<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                --------------

                                    FORM 10-K

(Mark one)
[X]   Annual Report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the fiscal year ended December 31, 1997.

                                       or

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

                         Commission File Number 0-24956

                                --------------

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

                                --------------

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

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

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

                                      NONE

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

                                      NONE


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

State the aggregate market value of the voting stock held by non-affiliates of
the registrant - $9,256,568

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 registrant's 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. [X]

As of January 15, 1998, the registrant had 4,934,900 shares of Common Stock, par
value $.0025 per share, and 2,700,000 shares of Class B Common Stock, par value
$.0025 per share, outstanding.

================================================================================


<PAGE>   2



                                     PART I

ITEM 1.        BUSINESS

         Associated Materials Incorporated (the "Company") is a leading,
vertically integrated manufacturer and nationwide distributor of exterior
residential building products through its Alside division ("Alside"). Alside's
core products are vinyl siding and vinyl windows. These products are marketed on
a wholesale basis to more than 30,000 professional contractors engaged in home
remodeling and new home construction principally through Alside's nationwide
network of 66 Alside Supply Centers. In recent years Alside has expanded its
product offerings to include vinyl fencing, vinyl decking and vinyl garage
doors. In 1997, Alside accounted for approximately 87% of the Company's net
sales. In addition to Alside, the Company's operations include its AmerCable
division ("AmerCable"), a specialty electrical cable manufacturer. Amercord Inc.
("Amercord"), a 50%-owned affiliate managed by the Company, manufactures and
sells steel cord and bead wire to tire manufacturers.

         The Company has filed a registration statement with the Securities and
Exchange Commission (the "Commission") to sell, through an initial public
offering (the "Stock Offering"), up to 2,448,120 shares of the Company's common
stock, par value .0025 per share ("Common Stock"). Of these shares, 700,000
shares of Common Stock (808,520 shares if the over-allotment option to be
granted to the underwriters in the Stock Offering is exercised in full) will be
sold by the Company with the remaining 1,428,800 shares (1,639,600 if the
over-allotment option to be granted to the underwriters in the Stock Offering is
exercised in full) to be sold by certain stockholders of the Company (the
"Selling Stockholders"). In addition, the Company has filed a registration
statement with the Commission to sell $75,000,000 aggregate principal amount of
Senior Subordinated Notes due 2008 (the "New Notes"). The New Notes will be
issued pursuant to an indenture (the "New Indenture") having terms substantially
similar to the indenture pursuant to which the Company's existing 11 1/2% Senior
Subordinated Notes due August 15, 2003 (the "Existing Notes") were issued (the
"Existing Indenture"). The issuance of the New Notes in such offering (the "Note
Offering") is conditioned upon the successful completion of a tender offer and
consent solicitation (the "Tender Offer" which, together with the Note Offering
and the Stock Offering, are collectively referred to herein as the "Offerings")
with respect to the Existing Notes. The Stock Offering is not contingent upon
the completion of the Note Offering and the Note Offering is not contingent upon
the completion of the Stock Offering. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."

         The Company was incorporated in Delaware in 1983. Unless the context
requires otherwise, the "Company" refers to the business and operations of
Associated Materials Incorporated, including Alside and AmerCable, but not
Amercord.

INDUSTRY OVERVIEW

         Vinyl siding competes with other materials, such as wood, masonry and
metals, for a share of the residential siding market. Vinyl siding has greater
durability and requires less maintenance than wood siding, and generally is less
expensive than wood, masonry or metal siding. According to an industry study
jointly prepared by Sabre Associates, Inc. and Pure Strategy (the "Sabre
Study"), based on unit sales, vinyl siding accounted for approximately 47% of
the exterior siding market in 1996 versus approximately 17% in 1985. Since the
early 1980's, vinyl siding has become the preferred siding product for
professional home remodeling contractors and their customers, and commanded
approximately 62% of the home remodeling marketplace for siding in 1996. More
recently, vinyl siding has achieved increased acceptance in the new construction
market, as builders and home buyers have recognized vinyl's low maintenance,
durability and price advantages. The Company believes that vinyl siding will
continue to gain market share in the new residential construction market while
remaining the preferred product of the remodeling marketplace.

         Vinyl windows require less maintenance, are more durable than either
wood or aluminum windows and provide greater energy efficiency than aluminum
windows. According to the Sabre Study, based on unit sales, approximately 45% of
all residential windows sold in 1996 were vinyl windows versus approximately 27%
in 1991. Since the early 1990's, vinyl windows have become the preferred window
product for professional home remodeling contractors and their customers, and
commanded approximately 75% of the home remodeling marketplace for windows in
1996. More recently, vinyl windows have achieved increased acceptance in the new
construction market as a result of builders and home buyers recognizing vinyl's
favorable attributes, the enactment of local legal or building code requirements
that mandate more energy efficient windows and the increased development and
promotion of vinyl window products by national window manufacturers. The



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Company believes that vinyl windows will continue to gain market share in the
new residential construction market while remaining the preferred product of the
remodeling marketplace.

         According to the Sabre Study, total sales of vinyl siding and vinyl
windows are each projected to increase approximately 7% annually between 1996
and 2000 and the new construction market for each of these vinyl products is
expected to grow at a rate of approximately 10% per year from 1996 to 2000.

ALSIDE

         Products. Alside's principal product offerings are vinyl siding and
vinyl windows, which together accounted for approximately 68% of Alside's 1997
net sales. Alside also manufactures a variety of other products including vinyl
fencing, vinyl decking, vinyl garage doors and semi-custom cabinets.

         The vinyl siding market consists of four segments: builder, economy,
standard and premium. Vinyl siding quality is determined by its rigidity,
resistance to fading, thickness and ease of installation as well as other
factors. Historically, Alside targeted its products primarily to the standard
segment. More recently, the Company has broadened its product lines to increase
its penetration of the premium and economy segments. For example, in late 1995,
Alside introduced its patented Charter Oak siding which enabled Alside to
significantly penetrate the premium segment of the vinyl siding market. In 1997,
Alside introduced its Conquest siding product which has enabled Alside to
achieve additional market penetration in the economy segment of the siding
industry. While the Company currently does not manufacture a siding product
specifically designed for the builder segment of the market, it does market its
Conquest and Alpha products to the new construction market. In addition, the
Company intends to produce a product specifically targeted for this market
following the construction of its new vinyl siding manufacturing facility. In
addition to the new products described above, Alside has increased the number of
colors and profiles offered within its existing siding products and continues to
increase and improve upon the breadth of its vinyl siding product line. Alside
offers limited warranties ranging from 50-year warranties to lifetime warranties
with its siding products.

         Alside divides its window products into the economy, standard and
premium categories. Product quality within the vinyl window industry is
determined by a number of competitive features including method of construction
and materials used. Rather than manufacturing standard size windows, Alside
custom manufactures virtually all of its windows to fit existing window
openings. Custom fabrication provides Alside's customers with a product that is
less expensive to install and more attractive after installation. All of
Alside's window products are accompanied by a limited lifetime warranty.

         A summary of Alside's siding and window product offerings is presented
in the table below according to the Company's product line classification and
includes the new CenterLock product which the Company intends to introduce in
the first quarter of 1998.


<TABLE>
<CAPTION>
PRODUCT LINE                SIDING PRODUCTS             WINDOW PRODUCTS
------------                ---------------             ---------------
<S>                         <C>                         <C>
Premium                     Charter Oak                 UltraMaxx
                            Greenbriar                  Omni
                            Highland Cedar
                            Williamsport
Standard                    Odyssey                     Geneva
                            CenterLock                  Excalibur
Economy                     Conquest                    Performance Series --
                            Alpha                         New Construction
                                                        Centurion
</TABLE>

         In addition to its siding and window product lines, Alside also
manufactures semi-custom cabinets for the kitchen and bath under the brand name
UltraCraft. Alside's sales of cabinets accounted for approximately 5% of its net
sales in 1997. Unit sales of UltraCraft cabinets have increased 33.7% in 1997 as
compared to 1996 due to the Company's efforts to expand and improve its dealer
customer base. In 1993, Alside introduced vinyl fencing as a product line under
the brand name UltraGuard, currently a leading brand of both agricultural and
residential vinyl fencing. Although sales of UltraGuard



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fencing accounted for less than 5% of Alside's net sales in 1997, unit sales of
UltraGuard have increased at an annual rate of over 35% since its introduction.
Alside introduced a raised panel vinyl garage door in 1997 under the brand name
Premium Garage Doors. Alside primarily markets its cabinets, fencing and garage
doors through independent dealers and not through its Supply Centers.

         To complete its line of siding products, Alside also distributes metal
siding and related building products manufactured by other companies. Metal
siding products accounted for approximately 19% of Alside's 1993 sales. In 1997,
approximately 6% of Alside's sales were derived from metal siding and related
building products. The Company expects the sale of metal siding products to
continue to decline as these products are displaced by vinyl products. Alside
also selectively distributes a variety of complementary building products
manufactured by others, including wood windows, roofing materials, insulation,
cabinets and installation equipment.

         Marketing and Distribution. Traditionally, most vinyl siding has been
sold to the home remodeling marketplace through independent distributors. The
Company believes that Alside is one of only two major vinyl siding manufacturers
that market their products primarily through company-owned distribution centers.
Alside has a nationwide distribution network of 66 Alside Supply Centers which
market Alside manufactured products and other complementary building products to
more than 30,000 professional home improvement and new construction contractors.
The Company believes that Alside Supply Centers provide "one-stop shopping" to
meet the specialized needs of its contractor-customers by distributing more than
2,000 building and remodeling products, including a broad range of
Company-manufactured vinyl siding and vinyl windows as well as products
manufactured by others, including metal siding, wood windows, roofing materials,
insulation, cabinets and installation equipment. In 1997, approximately 78% of
Alside's sales were made through its Supply Centers. In addition to sales and
promotional support, contractors look to their local Alside Supply Center to
provide a broad range of specialty product offerings in order to maximize their
ability to attract remodeling and homebuilding customers.

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

         Many of Alside's contractor-customers install both vinyl siding and
vinyl windows. Because Alside manufactures and distributes both vinyl windows
and vinyl siding, its contractor-customers can acquire both products from a
single source, which the Company believes provides Alside with a competitive
advantage in marketing these products to its target customer base. Furthermore,
Alside has the ability to achieve economies of scale in sales and marketing by
developing integrated programs on either a national or local basis for its vinyl
siding and vinyl window products.

         Each of Alside's 66 Supply Centers is evaluated as a separate profit
center, and compensation of Supply Center personnel is based in part on the
Supply Center's operating results. Decisions to open new Supply Centers, and to
close or relocate existing Supply Centers, are based on Alside's continuing
assessment of market conditions and individual location profitability. Alside
added two Supply Centers to its distribution network in 1996. No additional
Supply Centers were added in 1997. The Company presently expects to open up to
four new Supply Centers in 1998.

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



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<PAGE>   5



         Alside also sells its manufactured products to large direct dealers and
distributors, generally in those areas where no Alside Supply Center currently
exists. Such sales accounted for approximately 22% of Alside's net sales in
1997. Despite their aggregate lower percentage of total sales, Alside's largest
individual customers are its large direct dealers and independent distributors.
Alside carefully monitors and evaluates its activity with these customers to
ensure the profitability of this higher volume and lower margin business. No
single customer accounted for 5% or more of Alside's 1997 sales. Alside
increased its network of independent distributors in 1997 and intends to seek to
further increase its network of independent distributors in 1998 in strategic
areas to improve its penetration into certain markets.

         Manufacturing. Alside currently manufactures all of its vinyl siding at
its Ennis, Texas plant, which the Company believes is a low-cost manufacturing
facility. In 1998, the Company intends to expand its production capacity at this
plant. In order to meet its current sales expectations for Alside's siding
products, the Company intends to begin construction of a new vinyl manufacturing
facility in 1998. The new facility, which is expected to become operational in
1999, would initially increase Alside's vinyl siding production capacity by
approximately 25%. With a moderate investment in additional production
equipment, the Company expects that Alside's total vinyl siding production
capacity will be increased by approximately 50% from its 1998 capacity. Alside
also operates a vinyl extrusion facility in West Salem, Ohio to produce vinyl
window extrusions as well as vinyl fence and garage door panels. Alside operates
three window fabrication plants which each use vinyl extrusions manufactured by
Alside for the majority of their production requirements, produce their own
glass inserts and utilize high speed welding and cleaning equipment for their
welded window products. By producing its own vinyl extrusions and glass inserts,
Alside believes it achieves significant cost savings and higher product quality
compared to purchasing these materials from third-party suppliers.

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

         Raw Materials. The principal raw materials used by Alside are vinyl
resins, resin stabilizers and pigments, packaging materials, window hardware and
glass, all of which are available from a number of suppliers. The price of vinyl
resin has been, and may continue to be, volatile. Alside has contracts with two
suppliers to purchase substantially all of its vinyl resin requirements and
believes that its requirements could also be met by other suppliers. Prior to
1997, Alside generally had been able to pass through price increases in raw
materials to its customers. During 1996, the average price of vinyl resin was
lower than 1995 levels. In 1997, the price of vinyl resin increased during the
first six months and then declined. Alside did not generally pass on any
additional costs or savings resulting from the fluctuations in resin prices in
1996 and 1997.

         Competition. Except for Owens Corning, no company within the
residential siding industry competes with Alside on both the manufacturing and
distribution levels. There are, however, numerous small and large manufacturers
of metal and vinyl siding products, including Aluminum Company of America,
CertainTeed Corporation, Jannock Limited, Nortek, Inc. and Royal Group
Technologies Limited, some of whom are larger in size and have greater financial
resources than the Company. Alside competes with Owens Corning and numerous
large and small distributors of building products in its capacity as a
distributor of such products. The market for vinyl replacement windows is highly
fragmented, and Alside believes that no single manufacturer accounts for a
significant percentage of national sales. Alside believes that the market trend
towards sales of welded vinyl windows, which Alside began manufacturing in 1992
and which require expensive, more sophisticated production equipment, will
result in further consolidation of the window fabrication industry. Alside and
its competitors generally compete on price, product performance, and sales and
service support to professional contractors. Competition varies by region.
Alside also faces competition from alternative materials: wood and aluminum in
the window markets, and wood, masonry and metal in the siding market. However,
the Company believes Alside's products are competitive, and in most sectors are
gaining share at the expense of alternative materials due to vinyl's superior
qualities, including its lower material cost, durability and low maintenance
requirements.

AMERCABLE

         AmerCable manufactures and markets a variety of jacketed electrical
cable utilized in underground and surface mining, shipboard, marine, offshore
drilling, transportation and a variety of other specialized industrial
applications. AmerCable principally manufactures specialty cable designed to
meet industry technical standards and end-users' specifications. AmerCable
markets its cable principally to independent distributors who resell to the end
user, except for



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<PAGE>   6



those products that are distributed through its Offshore/Marine Cable Specialist
division. AmerCable's electrical cable plant operates on a five-day, 24-hour
basis. AmerCable accounted for approximately 13% of the Company's net sales in
1997.

         AmerCable modified its business strategy in the second quarter of 1996
to focus on a core group of cable products which enabled AmerCable to take
advantage of manufacturing efficiencies as well as marketing and distribution
capabilities. Concurrently with this shift in its business strategy, AmerCable
reduced its workforce by approximately 15% to eliminate certain non-value added
processes and to focus its efforts on its core products. As a result of this
strategy, AmerCable has experienced lower costs, improved manufacturing
efficiencies and on-time delivery rates, and substantially improved productivity
in 1997. For 1997, as compared to 1996, AmerCable's sales increased 28.4% due to
increased sales volume and prices.

         AmerCable manufactures and sells three types of cable products: mining
cables; marine, shipboard and transportation cables; and industrial cables which
accounted for 44%, 36% and 20% of its 1997 sales, respectively. AmerCable's
marine, shipboard and transportation cable products meet required industry
specifications for low smoke and low/non halogen characteristics. AmerCable
completes its line of cable products with industrial and utility cable products,
including diesel locomotive cable, portable power cable, jumper cable and
flexible robotic power distribution cable.

