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FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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
For the transition period from ________ to ________
Commission file Number: 0-25634
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 87-0365268
- --------------------------------------------------- ---------------------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
755 Boardman-Canfield Road
South Bridge Executive Center
Building G-West
Boardman, Ohio 44512
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(Address of principal executive offices) Zip Code)
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Registrant's telephone number, including area code: (330) 965-9910
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
------------------------------------
(Title of class)
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 twelve (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 ninety (90) days. Yes [X] No [ ]
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. Yes [ ] No [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within sixty (60) days prior to the date of
filing. (See definition of affiliate in Rule 405, 17 CFR 230.405).
$7,078,708 as of March 25, 1998
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE (5) YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practicable date.
13,458,479 shares of Common Stock, $.001 par value, as of March 28, 1998. There
are no other classes of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933: Refer to Annual Report sections for Part
II Items 6, 7 and 8.
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TABLE OF CONTENTS
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PAGE
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Item 1. Business.......................................... 3
Item 2. Properties........................................ 5
Item 3. Legal Proceedings................................. 6
Item 4. Submission of Matters to a Vote of Security
Holders........................................... 6
Item 5. Market for Registrant's Common Equity and Related
Stockholders' Matters............................. 7
Item 6. Selected Financial Data........................... 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 7
Item 8. Financial Statements and Supplementary Data....... 7
Item 9. Changes In and Disagreements on Accounting and
Financial Disclosure.............................. 7
Item 10. Directors and Executive Officers of the
Registrant........................................ 8
Item 11. Executive Compensation............................ 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 13
Item 13. Certain Relationships and Related Transactions.... 13
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 16
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PART 1
ITEM 1. BUSINESS
BACKGROUND
American Architectural Products Corporation (the Company or AAPC) is principally
engaged in the business of manufacturing residential, commercial and
architectural windows and doors through its wholly-owned subsidiaries Eagle &
Taylor Company (formerly known as American Architectural Products, Inc. or AAP),
Forte, Inc. (Forte), Western Insulated Glass, Co. (Western), Thermetic Glass,
Inc. (Thermetic), Binnings Building Products, Inc. (Binnings), Danvid Window
Company (Danvid), Modern Window Corporation (Modern) and American Glassmith
Corporation (American Glassmith).
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor Building
Products Company (Taylor) on August 29, 1996. Eagle is based in Dubuque, Iowa
and manufactures and distributes aluminum clad and all wood windows and doors.
Taylor is based in West Branch, Michigan and manufactures entry and garage
doors. AAP subsequently changed its name to Eagle & Taylor Company (ETC).
On June 25, 1996 AAP's ultimate controlling stockholder acquired ownership of
Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L). Mallyclad and Vyn-L,
are based in Madison Heights, Michigan and process and manufacture vinyl clad
steel and aluminum coils and cut-to-length sheets. On December 18, 1996,
Mallyclad and Vyn-L were merged into AAP. Based on the control maintained by
this stockholder over AAP, Mallyclad and Vyn-L, the merger was considered to be
a transaction among companies under common control and was accounted for at
historical cost in a manner similar to a pooling of interests.
On December 18, 1996, pursuant to an Agreement and Plan of Reorganization
dated October 25, 1996 (Agreement) between Forte Computer Easy, Inc. (FCEI) and
AAP Holdings, Inc., FCEI acquired all of the issued and outstanding shares of
capital stock of AAP in exchange for 1,000,000 shares of Series A Convertible
Preferred Stock of FCEI (the Series A Preferred). Prior to December 18, 1996,
FCEI had a single wholly owned operating subsidiary, Forte based in Youngstown,
Ohio. Forte manufactures large contract commercial aluminum windows and security
screen windows and doors. Under the terms of the Agreement and the Series A
Preferred, AAP Holdings, Inc. obtained 60 percent of the voting control of FCEI
including options to purchase additional shares. Although FCEI was the parent of
AAP following the transaction, the transaction was accounted for as a
recapitalization of AAP and a purchase by AAP of FCEI because the stockholders
of AAP obtained a majority of the voting rights in FCEI as a result of the
transaction.
At a special shareholders' meeting held on April 1, 1997, the Company's
shareholders approved the reincorporation of the Company in Delaware.
Consequences of the reincorporation plan included the change of the Company's
name from FCEI to American Architectural Products Corporation to reflect its
operations and its emphasis on the fenestration industry; an increase in the
authorized common stock of the Company to 100,000,000 shares; a 1 for 10 reverse
stock split of the Company's common stock; and conversion of 1,000,000 shares of
Series A Preferred held by AAP Holdings, Inc. into 7,548,632 shares of common
stock. The reincorporation did not result in any substantive change to the
Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company.
The Company completed six acquisitions during 1997 as follows:
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Company
Acquired Date Location Products
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<S> <C> <C> <C>
Western March 14, 1997 Phoenix, AZ Residential aluminum
windows
Thermetic July 18, 1997 Toluca, IL Residential vinyl
windows
Binnings December 10, 1997 Lexington, Residential vinyl
NC; and aluminum windows
Aventura,FL and storm doors
Danvid December 10, 1997 Carrollton, Residential aluminum
TX windows and doors
and vinyl windows
American December 10, 1997 Columbus, OH Decorative glass
Glassmith lites and laminated
glass
Modern December 10, 1997 Oak Park, MI Residential vinyl
windows and doors
</TABLE>
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On December 10, 1997, the Company consummated the offering of $125,000,000 of
11 3/4% Senior Notes due 2007 (the Notes). A portion of the proceeds of the
Notes were used to finance the cash portions of the December 10, 1997
acquisitions discussed above.
DESCRIPTION OF BUSINESS
American Architectural Products Corporation is a leading manufacturer and
distributor of a broadly diversified line of windows, doors and related products
(collectively, "fenestration products") designed to meet a variety of consumer
demands in both the new construction, repair/remodel and commercial markets. The
Company has been formed through the consolidation of a number of
well-established fenestration companies, with varying manufacturing histories
dating back to 1946 when Taylor commenced operations.
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The Company's strategy is to continue to increase its market share and
geographic and product diversity through aggressive pursuit of additional
strategic acquisitions of complementary companies. The Company distributes its
products regionally throughout the United States under a number of
well-established brand names that are recognized for their quality, value
engineering and customer service, including "Eagle", "Taylor", "Perma-Door",
"Binnings", "Danvid", "Western" and "Encore." This brand name recognition and
reputation have enabled the Company to establish long-lasting relationships with
leading wholesalers, lumberyards, do-it-yourself home centers, architects and
building contractors.
DISTRIBUTION AND MARKETING
The Company uses multiple distribution channels and brand names to maximize
market penetration. The Company distributes its windows and doors through (i)
one-step distribution to major do-it-yourself home centers, lumberyards and
specialty window and door stores; (ii) two-step distribution to wholesalers who
resell to do-it-yourself home centers and lumberyards; and (iii) direct sales to
homebuilders, remodelers and contractors.
The Company markets its products on a national basis, in all 48 contiguous
states, through a sales force consisting of salaried and commissioned sales
representatives. Divisional sales managers coordinate the marketing activities
among the Company and the sales representatives. The sales representatives
concentrate on serving the Company's one-step, two-step, remodeler, and
non-residential contractor customers with marketing, sales and service support.
PRODUCTS
The Company's multiple product lines can generally be separated into the
following product categories: (i) aluminum windows; (ii) wood windows; (iii)
vinyl windows; (iv) doors; (v) aluminum extrusions; and (vi) other fenestration
products.
Aluminum Windows. The Company produces aluminum windows, including
single/double hung, horizontal rolling, fixed light and specialty windows, at
its Binnings and Danvid facilities. In addition, Western manufactures a full
line of aluminum products designed for the luxury home market in Arizona,
California and Nevada. Western's aluminum products include horizontal rolling
windows, casement windows, arched configurations and window wall systems. Forte
manufactures aluminum double-hung windows, projection windows and casement
windows at its Youngstown, Ohio plant, which are primarily targeted for use in
office buildings, schools and other non-residential buildings in the upper
Midwest and mid-Atlantic states.
Wood Windows. Eagle, located in Dubuque, Iowa, manufactures a full line of
wood windows and doors, including aluminum-clad windows and doors, its primary
product line. The Company's wood windows are preservative treated to withstand
harsh weather conditions and are targeted at the higher priced segment of the
residential window market. Eagle's products, which include casement and double
hung windows, picture windows and geometrically shaped windows, are generally
purchased for use in custom residential construction and renovation and for use
in certain commercial applications. The customer has the option of selecting
from stained, primed, painted or unfinished interior surfaces and from a number
of pre-finished exterior surfaces, certain of which are resistant to ultraviolet
(UV) ray degradation and salt spray.
