terms and
conditions of the options in accordance with the provisions of the 2002 Plan. An option holder may
pay the exercise price of an option by any legal manner that the Board of Directors of AMH II
permits. Option holders generally may not transfer their options except in the event of death. If
AMH undergoes a change in control, as defined in the 2002 Plan, all options then outstanding become
immediately fully exercisable. The Board of Directors of AMH II may adjust outstanding options by
substituting stock or other securities of any successor or another party to the change in control
transaction, or cash out such outstanding options, in any such case, generally based on the
consideration received by its stockholders in the transaction. Subject to particular limitations
specified in the 2002 Plan, the Board of Directors of AMH II may amend or terminate the plan. The
2002 Plan will terminate no later than 10 years following its effective date; however, any options
outstanding under the option plan will remain outstanding in accordance with their terms. AMH does
not intend to grant any additional options under the 2002 Plan.
104
In December 2004, AMH amended the 2002 Plan to provide that each option then outstanding under
the 2002 Plan following the completion of the December 2004 recapitalization transaction will be
exercisable for two shares of the Class B non-voting common stock of AMH, to adjust for the
dilution resulting from the transaction. In addition, each holder of such options entered into an
agreement with AMH II whereby such option holders agreed, upon the exercise of any such options
under the 2002 Plan, to automatically contribute to AMH II the AMH shares issued upon any such
option exercise, in exchange for an equivalent number and class of shares of AMH II.
AMH Holdings II, Inc. 2004 Stock Option Plan
In December 2004, AMH II adopted the AMH Holdings II, Inc. 2004 Stock Option Plan. The
Compensation Committee administers the 2004 Plan and selects eligible executives, directors, and
employees of, and consultants to, AMH II and its affiliates, (including the Company), to receive
options to purchase AMH II Class B non-voting common stock. The Compensation Committee also
determines the number of shares of stock covered by options granted under the 2004 Plan, the terms
under which options may be exercised, the exercise price of the options and other terms and
conditions of the options in accordance with the provisions of the 2004 Plan. An option holder may
pay the exercise price of an option by any legal manner that the Compensation Committee permits.
Option holders generally may not transfer their options except in the event of death. If AMH II
undergoes a change of control, as defined in the 2004 Plan, the Compensation Committee may
accelerate the exercisability of all or a portion of the outstanding options, adjust outstanding
options by substituting stock, or cash out such outstanding options, in any such case, generally
based on the consideration received by its stockholders in the transaction. Subject to particular
limitations specified in the 2004 Plan, the Board of Directors of AMH II may amend or terminate the
2004 Plan. The 2004 Plan will terminate no later than 10 years following its effective date;
however, any options outstanding under the 2004 Plan will remain outstanding in accordance with
their terms.
In May 2008, certain options previously issued to executive officers and certain employees of
the Company under the 2002 Plan and the 2004 Plan were exchanged for new options providing for a
lower exercise price and certain other modified terms. As a result of the exchange, options for an
aggregate of 165,971 shares of AMH II common stock having a weighted average exercise price of
$46.59 per share were exchanged for new options having an exercise price of $1.00 per share (which
exercise price exceeded the fair market value on the date of grant). In addition, new option grants
were issued to certain individuals who previously did not hold stock options. Approximately 35% of
the options issued vest ratably over a five year period (time-based options), subject to such
time-based options immediately vesting upon a change of control, as defined in the 2004 Plan. The
remainder of the options become exercisable if a liquidity event, as defined in the option
agreements, occurs and certain specified returns on investment are realized by the Investcorp and
Harvest Partners in connection with the liquidity event; provided that if a liquidity event had
occurred on or prior to December 31, 2009, these options (together with the time-based options)
would have immediately vested without regard to realized investment returns. A liquidity event is
generally defined as an initial public offering yielding at least $150.0 million of net proceeds or
a sale to an unaffiliated third person of over 50% of the stock or assets of the Company. The
number of shares underlying the new options is subject to adjustment in the event Investcorp
converts its preferred stock of AMH II into common stock, with the adjusted number of shares
dependent on the fair market value of AMH II common stock at the time of such conversion.
OPTIONS EXERCISES AND STOCK VESTED
There were no exercises of stock options held by the Companys named executive officers in
2009.
PENSION BENEFITS
The Company does not maintain any pension plans which provide for payments or other benefits
in connection with the retirement of any current named executive officer.
105
NON-QUALIFIED DEFERRED COMPENSATION
The Company does not maintain any non-qualified defined contribution or other deferred
compensation plans.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Separation and Severance Benefits. The Company, as a matter of practice, provides separation
and severance pay and benefits to all of its executive officers and management employees. To be
eligible for benefits, a general release of claims in the form determined by the Company is
required. Generally, employees are entitled to separation and severance pay of two weeks of base
pay plus one week of pay for each year of service rendered with the Company. In addition to these
benefits, the Committee may authorize additional payments when it separates an executive officer.
Individual Agreements. The Companys named executive officers have agreements that affect the
amount paid or benefits provided following termination or change in control. Refer to the
Employment Agreements section for additional discussion regarding the employment agreements with
the Companys executives.
The table below summarizes the amounts that would have been payable, in addition to any
amounts included in the Summary Compensation Table and pension benefits included in the Pension
Benefits table, to named executive officers in connection with a termination (including
resignation, severance, or retirement) or a change in control had such event occurred on January 2,
2010.