         The principal raw material used by AmerCable is copper strand, which is
available from a number of suppliers. Historically, copper strand has been
subject to rapid price movements. AmerCable generally prices its cable products
based upon market prices for copper at time of shipment. As a result, sudden
decreases in copper prices can result in inventory being in excess of its net
realizable value. During 1996, AmerCable recorded a charge of $500,000 to write
copper inventory down to its net realizable value due to a sudden decrease in
copper prices. In certain instances, AmerCable may guarantee a fixed copper
price for its products where there is a significant time lag between the
purchase order and shipment.
In these cases, AmerCable generally attempts to hedge its position on copper.

         AmerCable competes with numerous large and small manufacturers,
including BICC Cables Corporation, Rockbestos Suprenant Cable Corp., BIW Cable
System, Inc., General Cable Corporation, and Essex Group Inc. Many of its
competitors have substantially greater resources than the Company. AmerCable
generally does not compete in the more commodity-oriented wire and cable
markets, such as residential building wire and computer network cable.

AMERCORD

         Amercord, the Company's 50%-owned affiliate, principally manufactures
and markets steel cord and bead wire to the tire manufacturing industry. Tire
cord is comprised of fine strands of steel wire used to reinforce the tread area
in radial tires. Tire bead wire is used in the manufacturing of all tires to
hold the tire to the rim. Amercord is jointly owned by the Company and Ivaco,
Inc. ("Ivaco"), a Canadian steel and wire producer. Pursuant to an agreement
with Ivaco, the Company provides management services relating to the day-to-day
operations of Amercord for an annual fee of $200,000, principally for financial
management services. Since its inception as a separate enterprise in 1986,
Amercord has satisfied its working capital and capital expenditure requirements
from internally generated funds and existing credit facilities. Due to such
requirements, no dividends have been paid to the Company or Ivaco and no further
cash contributions have been made to Amercord by the Company or Ivaco. The
Company believes Amercord's internally generated cash flow and credit facilities
will provide sufficient capital to fund its currently planned capital
expenditures.

         Amercord believes it is one of eight domestic tire cord manufacturers
and one of six domestic tire bead manufacturers. Tire cord competitors include
larger companies such as Bekaert Corporation (U.S.A.) ("Bekaert") and American
Tokyo Rope, Inc., each of which have greater capital resources than Amercord.
Three of the world's largest tire manufacturers, The Goodyear Tire & Rubber
Company ("Goodyear"), Bridgestone/Firestone, Inc. and Michelin North America
("Michelin"), also produce a significant portion of their steel tire cord
requirements. Tire bead competitors include Bekaert and National-Standard
Company. Amercord is one of only two tire reinforcement suppliers that
manufacture both tire cord and tire bead. Amercord believes that this capability
improves its competitive position.

         Amercord has a small customer base. During 1997, three customers,
Michelin, Cooper Tire and Rubber Company ("Cooper") and Dunlop Tire Corporation,
each purchased in excess of 10%, and collectively purchased an aggregate of 81%,
of Amercord's tire cord output. During 1997, three customers, Michelin, Cooper
and Bridgestone/Firestone, Inc., each purchased in excess of 10%, and
collectively purchased an aggregate of 68%, of Amercord's tire bead wire output.
As a result of the relatively small number of customers, the loss of one or more
major customers could have a material adverse



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effect on Amercord's business. Additionally, further consolidation in the tire
industry could require Amercord to become more closely aligned with fewer tire
manufacturers.

MANAGEMENT INFORMATION SYSTEMS

         The Company uses a variety of hardware and software technologies in its
operations. Alside utilizes mainframe computer systems to operate its accounting
and certain manufacturing systems. Each Alside Supply Center has its own IBM
AS400 computer which processes inventory, receivables and other financial data,
which data is transmitted to Alside's headquarters on a daily basis. AmerCable
installed a new financial and manufacturing information system in 1996 which
runs on a PC platform. The Company has completed its assessment of the effect of
Year 2000 on its management information systems and is currently Year 2000
compliant with respect to substantially all of its systems. The Company does not
expect any material future expenditures will be required in order to become Year
2000 compliant.

EMPLOYEES

         Alside's employment needs vary seasonally with sales and production
levels. As of December 31, 1997, Alside had approximately 1,500 full-time
employees, including approximately 560 hourly workers. The West Salem, Ohio
plant is Alside's only unionized manufacturing facility, employing approximately
100 covered workers as of December 31, 1997. Additionally, approximately 35
hourly workers in certain Supply Center locations are covered by collective
bargaining agreements. The Company considers Alside's labor relations to be
good.

         Alside operates vinyl window manufacturing plants in Cedar Rapids,
Iowa; Kinston, North Carolina; and Akron, Ohio with leased employees. The
Company believes that the employee leasing program provides it with scheduling
flexibility for seasonal production loads and with competitive advantages in
obtaining principally unskilled labor personnel. The aggregate number of leased
employees in the window plants ranges from approximately 400 to 600 people,
based on seasonal production requirements.

         As of December 31, 1997, AmerCable employed 170 people, including 95
hourly workers, none of whom are covered by collective bargaining agreements.
AmerCable maintains good relations with its employees.

TRADEMARKS AND PATENTS

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

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

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

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



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<PAGE>   8



ITEM 2.        PROPERTIES

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

<TABLE>
<CAPTION>
        LOCATION                                  PRINCIPAL USE                           SQUARE FEET
        --------                                  -------------                           -----------
<S>                                      <C>                                                <C>
ALSIDE
  Akron, Ohio                            Alside Headquarters                                  70,000
                                         Vinyl Fencing, Vinyl Garage Doors and               577,000
                                         Vinyl Windows
  Ennis, Texas                           Vinyl Siding Products                               256,000
  West Salem, Ohio                       Vinyl Window Extrusions, Fencing                    173,000
                                         and Garage Door Panels
  Liberty, North Carolina                Cabinets                                            154,000
  Kinston, North Carolina                Vinyl Windows                                       236,000(1)
  Cedar Rapids, Iowa                     Vinyl Windows                                       128,000(1)
AMERCABLE
  El Dorado, Arkansas                    AmerCable Headquarters and                          317,000
                                         Electrical Cable
</TABLE>

--------------------

(1)   Leased facilities.

         Management believes that the Company's manufacturing plants are
generally in good operating condition and are adequate to meet anticipated
requirements in the near future. The Company is currently planning to
significantly increase its vinyl production capacity by constructing a new vinyl
manufacturing facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business --Alside -- Manufacturing."

         Alside also operates 66 Alside Supply Centers in major metropolitan
areas throughout the United States. Except for one owned location in Akron,
Ohio, the Company leases its Supply Centers for terms generally ranging from
five to seven years with renewal options. The Supply Centers range in size from
6,000 square feet to 55,000 square feet depending on their sales volume and the
breadth and type of products offered at each location.

         The leases for Alside's window plants extend through 2000 for the Cedar
Rapids location, and 2003 for the Kinston location. Each lease is renewable at
the Company's option for an additional five-year period. The Company's corporate
headquarters occupy approximately 3,500 square feet of leased office space in
Dallas, Texas. Under the Company's existing credit agreement with KeyBank, N.A.
(the "Credit Agreement"), the bank lender holds a security interest in the
Company's contract rights, including real property leases.


ITEM 3.        LEGAL PROCEEDINGS

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


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

         Not Applicable.



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                                     PART II

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

         There is no established public trading market for the Company's
outstanding equity securities.

         At January 15, 1998, the Company had 27 record holders of Common Stock.
The Prudential Insurance Company of America ("Prudential"), is the record holder
of all of the outstanding Class B Common Stock, par value $.0025 per share
("Class B Common Stock"), which shares of Class B Common Stock are convertible,
at the holder's option, into shares of Common Stock on a basis of one share of
Common Stock for each share of Class B Common Stock. In this report, the
Company's Common Stock and Class B Common Stock are referred to collectively as
"common shares."

         The Company paid its first cash dividend of $.05 per common share in
March 1997. On January 28, 1998, the Board of Directors of the Company announced
a cash dividend of $.075 per common share ($569,513 in the aggregate), payable
to stockholders of record on February 2, 1998. The Company presently intends to
pay an annual cash dividend. However, the Company's future dividend policy will
depend upon the Company's capital requirements, results of operations, financial
condition and such other factors as the Company's Board of Directors deems
relevant. Further, the payment of cash dividends is restricted by covenants in
the Credit Agreement and the Existing Indenture, and will be restricted under
the terms of the New Indenture.



                                       -8-



<PAGE>   10



ITEM 6.        SELECTED FINANCIAL DATA

         The selected financial information set forth below for the five-year
period ended December 31, 1997 was derived from the financial statements of the
Company which have been audited by Ernst & Young LLP, independent auditors. The
data should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements,
related notes and other financial information included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------------------------
                                                               1993          1994            1995           1996         1997
                                                            ---------      ---------      ---------      ---------    ---------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                         <C>           <C>           <C>            <C>           <C>     
INCOME STATEMENT DATA:
  Net sales ...........................................     $ 312,972      $ 352,606      $ 350,029      $ 356,471     $ 397,690
  Cost of sales .......................................       230,408        258,669        264,080        255,579       283,514
                                                            ---------      ---------      ---------      ---------     ---------
  Gross profit ........................................        82,564         93,937         85,949        100,892       114,176
  Selling, general and administrative expenses ........        63,670         70,482         73,207         77,740        81,142
                                                            ---------      ---------      ---------      ---------     ---------
  Income from operations ..............................        18,894         23,455         12,742         23,152        33,034
  Interest expense ....................................         7,581         10,580         11,474         10,882         9,795
  Equity in earnings (loss)  of Amercord(1) ...........         1,039            100            537          1,724          (626)
                                                            ---------      ---------      ---------      ---------     ---------
  Income before income tax expense ....................        12,352         12,975          1,805         13,994        22,613
  Income tax expense ..................................         4,666          5,101            545          5,172         9,524
                                                            ---------      ---------      ---------      ---------     ---------
  Income before extraordinary item ....................         7,686          7,874          1,260          8,822        13,089
  Extraordinary item (2) ..............................         1,876           --             --             --            --
                                                            ---------      ---------      ---------      ---------     ---------
  Net income ..........................................         5,810          7,874          1,260          8,822        13,089
  Preferred dividends .................................           583           --             --             --            --
                                                            ---------      ---------      ---------      ---------     ---------
  Income applicable to common stock ...................     $   5,227      $   7,874      $   1,260      $   8,822     $  13,089
                                                            =========      =========      =========      =========     =========
                                                                                                                     
SHARE DATA:                                                                                                          
 Basic earnings per common share ......................     $    0.84      $    1.05      $    0.17      $    1.16     $    1.72
 Diluted earnings per common share(3) .................          0.42           1.01           0.16           1.14          1.69
 Weighted average number of diluted shares ............        12,352          7,789          7,695          7,746         7,756
 Dividends per share ..................................          --             --             --             --       $    0.05
                                                                                                                     
OTHER DATA:                                                                                                          
  EBITDA (4) ..........................................     $  23,779      $  27,959      $  18,082      $  29,025     $  39,555
  Capital expenditures ................................         5,489          9,323          7,683          8,110         8,758
  Cash provided by (used in) operating activities .....         3,982         (3,248)         5,328         15,055        22,496
  Cash used in investing activities ...................        (4,663)        (9,206)        (7,203)        (8,087)       (7,941)
  Cash provided by (used in) financing activities .....         1,801         11,648          2,452         (6,863)      (15,004)
  Ratio of EBITDA to interest expense .................         3.14x          2.64x          1.58x          2.67x         4.04x
  Ratio of earnings to fixed charges ..................         2.16x          1.92x          1.12x          1.93x         2.60x
</TABLE>




<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                          ------------------------------------------------------------
                                                            1993          1994        1995         1996         1997
                                                          --------     --------     ----------   --------     --------
                                                                                (IN THOUSANDS)
<S>                                                       <C>          <C>          <C>          <C>          <C>     
BALANCE SHEET DATA:
Working capital .....................................     $ 51,417     $ 51,336     $ 46,551     $ 51,821     $ 61,191
Total assets ........................................      149,881      169,414      172,053      177,709      178,504
Short-term debt, including  current maturities ......        2,321       15,719       19,921       14,808        2,314
Long-term debt, less current maturities .............       85,600       83,850       82,100       80,350       78,600
Stockholders' equity ................................       14,114       22,046       23,306       32,246       44,734
</TABLE>

---------------------

(1)  In 1996, the Company's equity in the earnings of Amercord was effected by a
     change in accounting principle, a settlement of a royalty dispute and an
     asset impairment writedown, the net amount of which was approximately
     $800,000. See "Management's Discussion and Analysis of Financial Condition
     and Results of Operations" and Note 2 to the Financial Statements.
(2)  The extraordinary item represents, net of tax, the loss recognized on the 
     prepayment premium paid on the retirement of the Company's 15% Senior
     Secured Notes in August 1993.

                                     (footnotes continued on the following page)




                                       -9-

<PAGE>   11



(3)  In accordance with the Commission Staff Accounting Bulletin, Topic 4D,
     common shares issued during the 12-month period prior to the initial filing
     of the Company's registration statement relating to the Stock Offering at
     prices below the assumed public offering price have been included in the
     calculation as if such shares were outstanding for all periods presented.
(4)  EBITDA is calculated as income from operations plus depreciation and
     amortization. The Company has included information concerning EBITDA
     because it believes that EBITDA is used by certain investors as one measure
     of an issuer's historical ability to service its debt. EBITDA should not be
     considered by an investor as an alternative to, or more meaningful than,
     net income as an indicator of the Company's operating performance or to
     cash flows as a measure of liquidity. EBITDA may not be comparable to
     similarly titled measures reported by other companies. EBITDA as presented
     above for the Company may not be comparable to similarly titled measures
     reported by other companies.

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

OVERVIEW

         General. The Company consists of two operating divisions, Alside and
AmerCable. In addition, Amercord, a 50%-owned affiliate, is accounted for using
the equity method. The Company's results of operations are primarily affected by
the operating results of Alside, which accounted for more than 85% of the
Company's net sales in each of the last three years. Because its residential
building products are consumer durable goods, Alside's sales are impacted by the
availability of consumer credit, consumer interest rates, employment trends,
changes in levels of consumer confidence, national and regional trends in new
housing starts and general economic conditions. Alside's sales are also affected
by changes in consumer preferences with respect to types of building products.
Alside's products are used in the repair and remodeling, as well as the new
construction, sectors of the building industry. For each of the three years in
the period ended December 31, 1997, Alside believes that its sales were made
primarily to the repair and remodeling sector.

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

         The principal raw material used in Alside's products is vinyl resin
which in the past has fluctuated significantly in price. These fluctuations can
impact Alside's profitability. In general, short-term fluctuations in vinyl
resin prices do not affect the selling prices of the Company's vinyl window
products. Prior to 1997, the prices of the Company's vinyl siding products have
generally increased or decreased with the price of vinyl resin. During 1996 the
average price of vinyl resin was lower than 1995 levels. In 1997, the price of
vinyl resin increased during the first six months and then declined. Alside did
not generally pass on any additional costs or savings resulting from the
fluctuations in resin prices in 1996 and 1997.

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

         AmerCable. AmerCable modified its business strategy in the second
quarter of 1996 to focus on a core group of cable products that AmerCable
believed better utilized its manufacturing efficiencies and marketing and
distribution capabilities. Concurrently with this shift in its business
strategy, AmerCable reduced its workforce by approximately 15% to eliminate
certain non-value added processes and to focus its efforts on its core products.
As a result of this strategy, AmerCable has lowered its costs and improved
manufacturing efficiencies and on-time delivery rates, thereby substantially
improving its profitability.