Vinyl Windows. Thermetic and Modern manufacture vinyl replacement windows
sold under the trade name Vinyline and vinyl windows and doors for use in new
construction under the trade name Modernview. Vinyl windows manufactured by
Binnings are sold throughout the Southeast as less expensive alternatives to
wood windows. Danvid also manufactures vinyl windows that are sold primarily in
the Southern and Southwestern U.S. The Company's business strategy includes
continued emphasis on expanding its vinyl fenestration products business through
additional acquisitions and through internal growth.
Doors (entry, patio and garage). Taylor designs and manufactures a complete
line of steel entry doors and advanced steel patio door systems. These products
are sold under the trade names Taylor and Perma-Door. The Company also
manufactures and markets insulated steel garage door panels under the trade
names Encore and Taylor. At its Eagle division, the Company produces wood patio
doors and French doors for use in high-end custom residential new construction
and renovation, and Western's aluminum products include sliding glass doors.
Aluminum Extrusions. The Company produces aluminum extrusions at the
Aventura, Florida location of Binnings. The Company uses a significant portion
of its aluminum extrusion production to satisfy a portion of its manufacturing
needs. The Company believes that this in-house extrusion capacity provides it
with a low-cost, reliable source for component raw materials and reduces working
capital requirements.
Other Fenestration Products. The Company's other fenestration products
include security screens and security screen doors, aluminum storm windows and
storm doors and decorative glass lites. One of Forte's key products is a
unitized security screen and window combination, designed to be functional and
aesthetically pleasing, which it markets to schools, institutions and other
office buildings. American Glassmith designs, manufactures and assembles
decorative glass lites for a variety of residential applications, including
windows, doors, transoms, cabinets, and sidelites. The decorative glass lites
are primarily distributed in the
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northern United States. American Glassmith also manufactures laminated glass
which is sold under the Sumiglass trademark. Sumiglass products are distributed
nationally and are used in a variety of applications, including doors, windows,
sidelites, room partitions, office dividers, skylights and glass handrails.
The Company's operating subsidiaries currently market their products primarily
in the continental United States. Although currently not significant, the
Company plans to explore opportunities to increase exports of products. The
Company as a consolidated unit is not dependent on any single customer or small
group of customers and does not expect to derive a substantial portion of its
sales from such customers.
SEGMENTS
The Company operates in two separate segments. The first includes the
manufacturing and distribution of residential and specialty commercial
fenestration products. The product lines within this segment include aluminum,
wood and vinyl windows, doors, and other fenestration products such as storm
windows and doors, and decorative glass. The second classification is large
contract commercial fenestration products including aluminum windows, security
windows, screens and doors used primarily in commercial buildings such as
schools and dormitories, office and governmental buildings and low-income
housing. See Note 13 to the Company's audited consolidated financial statements.
ITEM 2. PROPERTIES
The Company's principal manufacturing facilities and administrative offices are
located at the following sites:
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Products
Owned/ Manufactured/
Location Size (ft 2) Leased Services Performed
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<S> <C> <C> <C>
Eagle
Dubuque, Iowa........ 320,000 Owned Wood windows and
doors and aluminum-
clad windows and
doors;
administration
Taylor Door
West Branch,
Michigan........... 210,000 Owned Custom insulated
steel entry
systems, steel
garage doors and
vinyl-clad doors
Mallyclad
Madison Heights,
Michigan........... 39,000 Leased Vinyl-metal
laminates, steel
processing
Forte
Youngstown, Ohio..... 156,000 Owned Aluminum windows
and security
windows, screens
and doors
Western
Phoenix, Arizona..... 46,600 Leased Custom aluminum
windows and doors
Corporate
Headquarters
Boardman, Ohio....... 6,400 Leased Executive offices;
administration
Thermetic
Toluca, Illinois..... 70,000 Owned Vinyl doors and
windows
Danvid
Carrollton, Texas.... 169,000 Leased Aluminum windows
and doors; vinyl
windows
Binnings
Lexington, North
Carolina........... 268,000 Owned Vinyl windows,
aluminum windows
and storm windows
and doors;
administration
Binnings
Aventura, Florida.... 158,000 Owned Aluminum windows;
patio doors;
aluminum
extrusions;
distribution
American Glassmith
Columbus, Ohio....... 60,000 Leased Decorative glass
lites and laminated
glass products
Modern
Detroit, Michigan.... 28,000 Owned Vinyl doors and
windows
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TOTAL.............. 1,531,000
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</TABLE>
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The Company also operates six distribution centers in Florida and one in
Colorado. Management believes the Company's manufacturing, distribution and
administrative facilities are sufficient to meet its current needs.
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ITEM 3. LEGAL PROCEEDINGS
The contingent legal liabilities of AAPC are limited in scope. Presently, the
Company is defending the following suit:
ANTHONY H. MASON, TRUSTEE, ARIZONA DISK FULFILLMENT, INC. V. AMERICAN
ARCHITECTURAL PRODUCTS CORP., ET AL., IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF ARIZONA, CASE NO. 96-10555 PHX RGM, ADVERSARY NO. 97-779. On
October 24, 1997 the Plaintiff initiated action alleging that AAPC, formerly
known as Forte Computer Easy, Inc., fraudulently caused to be cancelled a
receivable owed by a third party. In addition, the complaint alleges breach of
fiduciary duty, trust fund doctrine, and tortious interference with contract.
Plaintiff alleges damages of $180,000 and punitive damages of not less than
$5,000,000, plus attorneys' fees and costs. On December 16, 1997, AAPC filed an
Answer and a Motion to Withdraw Reference to the United States Bankruptcy Court
in order to move the case to the proper jurisdiction of the United States
District Court for the District of Arizona. The Trustee has filed a Notice of no
opposition to this Motion. Discovery is in progress and it is too early to
evaluate the likelihood of success on the merits. The Company is vigorously
defending the claim.
The Company is not a party to any other pending or, to the knowledge of the
Company, threatened legal proceedings that it believes will have a material
impact on the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders during
the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
The shares of common stock of the Company are not listed on any exchange. The
following table represents the range of high and low bid prices for each quarter
commencing January 1, 1996 through December 31, 1997 as reported by the Nasdaq
OTC Bulletin Board market. These quotations reflect interdealer prices, without
retail mark up, mark down or commission and may not necessarily represent actual
transactions.
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Period High Low
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1996
1st Quarter........................ $1.900 $0.310
2nd Quarter........................ 1.560 0.310
3rd Quarter........................ 8.750 0.660
4th Quarter........................ 5.310 0.438
1997
1st Quarter........................ $7.500 $3.430
2nd Quarter........................ 5.750 5.310
3rd Quarter........................ 3.875 2.438
4th Quarter........................ 4.125 2.500
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The per share amounts above reflect a 1 for 10 reverse stock split which was
approved by the Company's Board of Directors in April 1997. There were
approximately 450 holders of record of the common shares of the Company as of
December 31, 1997. The Company has never paid dividends on its outstanding
common shares. The current Board of Directors of the Company does not presently
intend to implement a policy regarding the payment of regular cash dividends on
the common shares and it is unlikely that dividends will be paid on the common
shares in the immediate future. The Board of Directors will review this policy
from time to time depending on the financial condition of the Company and other
factors that the Board of Directors may consider appropriate in the
circumstances. In addition, the ability of the Company to pay dividends is
limited by the terms of the Indenture dated December 10, 1997 to which the
Company and its subsidiaries are parties. As of December 31, 1997, options and
warrants to purchase a total of 1,875,992 shares of the Company's common stock
were outstanding, including options issued to AAPH to purchase up to 707,655
shares.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference and is
included in the Company's Annual Report to Shareholders as an exhibit to this
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference and is
included in the Company's Annual Report to Shareholders as an exhibit to this
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference and is
included in the Company's Annual Report to Shareholders as an exhibit to this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As reported on Form 8-K dated February 17, 1997 (the "Form 8-K"), the Company
engaged BDO Seidman, LLP as its independent auditors to replace the firm of
Semple & Cooper, LLP, which was dismissed at the same time. The decision to
change accountants was approved by the Board of Directors of the Company. The
reports of Semple & Cooper, LLP on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended December 31, 1994 and 1995, and in subsequent
interim periods, there were no disagreements with Semple & Cooper, LLP on any
matters of accounting principles or practices, financial statement disclosure or
auditing scope or procedures which, if not resolved to the satisfaction of
Semple & Cooper, LLP, would have caused Semple & Cooper, LLP not to respond
fully to any inquiries from BDO Seidman, LLP.