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Severance Benefits |
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Change in Control Severance |
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Stock and stock |
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Stock and stock |
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Severance |
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Benefits |
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options |
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Severance |
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Benefits |
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options |
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Name |
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Payments (1) |
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(2) |
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(3) |
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Payments (1) |
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(4) |
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(3) |
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Thomas N. Chieffe |
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$ |
1,600,000 |
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$ |
13,080 |
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$ |
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$ |
3,250,000 |
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$ |
43,080 |
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$ |
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Warren J. Arthur |
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250,000 |
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6,540 |
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1,000,000 |
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43,080 |
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Cynthia L. Sobe (5) |
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Stephen E. Graham (6) |
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1,200,000 |
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43,080 |
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Robert M. Franco |
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409,281 |
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8,111 |
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1,320,000 |
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43,080 |
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John F. Haumesser |
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252,000 |
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6,540 |
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|
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|
1,008,000 |
|
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|
43,080 |
|
|
|
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|
|
|
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(1) |
|
Based on the terms of Mr. Chieffes employment agreement, Mr. Chieffe would be entitled to
the remaining unpaid portion of his special retention incentive bonus in the event of
termination or a change in control. |
|
(2) |
|
Represents an estimate of the medical benefits, based on the Companys current cost per
employee, to which the executives would be entitled in the event of a termination. |
|
(3) |
|
As the number of shares underlying the options are subject to adjustment in the event
Investcorp converts its preferred shares of AMH II into common shares, with the adjusted
number of shares dependent on the level of achieved investment hurdles, the value of the stock
options is undeterminable as of January 2, 2010. |
|
(4) |
|
Represents an estimate of the medical benefits, based on the Companys current cost per
employee, to which the executives would be entitled in the event of a change in control and
termination in addition to amounts due for employee outplacement services. |
|
(5) |
|
Ms. Sobe resigned June 2, 2009, effective June 22, 2009, as Vice PresidentChief Financial
Officer, Treasurer and Secretary. |
|
(6) |
|
Mr. Graham was appointed Vice PresidentChief Financial Officer, Treasurer and Secretary,
effective June 22, 2009. See Employment Agreements for a discussion of Mr. Grahams
severance benefits and change in control severance. |
106
DIRECTOR COMPENSATION
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Change |
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in Pension |
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Value and |
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Non-Equity |
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Nonqualified |
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Fees Earned |
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Incentive |
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Deferred |
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or Paid |
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Stock |
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Option |
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Plan |
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Compensation |
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All Other |
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Name |
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in Cash |
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Awards |
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Awards (1) |
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Compensation |
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Earnings |
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Compensation |
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Total |
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Thomas N. Chieffe |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Lars C. Haegg |
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Ira D. Kleinman |
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Kevin C. Nickelberry |
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Dana R. Snyder |
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25,000 |
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25,000 |
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Dennis W. Vollmershausen |
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25,000 |
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25,000 |
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Christopher D. Whalen |
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(1) |
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At January 2, 2010, the aggregate number of options awards outstanding to directors was: Mr.
Vollmershausen 2,870 shares and Mr. Snyder 6,149 shares. |
AMH II pays two directors, Dennis Vollmershausen and Dana Snyder, $5,000 per meeting for their
participation in meetings of the Board of Directors of AMH II, as neither is directly employed by
either Investcorp or Harvest Partners. None of the other directors currently receive any
compensation for their services on the Board of Directors of AMH II or committee of the Board of
Directors of AMH II. AMH II currently reimburses its non-employee directors for all out of pocket
expenses incurred in the performance of their duties as directors. The Board of Directors of AMH II
is subject to the rules and operating procedures as set forth in the stockholders agreement among
the stockholders of AMH II.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of AMH II currently consists of Messrs.
Kleinman, Haegg and Vollmershausen, all of whom are considered independent committee members.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of AMH II has reviewed and discussed the above section titled
Compensation Discussion and Analysis with management and, based on this review and discussion,
the Compensation Committee recommended to the Board of Directors of AMH II that the Compensation
Discussion and Analysis section be included in this Annual Report on Form 10-K.
THE COMPENSATION COMMITTEE
Dennis W. Vollmershausen, Chairman
Lars C. Haegg
Ira D. Kleinman
107
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The Company has no outstanding equity compensation plans under which securities of the Company
are authorized for issuance. Equity compensation plans are maintained at AMH II, the Companys
direct parent company.
AMH II currently has four classes of stock outstanding: Class B, Series I (voting) Common
Stock, Class B, Series II (non-voting) Common stock, Voting Preferred Stock and Non-Voting
Preferred Stock. The Voting and Non-Voting Preferred Stock are convertible into Class A, Series I
(voting) and Class A, Series II (non-voting) Common Stock. No shares of Class A Common Stock are
currently outstanding. All of the voting common stock of AMH II is held by affiliates of Harvest
Partners and all of the preferred stock of AMH II (a portion of which is voting preferred stock) is
held by affiliates of Investcorp, with the result that such affiliates of Harvest Partners and
Investcorp, respectively, each hold 50% of the voting capital stock of AMH II. As a result of their
ownership of voting capital stock and a stockholders agreement, affiliates of Harvest Partners and
Investcorp have the ability to designate a majority of the Board of Directors of AMH II and all of
its subsidiaries and to control action to be taken by AMH II and its subsidiaries and their
respective boards of directors, including amendments to their respective certificates of
incorporation and by-laws and approval of significant corporate transactions, including mergers and
sales of substantially all of the assets of AMH II and any of its subsidiaries.
The following table sets forth certain information as of March 26, 2010, regarding the
beneficial ownership of AMH II by:
|
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|
each person known by the Company to own beneficially 5% or more of the outstanding
voting preferred stock or voting common stock of AMH II; |
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the directors and named executive officers of AMH II; and |
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all directors and named executive officers of AMH II as a group. |
The Company determined beneficial ownership in accordance with the rules of the SEC, which
generally require inclusion of shares over which a person has voting or investment power. Share
ownership in each case includes shares that may be acquired within 60 days through the exercise of
any options. None of the shares held by executive officers and directors have been pledged as
security. Except as otherwise indicated, the address for each of the named individuals is c/o
Associated Materials, LLC, 3773 State Road, Cuyahoga Falls, Ohio 44223.