         Amercord. The Company presently expects Amercord's average selling
prices to decline further during 1998. Although Amercord continues to develop
programs to reduce its cost structure and improve its manufacturing
efficiencies, the Company does not currently expect Amercord to earn a profit in
1998. Since its inception as a separate enterprise in 1986, Amercord has
satisfied its working capital and capital expenditure requirements from
internally generated funds and independent credit facilities that are not
guaranteed by the Company and Amercord has neither received capital from the
Company nor made any distributions to the Company. The Company presently
believes that Amercord's internally generated cash flow and credit facilities
will provide sufficient capital to fund its operations and currently planned
capital expenditures and as a result, the Company does not presently anticipate
a need to make additional capital contributions to Amercord.



                                      -10-

<PAGE>   12



         Segment Data. Alside accounted for more than 85% of the Company's net
sales and income from operations in each of the three years in the period ended
December 31, 1997. In 1997, Alside accounted for approximately 85% of the
Company's income from operations exclusive of corporate selling, general and
administrative expenses. Management believes that a discussion of the Company's
results and financial position for these periods is enhanced by presenting
segment information for Alside and AmerCable. The tables below set forth for the
periods indicated certain items from the Company's financial statements:




<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                ---------------------------------------------------------------------------------
                                                           1995                      1996                          1997
                                                --------------------------  ------------------------   --------------------------
                                                                  % OF                       % OF                       % OF
                                                                TOTAL NET                  TOTAL NET                   TOTAL NET
                                                  AMOUNT          SALES       AMOUNT         SALES       AMOUNT          SALES
                                                ---------       ---------   ---------      ---------   ---------       --------- 
                                                                              ( IN THOUSANDS)
<S>                                               <C>               <C>      <C>                <C>      <C>               <C>  
CONSOLIDATED:
  Net sales - Alside .......................    $ 300,561          85.9%    $ 314,645         88.3%    $ 344,000         86.5%
  Net sales - AmerCable ....................       49,468          14.1        41,826         11.7        53,690         13.5
                                                ---------         -----     ---------        -----     ---------        -----
    Total net sales ........................      350,029         100.0       356,471        100.0       397,690        100.0
  Gross profit .............................       85,949          24.5       100,892         28.3       114,176         28.7
  Selling, general and
    administrative expenses(1) .............       73,207          20.9        77,740         21.8        81,142         20.4
                                                ---------         -----     ---------        -----     ---------        -----
  Income from  operations ..................       12,742           3.6        23,152          6.5        33,034          8.3
  Interest expense .........................       11,474           3.3        10,882          3.1         9,795          2.5
  Equity in earnings (loss) of Amercord ....          537           0.2         1,724          0.5          (626)        (0.1)
                                                ---------         -----     ---------        -----     ---------        -----
  Income before income tax expense .........        1,805           0.5        13,994          3.9        22,613          5.7
  Income tax expense .......................          545           0.1         5,172          1.4         9,524          2.4
                                                ---------         -----     ---------        -----     ---------        -----
    Net income .............................    $   1,260           0.4%    $   8,822          2.5%    $  13,089          3.3%
                                                =========         =====     =========        =====     =========        =====

ALSIDE:
  Net sales ................................    $ 300,561         100.0%    $ 314,645        100.0%    $ 344,000        100.0%
  Gross profit .............................       85,628          28.5        98,636         31.3       104,716         30.4
  Selling, general and
    administrative expenses ................       69,078          23.0        72,264         23.0        74,301         21.6
  Income from  operations ..................       16,550           5.5        26,372          8.3        30,415          8.8

AMERCABLE:
  Net sales ................................    $  49,468         100.0%    $  41,826        100.0%    $  53,690        100.0%
  Gross profit .............................          321           0.6         2,256          5.4         9,460         17.6
  Selling, general and
    administrative expenses ................        1,997           4.0         3,223          7.7         4,374          8.1
  Income (loss) from  operations ...........       (1,676)         (3.4)         (967)        (2.3)        5,086          9.5
</TABLE>

-----------------------

(1)  Consolidated selling, general and administrative expenses include corporate
     expenses of $2.1 million, $2.3 million and $2.5 million for the years 1995,
     1996 and 1997, respectively.



                                      -11-

<PAGE>   13



RESULTS OF OPERATIONS

         Year Ended December 31, 1997 compared to the Year Ended December 31, 
1996.

         General. The Company's net sales increased $41.2 million or 11.6% in
1997 as compared to 1996 due to an increase in sales volume at its Alside and
AmerCable divisions. Income from operations increased $9.9 million or 42.7% in
1997 as compared to 1996 due to increased sales volume at Alside and AmerCable
as well as manufacturing efficiency improvements at AmerCable. The Company's net
income increased $4.3 million or 48.4% in 1997 as compared to 1996 due to
increased operating income at its divisions which was partially offset by a loss
from its Amercord affiliate.

         Alside. Alside's net sales increased $29.4 million or 9.3% in 1997 as
compared to 1996 due to increased unit sales in virtually all product lines
except metal siding. Unit sales of vinyl siding and vinyl windows increased
11.2% and 16.0%, respectively, in 1997 as compared to 1996. Alside's 1997 sales
were also favorably impacted by increased unit sales volume of cabinets and
vinyl fence of 33.7% and 40.4%, respectively, as compared to 1996. In addition,
the average unit selling price of vinyl siding increased in 1997 due to Alside's
increased sales of premium siding products. The increase in Alside's sales was
partially offset by a decrease in metal siding sales as consumer preference
continued to shift away from metal siding. Gross profit as a percentage of sales
decreased to 30.4% in 1997 as compared to 31.3% in 1996 principally due to
increases in raw materials costs, primarily vinyl resin. Selling, general and
administrative expense decreased as a percentage of net sales to 21.6% in 1997
from 23.0% in 1996. Selling, general and administrative expenses increased by
2.8% or $2.0 million to $74.3 million in 1997 due primarily to increased
advertising expenditures and higher employee compensation. Income from
operations increased 15.3% or $4.0 million in 1997 as compared to 1996 due to
increased sales volume which was partially offset by increased raw material
costs.

         AmerCable. AmerCable's net sales increased $11.9 million or 28.4% in
1997 as compared to 1996 due to increased sales volume across all product lines.
Gross profit as a percentage of net sales increased to 17.6% in 1997 from 5.4%
in 1996 due to a 35% improvement in manufacturing efficiency (defined by the
Company as production volume per labor hour). The increases in sales and gross
profit were due primarily to AmerCable's implementation of its new business
strategy in May 1996 to focus on the production of core products which better
utilize its manufacturing and distribution capabilities. Selling, general and
administrative expenses increased to $4.4 million in 1997 from $3.2 million in
1996 due to higher incentive compensation. Income from operations increased to
$5.1 million in 1997 as compared to a loss from operations of $967,000 in 1996.
The increase was due to improved manufacturing efficiencies and increased sales
volume.

         Amercord. The Company recorded a loss of $626,000 reflecting its share
of the after-tax loss of Amercord for the year ended 1997 as compared to income
of $1.7 million for the same period in 1996. The Company's equity in Amercord's
after-tax income for the year ended 1996 was approximately $900,000 exclusive of
the cumulative change in accounting principle, a royalty settlement and an
equipment writedown. Amercord's net sales decreased 14.5% to $74.9 million in
1997 compared to 1996 due primarily to a decrease in sales volume and a decrease
in the average unit sales price of its products. Gross profit decreased to $1.9
million in 1997 from $7.6 million in 1996 due primarily to lower sales prices
and decreased manufacturing efficiencies. Selling, general and administrative
expenses decreased 9.9% to $2.4 million in 1997 from $2.7 million in 1996.

         Other. Net interest expense decreased $1.1 million or 10.0% in 1997 as
compared to 1996 primarily due to a decrease in the average borrowings under the
Credit Agreement, as well as interest income of $280,000 related to a $1.4
million income tax refund.

         Year Ended December 31, 1996 compared to the Year Ended December 31,
1995.

         General. The Company's net sales increased $6.4 million or 1.8% in
1996, compared with 1995, due to higher Alside sales volume which was partially
offset by lower AmerCable sales volume. The Company's income from operations
increased $10.4 million or 81.7% in 1996 as compared to 1995 due primarily to
higher sales volume and lower raw material costs at its Alside division. The
Company's net income increased $7.6 million to $8.8 million for the year ended
December 31, 1996 as compared to 1995 due primarily to higher income from
operations at its Alside division as well as improvements at both AmerCable and
Amercord.

         Alside. Alside's net sales increased $14.1 million or 4.7% in 1996
compared with 1995 due to increased sales volume of vinyl siding, vinyl windows,
vinyl fencing and complementary building products distributed through its Supply



                                      -12-

<PAGE>   14



Centers. Unit sales of vinyl siding and vinyl windows increased by 8.9% and
5.2%, respectively, in 1996 as compared to 1995. The increase in vinyl product
sales was partially offset by a decrease in sales of metal siding as consumer
preference continued to shift from metal to vinyl products. Gross profit as a
percentage of net sales increased to 31.3% in the 1996 period from 28.5% in the
1995 period as a result of lower material costs, primarily vinyl resin. Selling,
general and administrative expense remained constant as a percentage of net
sales at 23.0% for 1996 and 1995. Increased advertising costs, higher lease
expenses associated with both new and expanded Supply Centers, and higher
employee incentive compensation resulted in an increase in selling, general and
administrative expenses to $72.3 million in 1996 from $69.1 million in 1995. The
increase in selling, general and administrative expenses was partially offset by
an overall decrease in salaries of $800,000 consisting of a $1.8 million
decrease in Alside's headquarters salaries and a $1.0 million increase in Supply
Center salaries for the period ended December 31, 1996. The decrease in Alside's
headquarters salaries was primarily the result of Alside's reengineering program
in which many of the business processes performed at Alside's Akron, Ohio
headquarters either were eliminated or transferred to Supply Center personnel.
The personnel reductions related to this program and the related expenditures
were substantially completed in 1996. Alside's income from operations was $26.4
million for the period ended December 31, 1996 compared to $16.6 million for the
same period in 1995. The increase in income from operations of $9.8 million or
59.3% was due primarily to higher sales volume and a decrease in vinyl resin
costs.

         AmerCable. AmerCable's net sales decreased $7.6 million or 15.4% in
1996 as compared to 1995 due to a decrease in sales volume and lower copper
prices which were only partially offset by higher sales prices. The decrease in
sales volume and the higher sales prices were due primarily to the
implementation of AmerCable's modified business strategy which focuses on
producing core products which better utilize its manufacturing efficiencies and
marketing and distribution capabilities. Despite the decrease in sales volume
resulting from the modified strategy, profit margins have increased across all
product lines due to the focus on fewer products. AmerCable generally prices its
products based upon the copper price at the time of shipment; therefore,
decreased copper prices during 1996 accounted for approximately 25% of the
decrease in sales. The marine, shipboard and transportation product line had the
most significant volume decrease as AmerCable decreased its focus on
transportation products having lower profit margins. Increased sales of higher
margin marine products partially offset the decrease in sales volume.
AmerCable's gross profit increased as a percentage of sales to 5.4% in 1996 as
compared to 0.6% in 1995 due to improved manufacturing efficiencies, better
material utilization and higher selling prices. Selling, general and
administrative expenses increased to $3.2 million in 1996 from $2.0 million in
1995 due to the severance charges described below and the costs associated with
the opening of a distribution center in Houston, Texas. AmerCable's loss from
operations in 1996 was $967,000 compared to a loss of $1.7 million in 1995 due
to decreased sales volume being offset by higher sales prices, lower copper
prices and improved manufacturing efficiencies. During the first half of 1996,
AmerCable recorded charges of $500,000 to write down copper inventory to its net
realizable value and $275,000 for severance charges related to a 15% workforce
reduction as part of a business reorganization. These severance charges were
paid in 1996. Net of these charges, AmerCable's loss from operations for the
year ended 1996 was $192,000.
AmerCable recorded income from operations of $931,000 for the second half of
1996.

         Amercord. The Company recorded $1.7 million in equity in the after-tax
earnings of Amercord in 1996 compared to $537,000 during the same period in
1995. In 1996, Amercord recorded a $1.2 million gain to reflect the cumulative
effect of an accounting change when it changed its accounting policy for
maintenance parts. Amercord now capitalizes the cost of these parts upon
purchase and expenses such parts when used in the production cycle. Amercord
previously expensed the maintenance parts upon purchase. Amercord recorded a
pre-tax gain of $3.1 million in connection with the settlement of disputed
royalty payments for the years 1990-1995 and recorded a $2.7 million loss for a
write down of certain production equipment pursuant to Statement of Financial
Accounting Standards No. 121. The Company's equity in the earnings of Amercord,
exclusive of the items described above, was approximately $900,000. Amercord's
net sales increased 8.4% to $87.5 million in 1996 from $80.8 million in 1995
primarily due to a 9.9% and a 7.6% increase in tire bead and tire cord volume,
respectively. Gross profit increased $1.7 million or 29.0% in 1996 compared with
the same period in 1995 due to higher sales and lower unit production costs
experienced in 1996. Selling, general and administrative expenses as a
percentage of net sales remained constant at 3% for 1996 and 1995.

         Other. The Company's net interest expense decreased $592,000 or 5.2% in
1996 compared with the same period in 1995 primarily due to a decrease in the
average borrowings under the Credit Agreement.



                                      -13-

<PAGE>   15



QUARTERLY FINANCIAL DATA

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

         Quarterly sales and operating profit data for the Company in 1996 and
1997 are shown in the table below:


<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED
                                                  ---------------------------------------------------------
                                                   MARCH 31      JUNE 30    SEPTEMBER 30       DECEMBER 31
                                                  ----------    ---------    ------------    --------------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>           <C>          <C>             <C>     
1996
  Net sales - Alside ........................     $ 55,113      $ 85,403     $ 93,170         $ 80,959    
  Net sales - AmerCable .....................       10,313        10,530        9,989           10,994   
                                                  --------      --------     --------         --------   
    Total net sales .........................       65,426        95,933      103,159           91,953   
  Gross profit ..............................       14,555        28,680       31,963           25,694   
  Income (loss) from operations .............       (3,222)        9,010       11,466            5,898   
  Net income (loss) .........................       (3,473)        4,571        5,532            2,192   
  Basic earnings (loss) per common share ....        (0.46)         0.60         0.73             0.29   
  Diluted earnings (loss) per common share ..        (0.45)         0.59         0.71             0.28   
                                                                                                         
1997                                                                                                     
  Net sales - Alside ........................     $ 64,827      $ 94,165     $ 98,483         $ 86,525   
  Net sales - AmerCable .....................       14,289        13,511       12,644           13,246   
                                                  --------      --------     --------         --------   
    Total net sales .........................       79,116       107,676      111,127           99,771   
  Gross profit ..............................       20,015        32,982       32,616           28,563   
  Income from operations ....................          713        12,155       11,099            9,067   
  Net income (loss) .........................       (1,130)        5,693        4,544            3,982   
  Basic earnings (loss) per common share ....        (0.15)         0.75         0.60             0.52   
  Diluted earnings (loss) per common share ..        (0.15)         0.73         0.59             0.51   
</TABLE>

-----------------------

(1)  In accordance with the Commission Staff Accounting Bulletin, Topic 4D,
     common shares issued during the 12-month period prior to the initial filing
     of the Company's registration statement relating to the Stock Offering at
     prices below the assumed public offering price have been included in the
     calculation as if such shares were outstanding for all periods presented.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided by operating activities was $5.3 million, $15.1
million and $22.5 million in 1995, 1996 and 1997, respectively. The increased
operating cash flows in 1997 were due primarily to a $4.3 million increase in
net income due to improved operating performance at Alside and AmerCable, as
well as lower working capital requirements in 1997 as compared to 1996. The
increased operating cash flows in 1996 were primarily due to Alside's improved
operating results.