The Company requested Semple & Cooper, LLP to furnish it a letter addressed to
the Securities and Exchange Commission stating whether it agrees with the above
statement. Semple & Cooper, LLP furnished the Company with a copy of a letter
dated February 20, 1997 containing such a statement, which was filed as Exhibit
1 to Amendment No. 1 to the Company's current Report on Form 8-K dated February
17, 1997.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages (as of December 31, 1997) and
positions of directors and executive officers of the Company. The Board of
Directors of the Company currently consists of nine (9) members. Directors hold
office until their successors have been duly elected and qualified. Officers are
chosen by and serve at the discretion of the Board of Directors. A summary of
the background and experience of each of these individuals is set forth after
the table.
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Name Age Position
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George S. Hofmeister.... 45 Chairman of the Board
Frank J. Amedia......... 45 President, Chief Executive Officer
and Director
Joseph Dominijanni...... 41 Director and Treasurer
Richard L. Kovach....... 35 Vice President and
Chief Financial Officer
David J. McKelvey....... 45 Vice President -- Development
Jeffrey V. Miller....... 51 Vice President -- Operations
Donald E. Lambrix, 56 Vice President -- Manufacturing
Jr....................
J. Larry Powell......... 55 Vice President -- Sales &
Marketing
Jonathan K. Schoenike... 37 General Counsel & Secretary
John J. Cafaro.......... 45 Director
W.R. Jackson, Jr........ 64 Director
John Masternick......... 72 Director
James E. Phillips....... 41 Director
Charles E. Trebilcock... 71 Director
James K. Warren......... 33 Director
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George S. Hofmeister has served as Chairman of the Board since December 19,
1996. Mr. Hofmeister has served as Chief Executive Officer and Chairman of the
Board of American Commercial Holdings, Inc. ("ACH"), the parent company of AAPH,
since January 1996 and continues to serve in such roles. Mr. Hofmeister also
continues to serve as Vice Chairman of Tube Products, Inc., a manufacturer of
automobile exhaust systems. Mr. Hofmeister has held that position since February
14, 1996. From June 1, 1991 until December 15, 1995, Mr. Hofmeister served as
Chief Executive Officer and Chairman of the Board of EWI, Inc., a manufacturer
of automotive metal stampings.
Frank J. Amedia joined the Company's Board of Directors on June 8, 1994
following the acquisition of Forte, Inc. by the Company, and has served as its
President and Chief Executive Officer since that date. From June 8, 1994 until
December 19, 1996, Mr. Amedia also served as the Chairman of the Board of
Directors of the Company. Prior to joining the Company, Mr. Amedia was President
and Chief Executive Officer of Forte, which he founded in 1989 in Youngstown,
Ohio as a welded aluminum security screen and storm door fabricator. Forte's
products were distributed through a manufacturers' representative distribution
business established by Mr. Amedia in 1986. Prior to founding the manufacturers'
representative business, Mr. Amedia served in various capacities for the
Youngstown Metropolitan Housing Authority.
Joseph Dominijanni has served as the Company's Treasurer since December 19,
1996. Mr. Dominijanni has also served as the Vice President -- Finance of ETC
since its inception. Mr. Dominijanni also currently serves as Vice
President -- Finance of ACH, the parent corporation of AAPH, and American
Commercial Industries, Inc., ("ACI"), which is principally engaged in the
manufacturing of automotive components. Mr. Dominijanni joined ACH and ACI in
May 1996. Mr. Dominijanni served as Vice President -- Finance of EWI, Inc. a
manufacturer of automotive metal stampings, from June 1990 until April 1996.
Prior to 1990, Mr. Dominijanni was a Senior Manager with the accounting firm of
Price Waterhouse.
Richard L. Kovach joined the Company in January 1997 as its Vice President and
Chief Financial Officer. From 1991 until joining the Company, Mr. Kovach
assisted clients with finance and operations management issues in the Financial
Advisory Services and Management Consulting practice of Ernst & Young. From 1988
until 1991, Mr. Kovach was Manager of Financial Planning at Ferro Corporation.
Prior to joining Ferro Corporation, Mr. Kovach was with Arthur Andersen & Co.'s
Small Business Group.
David J. McKelvey joined the Company as Vice President in August 1995 and also
served as Secretary from December 1996 through November 1997. Prior to joining
the Company, Mr. McKelvey was Executive Vice President of Administration and
Development for The Cafaro Company, a major domestic shopping mall developer
engaged in the ownership, operation and management of enclosed regional shopping
centers. From 1992 through 1995, Mr. McKelvey also served as Executive Regional
Director of Real Estate for The Cafaro Company.
Jeffrey V. Miller joined the Company in May 1997 as Vice
President -- Operations. From 1995 to 1997, Mr. Miller served as President of
the North American Window Division of Gentek Building Products. From 1992
through 1994, Mr. Miller was Director of Vinyl Operations for SNE Corporation, a
division of Ply Gem Industries. Mr. Miller was general manager of the New
Construction Window Division and Vice President of Technology and Corporate
Development for Chelsea Building Products from 1989 to 1992.
Donald E. Lambrix, Jr. was appointed the Company's Vice
President -- Manufacturing in December 1996 after serving as Vice President of
Operations for the Company's Forte subsidiary since 1990. Mr. Lambrix previously
served as Vice President of a multiple facility fenestration products
manufacturer. Mr. Lambrix has received industry recognition for his
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development of state-of-the-art welding, testing and certification procedures.
J. Larry Powell, the Company's Vice President -- Marketing and Sales, joined
the Company in October 1996. Mr. Powell co-founded Blackhawk Architectural
Products, a manufacturer of steel security screen and storm door products, in
1992 and served on its Board of Directors and as its Vice President until 1996.
From 1987 to 1991, Mr. Powell served as Vice President -- Marketing and Sales
for Sugarcreek Window & Door. Mr. Powell has been employed in the fenestration
industry since the early 1970s, principally in the marketing of residential and
commercial steel and aluminum window products and doors. In addition, Mr. Powell
founded and developed a nationwide marketing representative group that sells a
full range of fenestration products.
Jonathan K. Schoenike joined the Company in August 1997 as General Counsel and
has served as Secretary since November 1997. Prior to joining the Company, Mr.
Schoenike served for over 5 years as Assistant Counsel for The Cafaro Company, a
major domestic shopping mall developer engaged in the ownership, operation and
management of enclosed regional shopping centers.
John J. Cafaro joined the Board of Directors in December 1996. Mr. Cafaro also
serves as the Executive Vice President of The Cafaro Company, a major domestic
shopping mall developer engaged in the ownership, operation and management of
enclosed regional shopping centers. Mr. Cafaro has been a principal officer of
The Cafaro Company for the past 20 years.
William R. Jackson, Jr. has served as a director of the Company since December
19, 1996. Mr. Jackson has also served since 1982 on the Board of Directors of
Pitt-Des Moines, Inc., a steel construction, engineering and metal products
manufacturer. Mr. Jackson was also President and Treasurer of Pitt-Des Moines,
Inc. from 1983-87.
John Masternick has been a director of the Company since June 14, 1994. Mr.
Masternick is a practicing attorney in Girard, Ohio, and is the Chairman of the
Board of Directors of Omni Manor, Inc. and Windsor House, Inc., owners and
operators of skilled nursing and extended care facilities in northeastern Ohio
and western Pennsylvania.
James E. Phillips has been a member of the Company's Board of Directors since
December 19, 1996. Mr. Phillips is also an attorney and practiced with the law
firm of Arter & Hadden from 1985 to December 31, 1997. Additionally, Mr.
Phillips has served as President and director of GPI Incorporated ("GPI") and
Profile Extrusion Company ("PEC") since April 1, 1994 and of Daymonex Limited
("Daymonex") since May 2, 1996. GPI, PEC and Daymonex are engaged in the
aluminum extrusion industry. Mr. Phillips is also Vice Chairman of ACH.
Charles E. Trebilcock has been a director of the Company since June 14, 1994.
Since 1964, Mr. Trebilcock has served as Chairman of Liberty Industries, Inc.,
an Ohio-based manufacturer of industrial lumber packaging products and
equipment. Mr. Trebilcock is also a partner in Kings Company, which is also a
manufacturer of industrial lumber packaging products and equipment.
James K. Warren has been a director of the Company since February 28, 1997.
Mr. Warren holds the office of Vice President -- Corporate Planning of ETC.
Since February 1, 1996, Mr. Warren has been employed by ACI, most recently as
its Chief Financial Officer. During the same time, Mr. Warren has also held the
position of Vice President -- Corporate Planning for ACH, the parent company of
ACI and AAPH. Mr. Warren was previously a practicing attorney with the law firm
of Arter & Hadden.
