Associated Materials, LLC Reports Second Quarter Results

ASSOCIATED MATERIALS, LLC

UNAUDITED CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

Quarters Ended

Six Months Ended

July 2,

2011

July 3,

2010

July 2,

2011

July 3,

2010

Successor

Predecessor

Successor

Predecessor

Net sales

$  310,459

$  328,322

$  507,195

$  532,559

Cost of sales

230,119

236,464

386,776

392,262

Gross profit

80,340

91,858

120,419

140,297

Selling, general and administrative expenses

65,624

53,589

124,540

101,070

Income (loss) from operations

14,716

38,269

(4,121)

39,227

Interest expense, net

19,095

18,797

37,795

37,491

Foreign currency loss (gain)

124

70

94

(52)

(Loss) income before income taxes

(4,503)

19,402

(42,010)

1,788

Income taxes provision (benefit)

2,690

(326)

2,301

752

Net income (loss)

$  (7,193)

$  19,728

$     (44,311)

$       1,036

Other Data:

EBITDA (1)

$  27,392

$  43,832

$  21,242

$  50,545

Adjusted EBITDA (1)

34,230

46,655

30,036

55,444

(1)

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

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

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

Quarters Ended

Six Months Ended

July 2,

2011

July 3,

2010

July 2,

2011

July 3,

2010

Successor

Predecessor

Successor

Predecessor

Net income (loss)

$  (7,193)

$   19,728

$   (44,311)

$     1,036

Interest expense, net

19,095

18,797

37,795

37,491

Income taxes provision (benefit)

2,690

(326)

2,301

752

Depreciation and amortization

12,800

5,633

25,457

11,266

EBITDA

27,392

43,832

21,242

50,545

Merger costs (a)

96

1,263

585

1,263

Purchase accounting related adjustments (b)

(878)

—

(1,854)

—

Management fees (c)

—

227

—

447

Executive officers separation costs (d)

5,467

—

5,467

—

Restructuring costs (e)

228

—

228

—

Tax restructuring costs (f)

—

—

—

88

Write-offs of assets other than by sale

89

13

173

27

Bank audit fees (g)

—

35

—

50

Stock compensation expense (h)

87

—

114

—

Other normalizing and unusual items (i)

1,625

1,215

3,987

2,473

Foreign currency loss (gain) (j)

124

70

94

(52)

Pro forma cost savings (k)

  —

  —

  —

603

Adjusted EBITDA

$  34,230

$  46,655

$  30,036

$  55,444

(a)

Represents professional fees incurred in connection with the Merger.

(b)

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

(c)

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

(d)

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

(e)

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

(f)

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

(g)

Represents bank audit fees incurred under our prior ABL Facility.

(h)

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

(i)

Represents the following (in thousands):

Quarters Ended

Six Months Ended

July 2,

2011

July 3,

2010

July 2,

2011

July 3,

2010

Professional fees (i)

$        656

$      1,020

$     2,461

$      1,900

Accretion on lease liability (ii)

85

93

223

184

Excess severance costs (iii)

67

102

265

389

Operating lease termination penalty (iv)

773

—

773

—

Excess legal expense (v)

44

  —

265

  —

Total

$     1,625

$      1,215

$     3,987

$    2,473

(i)

Represents management's estimate of unusual or non-recurring consulting fees primarily associated with cost savings initiatives.

(ii)

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

(iii)

Represents management's estimates for excess severance expense primarily due to unusual changes within management.

(iv)

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

(v)

Represents management's estimate of excess legal expense incurred in connection with the defense of certain warranty related claims.

(j)

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

(k)

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

Net Sales by Principal Product Offering

(In thousands)

Quarters Ended

Six Months Ended

July 2,

2011

July 3,

2010

July 2,

2011

July 3,

2010

Successor

Predecessor

Successor

Predecessor

Vinyl windows

$  97,131

$  115,443

$  168,840

$  191,780

Vinyl siding products

62,823

68,998

99,983

108,354

Metal products

47,101

52,086

83,470

88,461

Third-party manufactured products

85,651

72,329

122,771

109,892

Other products and services

17,753

19,466

32,131

34,072

$  310,459

$  328,322

$  507,195

$  532,559

ASSOCIATED MATERIALS, LLC

UNAUDITED CONDENSED

CONSOLIDATED BALANCE SHEETS

(In thousands)

July 2,

2011

January 1,

2011

Assets

Current assets:

  Cash and cash equivalents

$  6,785

$  13,789

  Accounts receivable, net of allowance for doubtful accounts of

     $9,732 at July 2, 2011 and $9,203 at January 1, 2011

158,291

118,408

  Inventories

193,429

146,215

  Income taxes receivable

—

3,291

  Prepaid expenses

9,058

8,995

     Total current assets

367,563

290,698

Property, plant and equipment, net

137,460

137,862

Goodwill

573,912

566,423

Other intangible assets, net

725,940

731,014

Other assets

28,326

29,907

        Total assets

$  1,833,201

$1,755,904

Liabilities and Member's Equity

Current liabilities:

  Accounts payable

$  138,500

$  90,190

  Accrued liabilities

69,937

79,319

  Deferred income taxes

16,422

19,989

  Income taxes payable

738

2,506

     Total current liabilities

225,597

192,004

Deferred income taxes

144,668

144,668

Other liabilities

135,468

132,755

Long-term debt

857,800

788,000

Member's equity

469,668

498,477

        Total liabilities and member's equity

$  1,833,201

$1,755,904