         In April 1996, the Company amended and restated the Credit Agreement to
increase the facility to permit borrowings of up to $50 million and to extend
the term to May 31, 1999. Available borrowings under the Credit Agreement are
limited to the lesser of the total facility less unused letters of credit or
availability based on percentages of eligible accounts receivable and
inventories. The Credit Agreement is secured by substantially all of the
Company's assets other than the Company's owned real property and its shares of
Amercord. At December 31, 1997, $7.5 million of this facility had been used to
issue a $5.5 million letter of credit securing the Company's taxable variable
rate notes (the "Taxable Notes") as well as $2.0 million securing various
insurance letters of credit. At December 31, 1997 the Company had an available
borrowing capacity under the Credit Agreement of approximately $40.4 million.

         Capital expenditures totaled $7.7 million, $8.1 million and $8.8
million in 1995, 1996 and 1997, respectively. Expenditures in 1997 were
primarily used to increase vinyl extrusion capacity for siding, windows and
fencing as well as to increase and automate window fabrication capacity.
Expenditures in 1996 were primarily used to increase Alside's capacity to
produce welded vinyl windows, enhance the Company's window tooling design
capability, continue automating



                                      -14-

<PAGE>   16



its window assembly process, and increase vinyl window extrusion capacity.
Significant expenditures made during 1995 include expenditures to further
automate the window assembly process and to purchase equipment to be used for
the production of vinyl fencing and vinyl garage doors. The Company has
historically funded such capital expenditure requirements out of cash generated
from operating activities and borrowings under its bank credit facility.

         The Company believes that historical capital expenditures represent a
base level of spending needed to maintain its vinyl siding and vinyl window
production equipment as well as provide for modest increases in plant
productivity and operating capacity. Presently anticipated capital expenditures
for 1998 of $25 million include funds for the construction of a new vinyl siding
manufacturing facility to increase vinyl siding extrusion capacity, as well as
expenditures to increase window welding capacity and window assembly capacity.
The net proceeds of the Stock Offering will be used to partially fund capital
expenditures in 1998. In the event the Company would decide not to proceed with
the Stock Offering, the Company presently intends to seek to fund substantially
all of its current 1998 capital expenditure plan with cash from operations,
available borrowings under the Credit Agreement and, if necessary, alternative
sources of financing.

         The Company has completed its assessment of the effect of Year 2000 on
its management information systems and is currently Year 2000 compliant with
respect to substantially all of its systems. The Company does not expect any
material future expenditures will be required in order to become fully Year 2000
compliant.

         The Company believes that future cash flows from operations and its
borrowing capacity under the Credit Agreement, together with the net proceeds
from the Offerings, will be sufficient to satisfy debt service requirements,
maintain current operations and provide sufficient capital for presently
anticipated capital expenditures. However, there can be no assurances that the
cash so generated by the Company will be sufficient for such purposes.

         The Company currently has outstanding $75,000,000 of the Existing
Notes. The Existing Notes are callable at the option of the Company beginning in
August 1998 at 104.313% of the outstanding principal amount thereof, decreasing
to 100% of the principal amount in August 2001. In connection with the Note
Offering, the Company has commenced the Tender Offer to purchase all outstanding
principal amount of the Existing Notes.

         In the Stock Offering, the Company and the Selling Stockholders are
offering a total of 2,128,800 shares of Common Stock (plus up to an additional
319,320 shares, in the aggregate, pursuant to an overallotment option to be
granted to the underwriters by the Company and certain of the Selling
Stockholders). Of these shares, 700,000 shares of Common Stock (808,520 if the
over-allotment option is exercised in full) are being offered by the Company and
1,428,800 shares of Common Stock (1,639,600 if the over-allotment option is
exercised in full) are being offered by the Selling Stockholders. The Stock
Offering is presently expected to generate net cash proceeds to the Company of
approximately $10.6 million (assuming the Underwriters' over-allotment option is
not exercised), assuming an initial public offering price of $17.00 per share.
The actual net proceeds to the Company will vary depending on the initial public
offering price of the Common Stock in the Stock Offering. The Company intends to
use such net proceeds to fund, in part, the Company's 1998 capital expenditure
plan, including the construction of a new vinyl siding manufacturing facility in
order to expand the Company's production capacity. See
"Business-Alside-Manufacturing." Pending such use, the Company intends to use
the net proceeds from the Stock Offering to repay outstanding borrowings under
the Credit Agreement. The balance of the net proceeds, if any, will be invested
in short-term investment grade securities pending such use. The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders.

         Concurrently with the Stock Offering, the Company is publicly offering
$75,000,000 aggregate principal amount of New Notes in the Note Offering. The
Company is effecting the Note Offering at this time to lower the interest rate
and to extend the term of its existing subordinated debt. The consummation of
the Stock Offering and the consummation of the Note Offering are not conditioned
upon each other. The New Notes will be issued pursuant to the New Indenture and
will be general unsecured obligations of the Company, subordinate in right of
payment to all existing and future senior indebtedness of the Company, including
amounts borrowed under the Credit Agreement. The terms of the New Indenture are
expected to be substantially similar to the terms of the Existing Indenture as
currently in effect.

         In connection with the Note Offering, the Company has commenced the
Tender Offer to purchase for cash all of the Existing Notes, of which
$75,000,000 aggregate principal amount are currently outstanding. The Company is
also soliciting consents from holders of Existing Notes to amend the Existing
Indenture in order to eliminate substantially all of the restrictive covenants
and certain other provisions contained in the Existing Indenture (the "Proposed
Amendments"). Holders of Existing Notes who tender their Existing Notes in the
Tender Offer will be required to consent to the Proposed



                                      -15-

<PAGE>   17



Amendments. Under the terms of the Existing Indenture, consents from the holders
of a majority in principal amount of the Existing Notes will be required to
approve the Proposed Amendments. The Company intends to fund the costs
associated with the purchase of the Existing Notes pursuant to the Tender Offer
(estimated at approximately $80.3 million) with the proceeds of the sale of the
Notes and borrowings under the Credit Agreement. The Tender Offer is conditioned
on the completion of the Note Offering and the receipt of the requisite consents
to the Proposed Amendments.

         If the Company completes the Note Offering, the Company presently
intends to redeem all Existing Notes that remain outstanding following the
Tender Offer promptly after August 15, 1998, the first date on which the
Existing Notes may be redeemed by the Company under the terms of the Existing
Indenture. The applicable redemption price on such date is 104.313% of the
outstanding principal amount of the Existing Notes.

EFFECTS OF INFLATION

         The Company believes that the effects of inflation on its operations
have not been material during the past three years. Inflation could adversely
affect the Company if inflation results in significantly higher interest rates
or substantial weakness in economic conditions. Alside's principal raw material,
vinyl resin, has been subject to rapid price increments. Although Alside has
historically been able to pass on price increases to its customers, Alside did
not generally pass on any additional costs or savings resulting from the
fluctuation in resin prices in 1996 and 1997. No assurances can be given that
Alside will be able to pass on any price increases in the future.

FINANCIAL ACCOUNTING STANDARDS

         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130 Reporting Comprehensive Income and
Statement of Financial Accounting Standards No. 131 Disclosures About Segments
of an Enterprise and Related Information which are effective for financial
statement periods beginning after December 15, 1997. The Company believes that
these statements will have no effect on the Company's financial position,
results of operations or cash flows.

CERTAIN FORWARD-LOOKING STATEMENTS

         This report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) relating to
the Company that are based on the beliefs of the management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," "intend," and
similar expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to the operations and results of operations of the
Company as well as its customers and suppliers, including as a result of the
availability of consumer credit, interest rates, employment trends, changes in
levels of consumer confidence, changes in consumer preferences, national and
regional trends in new housing starts, raw material costs, pricing pressures,
shifts in market demand, and general economic conditions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.



                                      -16-

<PAGE>   18



ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                        ASSOCIATED MATERIALS INCORPORATED
                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
Report of Independent Auditors................................................................................. 18
Balance Sheets at December 31, 1997 and 1996................................................................... 19
Statements of Operations for each of the three years in the period ended December 31, 1997..................... 20
Statements of Stockholders' Equity for each of the three years in the period ended December 31,  1997.......... 21
Statements of Cash Flows for each of the three years in the period ended December 31, 1997..................... 22
Notes to Financial Statements.................................................................................. 23
</TABLE>




                                      -17-

<PAGE>   19



                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Associated Materials Incorporated
Dallas, Texas

We have audited the accompanying balance sheets of Associated Materials
Incorporated as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Associated Materials
Incorporated at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.



                                                               ERNST & YOUNG LLP

Dallas, Texas
January 29, 1998




                                      -18-

<PAGE>   20



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


<TABLE>
<CAPTION>
                                     ASSETS


                                                                                          DECEMBER 31,
                                                                                   -------------------------
                                                                                     1996            1997
                                                                                   -----------     ---------
<S>                                                                                 <C>            <C>   
Current assets:
   Cash ........................................................................     $   2,384     $   1,935
   Accounts receivable, net of allowance for doubtful accounts of $3,749                                    
     and $4,423 at December 31, 1996 and 1997, respectively ....................        47,208        49,197
   Inventories .................................................................        58,357        56,621
   Income taxes receivable .....................................................           587           266
   Other current assets ........................................................         3,025         3,291
                                                                                     ---------     ---------
Total current assets ...........................................................       111,561       111,310
Property, plant and equipment, net .............................................        51,649        53,855
Investment in Amercord Inc. ....................................................        11,320        10,694
Other assets ...................................................................         3,179         2,645
                                                                                     ---------     ---------
Total assets ...................................................................     $ 177,709     $ 178,504
                                                                                     =========     =========


                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Bank overdrafts .............................................................     $   4,853     $   4,769
   Accounts payable ............................................................        17,114        17,174
   Accrued liabilities .........................................................        22,965        25,862
   Revolving line of credit ....................................................        13,058           564
   Current portion of long-term debt ...........................................         1,750         1,750
                                                                                     ---------     ---------
Total current liabilities ......................................................        59,740        50,119
Deferred income taxes ..........................................................         1,884         1,951
Other liabilities ..............................................................         3,489         3,100
Long-term debt .................................................................        80,350        78,600
Commitments and Contingencies
Stockholders' equity:
   Preferred stock, $.01 par value:
      Authorized shares - 100,000 shares at December 31, 1996 and 1997
      Issued shares - 0 at December 31, 1996 and 1997 ..........................          --            --
   Common stock, $.0025 par value:
      Authorized shares - 15,000,000 at December 31, 1996 and 1997 Issued shares
      - 4,893,504 at December 31, 1996 and 4,934,900 at
         December 31, 1997 .....................................................            12            12
   Common stock Class B, $.0025 par value:
      Authorized and issued shares - 2,700,000 at December 31, 1996
         and 1997 ..............................................................             7             7
   Less:  Treasury stock, at cost - 0 shares at December 31, 1996 and
      41,396 at December 31, 1997 ..............................................          --            (542)
   Capital in excess of par ....................................................           185           505
   Retained earnings ...........................................................        32,042        44,752
                                                                                     ---------     ---------
Total stockholders' equity .....................................................        32,246        44,734
                                                                                     ---------     ---------
Total liabilities and stockholders' equity .....................................     $ 177,709     $ 178,504
                                                                                     =========     =========
</TABLE>


                             See accompanying notes.



                                      -19-

<PAGE>   21



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


<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                    -------------------------------------
                                                      1995          1996           1997
                                                    ---------     ---------     ---------
<S>                                                 <C>           <C>           <C>      
Net sales .....................................     $ 350,029     $ 356,471     $ 397,690
Cost of sales .................................       264,080       255,579       283,514
                                                    ---------     ---------     ---------
                                                       85,949       100,892       114,176
Selling, general and administrative ...........        73,207        77,740        81,142
                                                    ---------     ---------     ---------
Income from operations ........................        12,742        23,152        33,034
Interest expense ..............................        11,474        10,882         9,795
                                                    ---------     ---------     ---------
                                                        1,268        12,270        23,239
Equity in earnings (loss) of Amercord Inc. ....           537         1,724          (626)
                                                    ---------     ---------     ---------
Income before income tax expense ..............         1,805        13,994        22,613
Income tax expense ............................           545         5,172         9,524
                                                    ---------     ---------     ---------
Net income ....................................     $   1,260     $   8,822     $  13,089
                                                    =========     =========     =========
Basic earnings per common share ...............     $    0.17     $    1.16     $    1.72
                                                    =========     =========     =========
Diluted earnings per common share .............     $    0.16     $    1.14     $    1.69
                                                    =========     =========     =========
</TABLE>



                             See accompanying notes.



                                      -20-

<PAGE>   22



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


<TABLE>
<CAPTION>
                                                               CLASS B                                                       
                                        COMMON STOCK        COMMON STOCK      TREASURY STOCK   CAPITAL IN                 TOTAL 
                                     ------------------   -----------------   ---------------    EXCESS    RETAINED    STOCKHOLDERS'
                                     SHARES      AMOUNT   SHARES     AMOUNT   SHARES   AMOUNT    OF PAR    EARNINGS       EQUITY
                                     ------      ------   ------     ------   ------   ------  ----------  --------   -------------
<S>                                  <C>         <C>      <C>        <C>      <C>      <C>     <C>         <C>        <C>
Balance at December 31, 1994.....     4,832       $ 12      2,700     $  7      --     $  --      $  67     $21,960     $ 22,046
  Net income.....................        --         --        --        --      --        --         --       1,260        1,260
                                     ------       ----      -----     ----    ----     -----      -----     -------     --------
Balance at December 31, 1995.....     4,832         12      2,700        7      --        --         67      23,220       23,306
  Net income.....................        --         --        --        --      --        --         --       8,822        8,822
  Exercise of Common Stock                                                                                            
     options and related tax                                                                                          
     benefits....................        62         --        --        --      --        --        118          --          118
                                     ------       ----      -----     ----    ----     -----      -----     -------     --------
Balance at December 31, 1996.....     4,894         12      2,700        7      --        --        185      32,042       32,246
  Net income.....................        --         --        --        --      --        --         --      13,089       13,089
  Cash dividends.................        --         --        --        --      --        --         --        (379)        (379)
  Exercise of Common Stock                                                                                            
    options and related tax                                                                                           
    benefits.....................        41         --        --        --      --        --        320          --          320
  Purchase of treasury shares....        --         --        --        --      41      (542)        --          --         (542)
                                     ------       ----      -----     ----    ----     -----      -----     -------     --------
Balance at December 31, 1997.....     4,935       $ 12      2,700     $  7      41     $(542)     $ 505     $44,752     $ 44,734
                                     ======       ====      =====     ====    ====     =====      =====     =======     ========
</TABLE>

                             See accompanying notes.