9
<PAGE> 10
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all annual and long-term compensation paid to the
Company's Chief Executive Officer and the other most highly compensated
executive officers of the Company whose total annual salary and bonus exceeded
$100,000 during the fiscal year ending December 31, 1997 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company and its subsidiaries during the fiscal years ended December 31, 1997,
1996 and 1995.
================================================================================
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------
Other Annual
Name and Year Ended Salary Bonus Compensation
Principal Position December 31, ($) ($) ($)(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank J. Amedia............................................. 1997 266,807 250,000 --
President and Chief Executive Officer 1996 168,718 -- --
1995 193,000 -- --
Richard L. Kovach........................................... 1997 119,390 75,000 --
Vice President and Chief Financial Officer
J. Larry Powell............................................. 1997 114,167 25,000 --
Vice President -- Marketing and Sales
Jeffrey V. Miller........................................... 1997 90,000 25,000 --
Vice President -- Operations
</TABLE>
================================================================================
(1) Other compensation to the Named Executive Officers did not exceed $50,000 or
10% of total annual salary and bonus during any fiscal year.
AMENDMENT OR REPRICING OF OPTIONS
No stock options previously granted to the executive officers were subject to
repricing during the fiscal year ended December 31, 1997. The Company does not
have a long term incentive plan established for the benefit of its executive
officers or directors. In February 1998, the Board of Directors rescinded
209,000 and 100,000 stock options with exercise prices of $5.63 and $6.19,
respectively. These options were reissued in February 1998 at the following
prices: 209,000 options -- $3.56; and 100,000 options -- $3.92.
OPTION GRANTS
No stock options, stock appreciation rights or restricted stock awards were
granted as compensation to any officers, directors or employees of the Company
or its subsidiaries during the fiscal years ended December 31, 1995 or 1996. The
Company entered into definitive stock option agreements with Mr. Amedia and Mr.
John Masternick dated December 18, 1996, memorializing the terms of stock
options granted to them in 1994 as shareholders of Forte, Inc. in connection
with the acquisition by the Company of Forte, Inc. The Company issued options to
purchase up to 424,000 shares of common stock to various officers, directors and
employees of the Company or its subsidiaries during the fiscal year ended
December 31, 1997. The following table sets forth certain information concerning
individual grants of stock options to each of the Named Executive Officers
during the year ended December 31, 1997.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
================================================================================
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
------------------------------------------------------------------------- --------------------
Percent of
Number of Securities Total Options/SARs Exercise or
Underlying Options/SARs Granted to Employees Base Price Expiration
Name Granted(#) in Fiscal Year ($/SH) Date 5%($) 10%($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Amedia................ 100,000 33% 6.19 2/27/02 99,000 287,000
Richard L. Kovach.............. 25,000 8% 5.63 2/27/07 88,250 224,000
J. Larry Powell................ 25,000 8% 5.63 2/27/07 88,250 224,000
Jeffrey V. Miller.............. 0 N/A N/A N/A N/A N/A
</TABLE>
================================================================================
10
<PAGE> 11
The following table sets forth certain information concerning each exercise of
stock options during the year ended December 31, 1997 by each of the Named
Executive Officers and the aggregated fiscal year-end value of the unexercised
options of each Named Executive Officer.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND OPTION VALUE AS OF DECEMBER 31,
1997
================================================================================
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options/SARs In-the-Money Options/SARs
at Fiscal Year End(#) at Fiscal Year End($)(1)
Shares Acquired Value ---------------------------- ----------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Amedia.................. 0 0 426,244 100,000 0 0
Richard L. Kovach................ 0 0 0 25,000 0 0
J. Larry Powell.................. 0 0 0 25,000 0 0
Jeffrey V. Miller................ 0 0 0 0 0 0
</TABLE>
================================================================================
(1) Based on the average of reported bid and asked prices for the Common Stock
on December 31, 1997.
EMPLOYMENT AGREEMENT
On November 17, 1997, the Company entered into an employment agreement with
Frank J. Amedia for services as Chief Executive Officer and President. This
agreement requires Mr. Amedia to devote his full time to the Company during
normal business hours in exchange for a base annual salary of $350,000, subject
to annual increases at the discretion of the Board of Directors. In addition,
Mr. Amedia is entitled to receive bonuses at the discretion of the Board of
Directors in accordance with the Company's bonus plans in effect from time to
time, and the Company will pay certain life and disability insurance premiums on
behalf of Mr. Amedia. The agreement has an initial three-year term and provides
that Mr. Amedia may not compete with the Company anywhere in the United States
while he is employed by the Company and for a two-year period following the
termination of Mr. Amedia's employment. In addition, the Board of Directors has
approved the payment to Mr. Amedia of a bonus equal to 0.39% of the total
consideration paid by the Company for each acquisition transaction consummated
during 1998.
STOCK OPTION GRANTS
No stock options, stock appreciation rights or restricted stock awards were
granted to or exercised by any officers, directors or employees of the Company
or its subsidiaries during the fiscal year ended December 31, 1996. The Company
entered into definitive stock option agreements with Mr. Amedia and Mr.
Masternick dated December 18, 1996, memorializing the terms of stock options
granted in 1994. On December 19, 1996, the Board of Directors of the Company
granted options to purchase 2,000 shares of common stock to each of Anthony E.
DePrima, Arnold Parnell and Dr. Chester Amedia, former members of the Board of
Directors of the Company, in recognition of their many years of service to the
Company. These options have an exercise price of $4.69 per share and expire on
December 19, 2001. Dr. Amedia is the brother of Frank J. Amedia, the President
and Chief Executive Officer of the Company.
EMPLOYEE STOCK OPTION PLANS
1992 Incentive Stock Option Plan. In May of 1992, the Board of Directors of
the Company adopted an Employee Incentive Stock Option Plan (the "Option Plan").
Options to purchase an aggregate of up to 500,000 shares of the Company's common
stock are authorized under the Option Plan. Options granted under the Option
Plan have a maximum duration of ten years from the date of grant.
1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996
Plan"), which was approved by the shareholders of the Company, authorizes the
Board to grant options to Directors and employees of the Company to purchase in
the aggregate an amount of shares of common stock equal to 10% of the shares of
common stock issued and outstanding from time to time, but which aggregate
amount shall in no event exceed 10,000,000 shares of common stock. Directors,
officers and other employees of the Company who, in the opinion of the Board of
Directors, are responsible for the continued growth and development and the
financial success of the Company are eligible to be granted options under the
1996 Plan. Options may be nonqualified options, incentive stock options, or any
combination of the foregoing. In general, options granted under the 1996 Plan
are not transferable and expire ten (10) years after the date of grant. The per
share exercise price of an incentive stock option granted under the 1996 Plan
may not be less than the fair market value of the common stock on the date of
grant. Incentive stock options granted to persons who have voting control over
10% or more of the Company's common stock are granted at 110% of the fair market
value of the underlying shares on the date of grant and expire five years after
the date of grant. No option may be granted after December 19, 2006.
11
<PAGE> 12
The 1996 Plan provides the Board of Directors with the discretion to determine
when options granted thereunder will become exercisable. Generally, such options
may be exercised after a period of time specified by the Board of Directors at
any time prior to expiration, so long as the optionee remains employed by the
Company. No option granted under the 1996 Plan is transferable by the optionee
other than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by the optionee.
As of December 31, 1997, options to purchase a total of 1,719,425 shares of
the Company's common stock were outstanding, including options to purchase
707,655 shares issued to AAP Holdings, Inc. on December 18, 1996, with an
exercise price of $3.75 per share, options to purchase 471,770 shares issued to
Mr. Amedia and Mr. Masternick (issued in connection with the acquisition of
Forte, Inc.) with an exercise price of $3.75 per share, options issued pursuant
to the Company's stock option plans described above and other options issued
outside of the described stock option plans.
EMPLOYEE STOCK PURCHASE PLAN
On February 26, 1998, the Board of Directors adopted the 1998 Employee Stock
Purchase Plan (the "1998 Purchase Plan") and reserved 1,200,000 shares of common
stock for issuance thereunder, subject to stockholder approval. The Company
intends to submit the 1998 Purchase Plan and the reservation of shares
thereunder for stockholder approval at the Company's 1998 annual meeting. In
general, the 1998 Purchase Plan is designed to encourage common stock ownership
by the Company's employees, to provide an employee benefit, and to raise capital
for the Company. If qualified in accordance with Section 423 of the Code, the
1998 Purchase Plan will enable the Company to sell shares of common stock to its
employees at a price discount of up to 15% of market price and provides
favorable tax treatment to employee participants. The discount is applied to the
lower of the price of the common stock at the beginning or end of the option
period, so the actual price benefit can be greater than 15%. The discount makes
the Company stock more attractive to employees, thereby encouraging equity
ownership by employees. In addition, the 1998 Purchase Plan provides an
additional source of capital for the Company. Shares of common stock purchased
by employees pursuant to the 1998 Purchase Plan may be subject to certain
holding period requirements in order for the purchaser to qualify for favorable
tax treatment under the Code.