|
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Class A Preferred Stock |
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Class B Common Stock |
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Number of |
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Number of |
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|
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SharesSeries |
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% of |
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SharesSeries |
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% of |
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I (voting) |
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Class |
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I (voting) |
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Class |
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Investcorp S.A. (1) |
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500,000 |
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100.0 |
% |
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Sipco Limited (2) |
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500,000 |
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100.0 |
% |
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AM Equity Limited (3) |
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80,117 |
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16.0 |
% |
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AM Investments Limited (4) |
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80,117 |
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16.0 |
% |
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Associated Equity Limited (5) |
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80,117 |
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16.0 |
% |
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Associated Investments Limited (6) |
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80,117 |
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16.0 |
% |
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|
Investcorp 2005 AMH Holdings II Portfolio
Limited Partnership (7) |
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109,533 |
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21.9 |
% |
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Investcorp Coinvestment Partners II, L.P. (8) |
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36,666 |
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7.3 |
% |
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Investcorp Coinvestment Partners I, L.P. (9) |
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33,333 |
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6.7 |
% |
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|
Harvest Funds (10) (11) (12) |
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500,000 |
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|
|
100 |
% |
108
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|
Class B Common Stock |
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|
Class B Common Stock |
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Number of |
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|
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|
Number of |
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|
|
|
|
|
SharesSeries |
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|
% of |
|
|
SharesSeries |
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|
% of |
|
|
|
I (voting) |
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|
Class |
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|
II (non-voting) |
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|
Class |
|
Executive Officers and Directors |
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|
|
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Thomas N. Chieffe (13) |
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|
|
|
|
|
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|
6,578 |
|
|
|
* |
|
Warren J. Arthur (14) |
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|
|
|
|
|
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|
|
1,754 |
|
|
|
* |
|
Stephen E. Graham (15) |
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|
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|
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Robert M. Franco (16) |
|
|
|
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2,924 |
|
|
|
* |
|
John F. Haumesser (17) |
|
|
|
|
|
|
|
|
|
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1,827 |
|
|
|
* |
|
Lars C. Haegg |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Ira D. Kleinman (18) |
|
|
500,000 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
Kevin C. Nickelberry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dana R. Snyder (19) |
|
|
|
|
|
|
|
|
|
|
439 |
|
|
|
* |
|
Dennis W. Vollmershausen (20) |
|
|
|
|
|
|
|
|
|
|
4,189 |
|
|
|
* |
|
Christopher D. Whalen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a
group |
|
|
500,000 |
|
|
|
100.0 |
% |
|
|
17,711 |
|
|
|
1.4 |
% |
|
|
|
* |
|
less than 1% |
|
(1) |
|
Investcorp S.A. does not directly own any shares of stock of AMH II. With respect to the
shares of Series I Class A Preferred Stock held by Investcorp 2005 AMH Holdings II Portfolio
Limited Partnership (109,533 shares), Investcorp Coinvestment Partners II, L.P. (36,666
shares) and Investcorp Coinvestment Partners I, L.P. (33,333 shares), Investcorp S.A. is the
general partner of each of those partnerships and, therefore, Investcorp S.A. may be deemed to
share beneficial ownership of those shares. The balance of the shares of Series I Class A
Preferred Stock is owned by AM Equity Limited, AM Investments Limited, Associated Equity
Limited and Associated Investments Limited (collectively, the AMH Investors). Investcorp
S.A. does not own any of the shares of the AMH Investors. Investcorp S.A. may be deemed to
share beneficial ownership of the shares of Series I Class A Preferred Stock held by the AMH
Investors because the owners of the voting stock of the AMH Investors have entered into
revocable management services or similar agreements with an affiliate of Investcorp S.A.
pursuant to which each of the entities owning the voting stock of the AMH Investors, or such
entities stockholders, has granted such affiliate the authority to direct the voting and
disposition of the voting shares issued by such entity, which permits Investcorp S.A. to
control the voting and disposition of the Series I Class A Preferred Stock owned by each AMH
Investor for so long as such agreements are in effect. The address for Investcorp Bank S.A. is
6 rue Adolphe Fischer, Luxembourg. |
|
(2) |
|
Sipco Limited may be deemed to control Investcorp S.A. through its ownership of a majority of
a companys stock that indirectly owns a majority of Investcorp S.A.s shares. Sipco Limited
is a Cayman Islands company with its address at P.O. Box 1111, West Wind Building, George
Town, Grand Cayman, Cayman Islands. |
|
(3) |
|
AM Equity Limited is a Cayman Islands company with its address at P.O. Box 2197, West Wind
Building, George Town, Grand Cayman, Cayman Islands. |
|
(4) |
|
AM Investments Limited is a Cayman Islands company with its address at P.O. Box 2197, West
Wind Building, George Town, Grand Cayman, Cayman Islands. |
|
(5) |
|
Associated Equity Limited is a Cayman Islands company with its address at P.O. Box 2197, West
Wind Building, George Town, Grand Cayman, Cayman Islands. |
|
(6) |
|
Associated Investments Limited is a Cayman Islands company with its address at P.O. Box 2197,
West Wind Building, George Town, Grand Cayman, Cayman Islands. |
|
(7) |
|
Investcorp 2005 AMH Holdings II Portfolio Limited Partnership is a Cayman Islands exempted
limited partnership with its address at P.O. Box 1111, West Wind Building, George Town, Grand
Cayman, Cayman Islands. |
|
(8) |
|
Investcorp Coinvestment Partners II, L.P. is a Delaware limited partnership with its address
at 280 Park Avenue, New York, New York 10017. |
|
(9) |
|
Investcorp Coinvestment Partners I, L.P. is a Delaware limited partnership with its address
at 280 Park Avenue, New York, New York 10017. |
|
(10) |
|
Harvest Funds are Harvest Partners III, L.P., Harvest Partners III Beteilingungsgesellschaft
Burgerlichen Rechts (mit Haftungsbeschrankung) (Harvest Partners III, GbR), Harvest Partners
IV, L.P. and Harvest Partners IV GmbH & Co. KG (Harvest Partners IV KG). Harvest Associates
III, L.L.C., which has five voting members, is the general partner of Harvest Partners III,
L.P. and Harvest Partners III, GbR. Harvest Associates IV, L.L.C., which has five voting
members, is the general partner of Harvest Partners IV, L.P. and Harvest Partners IV KG.
Harvest Partners, L.L.C. provides management services for Harvest Associates III,
L.L.C. in connection with Harvest Partners III, L.P. and Harvest Partners III, GbR and for
Harvest Associates IV, L.L.C. in connection with Harvest Partners IV, L.P. and Harvest
Partners IV KG. |
109
|
|
|
(11) |
|
Includes 131,978 shares of Class B Series I (voting) common stock owned by Harvest Partners
III, L.P. and 18,022 shares of Class B Series I (voting) common stock owned by Harvest
Partners III, GbR for each of which Harvest Associates III, L.L.C. is the general partner.
