<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 12, 1998
-----------------------
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-25634 87-0365268
- ----------------------------------- -------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
755 Boardman-Canfield Road, Building G West, Boardman, Ohio 44512
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 965-9910
-----------------------------
NOT APPLICABLE.
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
The current report on Form 8-K of the registrant previously filed on June 29,
1998 is hereby amended to add thereto the following financial statements and
exhibits:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements relating to the transaction contemplated by
the Agreement dated June 12, 1998 pursuant to which American Architectural
Products Corporation acquired the Weather-Seal Division of Louisiana-Pacific
Corporation are filed herewith:
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Unaudited pro forma condensed consolidated balance sheet as of
March 31, 1998, and unaudited pro forma condensed consolidated
statements of operations for the three months ended March 31,
1998 and for the year ended December 31, 1997
WEATHER-SEAL DIVISION OF LOUISIANA-PACIFIC CORPORATION
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 1996 and 1997, and
at March 31, 1998 (Unaudited)
Statements of Operations for the years ended December 31,
1996 and 1997, and for the three months ended March 31, 1997
and 1998 (Unaudited)
Statements of Cash Flows for the years ended December 31,
1996 and 1997, and for the three months ended March 31,
1997 and 1998 (Unaudited)
Notes to Financial Statements
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Date: July 7, 1998 /s/ Frank J. Amedia
-------------------- -------------------
Frank J. Amedia
President & Chief Executive Officer
<PAGE> 3
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma financial statements illustrate the effects
of the transactions as discussed below. On March 14, 1997, American
Architectural Products Corporation ("AAPC" or "the Company") acquired the stock
of Western Insulated Glass, Co. ("Western") and on July 18, 1997, AAPC acquired
the stock of Thermetic Glass, Inc. ("Thermetic"). On December 10, 1997,
concurrently with the offering of $125 million of 11 3/4% Senior Notes due 2007
("the Offering"), AAPC consummated the acquisitions of Binnings Building
Products, Inc. ("Binnings"), Danvid Company, Inc. and Danvid Window Company
(collectively, "Danvid"), American Glassmith, Inc. ("American Glassmith") and
Modern Window Corporation ("Modern"). The acquisitions completed in 1997 ("1997
Acquisitions") were accounted for as purchases, with the purchase prices
allocated among the assets acquired and the liabilities assumed based on their
estimated fair market values. The results of operations of the 1997 Acquisitions
were included in the consolidated financial statements of AAPC from the
respective dates of acquisition.
On June 12, 1998, AAPC acquired the Weather-Seal Division of Louisiana-Pacific
Corporation ("Weather-Seal"). The acquisition was accounted for as a purchase,
with the purchase price allocated among the assets acquired and the liabilities
assumed based on their estimated fair market values. The results of
Weather-Seal's operations will be included in the consolidated financial
statements of AAPC from the acquisition date.
The accompanying unaudited pro forma condensed consolidated financial statements
illustrate the effects of the 1997 Acquisitions, the Offering, and the
acquisition of Weather-Seal (collectively, the "Transactions"). The unaudited
pro forma condensed consolidated balance sheet as of March 31, 1998 assumes that
the acquisition of Weather-Seal took place on that date and is based on the
historical balance sheets of AAPC and Weather-Seal at that date. The unaudited
pro forma condensed consolidated statement of operations for the three months
ended March 31, 1998 is based on the historical statements of operations of AAPC
and Weather-Seal for that period. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1997 is based on the
historical statements of operations of the 1997 Acquisitions for the periods in
1997 prior to their acquisitions, and of AAPC and Weather-Seal for the year
ended December 31, 1997. The unaudited pro forma consolidated statements of
operations assume that each transaction occurred on January 1, 1997.
The unaudited pro forma condensed consolidated financial statements reflect pro
forma adjustments that are based upon available information and assumptions that
the Company believes are reasonable, and do not necessarily reflect the results
of operations or the financial position of the Company that actually would have
resulted had the Transactions been consummated as of the date and for the
periods indicated. In preparing the unaudited pro forma condensed consolidated
financial statements, Management believes it has utilized reasonable methods to
conform the basis of presentation. The pro forma adjustments reflect those
adjustments appropriate to present pro forma financial statements pursuant to
regulations prescribed by the Securities and Exchange Commission.