401(k) PLAN
Eligible employees of the Company may direct that a portion of their
compensation, up to a legally established maximum, be withheld by the Company
and contributed to a 401(k) plan. All 401(k) plan contributions are placed in a
trust fund to be invested by the 401(k) plan's trustee, except that the 401(k)
plan permits participants to direct the investment of their account balances
among mutual or investment funds available under the Plan. The 401(k) plan
provides a matching contribution of 50% of a participant's contributions up to a
maximum of seven percent of the participant's annual salary. Amounts contributed
to participant accounts under the 401(k) plan and any earnings or interest
accrued on the participant accounts are generally not subject to federal income
tax until distributed to the participant and may not be withdrawn until death,
retirement or termination of employment.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Audit Committee, which is comprised of William R. Jackson, Jr.,
Charles E. Trebilcock and Joseph Dominijanni, is responsible for reviewing and
making recommendations regarding the Company's employment of independent
auditors, the annual audit of the Company's financial statements and the
Company's internal accounting controls, practices and policies. The Audit
Committee was established on August 28, 1997 and did not meet during the year.
The Compensation Committee was established on August 28, 1997 and met one time
during the year. The Company's Compensation Committee is responsible for making
recommendations to the Board of Directors regarding compensation arrangements
for executive officers of the Company, including annual bonus compensation, and
consults with management of the Company regarding compensation policies and
practices. The Compensation Committee also makes recommendations concerning the
adoption of any compensation plans in which management is eligible to
participate, including the granting of stock options and other benefits under
such plans. The Compensation Committee is comprised of George S. Hofmeister,
Frank J. Amedia, and John Masternick.
DIRECTORS' TERMS AND COMPENSATION
The Company's Board of Directors is currently comprised of nine members. Each
Director is elected for a period of one year at the Company's annual meeting of
shareholders and serves until his or her successor is duly elected and
qualified. During the fiscal year ended December 31, 1997, the Board of
Directors of the Company met ten times. All other actions taken by the Board of
Directors during the fiscal year ended December 31, 1997 were accomplished by
means of unanimous written consent. Messrs. Cafaro, Jackson, Masternick and
Warren attended fewer than 75% of the meetings of the Board of Directors in
1997. All other Directors attended 75% or more of the meetings
12
<PAGE> 13
of the Board of Directors and of the meetings held by committees of the Board on
which they served.
During the fiscal year ended December 31, 1997, members of the Board of
Directors who were not employees of the Company or of ACH or its affiliates
("non-employee directors") received a fee of $1,000 for each meeting of the
Board of Directors attended in person and were reimbursed for expenses incurred
in connection with their attendance at meetings of the Board. Each non-employee
member serving on December 31, 1997 who attended at least 4 of the regularly
scheduled meetings of the Board of Directors and at least 75% of all meetings of
the Board of Directors was granted options to purchase 2,000 shares of the
Company's common stock at an exercise price equal to the average of the reported
closing bid and asked prices on the date of grant, vesting in full upon
issuance. Such options are exercisable for a period of five years following the
vesting date and were issued pursuant to the Company's 1996 Stock Option Plan.
For the fiscal year ending December 31, 1998, each non-employee director of the
Company will receive the following compensation:
(i) Options to purchase 2,000 shares of the Company's common stock at
an exercise price equal to the average of the reported closing bid and
asked prices on the date of grant, vesting in full after one year if the
director attends at least four of the regularly scheduled meetings of the
Board of Directors and at least 75% of all meetings of the Board of
Directors. Such options will be exercisable for a period of five years
following the vesting date and will be issued pursuant to the Company's
1996 Stock Option Plan.
(ii) A fee of $1,000 for each Board of Directors meeting attended in
person.
(iii) Reimbursement of expenses incurred in connection with attending
meetings of the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of December 31, 1997,
concerning the beneficial ownership of the Company's common stock by (i) each
beneficial owner of more than 5% of the Company's common stock, (ii) each
Director and the Chief Executive Officer of the Company, and (iii) all Directors
and the Chief Executive Officer of the Company as a group. To the knowledge of
the Company, all persons listed below have sole voting and investment power with
respect to their shares, except to the extent that authority is shared by their
respective spouses under applicable law.
============================================================
<TABLE>
<CAPTION>
Shares
Beneficially Owned
----------------------
Name of Beneficial Owner(1) Number Percent
- --------------------------------------------------------------
<S> <C> <C>
AAP Holdings, Inc..................... 7,548,633(2) 56.5%
George S. Hofmeister.................. 7,579,059(3) 56.5%
Frank J. Amedia....................... 3,379,326(4) 24.5%
Amedia Family Limited Partnership..... 1,500,000 11.2%
John Masternick....................... 371,680(5) 2.8%
William R. Jackson, Jr................ 73,287(6) *
Charles E. Trebilcock................. 52,833(7) *
Richard L. Kovach..................... 5,000 *
J. Larry Powell....................... 15,412
Joseph Dominijanni.................... 27,000 *
James K. Warren....................... 400 *
All directors and executive officers
of the Company as a group (9
persons)............................ 11,458,585(8) 84.1%
</TABLE>
============================================================
* Less than 1%
(1) The address of each beneficial owner is c/o American Architectural Products
Corporation, 755 Boardman-Canfield Road, Building G West, Boardman, Ohio
44512.
(2) Does not include 707,655 shares of common stock which are subject to
unexercised options that are exercisable only upon the occurrence of certain
contingencies.
(3) Includes shares of common stock held by AAP Holdings, Inc. and 27,926 shares
of common stock which are subject to unexercised warrants held by Profile
Extrusion Company. George S. Hofmeister, the Chairman of the Board of
Directors of the Company, is the controlling shareholder of the corporate
parent of AAP Holdings, Inc. and Profile Extrusion Company.
(4) Includes 426,244 shares of common stock which are subject to unexercised
options that were exercisable on February 5, 1998 or within sixty days
thereafter. Also includes 1,500,000 shares of common stock owned by the
Amedia Family Limited Partnership, in which Mr. and his spouse are the
general partners and each holds 48% of the partnership interests.
(5) Includes 47,526 shares of common stock which are subject to unexercised
options that were exercisable on February 5, 1998 or within sixty days
thereafter.
(6) Includes 57,143 shares of common stock which are subject to unexercised
warrants that were exercisable on February 5, 1998 or within sixty days
thereafter.
(7) Includes 25,833 shares of common stock owned individually and 25,000 shares
held by a custodian for the benefit of an individual retirement account of
Mr. Trebilcock. Also includes 2,000 shares of common stock which are subject
to unexercised options that were exercisable on February 5, 1998 or within
sixty days thereafter.
(8) Includes 560,839 shares of common stock which are subject to unexercised
options and warrants that were exercisable on February 5, 1998 or within
sixty days thereafter as described above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. George S. Hofmeister, Chairman of the Board of Directors of the Company, is
the controlling shareholder of the corporate parent of AAP Holdings, Inc., a
Delaware corporation ("AAPH"). In connection with the Agreement and Plan of
Reorganization between the Company and AAPH dated October 25, 1996 (the
"Reorganization Agreement"), the Company and its subsidiary, American
Architectural Products, Inc. ("AAP"), agreed to use their best efforts to secure
the release of Amedia, Masternick and Hofmeister from all obligations as either
a co-obligor or guarantor of
13
<PAGE> 14
Company or AAP debt. In addition, the Company agreed to indemnify, defend and
hold harmless Amedia, Masternick and Hofmeister against any loss, cost or
expense which any of them may incur as a result of being a co-obligor or
guarantor of any Company or AAP debt. Furthermore, the Company and AAPH agreed
not to dispose of assets securing any Company or AAP debt without the prior
written consent of any person who is a co-obligor or guarantor of such debt. As
described below, Messrs. Amedia, Hofmeister and Masternick have subsequently
been released as guarantors on these obligations.
Upon consummation of the transaction contemplated by the Reorganization
Agreement, the Company agreed that AAP would pay a management fee to AAPH of
$250,000 during 1997 and to reimburse AAPH and its affiliates for out-of-pocket
expenses incurred in providing services to AAP. The management fee agreement
expired on December 31, 1997.