Harvest Associates III, L.L.C. has five voting members, each of whom has equal voting rights
and who may be deemed to share beneficial ownership of the shares of common stock of AMH. The
five members are Ira Kleinman, Harvey Mallement, Stephen Eisenstein, Harvey Wertheim, and
Thomas Arenz. Mr. Kleinman is on the Board of Directors of AMH II. Each of Messrs. Kleinman,
Mallement, Eisenstein, Wertheim and Arenz disclaims beneficial ownership of the shares of
Class A common stock owned by Harvest Partners III, L.P. and Harvest Partners III GbR. |
|
(12) |
|
Includes 286,465 shares of Class B Series I (voting) common stock owned by Harvest Partners
IV, L.P. and 63,535 shares of Class B Series I (voting) common stock owned by Harvest Partners
IV KG, for each of which Harvest Associates IV, L.L.C. is the general partner. Harvest
Associates IV, L.L.C. has five voting members, each of whom has equal voting rights and who
may be deemed to share beneficial ownership of the shares of Class B common stock of AMH
beneficially owned by it. The five members are Ira Kleinman, Harvey Mallement, Stephen
Eisenstein, Harvey Wertheim and Thomas Arenz. Mr. Kleinman is on the Board of Directors of AMH
II. Each of Messrs. Kleinman, Mallement, Eisenstein, Wertheim and Arenz disclaims beneficial
ownership of the shares of Class A common stock owned by Harvest Partners IV, L.P., Harvest
Partners IV KG. Harvest Partners III, L.P., Harvest Partners III GbR, Harvest Partners IV,
L.P. and Harvest Partners IV KG are collectively referred to as the Harvest Funds. The
address of the named entities is 280 Park Avenue, 25th Floor, New York, New York 10017. |
|
(13) |
|
Includes options to purchase 6,578 shares of Class B Series II (non-voting) common stock. |
|
(14) |
|
Includes options to purchase 1,754 shares of Class B Series II (non-voting) common stock. |
|
(15) |
|
Under the terms of Mr. Grahams employment agreement, which became effective June 22, 2009,
Mr. Graham was granted, pursuant to the 2004 Stock Option Plan, options to purchase 20,506
shares of AMH IIs common stock at an exercise price of $1.00 per share. Approximately 35% of
the options vest ratably over a five-year period, subject to such options vesting immediately
upon a change in control, as defined in the 2004 Stock Option Plan, and the remainder of the
options become exercisable if a liquidity event, as defined in the option agreement, occurs
and certain specified returns on investment are realized in connection with the liquidity
event; provided that if a liquidity event had been consummated on or before January 1, 2010,
all options would have immediately vested without regard to realized investment returns. See
Employment AgreementsMr. Graham. |
|
(16) |
|
Includes options to purchase 2,924 shares of Class B Series II (non-voting) common stock. |
|
(17) |
|
Includes options to purchase 1,827 shares of Class B Series II (non-voting) common stock. |
|
(18) |
|
Includes shares of Class B Series I (voting) common stock owned by Harvest Partners III, L.P.
and shares of Class B Series I (voting) common stock owned by Harvest Partners III GbR, for
each of which Harvest Associates III, L.L.C. is the general partner. Also includes shares of
Class B Series I (voting) common stock owned by Harvest Partners IV, L.P. and Harvest Partners
IV KG, for each of which Harvest Partners IV, L.L.C. is the general partner. Mr. Kleinman is a
voting member of Harvest Associates, III, L.L.C. and Harvest Partners IV, L.L.C. and may be
deemed to share beneficial ownership of the shares of common stock of AMH beneficially owned
by them. Mr. Kleinman disclaims beneficial ownership of common shares owned by Harvest
Partners III, L.P., Harvest Partners III GbR, Harvest Partners IV, L.P. and Harvest Partners
IV KG. |
|
(19) |
|
Includes options to purchase 439 shares of Class B Series II (non-voting) common stock. |
|
(20) |
|
Includes 1,319 shares of Class B Series II (non-voting) common stock owned through a personal
holding company in the name of 3755428 Canada Inc., a Canadian corporation. Mr. Vollmershausen
is the sole shareholder of this corporation. Mr. Vollmershausen also holds options to purchase
2,870 shares of Class B Series II (non-voting) common stock. |
110
CHANGES IN CONTROL
PLEDGE AGREEMENT
Contemporaneously with Associated Materials entering into the ABL Facility in October 2008,
Holdings entered into a Pledge Agreement, pursuant to which Holdings (Associated Materials direct
parent) pledged all of the equity interests of Associated Materials to the agent for the benefit of
the lenders under the ABL Facility as collateral for the performance of the obligations thereunder.
Upon the occurrence of an event of default under the ABL Facility, the administrative agent
thereunder is entitled under such pledge agreement to transfer all or any part of the collateral
thereunder (including the pledged equity interests of Associated Materials) into the name of the
administrative agent, on behalf of the lenders under the ABL Facility, and to sell or otherwise
dispose of such collateral (including the pledged equity interests of Associated Materials) in any
manner permitted by law and by the terms of such pledge agreement. The occurrence of such an event
of default and the exercise by the agent of such remedies under the pledge agreement could result
in a change of control of Associated Materials.
STOCKHOLDERS AGREEMENT
On December 22, 2004, all of the stockholders of AMH II entered into a stockholders agreement
which grants stockholders of AMH II the right, under certain conditions, to cause AMH II to enter
into transactions that may be deemed to cause a change of control of the Company. The terms of the
stockholders agreement are more fully described below under Item 13. Certain Relationships,
Related Transactions and Director Independence.
111
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
THE STOCKHOLDERS AGREEMENT
On December 22, 2004, the stockholders of AMH II entered into a stockholders agreement which
governs certain relationships among, and contains certain rights and obligations of, such
stockholders. The stockholders agreement (1) limits the ability of the stockholders to transfer
their shares in AMH II except in certain permitted transfers as defined therein; (2) provides for
certain tag-along obligations and certain drag-along rights; (3) provides for certain registration
rights; and (4) provides for certain preemptive rights.
Pursuant to the stockholders agreement, Harvest Partners has the right to designate three
members of a seven-member Board of Directors of AMH II and Investcorp has the right to designate
three of the seven members of the Board of Directors of AMH II. An additional board seat will be
occupied by the CEO of the Company, who is currently Thomas N. Chieffe. The Board of Directors of
AMH II is subject to rules and operating procedures as set forth in the stockholders agreement. The
number of directors that each of Harvest Partners and Investcorp can designate to the Board of
Directors of AMH II is reduced as their equity ownership in AMH II is reduced below specified
percentages. Funds managed by Harvest Partners and Investcorp each hold 50% of the voting capital
stock of AMH II. All decision-making by the Board of Directors of AMH II will generally require the
affirmative vote of a majority of the members of the entire Board of Directors of AMH II. In
addition, certain matters, such as issuing additional equity securities, new debt financings,
acquisitions and related transactions, and other significant transactions, require the affirmative
vote of at least one director nominated by Harvest Partners and one director nominated by
Investcorp (a Special Board Approval). The number of matters that require a Special Board
Approval is reduced as the equity ownership of each of Harvest Partners and Investcorp falls below
certain stated thresholds.