The unaudited pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisitions. In particular, the
unaudited pro forma condensed consolidated financial statements are based on
management's current estimate of the allocated purchase price, the actual
allocation of which may differ. Further, the unaudited pro forma condensed
consolidated financial statements do not reflect certain changes in the
operating cost structure of the companies acquired which were made in connection
with the Transactions.
The accompanying unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements of AAPC,
Western, Thermetic, Binnings, Danvid and Weather-Seal.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
AAPC Weather-Seal Adjustment AAPC
-------- -------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 23,419 $ 260 $(15,158) (1) $ 8,521
Accounts receivable, net 20,885 3,190 24,075
Inventories 24,965 9,933 34,898
Prepaid expenses and other current assets 1,499 818 2,317
-------- -------------- ----------------- ----------
Total current assets 70,768 14,201 (15,158) 69,811
-------- -------------- ----------------- ----------
Property and equipment, net 47,696 17,030 13,968 (1) 78,694
Costs in excess of net assets acquired, net 32,541 - 32,541
Other 10,147 119 (1,000) (1) 9,266
-------- -------------- ----------------- ----------
Total assets $161,152 $ 31,350 $ (2,190) $190,312
======== ============== ================= ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Revolving line of credit $ - $ - $ 16,600 (1) $ 16,600
Promissory note - - 7,500 (1) 7,500
Accounts payable 9,903 1,234 11,137
Accrued expenses 13,398 2,550 448 (1) 16,396
Accrued warranty obligations-current portion 1,943 600 (600) (1) 1,943
Capital lease obligations-current portion 761 - 761
-------- -------------- ----------------- ----------
Total current liabilities 26,005 4,384 23,948 54,337
-------- -------------- ----------------- ----------
Long-term debt 125,000 - 125,000
Long-term capital lease obligations, less current portion 470 - 470
Accrued warranty obligations, less current portion 2,735 900 (900) (1) 2,735
Other 3,827 828 4,655
-------- -------------- ----------------- ----------
Total liabilities 158,037 6,112 23,048 187,197
-------- -------------- ----------------- ----------
Stockholders' equity 3,115 25,238 (25,238) (1) 3,115
-------- -------------- ----------------- ----------
Total liabilities and stockholders' equity $161,152 $ 31,350 $ (2,190) $190,312
======== ============== ================= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
<PAGE> 5
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(1) To reflect the acquisition of Weather-Seal and the allocation of
purchase price based on the estimated fair market values of assets
acquired and liabilities assumed. The components of the purchase price
and the related allocation to the assets and liabilities of Weather-Seal
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Components of purchase price:
Cash $14,898
Cash from revolving line of credit 16,600
Cash deposit in escrow 1,000
Unsecured promissory note to seller 7,500
------------
Total purchase price $39,998
============
Allocation of the purchase price:
Elimination of Weather-Seal equity $(25,238)
Cash not acquired 260
Elimination of liabilities not assumed:
Accrued warranty obligations (1,500)
Employee Stock Ownership Trust (652)
Adjustment to accrued expenses including estimate of
acquisition and financing costs 1,100
Increase in property, plant and equipment (13,968)
------------
Total purchase price allocated $(39,998)
============
</TABLE>
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma AAPC
AAPC Weather-Seal Adjustments Pro Forma
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 45,608 $ 11,135 $ 56,743
Cost of sales 36,494 11,443 $ 160 (1) 48,097
-------- ------------ ----------- ---------
Gross profit 9,114 (308) (160) 8,646
Selling, general and administrative expenses 9,402 1,460 (115) (2) 10,747
-------- ------------ ----------- ---------
Loss from operations (288) (1,768) (45) (2,101)
Interest expense 3,678 - 480 (3) 4,158
Interest income (355) - (355)
Miscellaneous (income) expense, net 92 (10) 82
-------- ------------ ----------- ---------
Loss before income taxes (3,703) (1,758) (525) (5,986)
Income taxes (benefit) (1,094) (528) 528 (4) (1,094)
-------- ------------ ----------- ---------
Loss from continuing operations $ (2,609) $ (1,230) ($1,053) $ (4,892)
======== ============ =========== ==========
Basic and diluted loss per common share $ (0.19) $ (0.36)
Weighted average number of shares outstanding 13,458,479 13,458,479
</TABLE>
See Notes to Unaudited Pro forma Condensed Consolidated Statement of Operations.