                                      -21-

<PAGE>   23



                        ASSOCIATED MATERIALS INCORPORATED
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                               ------------------------------------
                                                                                  1995         1996          1997
                                                                               --------      --------      --------
<S>                                                                            <C>           <C>           <C>     
OPERATING ACTIVITIES
Net income ...............................................................     $  1,260      $  8,822      $ 13,089
Adjustments to reconcile net income to net cash provided by operating
   activities:
  Depreciation and amortization ..........................................        5,340         5,873         6,521
  Deferred income taxes ..................................................       (1,167)        2,002            67
  Provision for losses on accounts receivable ............................        2,853         3,087         3,500
  (Equity) loss in earnings of Amercord Inc. .............................         (537)       (1,724)          626
  Loss (gain) on sale of assets ..........................................         (446)           10          (348)
  Changes in operating assets and liabilities:
    Accounts receivable ..................................................       (4,674)       (1,540)       (5,489)
    Inventories ..........................................................        3,014        (2,435)        1,736
    Other current assets .................................................         (292)       (1,058)         (266)
    Bank overdrafts ......................................................          986        (1,194)          (84)
    Accounts payable .....................................................       (2,165)        2,625            60
    Accrued liabilities ..................................................        1,392           623         2,897
    Income taxes receivable/payable ......................................           46          (160)          480
    Other assets .........................................................          (45)         (203)           96
    Other liabilities ....................................................         (237)          327          (389)
                                                                               --------      --------      --------
Net cash provided by operating activities ................................        5,328        15,055        22,496

INVESTING ACTIVITIES
Additions to property, plant and equipment ...............................       (7,683)       (8,110)       (8,758)
Proceeds from sale of assets .............................................          480            23           817
                                                                               --------      --------      --------
Net cash used in investing activities ....................................       (7,203)       (8,087)       (7,941)

FINANCING ACTIVITIES
Net increase (decrease) in revolving line of credit ......................        4,202        (5,113)      (12,494)
Principal payments of long-term debt .....................................       (1,750)       (1,750)       (1,750)
Dividends paid ...........................................................         --            --            (379)
Treasury stock acquired ..................................................         --            --            (542)
Options exercised ........................................................         --            --             161
                                                                               --------      --------      --------
Net cash provided by (used in) financing activities ......................        2,452        (6,863)      (15,004)
                                                                               --------      --------      --------
Net increase (decrease) in cash ..........................................          577           105          (449)
Cash at beginning period .................................................        1,702         2,279         2,384
                                                                               --------      --------      --------
Cash at end of period ....................................................     $  2,279      $  2,384      $  1,935
                                                                               ========      ========      ========

Supplemental Information:
    Cash paid for interest ...............................................     $ 11,459      $ 10,895      $ 10,110
                                                                               ========      ========      ========

    Net cash paid for income taxes .......................................     $  1,658      $  3,546      $  9,098
                                                                               ========      ========      ========
</TABLE>



                             See accompanying notes.



                                      -22-

<PAGE>   24



                        ASSOCIATED MATERIALS INCORPORATED
                          NOTES TO FINANCIAL STATEMENTS




1.   ACCOUNTING POLICIES

     Line of Business

         Associated Materials Incorporated (the "Company") consists of two
operating divisions, Alside and AmerCable, and a 50%-owned affiliate, Amercord
Inc. ("Amercord"), which is accounted for using the equity method. Alside is
engaged principally in the manufacture and distribution of exterior residential
building products to professional contractors throughout the United States.
AmerCable manufactures jacketed electrical cable utilized in a variety of
industrial applications. Amercord manufactures and sells steel tire cord and
tire bead wire used in the tire manufacturing industry.

     Accounting Changes

         During 1996, the Company adopted Statement of Financial Accounting 
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 allows the Company to use the intrinsic value method or the fair
market value to determine the cost of stock compensation. The Company will
continue to use the intrinsic value method to measure stock-based compensation
costs in accordance with APB Opinion No. 25.

         The Company adopted Statement of Financial Accounting Standards No. 
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") during 1996. The adoption of SFAS No.
121 had no effect on the financial statements at the time of adoption. An
impairment loss was recorded for the Company's affiliate, Amercord. See Note 2.

         The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" and Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" which are effective for financial statement
periods beginning after December 15, 1997. The Company believes that these
statements will have no effect on the Company's financial position, results of
operations or cash flows.

     Revenue Recognition

         Product sales are recognized at the time of shipment.

     Inventories

         Inventories are valued at the lower of cost (first-in, first-out) or
market.

     Property, Plant, and Equipment

         Property, plant, and equipment are stated at cost. Depreciation is
provided by the straight-line method over the estimated useful lives of the
assets which range from 3 to 30 years.

     Income Tax

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

     Cash and Cash Equivalents

         The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Negative book balances
are classified as bank overdrafts on the accompanying balance sheets.



                                      -23-

<PAGE>   25
                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)




     Derivatives

         The Company has an interest rate swap in order to manage interest rate
risk on a portion of its long-term debt (see Note 8). Gains or losses based
upon differences in the market interest rate and the fixed rate are recognized
in the period such differences are incurred. In addition, the Company may
attempt to hedge its position with respect to raw material or currency
fluctuations on specific contracts. In these instances, the Company may enter
into forward contracts or purchase options, the cost of which are realized upon
the completion of the contract. The nominal amounts outstanding under these
contracts were not material at December 31, 1997. 

     Use of Estimates

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

     Advertising

         The Company expenses advertising costs as incurred. Advertising
expense was $8.0 million, $6.8 million and $6.3 million in 1997, 1996 and 1995,
respectively.

     Reclassifications

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


                                     -24-
<PAGE>   26



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


2.       INVESTMENT IN AMERCORD

         The Company's investment in Amercord, a 50% owned affiliate, is
accounted for using the equity method. Amercord manufactures and sells steel
tire cord and tire bead wire used in the tire manufacturing industry. Equity in
the undistributed earnings of Amercord since acquisition through December 31,
1997 totals $5,444,000.

         Condensed financial information for Amercord is presented below (in
thousands):
<TABLE>
<CAPTION>
                                                                                             RESULTS OF OPERATIONS
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                --------------------------------------------
                                                                                    1995             1996             1997
                                                                                -------------    -------------     ---------
<S>                                                                            <C>               <C>               <C>   
Net sales..................................................................    $  80,764         $  87,538         $  74,880
Costs and expenses.........................................................       77,148            82,229            75,349
                                                                               ---------         ---------         ---------
Income (loss) from operations..............................................        3,616             5,309              (469)
Interest expense...........................................................       (1,911)           (1,734)           (1,518)
Income tax (expense) benefit...............................................         (631)           (1,323)              735
                                                                               ---------         ---------         ---------
Income (loss) before cumulative effect of a change in
  accounting principle.....................................................        1,074             2,252            (1,252)
Cumulative effect of a change in accounting principle
  (net of tax).............................................................           --             1,196                --
                                                                               ---------         ---------         ---------
Net income (loss)..........................................................        1,074             3,448            (1,252)
                                                                               ---------         ---------         ---------
Company's share of net income (loss).......................................    $     537         $   1,724         $    (626)
                                                                               =========         =========         =========
</TABLE>


<TABLE>
<CAPTION>

                                                                                                    FINANCIAL POSITION
                                                                                                        DECEMBER 31,
                                                                                              ---------------------------
                                                                                                 1996              1997
                                                                                              ---------         ---------
<S>                                                                                          <C>                <C>   
Assets (pledged)..........................................................................    $  52,364         $  50,075
Liabilities...............................................................................       29,152            28,115
Stockholders' equity......................................................................       23,212            21,960
</TABLE>

         In 1996, Amercord recorded a $1,196,000 gain to reflect the cumulative
effect of an accounting change when it changed its accounting policy for
maintenance parts. Amercord now capitalizes the cost of these parts upon
purchase and expenses such parts when used in the production cycle. Amercord
previously expensed the maintenance parts upon purchase. Also in 1996, Amercord
recorded a pre-tax gain of $3,093,000 in connection with the settlement of
disputed royalty payments for the years 1990-1995 and recorded a $2,723,000
loss for a write down of certain production equipment pursuant to SFAS No. 121.


                                     -25-
<PAGE>   27



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


3.       ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

<TABLE>
<CAPTION>

                                                                              1995              1996            1997
                                                                             ------            ------           -----
<S>                                                                         <C>                <C>             <C>  
Balance at beginning of period........................................       $2,563            $2,769          $ 3,749
  Provision for losses................................................        2,853             3,087            3,500
  Losses sustained (net of recoveries)................................        2,647             2,107            2,826
                                                                             ------            ------          -------
Balance at end of period..............................................       $2,769            $3,749          $ 4,423
                                                                             ======            ======          =======
</TABLE>

4.   INVENTORIES

Inventories consist of (in thousands):

<TABLE>
<CAPTION>

                                                                                                      DECEMBER 31,
                                                                                                ------------------------
                                                                                                  1996              1997
                                                                                                -------          -------
<S>                                                                                        <C>              <C>
Raw materials.......................................................................            $14,903          $16,352
Work-in-progress....................................................................              5,276            4,936
Finished goods and purchased stock..................................................             38,178           35,333
                                                                                                -------          -------
                                                                                                $58,357          $56,621
                                                                                                =======          =======
</TABLE>


5.       PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                                                  1996            1997
                                                                                                -------         --------
<S>                                                                                             <C>             <C> 
Land................................................................................             $1,290         $  1,290
Buildings...........................................................................             21,319           22,740
Machinery and equipment.............................................................             73,463           79,390
                                                                                                -------          -------
                                                                                                 96,072          103,420
Less accumulated depreciation.......................................................             44,423           49,565
                                                                                                -------          -------
                                                                                                $51,649         $ 53,855
                                                                                                =======         ========
</TABLE>

6.       ACCRUED LIABILITIES

         Accrued liabilities at December 31 consist of (in thousands):
<TABLE>
<CAPTION>

                                                                                                  1996             1997
                                                                                                 ------           -----
<S>                                                                                              <C>              <C>    
Employee compensation...............................................................             $6,558           $7,612
Sales promotions and incentives.....................................................              2,692            3,408
Employee benefits...................................................................              8,424            9,201
Interest............................................................................              3,307            3,272
Other...............................................................................              1,984            2,369
                                                                                                -------          -------
                                                                                                $22,965          $25,862
                                                                                                =======          =======
</TABLE>


                                     -26-
<PAGE>   28



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


7.       REVOLVING CREDIT ARRANGEMENTS

         In April 1996, the Company amended and restated its credit agreement
with KeyBank, N.A. ("Credit Agreement") to increase the total credit facility
to $50 million and extend the term to May 31, 1999. Available borrowings under
the Credit Agreement are limited to the lesser of the total facility less
unused letters of credit or availability based on percentages of eligible
accounts receivable and inventories. Unused letters of credit totaled
$7,468,000 at December 31, 1997, of which $5,471,000 was related to the Taxable
Notes (see Note 8) and $1,997,000 was primarily related to insurance. The
Company's available borrowing capacity at December 31, 1997 was approximately
$40.4 million. The Credit Agreement includes covenants that require the
maintenance of certain financial ratios and net worth and that place
restrictions on the repurchase of common stock and the payment of dividends.
Outstanding borrowings under the agreement are collateralized by substantially
all of the assets of the Company.

         Interest is payable on the utilized revolving credit facility at
either the prime commercial rate (8.50% at December 31, 1997) or LIBOR (5.72%
at December 31, 1997) plus 2.00% at the option of the Company and on the unused
credit facility at a rate of .25%. Letter of credit fees of 1.5% are paid at
origination.

         The weighted average interest rate for borrowings under the revolving
credit facility during the period was 8.07% and 8.23% for December 31, 1997 and
1996, respectively.

8.       LONG-TERM DEBT

         Long-term debt at December 31 consists of (in thousands):
<TABLE>
<CAPTION>

                                                                                            1996            1997
                                                                                           -------        ---------
<S>                                                                                        <C>             <C>
Taxable Variable Rate Demand Notes..................................................       $ 7,100         $ 5,350
11 1/2% Senior Subordinated Notes due 2003..........................................        75,000          75,000
                                                                                           -------         -------
                                                                                            82,100          80,350
Less amounts due in one year........................................................         1,750           1,750
                                                                                           -------         -------
                                                                                           $80,350         $78,600
                                                                                           =======         =======
</TABLE>

         Scheduled principal payments are $1,750,000 in 1998 and $3,600,000 in
1999.

         Interest on the Taxable Variable Rate Demand Notes (the "Taxable
Notes") is payable monthly at the greater of the 30 or 90 day commercial paper
rate plus 0.125%. Effective April 5, 1993, the Company entered into an interest
rate swap which fixed the interest rate on the Taxable Notes at 5.57% per annum
for a period of five years. The Taxable Notes are payable in quarterly
installments ranging from $400,000 to $450,000 through January 1, 1999, with
the remaining balance due on April 1, 1999. The Taxable Notes are secured by an
irrevocable letter of credit in accordance with the Credit Agreement (see Note
7). The Taxable Notes contain similar covenants and restrictions in the Credit
Agreement described in Note 7.

         Interest on the Senior Subordinated Notes is payable semiannually. The
Senior Subordinated Notes are unsecured. The Indenture pursuant to which the
Senior Subordinated Notes were issued contains covenants that, among other
things, limit the ability of the Company to incur additional indebtedness, pay
dividends, make certain investments and repurchase stock or subordinated
indebtedness.

         The estimated fair value of the Taxable Notes at December 31, 1997 was
$5,350,000. The Taxable Notes have a variable interest rate and therefore trade
at face value. The fair value of the Senior Subordinated Notes at December 31,
1997 was $79,688,000 based upon quoted market price.



                                     -27-
<PAGE>   29



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


9.       COMMITMENTS

         Commitments for future minimum lease payments under noncancelable
operating leases, principally for manufacturing and distribution facilities and
certain equipment, are approximately $9,200,000, $7,530,000, $5,319,000,
$3,428,000, $2,565,000 and $1,382,000 for the years ending December 31, 1998,
1999, 2000, 2001, 2002 and thereafter, respectively. Lease expense was
approximately $10,901,000, $10,391,000 and $9,186,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.

10.      INCOME TAXES

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

                                              1995                        1996                       1997
                                     -----------------------     ----------------------     --------------------
                                      CURRENT       DEFERRED      CURRENT      DEFERRED      CURRENT    DEFERRED
                                     ---------     ---------     ---------    ---------     ---------   --------
<S>                                  <C>           <C>           <C>          <C>           <C>           <C>    
Federal income taxes................ $   1,559     $    (981)    $   2,252    $   1,918     $   7,816   $     55
State income taxes..................       153          (186)          918           84         1,641         12
                                     ---------     ---------     ---------    ---------     ---------   --------
                                     $   1,712     $  (1,167)    $   3,170    $   2,002     $   9,457       $ 67
                                     =========     =========     =========    =========     =========   ========
</TABLE>

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

                                                                                             1996          1997
                                                                                            ------        -----
<S>                                                                                        <C>            <C> 
Deferred tax assets:
  Medical benefits.................................................................        $ 1,680        $1,581
  Bad debt expense.................................................................          1,301         1,847
  Pension expense..................................................................          1,806         3,427
  Inventory costs..................................................................            994           247
  Other............................................................................            805           305
                                                                                            ------        ------
Total deferred tax assets..........................................................          6,586         7,407
Deferred tax liabilities:
  Depreciation.....................................................................          7,976         8,519
  Other............................................................................            494           839
                                                                                            ------         -----
Total deferred tax liabilities.....................................................          8,470         9,358
                                                                                             -----         -----

Net deferred tax liabilities.......................................................        $(1,884)      $(1,951)
                                                                                           =======       =======
</TABLE>
         The reconciliation of the statutory rate to the Company's effective
income tax rate for the years ended December 31 follows:
<TABLE>
<CAPTION>

                                                                         1995           1996            1997
                                                                         ----           ----            ----
<S>                                                                      <C>           <C>          <C>
Statutory rate....................................................       34.0%          34.0%           35.0%
State income tax loss, net of federal income tax benefit..........        5.6            4.3             4.6
Equity in (earnings) loss of Amercord.............................       (8.1)          (3.3)             .8
Other.............................................................       (1.3)           1.9             1.7
                                                                         ----           ----            ----
Effective rate....................................................       30.2%          36.9%           42.1%
                                                                         ====           ====            ====
</TABLE>


                                      28

<PAGE>   30

                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

11.      STOCKHOLDERS' EQUITY

         The Class B Common Stock is convertible on a one-for-one basis into
Common Stock at any time subject to legal restrictions, if any, applicable to
the holder of such shares. The Class B Common Stock has the same rights and
privileges extended to the Common Stock except that the holder of Class B
Common Stock may vote only on matters pertaining to changes in the Certificate
of Incorporation; the sale, lease, or disposition of certain assets; mergers or
consolidations; or the liquidation or dissolution of the Company.