The stockholders agreement prohibits transfers of securities of AMH II except: (i) to certain
Permitted Transferees (as defined in the stockholders agreement), (ii) in a registered public
offering, (iii) pursuant to certain drag-along rights that would require stockholders to sell all
or part of their equity interest in AMH II to third parties along with certain sales by
stockholders holding a majority of the outstanding shares of common stock or a majority of the
outstanding shares of convertible preferred stock and on the same terms, and subject to the same
conditions, as such sales, and (iv) pursuant to certain preemptive and tag-along rights that would
require a stockholder wishing to sell all or part of its equity interest in AMH II to first offer
its shares on the same terms to AMH II and the other stockholders of AMH II party to the
stockholders agreement, and if not purchased by AMH II or such stockholders, to include shares of
such stockholders, at their option, in the event of a sale to a third party.
The stockholders agreement provides stockholders certain rights with respect to registration
under the Securities Act either upon the occurrence of the initial public offering or registration
of AMH II of its securities under the Securities Act for its own account or account of another
person. The stockholders agreement also provides stockholders with certain preemptive rights to
purchase AMH II securities upon the issuance of new AMH II securities, and subject to certain other
conditions.
The stockholders agreement provides Investcorp (together with their Permitted Transferees, the
Investcorp Investors) with the following additional rights: (i) at any time after December 22,
2006, the Investcorp Investors may demand that an independent valuation of AMH II be performed by
an independent investment banking or valuation firm and, in the event that the valuation is less
than the Threshold Amount (as defined in the stockholders agreement), and subject to certain
other conditions, the Investcorp Investors may make changes to the executive officers of AMH II and
its subsidiaries, including the CEO (who shall be reasonably acceptable to the stockholders party
thereto affiliated with Harvest Partners (together with their Permitted Transferees, the Harvest
Funds)); (ii) if for the period from January 1, 2005 through December 31, 2008, the Adjusted Cash
Flow (as defined in the stockholders agreement) of AMH II and its subsidiaries was less than 70% of
the Projected Adjusted Cash Flow (as defined in the stockholders agreement) of AMH II and its
subsidiaries, the Investcorp Investors may notify AMH II that they intend to initiate a process
that could result in the exercise by the Investcorp Investors of their drag-along rights and, if
the Investcorp Investors opt to pursue the exercise of their drag-along rights, for a period of 60
days after notice thereof is given to AMH II, the Harvest Funds and AMH II shall have the right,
but not the obligation, to purchase all, but not less than all, of the outstanding preferred stock
and common stock held by the Investcorp Investors; and
112
(iii) at any time after July 15, 2007, the
Investcorp Investors may notify AMH II that they intend to cause AMH II to initiate a process that could result in a recapitalization of
AMH II, in accordance with certain conditions (as further described in the stockholders agreement,
an Approved Recapitalization). In each of (i) and (ii), at the earlier of such time as (a) 75% or
more of the preferred stock of AMH II acquired by the Investcorp Investors pursuant to the
Restructuring Agreement has been repurchased by AMH II or converted into common stock of AMH II and
(b) the Investcorp Investors hold less than 20% of AMH IIs outstanding capital stock, then the
rights under (i) and (ii) described herein will terminate. In addition, each of the rights granted
under (i), (ii) and (iii) are exercisable only once during the term of the stockholders agreement.
Since July 15, 2007, subject to certain conditions, the other stockholders (other than the
Investcorp Investors) party to the stockholders agreement have also been entitled to initiate an
Approved Recapitalization if the Equity Value (as defined in the stockholders agreement) of AMH II
exceeds $815.0 million. Also, since December 22, 2009, each of the Harvest Funds and Investcorp has
been entitled to notify the Company and the other stockholders that they intend to initiate a
process that could result in the exercise of their respective drag-along rights.
INTERCOMPANY LOAN AGREEMENT
In June 2009, at the time the Company initially issued its 15% notes, Associated Materials
entered into an intercompany loan agreement with AMH II, pursuant to which Associated Materials
agreed to periodically make loans to AMH II in an amount not to exceed an aggregate outstanding
principal amount of approximately $33.0 million at any one time, plus accrued interest. Interest
accrues at a rate of 3% per annum and is added to the then outstanding principal amount on a
semi-annual basis. The principal amount and accrued but unpaid interest thereon will mature on
May 1, 2015. As of January 2, 2010, the principal amount of borrowings by AMH II under this
intercompany loan agreement and accrued interest thereon was $27.2 million. The Company believes
that AMH II will have the ability to repay the loan in accordance with its stated terms. Due to the
related party nature and the underlying terms of the intercompany loan with AMH II, the Company has
deemed it not practical to assign and disclose a fair value estimate for this loan.
RELATED PARTY TRANSACTIONS
The Company has written policies governing conflicts of interest by its employees. In
addition, the Company circulates director and executive officer questionnaires on an annual basis
to identify potential conflicts of interest. Although the Company does not have a formal process
for approving related party transactions, the Companys Board of Directors as a matter of practice
reviewed all of the transactions described under Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations Related Party Transactions.
MANAGEMENT ADVISORY AGREEMENT
Associated Materials entered into a management advisory agreement with Investcorp
International Inc. (III) for management advisory, strategic planning and consulting services, for
which Associated Materials paid III the total due under the agreement of $6.0 million on
December 22, 2004. As described in the management advisory agreement with III, $4.0 million of this
management fee relates to services to be provided during the first year of the agreement, with $0.5
million related to services to be provided each year of the remaining four-year term of the
agreement. The term of the management advisory agreement ended on December 22, 2009. The Company
expensed the prepaid management fee in accordance with the services provided over the life of the
agreement and recorded $0.5 million of expense in connection with this agreement for each of the
years ended January 2, 2010, January 3, 2009, and December 29, 2007, which are included in selling,
general and administrative expenses in the consolidated statements of operations.