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(1) Represents the increase in depreciation and amortization expense in cost
of sales resulting from adjustments to asset bases and useful lives
relating to the Weather-Seal acquisition as follows:
<S> <C>
Depreciation and amortization in cost of sales based on asset bases resulting from the
Weather-Seal acquisition $ 601
Elimination of depreciation and amortization in historical cost of sales (441)
-----------
$ 160
===========
(2) Represents net reduction in selling, general and administrative expenses
relating to the Weather-Seal acquisition as follows:
Depreciation and amortization in selling, general and administrative expenses based on
asset bases resulting from the Weather-Seal acquisition $ 60
Elimination of depreciation and amortization in historical selling, general and
administrative expenses (53)
-----------
Incremental depreciation and amortization in selling, general and administrative
expenses 7
-----------
Elimination of nonrecurring Weather-Seal expense for contributions to the
Louisiana-Pacific Employee Stock Ownership Trust (273)
Maximum expense resulting from Weather-Seal employees participating in AAPC's 401(K)
plan 99
-----------
Savings relating to retirement plan benefits for Weather-Seal employees (174)
-----------
Incremental insurance costs due to the use of higher contractual rates of the Company
to provide insurance coverage on Weather-Seal 52
-----------
$(115)
===========
(3) Represents the interest expense on debt incurred in connection with the
acquisition of Weather-Seal as follows:
Revolving line of credit at a rate of 8.28% $343
Unsecured promissory note to seller at 7.31% 137
-----------
$480
===========
(4) Adjustment is made to eliminate the Weather-Seal tax provision (benefit)
in determining the pro forma loss from continuing operations because a
loss before income taxes is presented. Management believes that
sufficient evidence would not have existed to recognize a deferred tax
asset relating to these losses.
</TABLE>
<PAGE> 8
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
1997 Acquisitions (1) Debt Offering &
------------------------------------ 1997 Acquisition
AAPC Binnings Danvid Others Adjustments
----------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Net sales $ 94,252 $42,180 $41,339 $14,627
Cost of sales 74,304 29,591 33,822 11,254 $ (20) (2)
----------- --------- --------- --------- ------------
Gross profit 19,948 12,589 7,517 3,373 20
Selling, general and administrative expenses 17,178 9,598 5,404 3,223 (1,850) (3)
----------- --------- --------- --------- ------------
Income (loss) from operations 2,770 2,991 2,113 150 1,870
Interest expense 3,928 2,566 23 298 8,797 (4)
Miscellaneous (income) expense, net (3) - (88) (2)
----------- --------- --------- --------- ------------
Income (loss) before income taxes (1,155) 425 2,178 (146) (6,927)
Income taxes (benefit) (390) 9 830 (45) (404) (5)
----------- --------- --------- --------- ------------
Income (loss) from continuing operations (765) 416 1,348 (101) (6,523)
Dividends on preferred stock (75) - - -
----------- --------- --------- --------- ------------
Income (loss) available to common stockholders $ (840) $ 416 $ 1,348 $ (101) $ (6,523)
=========== ========= ========= ========= ============
Basic and diluted loss per common share $ (0.06)
Weighted average number of shares outstanding (11) 12,982,200 737,196
</TABLE>
<TABLE>
<CAPTION>
AAPC
Pro Forma
Prior to
Weather-Seal Weather- Pro Forma AAPC
Acquisition Seal (6) Adjustments Pro Forma
--------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $ 192,398 $ 53,478 $ 245,876
Cost of sales 148,951 50,329 $564 (7) 199,844
--------------- ------------- ------------ --------------
Gross profit 43,447 3,149 (564) 46,032
Selling, general and administrative expenses 33,553 5,886 (84) (8) 39,355
--------------- ------------- ------------ --------------
Income (loss) from operations 9,894 (2,737) (480) 6,677
Interest expense 15,612 - 1,922 (9) 17,534
Miscellaneous (income) expense, net (93) 30 (63)
--------------- ------------- ------------ --------------
Income (loss) before income taxes (5,625) (2,767) (2,402) (10,794)
Income taxes (benefit) - (831) 831 (10) -
--------------- ------------- ------------ --------------
Income (loss) from continuing operations (5,625) (1,936) (3,233) (10,794)
Dividends on preferred stock (75) - (75)
--------------- ------------- ------------ --------------
Income (loss) available to common stockholders $ (5,700) $ (1,936) $ (3,233) $ (10,869)
============== ============= ============ ==============
Basic and diluted loss per common share $ (0.42) $ (0.79)
Weighted average number of shares outstanding (11) 13,719,396 13,719,396
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations.