In addition, the Company agreed to pay AAPH an acquisition consulting fee of
one percent (1%) of the transaction price of each acquisition transaction
consummated by the Company with respect to which AAPH or its affiliates provides
acquisition consulting services. For purposes of calculating the acquisition
fee, the transaction price means the aggregate amount of consideration paid by
the Company or its affiliates for the acquisition in the form of cash, stock,
stock options, warrants, debt instruments and other assumed liabilities. The
original acquisition consulting fee agreement was scheduled to expire on
December 18, 1997, except with respect to acquisition transactions already in
progress at such date, but was extended for one year. Acquisition consulting
fees in 1997 approximated $835,000.
In connection with the acquisition by the Company of Binnings, Danvid,
American Glassmith and Modern in December of 1997, the Company (i) agreed to pay
ACH, the corporate parent of AAPH, a success fee of $475,000 for services
provided by officers and employees of ACH in connection with such transactions,
and (ii) paid various officers of the Company (including Mr. Amedia) special
bonuses in an aggregate amount of $430,000 in connection with such transactions.
Both the success fee and special bonuses were contingent upon the successful
consummation of such acquisition transactions and were paid prior to December
31, 1997. The success fee paid to ACH was in addition to amounts payable under
the acquisition consulting fee agreement described above.
The Company contracts for air charter services with a company affiliated with
AAPH. The Company paid approximately $450,000 to this company for air charter
services in 1997.
In November 1990, the U.S. Small Business Administration loaned $409,000 to
Forte, Inc. (the "SBA Loan"). The SBA Loan was payable in monthly installments
and the final installment was scheduled to be due on January 1, 2001. Mr. Amedia
and his wife were personally liable on the SBA Loan. As of December 31, 1997,
the balance owed on the SBA Loan were approximately $172,000. The Company repaid
this loan in January 1998.
The Company acquired all of the issued and outstanding common stock of Forte
from Frank Amedia and John Masternick on June 8, 1994, in exchange for 3,311,010
shares of the Company's common stock and options to acquire 475,770 shares of
the Company's common stock.
On October 20, 1994, Forte borrowed $850,000 from The City of Youngstown,
Ohio. The final payment on this loan was scheduled to be due on February 1,
2004. Mr. Amedia and his wife were guarantors of this loan. As of September 30,
1997, the balance owed to The City of Youngstown under the loan agreement was
approximately $850,000. The Company repaid this loan on December 10, 1997.
In December 1994, Mr. Amedia and Masternick and their wives executed
guarantees in favor of the Second National Bank of Warren with respect to a loan
to Forte in the original principal amount of $647,030. The proceeds of this loan
were used to finance improvements to Forte's manufacturing facilities. This loan
was scheduled to be repaid in full by December 12, 2004. As of September 30,
1997, the balance owed on this loan was approximately $522,000. The Company
repaid this loan on December 10, 1997.
Pursuant to the reorganization of the Company and AAP on December 18, 1996
(the "Reorganization") the Company issued 1,000,000 shares of Series A Preferred
Stock in exchange for all of the issued and outstanding stock of AAP. In April
1997, AAPH converted the Series A Preferred Stock pursuant to its terms into
7,548,633 shares of common stock of the Company. In addition, the Company issued
to AAPH options to purchase up to 879,834 shares of common stock, of which
options to purchase 172,178 shares have subsequently terminated. Such options
are identical in price and exercise terms to the previously outstanding options.
As security for certain promissory notes dated August 29, 1996 in the original
aggregate principal amount of $8.0 million (the "MascoTech Notes"), AAPH granted
MascoTech a ten-year option to purchase up to 1,509,728 shares of common stock
held by AAPH. As part of the Reorganization Agreement, AAPH and the Company
agreed that if the MascoTech Notes were not repaid in full on or before December
31, 1997 and MascoTech exercised its option with respect to any of such shares
of common stock, the Company would issue to AAPH, without payment therefor, a
number of additional shares of common stock equal to the number of shares as to
which such option is exercised by MascoTech. The Company also agreed to use its
best efforts to cause
14
<PAGE> 15
all amounts owed under the MascoTech Notes to be repaid in full on or before
December 31, 1997. The Company repaid the MascoTech Notes in full on December
10, 1997.
In connection with the acquisition of Western in March 1997, Mr. Amedia and
Mr. Hofmeister co-signed unsecured promissory notes in the aggregate original
principal amount of $453,753 payable to the former shareholders of Western and
the organization that brokered the acquisition. The final monthly installment
payment on each note was due March 15, 1998. As of September 30, 1997, the
outstanding balance on the notes was $453,753. In addition, Mr. Amedia co-signed
a promissory note to one of the former shareholders of Western in the original
principal amount of $100,000. The amount outstanding under this Note was
approximately $100,000 as of September 30, 1997. The Company repaid these loans
on December 10, 1997.
Profile Extrusion Company ("PEC") loaned the Company $92,537 on May 19, 1997
and an additional $5,203 on September 28, 1997. This combined indebtedness had
an interest rate of 15% per annum and was payable in full on or before December
31, 1997. In connection therewith, the Company issued to PEC warrants to
purchase a total of 27,926 shares of common stock at an exercise price of $3.50
per share, expiring on September 1, 1998. The Company repaid this loan on
December 10, 1997. PEC is a wholly-owned subsidiary of American Commercial
Holdings, Inc., of which George Hofmeister is the controlling shareholder.
In June 1997, Mr. Amedia pledged 133,333 shares of common stock to secure the
repayment of a short-term debt incurred by the Company in the original principal
amount of $250,000. The Company agreed to issue shares of common stock to Mr.
Amedia to replace any shares as to which the lender exercises its security
interest. The Company repaid this loan on January 16, 1998.
In September 1997, William R. Jackson, Jr., a director of the Company, loaned
the Company $200,000. This indebtedness had an interest rate of 15% per annum
and was payable in full in December 1997. In connection therewith, the Company
issued to Mr. Jackson warrants to purchase a total of 57,143 shares of common
stock at an exercise price of $3.50 per share, expiring in September 1998. The
Company repaid this loan on December 10, 1997.
In January 1998, the Company purchased all of the assets of Blackhawk
Architectural Products (Blackhawk). J. Larry Powell, an officer of the Company,
co-founded and owned 20% of Blackhawk.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements of AAPC and its subsidiaries, and the
auditor's report thereon, included in the Financial Review section of AAPC's
1997 Annual Report to Shareholders are incorporated herein by reference:
<TABLE>
<CAPTION>
==================================================================
Page
- ------------------------------------------------------------------
<S> <C>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for the period from
June 19, 1996 (date of inception) to December 31, 1996
and the year ended December 31, 1997................... F-5
Consolidated Statements of Stockholders' Equity for the
period from June 19, 1996 (date of inception) to
December 31, 1996 and the year ended December 31,
1997................................................... F-6
Consolidated Statements of Cash Flows for the period from
June 19, 1996 (date of inception) to December 31, 1996
and the year ended December 31, 1997................... F-7
Notes to Consolidated Financial Statements................ F-8
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
==================================================================
Page
- ------------------------------------------------------------------
<S> <C>
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR
BUILDING PRODUCTS COMPANY
Independent Auditors' Report.............................. F-22
Combined Balance Sheets at December 31, 1995 and August
29, 1996............................................... F-23
Combined Statements of Operations and Accumulated Deficit
for the year ended December 31, 1995 and for the eight
months ended August 29, 1996........................... F-24
Combined Statements of Cash Flows for the year ended
December 31, 1995 and for the eight months ended August
29, 1996............................................... F-25
Notes to Combined Financial Statements.................... F-26
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants........ F-31
Combined Balance Sheets at November 30, 1995 and June 30,
1996................................................... F-32
Combined Statements of Operations and Retained Earnings
for the year ended November 30, 1995 and for the seven
months ended June 30, 1996............................. F-33
Combined Statements of Cash Flows for the year ended
November 30, 1995 and for the seven months ended June
30, 1996............................................... F-34
Notes to Combined Financial Statements.................... F-35
</TABLE>
================================================================================
(a)(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules for AAPC and its predecessor have been
included in the consolidated financial statements or the related footnotes, or
they are either inapplicable or not required.
(a)(3) EXHIBITS*
<TABLE>
<CAPTION>
====================================================================
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 10, 1997,
by and among American Architectural Products Corporation,
BBPI Acquisition Corporation and Binnings Building Products,
Inc.
2.2 Asset Purchase Agreement, dated as of November 10, 1997, by
and among DCI/DWC Acquisition Corporation, Danvid Company,
Inc. and Danvid Window Company.