On November 5, 2009, Associated Materials entered into a financing advisory services agreement
with III, which financing advisory services agreement provided for the payment to III of a one-time
fee in exchange for certain financing advisory services. In connection with such agreement, a fee,
equal to 0.667%, or approximately $1.3 million, of the total proceeds of the 9.875% notes offering
was paid to III upon the issuance of the 9.875% notes.
113
Associated Materials entered into an amended and restated management agreement with Harvest
Partners in December 2004 for financial advisory and strategic planning services. For these
services, Harvest Partners receives an annual fee payable on a quarterly basis in advance,
beginning on the date of execution of the original agreement.
The fee is adjusted on a yearly basis in accordance with the U.S. Consumer Price Index.
Associated Materials paid approximately $0.9 million, $0.9 million and $0.8 million of management
fees to Harvest Partners for the years ended January 2, 2010, January 3, 2009, and December 29,
2007, respectively, which are included in selling, general and administrative expenses in the
consolidated statements of operations. The agreement also provides that Harvest Partners will
receive transaction fees in connection with financings, acquisitions and divestitures of the
Company. Such fees will be a percentage of the applicable transaction. In December 2004, Harvest
Partners and III entered into an agreement pursuant to which they agreed that any transaction fee
that becomes payable under the amended management agreement after December 22, 2004 will be shared
equally by Harvest Partners and III. The initial term of the management agreement concluded on
March 31, 2007. The term has been automatically renewed for one-year periods since that date
and will continue to automatically renew for one-year periods on
March 31st of each year
provided written notice of termination has not been given by Harvest Partners at least three years
prior to the end of the applicable term.
On November 5, 2009, Associated Materials entered into a financing advisory services agreement
with Harvest Partners, which finance advisory services agreement provided for the payment to
Harvest Partners of a one-time fee in exchange for certain financing advisory services. In
connection with such agreement, a fee equal to 0.333%, or approximately $0.7 million, of the total
proceeds of the 9.875% notes offering was paid to Harvest Partners upon the issuance of the 9.875%
notes.
As of January 2, 2010 and January 3, 2009, the Company has a payable to its direct parent
company totaling approximately $14.8 million and $10.5 million, respectively. The balances
outstanding with its direct parent company relates primarily to amounts owed under the Companys
tax sharing agreement with its direct parent company, which include the Company on its consolidated
tax return, totaling $16.0 million and $11.7 million at January 2, 2010 and January 3, 2009,
respectively, offset by $1.2 million of amounts due for fees paid by the Company on behalf of its
direct parent company in connection with its formation.
DIRECTOR INDEPENDENCE
The Company has determined that Lars C. Haegg, Ira D. Kleinman, Kevin C. Nickelberry, Dennis
W. Vollmershausen and Christopher D. Whalen meet the general independence requirements for
independent directors of AMH II, according to the listing standards of the Nasdaq Stock Market.
Because of his employment with the Company, the Company has determined that Thomas N. Chieffe is
not an independent director. In addition, the Company has determined that Dana R. Snyder is not an
independent director due to the amount of consulting fees and fees related to his employment as
interim Chief Executive Officer received by him from the Company in 2006.
The Compensation Committee of the Board of Directors currently consists of Messrs. Kleinman,
Haegg and Vollmershausen, all of whom are considered independent committee members.
The Audit Committee of the Board of Directors currently consists of Messrs. Haegg, Kleinman
and Vollmershausen. The Company has determined that Mr. Vollmershausen meets the heightened
independence requirements for independent audit committee members according to the listing
standards of the Nasdaq Stock Market. According to such listing standards, the Company has
determined (i) that Mr. Haegg is not an independent audit committee member because he holds the
position of managing director of an affiliate of Investcorp, affiliates of which beneficially own
100% of the Class A Preferred Stock Series I (voting) shares of the Companys direct parent, AMH
II, and (ii) that Mr. Kleinman is not an independent audit committee member because he holds the
position of General Partner of Harvest Partners, which beneficially owns 100% of the Class B Common
Stock Series I (voting) shares of AMH II.
Although the Company does not have a class of securities listed on any national securities
exchange and is therefore not subject to the listing requirements of the Nasdaq Stock Market or
Rule 10A-3 promulgated under the Exchange Act, the Company nevertheless used the listing
requirements of The Nasdaq Stock Market to make its evaluation as to the independence of members of
the Board of Directors of AMH II and the Compensation and Audit Committees of the Board of
Directors of AMH II.
114
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees billed to the Company by the independent
accountants, Deloitte & Touche LLP and Ernst & Young LLP, for services rendered during fiscal years
2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Audit Fees |
|
$ |
996 |
|
|
$ |
938 |
|
Audit-Related Fees |
|
|
443 |
|
|
|
|
|
Tax Fees |
|
|
64 |
|
|
|
71 |
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
1,503 |
|
|
$ |
1,009 |
|
|
|
|
|
|
|
|
The Companys audit committee adopted a policy in April 2003 to pre-approve all audit and
non-audit services provided by its independent public accountants prior to the engagement of its
independent public accountants with respect to such services. Under such policy, the audit
committee may delegate one or more members who are independent directors of the Board of Directors
to pre-approve the engagement of the independent public accountants. Such member must report all
such pre-approvals to its entire audit committee at the next committee meeting.
AUDIT FEES
Audit fees principally constitute fees billed for professional services rendered by Deloitte &
Touche LLP for the audit of the Companys consolidated financial statements for the year ended
January 2, 2010 and interim review of the consolidated financial statements included in the
Companys quarterly report on Form 10-Q for the third quarter ended October 3, 2009. In addition,
audit fees were billed for professional services rendered by Ernst & Young LLP for the audit of the
Companys consolidated financial statements for the year ended January 3, 2009 and interim reviews
of the consolidated financial statements included in the Companys quarterly reports on Form 10-Q
for 2008 and the first two quarters of 2009 ended April 4, 2009 and July 4, 2009. The Audit
Committee pre-approved 100% of the audit fees in 2009 and 2008.
AUDIT-RELATED FEES
Audit-related fees constitute fees billed for assurance and related services by Deloitte &
Touche LLP and Ernst & Young LLP that are reasonably related to the performance of the audit or
review of the Companys consolidated financial statements, other than the services reported above
under Audit Fees. In 2009, these fees were primarily related to the professional services
rendered in connection with the Companys issuance of its 9.875% notes. The Audit Committee
pre-approved 100% of the audit-related fees in 2009.