12.      EARNINGS PER SHARE

         In 1997, the Financial Accounting Standards Board issued SFAS No. 128
which replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share amounts for all periods presented
have been restated to conform to SFAS 128 requirements, and in accordance with
the Securities and Exchange Commission ("Commission") Staff Accounting
Bulletin, Topic 4D, common shares issued during the 12-month period prior to
the initial filing of the registration statement with respect to the proposed
offering of Common Stock at prices below the assumed public offering price have
been included in the calculation of diluted earnings per share as if they were
outstanding for all periods presented (see Note 17).

         The following table sets forth the computation of basic and diluted
earnings per share but does not reflect additional shares to be offered in
conjunction with the registration statement with respect to the proposed
offering of Common Stock as disclosed in Note 17:

<TABLE>
<CAPTION>

                                                                                     YEAR ENDED DECEMBER 31,
                                                                               -----------------------------------  
                                                                                 1995         1996          1997
                                                                               -------       -------      -------- 
                                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                           <C>            <C>          <C> 
Numerator:                                                                  
       Numerator for basic and diluted earnings per common share--
          income available to common shareholders......................        $ 1,260       $ 8,822      $ 13,089
Denominator:                                                        
       Denominator for basic earnings per common share--
         weighted-average shares.......................................          7,532         7,594         7,594
       Effect of dilutive securities:                    
            Employee stock options.....................................            163           152           162
       Denominator for diluted earnings per common share--
          adjusted weighted-average shares.............................          7,695         7,746         7,756
                                                                               =======       =======       =======
Basic earnings per common share........................................        $  0.17       $  1.16       $  1.72
                                                                               =======       =======       =======
Diluted earnings per common share......................................        $  0.16       $  1.14       $  1.69
                                                                               =======       =======       =======
</TABLE>



                                     -29-
<PAGE>   31



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

13.      STOCK OPTIONS

         The Company has a stock option plan, whereby it grants non-statutory
stock options to certain directors, officers and key employees. The Company has
authorized 800,000 shares of common stock to be issued under the plan. The
options granted in 1995, 1996 and 1997 were granted at fair market value on the
grant date and are exercisable for ten years. One-half of the options vest upon
grant date and the remainder vest after two years.

         Transactions during 1995, 1996 and 1997 under this plan are summarized
below:
<TABLE>
<CAPTION>
                                                                                SHARES            EXERCISE PRICE
                                                                              --------          ----------------
<S>                                                                           <C>              <C>      
Options outstanding at December 31, 1994................................       299,000          $  .003 to $6.00
     Granted............................................................        33,000                     $5.00
     Expired or canceled................................................       (69,800)         $  .003 to $6.00
                                                                              --------          ----------------
Options outstanding at December 31, 1995................................       262,200          $  .003 to $5.00
     Exercised..........................................................       (62,400)                    $.003
     Granted............................................................        12,500                     $5.00
                                                                              --------          ----------------
Options outstanding at December 31, 1996................................       212,300          $ 2.925 to $5.00
     Exercised..........................................................       (40,500)         $ 2.925 to $5.00
     Granted............................................................       140,000          $12.00 to $16.00
     Expired or canceled................................................        (4,500)                    $5.00
                                                                              --------          ----------------
Options outstanding at December 31, 1997................................       307,300          $2.925 to $16.00

</TABLE>

         Options to purchase 233,550, 189,550 and 239,700 shares were
exercisable at December 31, 1997, 1996 and 1995, respectively. The weighted
average exercise price of options outstanding was $7.79, $3.47 and $2.57 at
December 31, 1997, 1996 and 1995, respectively.

         The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>

                                                                  
                         OPTIONS OUTSTANDING                      
     ------------------------------------------------------------                        
                          WEIGHTED AVERAGE                                          OPTIONS EXERCISABLE
                             REMAINING                                       --------------------------------
     SHARES                 LIFE IN YEARS          EXERCISE PRICE             SHARES           EXERCISE PRICE
     ------                 -------------          --------------            -------           --------------
   <S>                    <C>                        <C>                     <C>                    <C>   
    136,800                     5.67                 $ 2.925                 136,800                 $ 2.925
     30,500                     7.41                 $ 5.000                  26,750                 $ 5.000
    100,000                     9.17                 $12.000                  50,000                 $12.000
     40,000                     9.42                 $16.000                  20,000                 $16.000

</TABLE>

         The Company adopted the disclosure provisions of SFAS No. 123 in 1996,
and continues to measure stock-based compensation in accordance with APB No.
25. Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement.
The weighted average fair value at date of grant for options granted during
1997, 1996, and 1995 was $6.09, $2.56 and $2.39 per option, respectively. The
fair value of the options was estimated at the date of the grant using the
minimum value method option pricing model assuming dividend yields of 1.0% and
a weighted-average expected life of an option of 10 years. A risk-free interest
rate of 7.03%, 6.87% and 6.76% was used for 1997, 1996 and 1995, respectively.

         Stock based compensation costs would have reduced net income by
$389,000, $17,000 and $55,000 and $.05, $.00 and $.01 per basic and diluted
share in 1997, 1996 and 1995, respectively, if the fair values of the options
granted in that year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma effect
on net income for 1997, 1996 and 1995 is not representative of the pro forma
effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.


                                      30

<PAGE>   32



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


14.      SEGMENTS OF BUSINESS

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

         Comparative financial data by industry segment for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                  1995                1996                1997
                                                                ----------         ----------         ----------
<S>                                                             <C>                <C>                <C> 
Net sales:
       Building products....................................    $  300,561         $  314,645         $  344,000
       Electrical cable products............................        49,468             41,826             53,690
                                                                ----------         ----------         ----------
                                                                $  350,029         $  356,471         $  397,690
                                                                ==========         ==========         ==========

Operating profits (losses):
       Building products....................................    $   16,550         $   26,372         $   30,415
       Electrical cable products............................        (1,676)              (967)             5,086
       Corporate expense....................................        (2,132)            (2,253)            (2,467)
                                                                ----------         ----------         ----------
                                                                $   12,742         $   23,152         $   33,034
                                                                ==========         ==========         ==========

Identifiable assets:
       Building products....................................    $  131,570         $  133,023         $  139,751
       Electrical cable products............................        27,091             24,746             20,349
       Corporate............................................        13,392             19,940             18,404
                                                                ----------         ----------         ----------
                                                                $  172,053         $  177,709         $  178,504
                                                                ==========         ==========         ==========

Depreciation and amortization:
       Building products....................................    $    3,466         $    4,282         $    5,029
       Electrical cable products............................         1,334              1,154              1,096
       Corporate............................................           540                437                396
                                                                ----------         ----------         ----------
                                                                $    5,340         $    5,873         $    6,521
                                                                ==========         ==========         ==========
Net additions to property, plant, and equipment:
       Building products....................................    $    6,669         $    6,982         $    8,108
       Electrical cable products............................         1,014              1,128                635
       Corporate............................................            --                 --                 15
                                                                ----------         ----------         ----------
                                                                $    7,683         $    8,110         $    8,758
                                                                ==========         ==========         ==========
</TABLE>

         The Company operates principally in the United States. Operating
profit for each segment is net sales less operating expenses. Identifiable
assets by segment are those used in the Company's operations in each segment.
Corporate assets are principally the Company's investment in Amercord. Neither
aggregate export sales nor sales to a single customer have accounted for 10% or
more of consolidated net sales in any of the years presented.

                                     -31-
<PAGE>   33



                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

15.      RETIREMENT PLANS

         The Company has defined benefit contributory pension plans (the
"Plans") covering substantially all of its salaried employees and certain
nonsalaried employees. Employees are fully vested upon attaining five years of
service including past service with the businesses acquired by the Company. The
Company's policy is to fund pension costs in accordance with actuarially based
computations.

         The actuarial present value at December 31, 1997 and 1996 was
determined using a discount rate of 7.0% and 7.5%, respectively, and projected
compensation increases of 4.5%. The expected long-term rate of return on assets
was 9%. Plan assets consist primarily of equity securities, U.S. government
obligations, corporate bonds and real estate.

         Retirement plan costs, as determined by the projected unit credit cost
method, are summarized below for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>

                                                                      1995             1996              1997
                                                                   -------           -------           -------
<S>                                                                <C>               <C>               <C>     
Benefit cost for service during the year.....................      $   742           $ 1,110           $ 1,165
Interest cost on projected benefit obligation................        1,553             1,744             1,863
Return on assets.............................................       (3,412)           (3,356)           (4,614)
Net amortization.............................................        2,360             1,901             2,649
                                                                   -------           -------           -------
Net retirement plan costs....................................      $ 1,243           $ 1,399           $ 1,063
                                                                   =======           =======           =======
</TABLE>
         A schedule reconciling the projected benefit obligation with the
Company's recorded pension liability as of December 31 is shown below (in
thousands):

<TABLE>
<CAPTION>

                                                                                    1996              1997
                                                                                  ---------         ---------
<S>                                                                              <C>                <C>   
Accumulated benefit obligation, including vested benefits
    of $17,608 and $22,924, respectively.....................................     $  20,755         $  24,066
Effect of projected salary increases.........................................         5,490             6,172
                                                                                  ---------         ---------
Present value of the projected benefit obligation............................        26,245            30,238
Plan assets at fair value....................................................        23,120            27,363
                                                                                  ---------         ---------
Plan assets less than the present value of the projected
    benefit obligations......................................................         3,125             2,875
The recorded pension liability (included in the accrued current
    liabilities in the balance sheets) is calculated by adding to the
    above amount:
        Unrecognized net gains...............................................         3,450             4,489
        The portion of the liability which, under SFAS No. 87,
            is being amortized over 16 years.................................        (1,127)             (905)
                                                                                  ---------         ---------
Recorded pension liability...................................................     $   5,448         $   6,459
                                                                                  =========         =========
</TABLE>

         The Company sponsors a defined contribution plan (the "401(k) Plan")
intended to provide assistance in accumulating personal savings for retirement.
The 401(k) Plan qualified as a tax-exempt plan under Sections 401(a) and 401(k)
of the Internal Revenue Code and covers all full-time employees of AmerCable.
The Company matches up to 3.5% of eligible compensation. For the years ended
December 31, 1997, 1996 and 1995 the Company's pre-tax contributions to the
401(k) Plan were $175,000, $145,000 and $136,000, respectively.


                                     -32-
<PAGE>   34
                       ASSOCIATED MATERIALS INCORPORATED
                  NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


16.  CONTINGENCIES

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

17.  PUBLIC OFFERINGS

     The Company has filed a registration statement with the Commission to
sell, through an initial public offering, 2,128,800 shares (before
over-allotment) of the Company's Common Stock (the "Stock Offering"). Of these
shares, 700,000 shares of Common Stock (808,520 shares if the over-allotment
option is exercised in full) will be sold by the Company with the remaining
1,428,800 shares to be sold by certain stockholders. In addition, the Company
has filed a registration statement with the Commission to sell $75,000,000
aggregate principal amount of Senior Subordinated Notes due 2008 (the "New
Notes"). The issuance of the New Notes in such offering (the "Note Offering")
is conditioned upon the successful completion of a tender offer and consent
solicitation with respect to the Company's outstanding Senior Subordinated
Notes (Note 8). The Stock Offering is not contingent upon the completion of the
Note Offering and the Note Offering is not contingent upon the completion of
the Stock Offering.


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

Not applicable.




                                      -33-

<PAGE>   35



                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Directors, executive officers and certain key employees of the Company
are as follows:


<TABLE>
<CAPTION>
              NAME                       AGE                                  POSITION
              ----                       ---                                  --------
<S>                                      <C>                                  <C>
William W. Winspear (1)..........        64         Chairman of the Board, President and Chief Executive Officer of
                                                    the Company
Donald L. Kaufman (1)............        66         President and Chief Executive Officer of Alside and Vice  President
                                                    and Director of the Company
Richard I. Galland (2)(3)........        81         Director
James F. Leary (3)(4)............        67         Director
Alan B. Lerner (1)...............        67         Director
A. A. Meitz (3)(4)...............        60         Director
Gary D. Trabka (2)(5)............        43         Director
Robert F. Hogan, Jr..............        41         President and Chief Executive Officer of AmerCable and Vice
                                                    President of the Company
Robert L. Winspear...............        32         Vice President, Treasurer and Secretary of the Company
James R. Bussman (6).............        50         Executive Vice President -- Corporate Services of Alside and Vice
                                                    President of the Company
Michael R. St. Clair (6).........        51         Executive Vice President -- Finance of Alside and Vice President of
                                                    the Company
Wayne D. Fredrick (6)............        51         Group Vice President -- Window Products of Alside
Benjamin L. McGarry (6)..........        50         Group Vice President -- Vinyl Manufacturing of Alside
</TABLE>

--------------------
(1)   Serves in the class of directors whose terms expire at the Annual Meeting
      of Stockholders in 2000.
(2)   Serves in the class of directors whose terms expire at the Annual Meeting
      of Stockholders in 2001.
(3)   Member of the Compensation Committee and the Audit Committee.
(4)   Serves in the class of directors whose terms expire at the Annual Meeting
      of Stockholders in 1999.
(5)   Pursuant to an agreement among The Prudential Company of America
      ("Prudential"), the Winspear Limited Partnership, a Texas limited
      partnership (the "Winspear Partnership") and the Company (the
      "Stockholders' Agreement"), Prudential may, under certain circumstances,
      nominate up to three persons to the Board of Directors of the Company and
      the Winspear Partnership has agreed to vote its shares of Common Stock in
      favor of such nominees. Pursuant to the Stockholders' Agreement,
      Prudential designated Mr. Trabka to serve as a Director of the Company.
      Mr. Trabka has informed the Company that he intends to resign as a
      director following the completion of the Stock Offering. Further,
      Prudential has informed the Company that it does not presently intend to
      exercise its right under the Stockholders' Agreement to nominate persons
      to serve as directors following the completion of the Stock Offering. See
      "Certain Relationships and Related Transactions -- Stockholders'
      Agreement."
(6)   Messrs. Bussman, St. Clair, Fredrick and McGarry are considered key
      employees of the Company because of their responsibilities as divisional
      officers in the respective capacities indicated. The Company does not,
      however, consider such employees to be executive officers of the Company.

         The following is a brief description of the business experience of the
Directors, executive officers and certain key employees of the Company for at
least the past five years.

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



                                      -34-

<PAGE>   36



         Mr. Kaufman has been President of Alside since 1974 and has been Chief
Executive Officer of Alside since 1982. Mr. Kaufman joined Alside in 1955 and
became a Director and a Vice President of the Company in 1984.

         Mr. Galland became a Director of the Company in 1984.  Mr. Galland was
formerly Chairman of the Board and Chief Executive Officer of American
Petrofina Incorporated, an energy exploration and production company and
formerly Of Counsel to the law firm of Jones, Day, Reavis & Pogue. Mr. Galland
is also a director of D. R. Horton, Inc., a homebuilding company, and Texas
Industries, Inc., a steel and construction materials production company.

         Mr. Leary became a Director of the Company in 1984. Since September
1995, Mr. Leary has been Vice Chairman - Finance and a director of Search
Financial Services Inc., a consumer finance company, as well as serving as
President of Sunwestern Management Inc., an investment management company,
since 1982. Mr. Leary is also a director of Capstone Growth Fund and Capstone
Fixed Income Fund, and Phase-Out of America, Inc., a company that manufactures
smoking cessation devices.

         Mr. Lerner became a Director of the Company in May 1997.  Mr. Lerner
retired as Senior Executive Vice President from Associates Corporation of North
America, a consumer and commercial finance company in 1993, where he had been
employed since 1981.

         Mr. Meitz became a Director of the Company in 1993.  Mr. Meitz  retired
as Senior Vice President of the consulting firm of Booz, Allen & Hamilton, Inc.
in 1994 where he was employed since 1965. Mr. Meitz is a director of Greyhound
Lines, Inc., and Banctec, Inc., a computer systems development and support
services company.