<PAGE> 9
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(1) Represents historical financial data of the 1997 Acquisitions for the
periods prior to their inclusion in the AAPC consolidated financial
statements.
(2) Represents the reduction in depreciation and amortization expense in
cost of sales resulting from adjustments to asset bases and useful lives
relating to the 1997 Acquisitions as follows:
<TABLE>
<CAPTION>
<S> <C>
Depreciation and amortization in cost of sales based on asset bases resulting from the
1997 Acquisitions $961
Elimination of depreciation and amortization in historical cost of sales (981)
-----------
$ (20)
===========
(3) Represents net reduction in selling, general and administrative expenses relating to the 1997
Acquisitions as follows:
Depreciation and amortization in selling, general and administrative expenses based on
asset bases resulting from the 1997 Acquisitions $ 1,154
Elimination of depreciation and amortization in historical selling, general and
administrative expenses (297)
-----------
Incremental depreciation and amortization in selling, general and administrative
expenses 857
-----------
Additional compensation to officers under terms of employment agreements entered into
in connection with the 1997 Acquisitions 49
Elimination of compensation to executive officers, former owners and
members of the boards of directors which will be nonrecurring as a
result of the 1997 Acquisitions (2,377)
Savings on the insurance costs due to the use of lower contractual rates of the Company
to provide insurance coverage on the 1997 Acquisitions (379)
-----------
$ (1,850)
===========
(4) Represents the interest expense on the Senior Notes issued on December 10, 1997 and the elimination of
historical interest expense as follows:
Interest on Senior Notes $ 14,688
Amortization of deferred financing costs relating to the Senior Notes 599
Other interest relating to the 1997 Acquisitions 135
Elimination of historical interest expense (6,625)
-----------
$ 8,797
===========
</TABLE>
(5) Adjustment is made to eliminate the tax provision (benefit) in
determining the pro forma loss from continuing operations because a loss
before income taxes is presented. Management believes that sufficient
evidence would not have existed to recognize a deferred tax asset
relating to these losses.
(6) Represents historical financial data of Weather-Seal for the year ended
December 31, 1997.