TAX FEES
Tax fees constitute fees billed for professional services rendered by Ernst & Young LLP for
tax compliance, tax advice and tax planning in each of the fiscal years 2009 and 2008. The Audit
Committee pre-approved 100% of the tax fees in 2009 and 2008.
ALL OTHER FEES
None.
115
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are included in this report.
(A)(1) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements at Item 8. Financial Statements and
Supplementary Data on page 49 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 consolidated
financial statements or the notes thereto.
(A)(3) EXHIBITS
See Exhibit Index beginning on page 119 of this report. Management contracts and compensatory
plans and arrangements required to be filed as an exhibit pursuant to Form 10-K are denoted in the
Exhibit Index by an asterisk (*).
116
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.
|
|
|
|
|
|
AMH HOLDINGS, LLC
|
|
|
By: |
/s/ THOMAS N. CHIEFFE
|
|
|
|
Thomas N. Chieffe |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
By: |
/s/ STEPHEN E. GRAHAM
|
|
|
|
Stephen E. Graham |
|
|
|
Vice President-Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer and Principal
Accounting Officer) |
|
Date: April 2, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ THOMAS N. CHIEFFE
Thomas N. Chieffe
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
April 2, 2010 |
|
|
|
|
|
/s/ STEPHEN E. GRAHAM
Stephen E. Graham
|
|
Vice President-Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
|
|
April 2, 2010 |
|
|
|
|
|
Lars C. Haegg *
|
|
Director |
|
|
Ira D. Kleinman *
|
|
Director |
|
|
Kevin C. Nickelberry *
|
|
Director |
|
|
Dana R. Snyder *
|
|
Director |
|
|
Dennis W. Vollmershausen *
|
|
Director |
|
|
Christopher D. Whalen *
|
|
Director |
|
|
|
|
|
|
|
* By:
|
|
/s/ STEPHEN E. GRAHAM |
|
|
|
|
|
|
|
|
|
Stephen E. Graham |
|
|
|
|
Attorney-in-Fact
|
|
April 2, 2010 |
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy material has been sent to security holders covering fiscal 2009.
117
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report covering fiscal 2009 and no proxy materials regarding annual or other
meetings of fiscal holders have been sent to security holders.
118
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
3.1 |
|
|
Certificate of Formation of AMH Holdings, LLC (incorporated by reference to Exhibit 3.1
to AMHs Annual Report on Form 10-K, filed with the SEC on March 25, 2008). |
|
|
|
|
|
|
3.2 |
|
|
Limited Liability Company Agreement of AMH Holdings, LLC (incorporated by reference to
Exhibit 3.2 to AMHs Annual Report on Form 10-K, filed with the SEC on March 25, 2008). |
|
|
|
|
|
|
4.1 |
|
|
Indenture governing AMHs 11 1/4% Senior Subordinated Notes Due 2014, dated as of March
4, 2004, between AMH and Wilmington Trust Company (incorporated by reference to Exhibit
4.2 to AMHs Registration Statement on Form S-4, Commission File No. 333-115543, filed
on May 14, 2004). |
|
|
|
|
|
|
4.2 |
|
|
Form of 11 1/4% Senior Discount Notes due 2014 (incorporated by reference to Exhibit 4.1
to AMHs Registration Statement on Form S-4, Commission File No. 333-115543, filed on
May 14, 2004). |
|
|
|
|
|
|
4.3 |
|
|
Indenture governing Associated Materials 9.875% Senior Secured Second Lien Notes due
2016, dated as of November 5, 2009, among Associated Materials, LLC, Associated
Materials Finance, Inc., Gentek Holdings, LLC and Gentek Building Products, Inc., and
Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K filed with the SEC on November 6, 2009). |
|
|
|
|
|
|
4.4 |
|
|
Form of 9.875% Senior Secured Second Lien Note due 2016 (included in Exhibit 4.1 hereto). |
|
|
|
|
|
|
4.5 |
|
|
Security Agreement, dated as of November 5, 2009, among Associated Materials, LLC,
Associated Materials Finance, Inc., Gentek Holdings, LLC, Gentek Building Products,
Inc., any entities that may become subsidiary guarantors, Deutsche Bank Trust Company
Americas, and any other pari passu secured indebtedness representative that may become
party thereto (filed as Exhibit 4.3 to the Current Report on Form 8-K filed with the SEC
on November 6, 2009). |
|
|
|
|
|
|
4.6 |
|
|
Intercreditor Agreement, dated as of November 5, 2009, among Wachovia Bank, National
Association, Deutsche Bank Trust Company Americas, Associated Materials, LLC, Gentek
Building Products, Inc., Associated Materials Canada Limited, Gentek Building Products
Limited Partnership, Associated Materials Holdings, LLC, Associated Materials Finance,
Inc., Gentek Holdings, LLC, Gentek Canada Holdings Limited and any other entity that
becomes a guarantor under the first lien loan agreement and the second lien documents
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with
the SEC on November 6, 2009). |
|
|
|
|
|
|
10.1 |
|
|
Loan and Security Agreement, dated as of October 3, 2008, by and among Wachovia Capital
Markets, LLC and CIT Capital Securities LLC, as joint lead arrangers and joint
bookrunners, Wachovia Bank, National Association, as administrative agent and collateral
agent, The CIT Group/Business Credit, Inc., as syndication agent, the lenders party
thereto, Associated Materials, Gentek Building Products, Inc. and Gentek Building
Products Limited, as borrowers, and Holdings, Gentek Holdings, LLC and Alside, Inc., as
guarantors (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K,
filed with the SEC on October 9, 2008). |
|
|
|
|
|
|
10.2 |
|
|
Amendment No. 1 to Loan and Security Agreement, dated as of June 16, 2009, among
Wachovia Bank, National Association, as Agent, the Lenders party thereto, Associated
Materials, LLC, Gentek Building Products, Inc. and Gentek Building Products Limited, as
Borrowers, and Associated Materials Holdings, LLC, Alside, Inc. and Gentek Holdings,
LLC, as Guarantors (incorporated by reference to Exhibit 10.3 to the Current Report on
Form 8-K, filed with the SEC on June 22, 2009). |
119
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.3 |
|
|
Amendment No. 2 to Loan and Security Agreement, dated as of October 23, 2009, among
Wachovia Bank, National Association, as Agent, the Lenders party thereto, Associated
Materials, LLC, Gentek Building Products, Inc., Associated Materials Canada Limited
(formerly Gentek Building Products Limited) and Gentek Building Products Limited
Partnership, as Borrowers, and Associated Materials Holdings, LLC, Associated Materials