         Mr. Trabka became a Director of the Company in February 1994.  Mr. 
Trabka has been a Managing Director of the Prudential Capital Group since
February 1989. Prior to 1989 Mr. Trabka was Vice President of Corporate Finance
with Prudential. Mr. Trabka serves as a director of Food Barn Stores, Inc., a
retail grocery chain at the request of Prudential. Mr. Trabka is also a
director of the Prudential Home Mortgage Company, Inc. Mr. Trabka has been
designated by Prudential to serve as a director of the Company pursuant to the
Stockholders' Agreement. See "Certain Relationships and Related Transactions
--Stockholders' Agreement."

         Mr. Hogan has been President and Chief Executive Officer of AmerCable
since November 1993 and Vice President of the Company since 1984. Prior to
becoming President of AmerCable, Mr. Hogan was Treasurer and Secretary of the
Company from 1984 to 1993.

         Mr. Robert L. Winspear joined the Company in June 1993 and was named 
Vice President, Treasurer and Secretary in October 1993. Prior to joining the
Company, Mr. Winspear was a Senior in the Financial Consulting and Audit
division of Arthur Andersen LLP, where he had been employed since 1988. Mr.
Winspear is also a director of Amercord. Mr. Winspear is the son of William W.
Winspear.

         Mr. Bussman has been Executive Vice President -- Corporate Services of 
Alside since 1983. Mr Bussman has held various other positions with Alside
since 1972, and was named a Vice President of the Company in 1984.

         Mr. St. Clair was named Executive Vice President -- Finance of Alside 
in December 1994. Mr. St. Clair had been Senior Vice President -- Finance of
Alside since joining the Company from The Warner & Swasey Company, Inc., a
machine tool manufacturing company in 1985. Mr. St. Clair was named a Vice
President of the Company in 1986.

         Mr. Fredrick was named Group Vice President -- Window Products of 
Alside in January 1997. From 1990 to 1996, Mr. Fredrick was Senior Vice
President -- Window Products of Alside. Mr. Fredrick joined Alside in 1973.

         Mr. McGarry was named Group Vice President -- Vinyl Manufacturing of
Alside in January 1997. From 1984 to 1996, Mr. McGarry was Senior Vice
President -- Manufacturing of Alside. Mr. McGarry joined Alside in 1980.

         Officers of the Company serve at the discretion of the Board of
Directors.

                                      -35-

<PAGE>   37



ITEM 11.       EXECUTIVE COMPENSATION

         The following table sets forth the annual compensation paid by the
Company for services rendered in 1997, 1996 and 1995 by the Chief Executive
Officer and each of the other executive officers of the Company. For the
purposes of this report, Messrs. W.W. Winspear, Kaufman, Hogan and R.L.
Winspear are referred to as the "named executive officers."
                                      
                          SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                      LONG-TERM
                                                                                    COMPENSATION
                                             ANNUAL COMPENSATION (1)                   AWARDS
                                    --------------------------------------        -----------------
                                    FISCAL                                        SHARES UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION          YEAR        SALARY             BONUS          OPTIONS/SARS(2)      COMPENSATION
---------------------------         ------     ---------         ---------        -----------------    --------------
<S>                                  <C>       <C>               <C>              <C>                  <C>         
William W. Winspear...............   1997      $ 436,667         $ 342,930               --            $  31,600(3)
  Chairman of the Board,             1996      $ 400,000         $ 214,362               --            $  30,250
  President and Chief                1995      $ 398,333         $  28,005               --            $  30,250
  Executive Officer

Donald L. Kaufman.................   1997      $ 378,333         $ 209,529             100,000         $  26,000(4)
  President and Chief                1996      $ 345,000         $ 181,666               --            $ 102,742
  Executive Officer of Alside        1995      $ 343,335         $ 102,595               --            $ 127,199

Robert F. Hogan, Jr...............   1997      $ 172,917         $ 206,654               --            $   5,600(5)
  President and Chief                1996      $ 150,000         $  --                   --            $   5,250
  Executive Officer of AmerCable     1995      $ 150,000         $  --                   --            $   5,250

Robert L. Winspear................   1997      $ 100,816         $  34,293               --            $   3,529(6)
  Vice President, Treasurer          1996      $  82,292         $  21,436               --            $   2,880
  and Secretary                      1995      $  79,583         $   2,801               --            $   2,785
</TABLE>

-----------------------
(1)  Perquisites and other personal benefits received by the named executive
     officers are not included in the Summary Compensation Table because the
     aggregate amount of such compensation, if any, did not meet disclosure
     thresholds established under current regulations of the Commission.
(2)  In February 1997, Mr. Kaufman was granted options to purchase 100,000
     shares of Common Stock at $12.00 per share, the fair market value of the
     Common Stock on the date of grant. The options vested 50% on the date of
     grant and the balance vests on the second anniversary of the date of
     grant.
(3)  Includes directors fees of $26,000 and amounts accrued or allocated under
     AmerCable's retirement plan of $5,600.
(4)  Includes directors fees of $26,000.
(5)  Includes amounts accrued or allocated under AmerCable's retirement plan of
     $5,600.
(6)  Includes amounts accrued or allocated under AmerCable's retirement plan of
     $3,529.


                                      -36-

<PAGE>   38



                           OPTION/SAR GRANTS IN 1997

         The following table provides information regarding the grant of stock
options to the named executive officers in 1997. In addition, hypothetical
gains of 5% and 10%, along with a third column representing a 0% gain (listed
in the table under "Potential Realizable Value at Assumed Annual Rates of Stock
Price Appreciation for Option Term"), are shown for these stock options. These
hypothetical gains are based on assumed rate of annual compound stock price
appreciation of 0%, 5% and 10% from the date the stock options were granted
over the full option term of ten years.


<TABLE>
<CAPTION>
                                                INDIVIDUAL GRANTS
                       ------------------------------------------------------------------
                                                                                               POTENTIAL REALIZABLE VALUE
                         NUMBER OF      PERCENTAGE OF                                           AT ASSUMED ANNUAL RATES
                         SECURITIES    TOTAL OPTIONS/                                                OF STOCK PRICE
                         UNDERLYING         SARS                                                      APPRECIATION
                          OPTIONS/       GRANTED TO      EXERCISE                                 FOR OPTION TERM (3)
                            SARS          EMPLOYEES      PRICE PER       EXPIRATION       -----------------------------------
         NAME              GRANTED         IN 1997       SHARE (2)          DATE               0%           5%         10%
         ----          -------------- ----------------- ----------- --------------------- ----------- ----------- -----------
<S>                    <C>            <C>               <C>         <C>                   <C>         <C>         <C>
William W. Winspear           0           --  %           $ --               --             $  --        $  --         $  --

Donald L. Kaufman        100,000(1)       100              12.00      February 25, 2007        --          754,673     1,912,491

Robert F. Hogan               0           --                --               --                --           --            --

Robert L. Winspear            0           --                --               --                --           --            --
</TABLE>

-------------------------
(1)  The exercise price was equal to the fair market value of the Common Stock
     on the date of grant.  The Company has not granted stock appreciation
     rights.
(2)  The option for such shares became 50% vested on the date of grant and the
     balance vests on the second anniversary of the grant.
(3)  The potential realizable value portion of the foregoing table illustrate
     value that might be realized upon exercise of the option immediately prior
     to the expiration of its term, assuming the specified compounded rates of
     appreciation on the Common Stock over the term of the option. The use of
     the assumed 5% and 10% annual rates to stock price appreciation are
     established by the Commission and is not intended by the Company to
     forecast possible future appreciation of the price of its Common Stock.

                    AGGREGATED OPTION/SAR EXERCISES IN 1997
                    AND DECEMBER 31, 1997 OPTION/SAR VALUES

         The following table provides information, for each of the named
executive officers, regarding the exercise of options during 1997 and
unexercised options held as of December 31, 1997.


<TABLE>
<CAPTION>
                                                                       NUMBER OF SHARES                VALUE OF UNEXERCISED
                                                                    UNDERLYING UNEXERCISED                 IN-THE-MONEY
                                                                        OPTIONS/SARS                     OPTIONS/SARS AT
                                                                   AT DECEMBER 31, 1997 (1)            DECEMBER 31, 1997 (2)
                                                               ------------------------------     -----------------------------
                            SHARES ACQUIRED        VALUE
          NAME                ON EXERCISE         REALIZED      EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
          ----              ---------------      -----------    -----------     -------------     -----------     -------------
<S>                         <C>                  <C>            <C>             <C>              <C>              <C>
William W. Winspear              0            $     0                 0                0            $      0         $      0
Donald L. Kaufman                0                  0            50,000           50,000             250,000          250,000
Robert F. Hogan                  0                  0                 0                0                   0                0
Robert L. Winspear               0                  0            20,000                0             281,500                0
</TABLE>

-------------------------

(1) The Company has not granted stock appreciation rights.
(2) Value was determined based upon $17.00 per share (the mid-point of the
    price range per share for Common Stock in the Stock Offering) multiplied
    by the number of shares of Common stock of the Company underlying such
    options.


                                      -37-

<PAGE>   39



COMPENSATION AND INCENTIVE PROGRAMS

         Profit Sharing Plan. The Company maintains a profit sharing plan (the
"Profit Sharing Plan") providing for annual bonus awards to certain key
employees, including each of the executive officers of the Company. Such bonus
amounts are based on the Company and, in the cases of Alside and AmerCable
personnel, the divisions meeting certain performance goals established by the
Company's Board of Directors. The Profit Sharing Plan is administered by the
Compensation Committee of the Board of Directors (the "Compensation
Committee"), none of the members of which is eligible for a bonus award
pursuant to this Plan. Bonus payments under the Profit Sharing Plan are not
guaranteed. Cash bonuses accrued under the Profit Sharing Plan in 1997, 1996
and 1995 to each of the named executive officers are set forth in the Summary
Compensation Table.

         Alside Retirement Plan. The Company maintains a defined benefit
pension plan, the Alside Retirement Plan (the "Alside Plan"). The Alside Plan
covers all Alside employees who have completed one year of service, except for
various designated groups of hourly and union employees. Mr. Kaufman is the
only executive officer of the Company entitled to receive benefits pursuant to
the Alside Plan. Mr. Kaufman, who is age 66, would be eligible to receive a
monthly pension amount of approximately $14,000 if he were to retire in 1998.
The Company believes that Mr. Kaufman intends to remain in his current position
as President and Chief Executive Officer of Alside and has no current intention
to retire.

         Executive Agreement.  Pursuant to an agreement with the Company, Mr.
Kaufman is entitled to receive severance pay in an amount equal to his total
earnings for the twelve-month period prior to the termination of his employment
for any reason.

DIRECTOR COMPENSATION

         Directors, including Directors who are employees of the Company,
receive an annual retainer of $16,000 plus $2,500 for each Directors' meeting
attended. Directors are also reimbursed for reasonable travel expenses incurred
in connection with attendance at Directors' meetings.

         Mr. Lerner was granted options to purchase 40,000 shares of Common
Stock at $16.00 per share in May 1997 upon first being elected to the Board of
Directors and the Company. The options became 50% vested on the date of grant
and the balance vests on the second anniversary of the date of grant.



                                      -38-

<PAGE>   40



ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                    BENEFICIAL OWNERSHIP

         The following table sets forth as of January 15, 1998, the beneficial
ownership of Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (ii) each Director
of the Company, (iii) each named executive officer, and (iv) all Directors and
executive officers of the Company as a group. Unless otherwise indicated below,
to the knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock.


<TABLE>
<CAPTION>
                                                                              SHARES       PERCENTAGE OF
                                                                           BENEFICIALLY       COMMON
                        NAME OF BENEFICIAL OWNER                               OWNED         SHARES (1)
                        ------------------------                           ------------    -------------
<S>                                                                         <C>                    <C>  
William W. Winspear.....................................................    3,851,200              50.7%
   2200 Ross Avenue, Suite 4100 East
   Dallas, TX  75201 (2) (3)
The Prudential Insurance Company of America.............................    2,700,000              35.6%
   Four Gateway Center
   100 Mulberry Street
   Newark, NJ  07102 (4)
Richard I. Galland......................................................       40,000               *
Robert F. Hogan, Jr.....................................................       80,000               1.1%
Donald L. Kaufman (5)...................................................      367,000               4.8%
James F. Leary (6)......................................................       10,000               *
Alan B. Lerner (6)......................................................       20,000               *
A.A. Meitz (6)..........................................................       40,000               *
Gary D. Trabka (7)......................................................            0              --
Robert L. Winspear (3) (6)..............................................       80,800               1.1%
All Directors and executive officers as a group (9 persons).............    4,489,000              59.1%
</TABLE>

--------------------
* Less than 1%.
(1)  The percentages shown assume the conversion of all outstanding shares of
     Class B Common Stock into shares of Common Stock.

(2)  All such shares are held of record by the Winspear Partnership of which
     Mr. William W. Winspear is the Managing General Partner.
(3)  William W. Winspear is the father of Robert L. Winspear.
(4)  Prudential owns of record 2,700,000 shares of Class B Common Stock which
     may be converted at any time at the election of the holder into Common
     Stock on a one to one basis. The holder of shares of Class B Common Stock
     has rights and privileges identical to the rights and privileges of the
     Common Stock, except that the holder of shares of Class B Common Stock may
     vote (with the holders of Common Stock) only on (i) any amendment to the
     Company's Certificate of Incorporation, (ii) any sale or other disposition
     of all or substantially all of the Company's assets, (iii) any merger or
     consolidation of the Company, and (iv) any liquidation, dissolution or
     winding up of the Company.
(5)  Includes options exercisable within 60 days of the date hereof for 50,000
     shares and includes 132,000 shares of Common Stock held by trusts for the
     benefit of certain members of Mr. Kaufman's family, as to which Mr.
     Kaufman disclaims beneficial ownership. Excludes 6,000 held by a
     charitable foundation of which Mr. Kaufman is trustee, as to which Mr.
     Kaufman disclaims beneficial ownership.
(6)  Includes options exercisable within 60 days of the date hereof by Messrs.
     Leary, Lerner, Meitz and R.L. Winspear for 10,000, 20,000, 40,000 and
     20,000 shares, respectively.
(7)  Mr. Trabka is a Managing Director of the Prudential Capital Group. See
     Note 4.


                                      -39-

<PAGE>   41



ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS' AGREEMENT

         The Company, the Winspear Partnership and Prudential are parties to a
stockholders' agreement (the "Stockholders' Agreement"). Pursuant to the
Stockholders' Agreement, Prudential and the Winspear Partnership agreed (i) not
to transfer, prior to an underwritten initial public offering of the Company's
Common Stock (an "IPO"), any of their shares of Common Stock or Class B Common
Stock, with certain limited exceptions, without offering the right to purchase
such shares, first, to the non-selling party and, second, to the Company, (ii)
if the Winspear Partnership, or any subsequent holder of its shares of Common
Stock, intends to sell any of such shares (other than in an underwritten public
offering or to an affiliate), to permit Prudential to participate in such sale
on a pro rata basis, (iii) if the Winspear Partnership, or any subsequent
holder of its shares of Common Stock, elects to sell shares of Common Stock, to
require Prudential and subsequent holders of its shares to participate in such
sale on a pro rata basis (but only if the total number of shares of Common
Stock to be sold pursuant to this clause exceeds 50% of the outstanding shares
of Common Stock and Class B Common Stock on a fully diluted basis), and (iv)
prior to an IPO to grant, first, the Company and, second the other parties to
the Stockholders' Agreement the right to purchase their shares of Common Stock
or Class B Common Stock which would otherwise be transferred as a result of a
default, foreclosure, forfeiture, court order or other involuntary transfer.
The Stockholders' Agreement also requires, so long as Prudential and certain
Prudential affiliates beneficially own at least 15% of the outstanding Common
Stock (on a fully diluted basis), all shares of Common Stock (and any other
voting securities) subject to the Stockholders' Agreement to be voted to elect
two persons designated by Prudential to a seven-person Board of Directors.
Under those provisions of the Stockholders' Agreement, Prudential has the
right, if the Company expands the board to eight members, to require the
securities subject to the Stockholders' Agreement to be voted to (i) expand the
Board to nine members, (ii) limit the size of the Board to nine members, and
(iii) elect a third Director designated by Prudential. If Prudential and its
affiliates beneficially own at least 5% (but less than 15%) of the Common
Stock, such provisions require such shares to be voted to elect to the Board
one person designated by Prudential. In addition, in the Stockholders'
Agreement the Company has granted to Prudential, the Winspear Partnership and
subsequent holders of their shares of preemptive rights prior to an IPO to
acquire additional shares of Common Stock or equivalent securities (or options,
warrants, rights or other securities exchangeable or convertible for any such
shares) to maintain their then-current percentage beneficial ownership interest
in the Company, provided such preemptive rights do not apply to the issuance of
up to 150,000 shares of Common Stock to Directors or employees of the Company
nor to the issuance of securities as consideration for an acquisition of a
business approved by the Company's Board of Directors. Finally, under the
Stockholders' Agreement, if prior to an IPO the Company sells all or
substantially all of its assets, the stockholder parties to the Agreement are
required to use their best efforts to liquidate and dissolve the Company and
distribute the Company's assets unless Prudential's shares are bought by the
Company or the other stockholder parties at a mutually agreeable price to be
negotiated at the time. Unless earlier terminated, the Stockholders' Agreement
expires August 19, 2003.