<PAGE> 10
<TABLE>
<CAPTION>
(7) Represents the increase in depreciation and amortization expense in cost
of sales resulting from adjustments to asset bases and useful lives
relating to the Weather-Seal acquisition as follows:
<S> <C>
Depreciation and amortization in cost of sales based on asset bases resulting from the
Weather-Seal acquisition $ 2,403
Elimination of depreciation and amortization in historical cost of sales (1,839)
-----------
$ 564
===========
(8) Represents net reduction in selling, general and administrative
expenses relating to the Weather-Seal acquisition as follows:
Depreciation and amortization in selling, general and administrative expenses based on
asset bases resulting from the Weather-Seal acquisition $238
Elimination of depreciation and amortization in historical selling, general and
administrative expenses (182)
-----------
Incremental depreciation and amortization in selling, general and administrative
expenses 56
-----------
Elimination of nonrecurring Weather-Seal expense for contributions to the
Louisiana-Pacific Employee Stock Ownership Trust (1,036)
Maximum expense resulting from Weather-Seal employees participating in AAPC's 401(K)
plan 397
-----------
Savings relating to retirement plan benefits for Weather-Seal employees (639)
-----------
Incremental insurance costs due to the use of higher contractual rates of the Company
to provide insurance coverage on Weather-Seal 499
-----------
$ (84)
===========
(9) Represents the interest expense on debt incurred in connection with the
acquisition of Weather-Seal as follows:
Revolving line of credit at a rate 8.28% $1,374
Unsecured promissory note to seller at 7.31% 548
-----------
$1,922
===========
(10) Adjustment is made to eliminate the Weather-Seal tax provision (benefit) in
determining the pro forma loss from continuing operations because a loss
before income taxes is presented. Management believes that sufficient
evidence would not have existed to recognize a deferred tax asset
relating to these losses.
(11) Weighted average number of shares used in pro forma presentation
includes the weighted average number of shares outstanding for 1997
adjusted to give effect to the shares issued and committed to be issued
in connection with the 1997 Acquisitions had these transactions taken
place on January 1, 1997. Common stock equivalents are excluded as the
effect would be anti-dilutive.
</TABLE>
<PAGE> 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Louisiana-Pacific Corporation
We have audited the accompanying balance sheets of Weather-Seal (a division of
Louisiana-Pacific Corporation) as of December 31, 1996 and 1997 and the related
statements of operations and cash flows for the years then ended. 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 audits 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 Weather-Seal (a division of
Louisiana-Pacific Corporation) at December 31, 1996 and 1997, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
May 21, 1998
<PAGE> 12
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------- -----------------
1996 1997 1998
================================================================================================================================
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 114,949 $ 230,385 $ 259,871
Accounts receivable, less allowance for doubtful accounts
of $80,000, $40,000, and $54,000 respectively 2,797,997 2,195,074 3,190,401
Inventories (Note 3) 8,848,162 9,319,936 9,933,454
Prepaid expenses and other current assets 268,407 266,159 326,708
Deferred income taxes (Note 6) 646,000 491,000 491,000
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 12,675,515 12,502,554 14,201,434
- -------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land and improvements 463,485 638,683 638,683
Buildings 7,979,424 8,374,465 8,461,391
Machinery, equipment and furniture and fixtures 22,212,488 23,154,197 23,879,858
Construction-in-progress (estimated cost
to complete of $735,000 at March 31, 1998) 1,132,665 1,849,976 1,708,477
- -------------------------------------------------------------------------------------------------------------------------------
31,788,062 34,017,321 34,688,409
Less accumulated depreciation (15,573,304) (17,217,657) (17,658,721)
- -------------------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 16,214,758 16,799,664 17,029,688
- -------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 118,983 118,983 118,983
- -------------------------------------------------------------------------------------------------------------------------------
$ 29,009,256 $ 29,421,201 $ 31,350,105
================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 13
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------------ ---------------
1996 1997 1998
===============================================================================================================================
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Bank overdraft $ 433,172 $ 153,326 $ 367,911
Accounts payable 583,374 550,692 865,915
Accrued expenses
Compensation and employee benefits (Notes 4 and 5) 1,377,385 1,356,080 1,688,405
Current portion of warranty obligations 600,000 600,000 600,000
Workers' compensation 221,775 230,211 303,976
Other 705,291 474,991 558,031
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,920,997 3,365,300 4,384,238
ACCRUED WARRANTY OBLIGATIONS, less current portion 900,000 900,000 900,000