Finance, Inc. (formerly Alside, Inc.), as Guarantors (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on November 6, 2009). |
|
|
|
|
|
|
10.4 |
|
|
Intercompany Loan Agreement, dated as of June 16, 2009, between Associated Materials,
LLC and AMH Holdings II, Inc. (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K, filed with the SEC on June 22, 2009). |
|
|
|
|
|
|
10.5 |
|
|
Tax Sharing Agreement, dated March 4, 2004, by and among AMH, Holdings and Associated
Materials (incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K,
filed with the SEC on April 1, 2005). |
|
|
|
|
|
|
10.6 |
* |
|
AMH Holdings II, Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit 10.11
to the Current Report on Form 8-K/A, filed with the SEC on December 23, 2004). |
|
|
|
|
|
|
10.7 |
* |
|
Form of Stock Option Award Agreement, for awards made in 2008 under the 2004 Option Plan
(incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K, filed
with the SEC on April 3, 2009). |
|
|
|
|
|
|
10.8 |
|
|
Stockholders Agreement, dated December 22, 2004, by and among AMH II and the
stockholders signatory thereto (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K/A, filed with the SEC on December 23, 2004). |
|
|
|
|
|
|
10.9 |
|
|
Amendment No. 1 to Stockholders Agreement, dated as of January 31, 2006, by and among
AMH II and the stockholders signatory thereto. |
|
|
|
|
|
|
10.10 |
* |
|
Form of Indemnification Agreement between Associated Materials and each of the directors
and executive officers of Associated Materials (incorporated by reference to Exhibit
10.14 to Associated Materials Registration Statement on Form S-1, SEC File No.
33-84110, filed with the SEC on September 16, 1994). |
|
|
|
|
|
|
10.11 |
* |
|
Agreement and General Release, dated as of November 29, 2007, between Associated
Materials and Dana R. Snyder (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on December 4, 2007). |
|
|
|
|
|
|
10.12 |
* |
|
Amended and Restated Employment Agreement, dated as of April 1, 2008, between Associated
Materials and Thomas N. Chieffe (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, filed with the SEC on April 4, 2008). |
|
|
|
|
|
|
10.13 |
* |
|
Amended and Restated Employment Agreement, dated as of February 17, 2010, between
Associated Materials and Thomas N. Chieffe (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K, filed with the SEC on February 23, 2010. |
|
|
|
|
|
|
10.14 |
* |
|
Employment Agreement, dated as of June 3, 2009, by and between Associated Materials, LLC
and Stephen E. Graham. (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K, filed with the SEC on June 9, 2009). |
|
|
|
|
|
|
10.15 |
* |
|
Amended and Restated Employment Agreement, dated as of February 17, 2010, between
Associated Materials and Stephen E. Graham (incorporated by reference to Exhibit 10.2 to
the Current Report on Form 8-K, filed with the SEC on February 23, 2010. |
120
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.16 |
* |
|
Employment Agreement, dated as of April 1, 2008, between Associated Materials and
Cynthia L. Sobe (incorporated by reference to Exhibit 10.4 to the Current Report on Form
8-K, filed with the SEC on April 4, 2008). |
|
|
|
|
|
|
10.17 |
* |
|
Independent Consulting Agreement between Cynthia L. Sobe and Associated Materials, LLC,
dated June 26, 2009 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, filed with the SEC on July 2, 2009). |
|
|
|
|
|
|
10.18 |
* |
|
Amended and Restated Employment Agreement, dated as of April 1, 2008, between Associated
Materials and Robert M. Franco (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K, filed with the SEC on April 4, 2008). |
|
|
|
|
|
|
10.19 |
* |
|
Amended and Restated Employment Agreement, dated as of February 17, 2010, between
Associated Materials and Robert M. Franco (incorporated by reference to Exhibit 10.3 to
the Current Report on Form 8-K, filed with the SEC on February 23, 2010. |
|
|
|
|
|
|
10.20 |
* |
|
Employment Agreement, dated as of April 1, 2008, between Associated Materials and Warren
J. Arthur (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K,
filed with the SEC on April 4, 2008). |
|
|
|
|
|
|
10.21 |
* |
|
Amended and Restated Employment Agreement, dated as of February 17, 2010, between
Associated Materials and Warren J. Arthur (incorporated by reference to Exhibit 10.4 to
the Current Report on Form 8-K, filed with the SEC on February 23, 2010. |
|
|
|
|
|
|
10.22 |
* |
|
Amended and Restated Employment Agreement, dated as of February 17, 2010, between
Associated Materials and John F. Haumesser (incorporated by reference to Exhibit 10.5 to
the Current Report on Form 8-K, filed with the SEC on February 23, 2010. |
|
|
|
|
|
|
10.23 |
|
|
Amended and Restated Management Agreement, dated December 22, 2004, by and between
Harvest Partners, Inc. and Associated Materials Incorporated (incorporated by reference
to Exhibit 10.7 to the Current Report on Form 8-K/A, filed with the SEC on December 23,
2004). |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of the Registrant |
|
|
|
|
|
|
24.1 |
|
|
Power of Attorney |
|
|
|
|
|
|
31.1 |
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Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
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|
|
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31.2 |
|
|
Certification of the Principal Financial Officer pursuant to Rule 13a-14 or 15d-14(a) of
the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
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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. |
|
|
|
|
|
|
99.1 |
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|
Financing Advisory Services Agreement, dated as of November 5, 2009, between Investcorp
International Inc. and Associated Materials, LLC (incorporated by reference to Exhibit
99.5 to the Registration Statement on Form S-4, filed with the SEC on November 25,
2009). |
|
|
|
|
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99.2 |
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|
Financing Advisory Services Agreement, dated as of November 5, 2009, between Harvest
Partners, L.P. and Associated Materials, LLC (incorporated by reference to Exhibit 99.6
to the Registration Statement on Form S-4, filed with the SEC on November 25, 2009). |
|
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* |
|
Management contract or compensatory plan or arrangement. |
121