2.3 Shareholders Agreement in Support of Asset Purchase
Agreement, dated as of November 10, 1997, by and among
Daniel Crawford, Karen Crawford, David Crawford, Paul Comer
and DCI/DWC Acquisition Corporation.
2.4 Asset Purchase Agreement, dated as of December 10, 1997, by
and among American Architectural Products Corporation,
American Glassmith Acquisition Corporation and American
Glassmith, Inc.
2.5 Agreement, dated as of December 10, 1997, by and among
American Architectural Products Corporation, Modern Window
Acquisition Corporation and Modern Window Corporation.
2.6 Agreement and Plan of Reorganization, dated October 25,
1996, between Forte Computer Easy, Inc. and AAP Holdings,
Inc.
3.1 Certificate of Incorporation of American Architectural
Products Corporation.
3.2 Bylaws of American Architectural Products Corporation.
3.3 Certificate of Incorporation of American Glassmith
Acquisition Corporation.
3.4 Bylaws of American Glassmith Acquisition Corporation.
3.5 Amended and Restated Certificate of Incorporation of
Binnings Building Products, Inc.
3.6 Bylaws of Binnings Building Products, Inc.
3.8 Bylaws of Danvid Window Company.
3.9 Certificate of Incorporation of Eagle & Taylor Company, as
amended.
3.10 Bylaws of Eagle & Taylor Company.
3.11 Articles of Incorporation of Forte, Inc.
3.12 Code of Regulations of Forte, Inc.
3.13 Certificate of Incorporation of Modern Window Acquisition
Corporation.
3.14 Bylaws of Modern Window Acquisition Corporation.
3.15 Certificate of Incorporation of Thermetic Glass, Inc., as
amended.
3.16 Bylaws of Thermetic Glass, Inc.
3.17 Articles of Incorporation of Western Insulated Glass, Co.
3.18 Bylaws of Western Insulated Glass, Co.
4.1 Form of American Architectural Products Corporation Common
Stock Certificate.
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
====================================================================
<C> <S>
4.2 Indenture dated as of December 10, 1997 with respect to
11 3/4% Senior Notes due 2007 among American Architectural
Products Corporation, as issuer, American Glassmith
Acquisition Corporation, BBPI Acquisition Corporation,
DCI/DWC Acquisition Corporation, Eagle & Taylor Company,
Forte, Inc., Modern Window Acquisition Corporation,
Thermetic Glass, Inc., and Western Insulated Glass, Co., as
subsidiary guarantors, and United States Trust Company of
New York, as trustee.
10.1 1992 Incentive Stock Option Plan.
10.2 1996 Stock Option Plan.
10.3 Employment Agreement, dated November 17, 1997, between Frank
J. Amedia and American Architectural Products Corporation.
10.4a Lease Agreement, dated December 1989, between Centre
Consolidated Properties, Ltd. and Danvid Company, Inc.
10.4b Lease Extension Agreement to Industrial Lease Agreement
between Beltline Business Center Limited Partnership and
Danvid Company, Inc.
10.5 Business Property Lease, dated as of June 25, 1996, between
C. Lane Mally and Mallyclad Corporation.
10.6a Lease Agreement, dated November 28, 1990, between J.M.J.
Partnership and The New Edgehill Co, Inc.
10.6b Lease Modification No. 1, dated October 19, 1992, between
J.M.J. Partnership and The American Glassmith, Inc., f/k/a
The New Edgehill Co., Inc.
10.6c Lease Modification No. 2, dated June 8, 1993, between J.M.J.
Partnership and The American Glassmith, Inc.
10.6d Lease Modification No. 3, dated January 31, 1995, between
J.M.J. Partnership and American Glassmith, Inc.
10.6e Lease Modification No. 4, dated as of March 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc.
10.6f Lease Modification No. 5, dated as of August 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc.
10.6g Lease Modification No. 6, dated June 19, 1996, between
J.M.J. Partnership and American Glassmith, Inc.
10.7 Lease Agreement, dated March 14, 1997, by and among Benny J.
Ellis and Linda M. Ellis and Western Insulated Glass, Co.
10.8 Purchase Agreement, dated as of December 4, 1997, by and
among American Architectural Products Corporation, NatWest
Capital Markets Limited and McDonald & Company Securities,
Inc.
10.9 Exchange and Registration Rights Agreement, dated as of
December 10, 1997, by and among American Architectural
Products Corporation, American Glassmith Acquisition
Corporation, BBPI Acquisition Corporation, DCI/DWC
Acquisition Corporation, Eagle & Taylor Company, Forte,
Inc., Modern Window Acquisition Corporation, Thermetic
Glass, Inc., Western Insulated Glass, Co., NatWest Capital
Markets Limited and McDonald & Company Securities, Inc.
12 Statements re: Computation of Ratios
13 Annual Report
21 Subsidiaries of American Architectural Products Corporation
27 Financial Data Schedules
</TABLE>
* Filed herewith.
<TABLE>
<S> <C>
A Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form 10-SB filed
November 22, 1996.
B Incorporated by reference to the Company's Current Report on
Form 8-K dated October 25, 1996.
C Incorporated by reference to the Company's definitive
Information Statement relating to the special meeting of
shareholders held on April 1, 1997.
D Incorporated by reference to the Company's Current Report on
Form 8-K dated December 10, 1997.
E Incorporated by reference to Amendment No. 2 to the
Company's Registration Statement on Form 10-SB filed April
17, 1997.
F Incorporated by reference to the Company's Registration
Statement on Form S-4 filed January 15, 1998.
</TABLE>
================================================================================
17
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with Section 102(b)(7) of the Delaware General Corporation Law
("DGCL"), the Company's Certificate of Incorporation includes a provision that
eliminates, to the fullest extent permitted by law, the personal liability of
members of its Board of Directors to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. Such provision does
not eliminate or limit the liability of a director (1) for any breach of a
director's duty of loyalty to the Company or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of a law, (3) for paying an unlawful dividend or approving an illegal
stock purchase or redemption (as provided in Section 174 of the DGCL) or (4) for
any transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, if such person acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. In a derivative
action (i.e., one brought by or in the right of the corporation),
indemnification may be made for expenses actually and reasonably incurred by any
officer or director in connection with the defense or settlement of such an
action or suit if such person acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that such person is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
The DGCL also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director or officer against any liability
asserted against him and incurred by him in such capacity, or arising out of his
status as such, whether or not the corporation has the power to indemnify him
against that liability under Section 145 of the DGCL.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
generally provide for the indemnification of and advancement of litigation
expenses to the Company's directors and officers and such other persons
designated by the Board of Directors of the Company as entitled to the benefits
of indemnification against all liabilities, losses and expenses incurred in
connection with any claim, action, suit or proceeding in which any of them
become involved by reason of their service rendered to the Company or, at its
request, to another entity; provided, however, that no such right to
indemnification shall exist with respect to an action brought by an indemnitee
against the Company unless certain conditions set forth in such provisions are
satisfied. The provisions of the Company's Certificate of Incorporation and
Bylaws are not exclusive of any other indemnification rights to which an
indemnitee may be entitled, whether by contract or otherwise. The Company may
also purchase liability insurance on behalf of its directors and officers,
whether or not it would have the obligation or power to indemnity any of them
under the terms of its Certificate of Incorporation.
In addition, each of the control persons, officers and directors of each of
the Subsidiary Guarantors is generally provided indemnification to the fullest
extent allowed by the law of such Subsidiary Guarantor's respective jurisdiction
of organization.
ITEM 21(A). EXHIBITS
The information required by this Item 21(a) is set forth in the Index to
Exhibits accompanying this Registration Statement and is incorporated herein by
reference.
II-1
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
American Architectural Products Corporation
The audits referred to in our report dated February 26, 1998 relating to the
consolidated financial statements of American Architectural Products
Corporation, which is contained in Item 8 of this Form 10-K included the audits
of the financial statment schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan
February 26, 1998
II-2
<PAGE> 20
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FROM DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
AND YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE CHARGED TO CHARGED TO BALANCE
AT BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
From date of inception (June 19,
1996) to December 31, 1996......... $ -- $ 12,546 $ 914,552(1) $487,894(2) $ 439,204
Year ended December 31, 1997......... 439,204 (17,102) 491,864(2) 74,825(2) 839,141
WARRANTY OBLIGATIONS
From date of inception (June 19,
1996) to December 31, 1996......... -- 369,324 4,627,412(1) 615,657 4,381,079
Year ended December 31, 1997......... 4,381,079 1,470,320 491,544(1) 1,517,216 4,825,727
</TABLE>
- ---------------
(1) Purchased in business acquisitions
(2) Accounts deemed to be uncollectible
II-3
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
To the Shareholders and Board of Directors of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited in accordance with generally accepted auditing standards, the
August 29, 1996 and December 31, 1995 financial statements included in this
registration statement, and have issued our reports thereon dated January 31,
1997. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is the responsibility of
the company's management. It is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
SEMPLE & COOPER, L.L.P.