DEFERRED INCOME TAXES (Note 6) 1,187,000 1,356,000 828,000
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,007,997 5,621,300 6,112,238
- -------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
DIVISIONAL EQUITY (Note 2) 23,001,259 23,799,901 25,237,867
- -------------------------------------------------------------------------------------------------------------------------------
$ 29,009,256 $ 29,421,201 $ 31,350,105
===============================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 14
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------------------------- ---------------------------
1996 1997 1997 1998
===============================================================================================================================
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES (Note 8) $ 53,442,867 $ 53,478,478 $ 10,795,219 $ 11,134,563
COST OF SALES 52,217,912 50,329,152 10,445,935 11,443,001
- -------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) 1,224,955 3,149,326 349,284 (308,438)
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 2) 5,630,880 5,886,351 1,427,687 1,460,445
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (4,405,925) (2,737,025) (1,078,403) (1,768,883)
GAIN (LOSS) ON DISPOSITION OF PROPERTY
AND EQUIPMENT (480,767) (29,694) 9,763 10,878
- -------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT (4,886,692) (2,766,719) (1,068,640) (1,758,005)
INCOME TAX BENEFIT (Note 6) 1,575,000 831,000 321,000 528,000
- -------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (3,311,692) $ (1,935,719) $ (747,640) $ (1,230,005)
===============================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 15
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------------------ -----------------------------------
1996 1997 1997 1998
====================================================================================================================================
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,311,692) $ (1,935,719) $ (747,640) $ (1,230,005)
Adjustments to reconcile net loss to net cash
provided by (used in)operating activities
Depreciation 1,857,360 2,020,828 475,160 493,739
Deferred income taxes 290,000 324,000 - (528,000)
Loss (gain) on disposition of property
and equipment 480,767 29,694 (9,763) (10,878)
Changes in assets and liabilities
Decrease (increase) in receivables 1,053,302 602,923 (697,926) (995,327)
Increase in inventories (23,494) (471,774) (1,688,323) (613,518)
Decrease (increase) in prepaid expenses and
other current assets (156,740) 2,248 (107,603) (60,549)
Increase (decrease) in bank overdraft (46,644) (279,846) 230,508 214,585
Increase (decrease) in accounts payable (26,688) (32,682) 451,904 315,223
Increase (decrease) in accrued expenses 310,833 (243,169) (354,338) 489,130
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 427,004 16,503 (2,448,021) (1,925,600)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of property and equipment 143,663 71,688 9,763 10,878
Purchase of property and equipment (2,826,736) (2,707,116) (580,562) (723,763)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,683,073) (2,635,428) (570,799) (712,885)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net increase in intercompany advances from Louisiana
-Pacific Corporation included in divisional equity 2,323,592 2,734,361 3,090,272 2,667,971
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 67,523 115,436 71,452 29,486
CASH, beginning of period 47,426 114,949 114,949 230,385
- ------------------------------------------------------------------------------------------------------------------------------------
CASH, end of period $ 114,949 $ 230,385 $ 186,401 $ 259,871
====================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ - $ - $ - $ -
Cash paid for income taxes - - - -
====================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 16
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF NATURE OF BUSINESS AND BASIS OF PRESENTATION
ACCOUNTING
POLICIES Weather-Seal (the "Company"), a division of
Louisiana-Pacific Corporation ("LP"), is engaged principally
in the manufacture and distribution of vinyl and wood
windows, patio doors and aluminum and vinyl extrusions to
customers located primarily in the midwest United States.
The accompanying financial statements present the historical
financial position, results of operations and cash flows of
the Company. The statements of operations reflect all costs
incurred by LP directly related to the Company as well as
allocations of certain corporate costs and expenses from LP
(see Note 2).
Divisional equity included in the accompanying balance
sheets represents 1) LP's original investment in
Weather-Seal, 2) cumulative income or loss since the
acquisition of Weather-Seal by LP and 3) net advances from
LP. Management has not segregated divisional equity into its
component parts.
The financial position, results of operations and cash flows
of the Company as presented herein, may have differed if the
Company had been independent of LP.
USE OF ESTIMATES
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the
date of the financial statements, and revenues and expenses
during the reporting period. Actual results could differ
from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, payables and
accrued expenses approximate fair value because of the short
maturity of these items.