         Pursuant to the Stockholders' Agreement, Prudential designated Mr.
Trabka to serve as a Director of the Company. Prudential currently has the
right to nominate two additional directors. Mr. Trabka has informed the Company
that he intends to resign as a Director following the completion of the Stock
Offering. Further, Prudential has informed the Company that it does not
presently intend to exercise its right under the Stockholders' Agreement to
nominate persons to serve as directors following the completion of the Stock
Offering.

REGISTRATION RIGHTS AGREEMENT

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

         The Registration Rights Agreement further provides that the Company
will bear all expenses associated with the Company's obligation to effect such
registrations, other than underwriting discounts, commissions and transfer
taxes, if any. The Company's obligation to pay such expenses includes the
out-of-pocket expenses (including legal and accounting expenses) for the first
registration of Common Stock by Prudential or its private transferees, up to
$100,000, and for the first registration of Common Stock by the Winspear
Partnership or its private transferees, up to $100,000, including the
registration effected in connection with an IPO.

                                      -40-

<PAGE>   42



                                    PART IV

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

         The following documents are included in this report.

(a)(1)  FINANCIAL STATEMENTS

         See Index to Financial Statements at Item 8 on page 17 of this report.

(a)(2)  FINANCIAL STATEMENT SCHEDULES

         All financial statement schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of schedules, or because the information required is included in the
financial statements and notes thereto.

(b)      REPORTS ON FORM 8-K

         During the quarter ended December 31, 1997, the Company filed a
Current Report on Form 8-K, dated December 12, 1997. The report included
information under Item 5 --Other Events.

(c)      EXHIBITS

     3.1  -- Restated Certificate of Incorporation, as amended, of Associated
             Materials Incorporated (the "Company") (incorporated by reference
             to Exhibit 3.1 to the Company's Registration Statement on Form S-1,
             Commission File No. 33-84110 (the "1994 Registration Statement")).

     3.2  -- Restated Bylaws of the Company (incorporated by reference to
             Exhibit 3.2 of the 1994 Registration Statement).

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

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

     4.3 --  Indenture, dated as of August 1, 1993, between the Company and U.S.
             Trust Company of Texas, N.A., as Trustee (the "Indenture")
             (incorporated by reference to Exhibit 4.1 to the Company's Annual
             Report on Form 10-K for the fiscal year ended December 31, 1993
             (the "1993 Form 10-K")). 

     4.4 --  Form of Senior Subordinated Note issuable under the Indenture
             (incorporated by reference to Exhibit 4.2 to the Company's
             Registration Statement on Form S-1, Commission File No. 33-64788
             (the "1993 Registration Statement")).

     4.5  -- Registration Rights Agreement, dated as of August 19, 1993, among
             the Company, PruSupply Capital Assets, Inc. ("PruSupply"), W.W.
             Winspear, M.M. Winspear, D.J. Allan, M.G. Winspear, D.W. Winspear,
             R.L. Winspear, B.W. Meyer, The Principal/The Eppler, Guerin &
             Turner, Inc., Frank T. Lauinger, John Wallace and Bonnie B. Smith
             (incorporated by reference to Exhibit 4.3 to the 1993 Form 10-K).

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

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


                                      -41-

<PAGE>   43
   4.8  -- Second Amendment to the Stockholders' Agreement, dated as of July 1,
           1994, among the Company, PruSupply, W.W. Winspear and M.M. Winspear
           (incorporated by reference to Exhibit 4.6 to the 1994 Registration 
           Statement).

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

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

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

   4.12 -- Trust Indenture, dated as of June 1, 1992, between the Company and
           KeyBank, N.A. (formerly Society National Bank) ("KeyBank"),
           relating to the Company's taxable variable rate demand notes
           ("Taxable Notes") (incorporated by reference to Exhibit 4.43 to the
           1993 Registration Statement).

   4.13 -- Remarketing Agreement, dated as of June 1, 1992, between the
           Company and KeyBank as Remarketing Agent, relating to the Taxable
           Notes (incorporated by reference to Exhibit 4.44 to the 1993
           Registration Statement).

   4.14 -- Note Purchase Agreement, dated as of June 26, 1992, between the
           Company and Automated Cash Management Trust, relating to the
           Taxable Notes (incorporated by reference to Exhibit 4.45 to the
           1993 Registration Statement).

   4.15 -- Irrevocable Letter of Credit, dated as of June 1, 1992, between
           the Company and KeyBank relating to the Taxable Notes (incorporated
           by reference to Exhibit 4.46 to the 1993 Registration Statement).

   4.16 -- Master Agreement, dated as of April 5, 1993, between the Company
           and KeyBank evidencing an interest rate swap relating to the
           Taxable Notes (incorporated by reference to Exhibit 4.47 to the
           1993 Registration Statement).

  10.1 --  Agreement of Sale, dated as of January 30, 1984, between USX
           Corporation (formerly United States Steel Corporation) ("USX") and
           the Company (incorporated by reference to Exhibit 10.1 to the 1993
           Registration Statement).
  
  10.2 --  Amendment Agreement, dated as of February 29, 1984, between USX
           and the Company (incorporated by reference to Exhibit 10.2 to the
           1993 Registration Statement).
  
  10.3 --  Subscription and Stockholders Agreement, dated as of June 25,
           1986, among the Company, Florida Wire and Cable Company ("Florida
           Wire"), GCR S.p.A. ("GCR") and Amercord Inc. (the "Subscription
           Agreement") (incorporated by reference to Exhibit 10.5 to the 1993
           Registration Statement).
  
  10.4 --  Management Agreement, effective as of May 1, 1986, between
           Amercord Inc. and the Company (incorporated by reference to Exhibit
           10.8 to the 1993 Registration Statement).
  
  10.5 --  Form of Indemnification Agreement between the Company and each of
           the Directors and executive officers of the Company (incorporated
           by reference to Exhibit 10.14 to the 1994 Registration Statement).
  
  10.6* -- Profit Sharing Plan of the Company (incorporated by reference to
           Exhibit 10.15 to the 1993 Registration Statement).
  
  10.7* -- Alside Retirement Plan (incorporated by reference to Exhibit
           10.16 to the 1993 Registration Statement).
  
  10.8 --  Associated Materials Incorporated Amended and Restated 1994 Stock
           Incentive Plan (incorporated by reference to Exhibit 10.1 to the
           Company's Quarterly Report on Form 10-Q for the period ended
           June 30, 1997).
  
                                    -42-

<PAGE>   44



     10.9* -- Letter Agreement, dated May 13, 1983, between Donald L. Kaufman
              and Company, as amended (incorporated by reference to Exhibit 10.4
              to the 1994 Registration Statement).

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

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

     11.1 --  Computation of Ratio of Earnings Per Share.

     12.1 --  Computation of Ratio of Earnings to Fixed Charges.

     21.1 --  List of Subsidiaries of the Company.

     24.1 --  Powers of Attorney of Directors and certain executive officers of
              the Company.

     27.1 --  Financial Data Schedule.

     -----------------
      * Constitutes a compensatory plan or arrangement.



                                      -43-

<PAGE>   45


                                   SIGNATURES

               Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas on January 30, 1998.

                               ASSOCIATED MATERIALS INCORPORATED

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

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

<TABLE>
<CAPTION>
                 Signature                                                          Title
                 ---------                                                          -----
<S>                                                                   <C>
          WILLIAM W. WINSPEAR*                                       Chairman of the Board, President and
     ----------------------------                                            Chief Executive Officer   
            William W. Winspear                                           (Principal Executive Officer) 
                                                                           

          /s/ ROBERT L. WINSPEAR                                     Vice President, Secretary and Treasurer
     ----------------------------                                  (Principal Financial and Accounting Officer)  
            Robert L. Winspear                                        

            RICHARD I. GALLAND*                                                   Director
     ----------------------------                                                         
            Richard I. Galland                                                            
                                                                                          
              DONALD L. KAUFMAN*                                                  Director
     ----------------------------                                                         
             Donald L. Kaufman                                                            
                                                                                          
              JAMES F. LEARY*                                                     Director
     ----------------------------                                                         
              James F. Leary                                                              
                                                                                          
               ALAN B. LERNER*                                                    Director
     ----------------------------                                                         
              Alan B. Lerner                                                              
                                                                                          
              A. A. MEITZ*                                                        Director
     ----------------------------                                                         
                A. A. Meitz                                                               
                                                                                          
                                                                                  Director
     ----------------------------                                                    
              Gary D. Trabka
</TABLE>

               Robert L. Winspear, by signing his name hereto, signs and
executes this document on behalf of each of the above-named officers and
directors of Associated Materials Incorporated on the 30th day of January,
1998, pursuant to powers of attorney executed on behalf of each of such
officers and directors, and contemporaneously filed hereunto with the
Securities and Exchange Commission.

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



                                      -44-
<PAGE>   46
                                EXHIBIT INDEX


<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER    DESCRIPTION
   ------    -----------
<S>          <C>
     3.1  -- Restated Certificate of Incorporation, as amended, of Associated
             Materials Incorporated (the "Company") (incorporated by reference
             to Exhibit 3.1 to the Company's Registration Statement on Form S-1,
             Commission File No. 33-84110 (the "1994 Registration Statement")).

     3.2  -- Restated Bylaws of the Company (incorporated by reference to
             Exhibit 3.2 of the 1994 Registration Statement).

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

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

     4.3  -- Indenture, dated as of August 1, 1993, between the Company and U.S.
             Trust Company of Texas, N.A., as Trustee (the "Indenture")
             (incorporated by reference to Exhibit 4.1 to the Company's Annual
             Report on Form 10-K for the fiscal year ended December 31, 1993 
             (the "1993 Form 10-K")).

     4.4  -- Form of Senior Subordinated Note issuable under the Indenture
             (incorporated by reference to Exhibit 4.2 to the Company's
             Registration Statement on Form S-1, Commission File No. 33-64788
             (the "1993 Registration Statement")).

     4.5  -- Registration Rights Agreement, dated as of August 19, 1993, among
             the Company, PruSupply Capital Assets, Inc. ("PruSupply"), W.W.
             Winspear, M.M. Winspear, D.J. Allan, M.G. Winspear, D.W. Winspear,
             R.L. Winspear, B.W. Meyer, The Principal/The Eppler, Guerin &
             Turner, Inc., Frank T. Lauinger, John Wallace and Bonnie B. Smith
             (incorporated by reference to Exhibit 4.3 to the 1993 Form 10-K).

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

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

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

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

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

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

     4.12 -- Trust Indenture, dated as of June 1, 1992, between the Company and
             KeyBank, N.A. (formerly Society National Bank) ("KeyBank"),
             relating to the Company's taxable variable rate demand notes
             ("Taxable Notes") (incorporated by reference to Exhibit 4.43 to the
             1993 Registration Statement).
</TABLE>

<PAGE>   47
<TABLE>
<S>          <C>

    4.13  -- Remarketing Agreement, dated as of June 1, 1992, between the
             Company and KeyBank as Remarketing Agent, relating to the Taxable
             Notes (incorporated by reference to Exhibit 4.44 to the 1993
             Registration Statement).
          
    4.14  -- Note Purchase Agreement, dated as of June 26, 1992, between the
             Company and Automated Cash Management Trust, relating to the
             Taxable Notes (incorporated by reference to Exhibit 4.45 to the
             1993 Registration Statement).
          
    4.15  -- Irrevocable Letter of Credit, dated as of June 1, 1992, between
             the Company and KeyBank relating to the Taxable Notes (incorporated
             by reference to Exhibit 4.46 to the 1993 Registration Statement).
          
    4.16  -- Master Agreement, dated as of April 5, 1993, between the Company
             and KeyBank evidencing an interest rate swap relating to the
             Taxable Notes (incorporated by reference to Exhibit 4.47 to the
             1993 Registration Statement).
          
    10.1  -- Agreement of Sale, dated as of January 30, 1984, between USX
             Corporation (formerly United States Steel Corporation) ("USX") and
             the Company (incorporated by reference to Exhibit 10.1 to the 1993
             Registration Statement).
          
    10.2  -- Amendment Agreement, dated as of February 29, 1984, between USX
             and the Company (incorporated by reference to Exhibit 10.2 to the
             1993 Registration Statement).
          
    10.3  -- Subscription and Stockholders Agreement, dated as of June 25,
             1986, among the Company, Florida Wire and Cable Company ("Florida
             Wire"), GCR S.p.A. ("GCR") and Amercord Inc. (the "Subscription
             Agreement") (incorporated by reference to Exhibit 10.5 to the 1993
             Registration Statement).
          
    10.4  -- Management Agreement, effective as of May 1, 1986, between
             Amercord Inc. and the Company (incorporated by reference to Exhibit
             10.8 to the 1993 Registration Statement).
          
    10.5  -- Form of Indemnification Agreement between the Company and each of
             the Directors and executive officers of the Company (incorporated
             by reference to Exhibit 10.14 to the 1994 Registration Statement).
          
    10.6* -- Profit Sharing Plan of the Company (incorporated by reference to
             Exhibit 10.15 to the 1993 Registration Statement).
          
    10.7* -- Alside Retirement Plan (incorporated by reference to Exhibit
             10.16 to the 1993 Registration Statement).
          
    10.8  -- Associated Materials Incorporated Amended and Restated 1994 Stock
             Incentive Plan (incorporated by reference to Exhibit 10.1 to the
             Company's Quarterly Report on Form 10-Q for the period ended
             June 30, 1997).
          
    10.9* -- Letter Agreement, dated May 13, 1983, between Donald L. Kaufman
             and Company, as amended (incorporated by reference to Exhibit 10.4
             to the 1994 Registration Statement).
          
   10.10  -- Second Amended and Restated Loan and Security Agreement, dated as
             of April 2, 1996, between the Company and KeyBank (the "Credit
             Agreement") (incorporated by reference to Exhibit 10.1 to the
             March 31, 1996 Form 10-Q).
          
   10.11  -- Third Amended and Restated Note, dated April 2, 1996, from the
             Company to KeyBank relating to the Credit Agreement (incorporated
             by reference to Exhibit 10.1 to the March 31, 1996 Form 10-Q).
          
    11.1  -- Computation of Ratio of Earnings Per Share.
          
    12.1  -- Computation of Ratio of Earnings to Fixed Charges.
          
    21.1  -- List of Subsidiaries of the Company.
          
    24.1  -- Powers of Attorney of Directors and certain executive officers of
             the Company.
          
    27.1  -- Financial Data Schedule.
</TABLE>

-----------------
* Constitutes a compensatory plan or arrangement.