<PAGE> 17
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of accounts receivable. Due to the nature of the
Company's business, its customer base is concentrated in the construction
industry. The Company attempts to minimize its credit risk by reviewing
customers' credit history before extending credit and by monitoring customers'
credit exposure on a continuing basis. The Company establishes an allowance for
possible losses on accounts receivable, when necessary, based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
an average cost method.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. The Company uses the units of
production method of depreciation for most machinery and equipment which
amortizes the cost of equipment over the estimated units that will be produced
during its useful life. Provisions for depreciation of buildings, improvements,
furniture and fixtures and the remaining machinery and equipment have been
computed using the straight-line method over the following estimated useful
lives:
Buildings and improvements 20 years
Machinery, equipment and furniture and fixtures 3-10 years
Expenditures for renewals and betterments are capitalized. Expenditures for
maintenance and repairs are charged against income as incurred.
<PAGE> 18
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
EMPLOYEE STOCK OWNERSHIP PLAN
Substantially all non-union Company employees participate in LP's employee stock
ownership plan ("ESOP"). The statements of operations include an allocation from
LP for the costs associated with Company employees who participate in the ESOP.
WARRANTY OBLIGATIONS
The Company sells their products with warranties ranging from one year to a
limited lifetime. Accrued warranty obligations are estimated based on claims
experience and levels of production. Warranty obligations estimated to be
satisfied within one year are classified as current liabilities in the
accompanying balance sheets.
REVENUE RECOGNITION
Revenues are recorded upon the shipment of product to the customer.
INCOME TAXES
The Company is a division of LP which files a consolidated federal income tax
return. The Company has no tax sharing agreement with LP. The provision for
income taxes included in the financial statements has been calculated as if the
Company had filed a separate tax return.
The income tax provision is computed using the liability method. Deferred taxes
are recorded for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of the Company's assets and
liabilities.
The income tax provision for interim reporting purposes is based upon the
Company's estimate of the effective tax rate expected to be applicable for the
full fiscal year.
<PAGE> 19
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs for the years
ended December 31, 1996 and 1997 were approximately $1,300,000 and $1,500,000,
respectively.
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists, the related
assets will be written down to fair value. No impairment of the Company's
long-lived assets has occurred through December 31, 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 is effective for financial statements for periods beginning
after December 15, 1997 and requires comparative information for earlier years
to be restated. On January 1, 1998, the Company adopted SFAS 130. For the three
months ended March 31, 1998, comprehensive income (loss) for the Company does
not differ from net income (loss).
<PAGE> 20
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Additionally, in June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
(SFAS 131) which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the reporting by public
companies of information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS 131
is effective for financial statements for periods beginning after December 15,
1997 and requires comparative information for earlier years to be restated.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits" (SFAS
132), which revises employers' disclosures about pension and other
post-retirement benefit plans. SFAS 132 does not change the measurement or
recognition of those plans and is effective for fiscal years beginning after
December 15, 1997.
Management has not fully evaluated the impact, if any, these standards may have
on future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements for the three months ended March 31,
1997 and 1998 include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the results of
operations for the periods presented. The interim period results are not
necessarily indicative of the results of operations for a full fiscal year.
<PAGE> 21
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
2. RELATED PARTY In the statements of operations, selling, general and
TRANSACTIONS administrative expenses include allocations of certain LP
corporate expenses totaling $180,000 and $201,000 for the
years ended December 31, 1996 and 1997, respectively, and
$50,250 (unaudited) and $56,000 (unaudited) for the three
months ended March 31, 1997 and 1998, respectively.
Expenses which are allocated by LP to Weather-Seal are based
on LP's estimated incremental costs associated with managing
Weather-Seal. Management believes that such allocated
corporate expenses have been calculated using reasonable
methods.
The advances from LP are non-interest bearing. A
reconciliation of the divisional equity included in the
accompanying balance sheets is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
Balance, January 1 $ 23,989,359 $ 23,001,259
Advances from LP 63,194,956 63,799,759
Repayment of advances from LP (60,871,364) (61,065,398)
Net loss for the year (3,311,692) (1,935,719)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, December 31 $ 23,001,259 $ 23,799,901
=====================================================================================================================
APPROXIMATE AVERAGE BALANCE
DURING THE YEAR $ 23,500,000 $ 23,400,000
=====================================================================================================================
</TABLE>
3. INVENTORIES Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- --------------------
1996 1997 1998
- ------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Raw materials $ 4,151,833 $ 3,930,065 $ 4,218,484
Work-in-process 880,543 908,085 930,722
Finished goods 3,815,786 4,481,786 4,784,248
- ------------------------------------------------------------------------------------
$ 8,848,162 $ 9,319,936 $ 9,933,454
====================================================================================
</TABLE>
<PAGE> 22
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
4. ACCRUED Accrued compensation and employee benefits consist of the
COMPENSATION following:
AND EMPLOYEE
BENEFITS
<TABLE>
<CAPTION>
December 31, 1996 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued ESOP contributions $ 489,984 $ 515,306
Accrued vacation pay 769,285 748,876
Accrued salary and wages 81,079 57,323
Accrued other 37,037 34,575
- -------------------------------------------------------------------------------------------
$ 1,377,385 $ 1,356,080
===========================================================================================
</TABLE>
5. BENEFIT PLANS Substantially all of the Company's salaried and non-union
hourly employees participate in LP's ESOP. The Company
contributes 10% of eligible compensation to the plan on
behalf of the employees. The Company recognized
approximately $1,042,000 and $1,036,000 of expense for the
years ended December 31, 1996 and 1997, respectively,
related to this plan.
The Company has various defined contribution plans with
certain unionized hourly employees. The expense related to
these plans was approximately $446,000 and $429,000 for the
years ended December 31, 1996 and 1997.
6. INCOME TAXES The income tax benefits (expense) included in the statements
of operations are made up of the following components:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT
Federal $1,965,000 $ 1,255,000
State (100,000) (100,000)
- -------------------------------------------------------------------------------------
1,865,000 1,155,000
Deferred (290,000) (324,000)
- -------------------------------------------------------------------------------------
TOTAL $1,575,000 $ 831,000
=====================================================================================
</TABLE>
<PAGE> 23
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
Significant components of deferred tax assets and liabilities as of December 31,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $ (1,493,000) $ (1,662,000)
- -------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Accrued warranty obligations 510,000 510,000
Other 442,000 287,000
- -------------------------------------------------------------------------------------
952,000 797,000
- -------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $ (541,000) $ (865,000)
=====================================================================================
Year Ended December 31, 1996 1997
- -------------------------------------------------------------------------------------
Current deferred taxes $ 646,000 $ 491,000
Long-term deferred taxes, net (1,187,000) (1,356,000)
- -------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $ (541,000) $ (865,000)
=====================================================================================
The actual income tax benefit attributable to the loss for the years ended
December 31, 1996 and 1997 differed from the amounts computed by applying the
U.S. federal tax rate of 34 percent to pretax loss as a result of the following:
Year Ended December 31, 1996 1997
- -------------------------------------------------------------------------------------
Tax benefit at U.S. federal
statutory rate $ 1,661,000 $ 941,000
State income taxes, net of
federal income tax benefit (66,000) (66,000)
</TABLE>
<PAGE> 24
WEATHER-SEAL
(A DIVISION OF LOUISIANA-PACIFIC CORPORATION)
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Expenses not deductible for
tax purposes (20,000) (44,000)
- -------------------------------------------------------------------------------------
INCOME TAX BENEFIT $ 1,575,000 $ 831,000
- -------------------------------------------------------------------------------------
</TABLE>
7. LITIGATION At December 31, 1997, the Company is a defendant in several
lawsuits. The Company may be liable in these matters to the
extent that the lawsuits are found in favor of the
plaintiffs and to the extent that these matters are not
covered by the Company's insurance. In the opinion of
management, such liabilities, if any, would not have a
material effect on the financial statements of the Company.
8. MAJOR Sales to one customer amounted to 18% of total net sales
CUSTOMER during each of the years ended December 31, 1996 and 1997.
9. SUBSEQUENT In February 1998, LP signed a Letter of Intent to sell
EVENT substantially all of the assets of the Company to American
Architectural Products Corporation. The accompanying
financial statements do not give effect to this transaction.