Phoenix, Arizona
June 23, 1997
II-4
<PAGE> 22
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------ ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
August 29, 1996......... Allowance for doubtful $ 445,418 $ 425,595 $-- $ 79,492 $ 791,521
accounts
December 31, 1995....... Allowance for doubtful $ 648,385 $ 570,709 $-- $ 773,676 $ 445,418
accounts
August 29, 1996......... Provision for obsolete $1,623,500 $ 70,000 $-- $1,218,985 $ 474,515
inventory
December 31, 1995....... Provision for obsolete $1,555,000 $ 462,905 $-- $ 394,405 $1,623,500
inventory
August 29, 1996......... Accrued warranty $4,824,800 $ 801,073 $-- $ 998,461 $4,627,412
obligations
December 31, 1995....... Accrued warranty $5,149,800 $1,710,750 $-- $2,035,750 $4,824,800
obligations
</TABLE>
II-5
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORP.
<TABLE>
<S> <C>
March 31, 1998 By: /s/ FRANK J. AMEDIA
-----------------------------------------------------------
Frank J. Amedia
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
===============================================================================================================
Signature Title Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chairman of the Board of Directors March 31, 1998
- ---------------------------------------
George S. Hofmeister
/s/ FRANK J. AMEDIA President (Principal Executive Officer) and Director March 31, 1998
- ---------------------------------------
Frank J. Amedia
/s/ RICHARD L. KOVACH Chief Financial Officer (Principal Financial March 31, 1998
- --------------------------------------- Officer)
Richard L. Kovach
/s/ JOSEPH DOMINIJANNI Treasurer and Director March 31, 1998
- ---------------------------------------
Joseph Dominijanni
/s/ JOHN J. CAFARO Director March 31, 1998
- ---------------------------------------
John J. Cafaro
/s/ W. R. JACKSON, JR. Director March 31, 1998
- ---------------------------------------
W. R. Jackson, Jr.
Director March 31, 1998
- ---------------------------------------
John Masternick
Director March 31, 1998
- ---------------------------------------
James E. Phillips
/s/ CHARLES E. TREBILCOCK Director March 31, 1998
- ---------------------------------------
Charles E. Trebilcock
/s/ JAMES K. WARREN Director March 31, 1998
- ---------------------------------------
James K. Warren
</TABLE>
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of November 10, 1997,
by and among American Architectural Products Corporation,
BBPI Acquisition Corporation and Binnings Building Products,
Inc. ....................................................... D
2.2 Asset Purchase Agreement, dated as of November 10, 1997, by
and among DCI/DWC Acquisition Corporation, Danvid Company,
Inc. and Danvid Window Company. ............................ D
2.3 Shareholders Agreement in Support of Asset Purchase
Agreement, dated as of November 10, 1997, by and among
Daniel Crawford, Karen Crawford, David Crawford, Paul Comer
and DCI/DWC Acquisition Corporation. ....................... D
2.4 Asset Purchase Agreement, dated as of December 10, 1997, by
and among American Architectural Products Corporation,
American Glassmith Acquisition Corporation and American
Glassmith, Inc. ............................................ D
2.5 Agreement, dated as of December 10, 1997, by and among
American Architectural Products Corporation, Modern Window
Acquisition Corporation and Modern Window Corporation. ..... D
2.6 Agreement and Plan of Reorganization, dated October 25,
1996, between Forte Computer Easy, Inc. and AAP Holdings,
Inc. ....................................................... B
3.1 Certificate of Incorporation of American Architectural
Products Corporation. ...................................... C
3.2 Bylaws of American Architectural Products Corporation. ..... C
3.3 Certificate of Incorporation of American Glassmith
Acquisition Corporation. ................................... F
3.4 Bylaws of American Glassmith Acquisition Corporation. ...... F
3.5 Amended and Restated Certificate of Incorporation of
Binnings Building Products, Inc. ........................... F
3.6 Bylaws of Binnings Building Products, Inc. ................. F
3.8 Bylaws of Danvid Window Company. ........................... F
3.9 Certificate of Incorporation of Eagle & Taylor Company, as
amended. ................................................... F
3.10 Bylaws of Eagle & Taylor Company. .......................... F
3.11 Articles of Incorporation of Forte, Inc. ................... F
3.12 Code of Regulations of Forte, Inc. ......................... F
3.13 Certificate of Incorporation of Modern Window Acquisition
Corporation. ............................................... F
3.14 Bylaws of Modern Window Acquisition Corporation. ........... F
3.15 Certificate of Incorporation of Thermetic Glass, Inc., as
amended. ................................................... F
3.16 Bylaws of Thermetic Glass, Inc. ............................ F
3.17 Articles of Incorporation of Western Insulated Glass,
Co. ........................................................ F
3.18 Bylaws of Western Insulated Glass, Co. ..................... F
4.1 Form of American Architectural Products Corporation Common
Stock Certificate. ......................................... E
4.2 Indenture dated as of December 10, 1997 with respect to
11 3/4% Senior Notes due 2007 among American Architectural
Products Corporation, as issuer, American Glassmith
Acquisition Corporation, BBPI Acquisition Corporation,
DCI/DWC Acquisition Corporation, Eagle & Taylor Company,
Forte, Inc., Modern Window Acquisition Corporation,
Thermetic Glass, Inc., and Western Insulated Glass, Co., as
subsidiary guarantors, and United States Trust Company of
New York, as trustee. ...................................... D
10.1 1992 Incentive Stock Option Plan. .......................... A
10.2 1996 Stock Option Plan. .................................... C
10.3 Employment Agreement, dated November 17, 1997, between Frank
J. Amedia and American Architectural Products
Corporation. ............................................... F
10.4a Lease Agreement, dated December 1989, between Centre
Consolidated Properties, Ltd. and Danvid Company, Inc. ..... F
10.4b Lease Extension Agreement to Industrial Lease Agreement
between Beltline Business Center Limited Partnership and
Danvid Company, Inc. ....................................... F
10.5 Business Property Lease, dated as of June 25, 1996, between
C. Lane Mally and Mallyclad Corporation. ................... F
10.6a Lease Agreement, dated November 28, 1990, between J.M.J.
Partnership and The New Edgehill Co, Inc. .................. F
10.6b Lease Modification No. 1, dated October 19, 1992, between
J.M.J. Partnership and The American Glassmith, Inc., f/k/a
The New Edgehill Co., Inc. ................................. F
10.6c Lease Modification No. 2, dated June 8, 1993, between J.M.J.
Partnership and The American Glassmith, Inc. ............... F
10.6d Lease Modification No. 3, dated January 31, 1995, between
J.M.J. Partnership and American Glassmith, Inc. ............ F
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C>
10.6e Lease Modification No. 4, dated as of March 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc. .... F
10.6f Lease Modification No. 5, dated as of August 31, 1995,
between J.M.J. Partnership and American Glassmith, Inc. .... F
10.6g Lease Modification No. 6, dated June 19, 1996, between
J.M.J. Partnership and American Glassmith, Inc. ............ F
10.7 Lease Agreement, dated March 14, 1997, by and among Benny J.
Ellis and Linda M. Ellis and Western Insulated Glass,
Co. ........................................................ F
10.8 Purchase Agreement, dated as of December 4, 1997, by and
among American Architectural Products Corporation, NatWest
Capital Markets Limited and McDonald & Company Securities,
Inc. ....................................................... D
10.9 Exchange and Registration Rights Agreement, dated as of
December 10, 1997, by and among American Architectural
Products Corporation, American Glassmith Acquisition
Corporation, BBPI Acquisition Corporation, DCI/DWC
Acquisition Corporation, Eagle & Taylor Company, Forte,
Inc., Modern Window Acquisition Corporation, Thermetic
Glass, Inc., Western Insulated Glass, Co., NatWest Capital
Markets Limited and McDonald & Company Securities, Inc. .... D
12 Statements re: Computation of Ratios........................ F
13 Annual Report............................................... *
21 Subsidiaries of American Architectural Products
Corporation................................................. *
27 Financial Data Schedules.................................... *
</TABLE>
* Filed herewith.
A Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form 10-SB filed November 22, 1996.
B Incorporated by reference to the Company's Current Report on Form 8-K dated
October 25, 1996.
C Incorporated by reference to the Company's definitive Information Statement
relating to the special meeting of shareholders held on April 1, 1997.
D Incorporated by reference to the Company's Current Report on Form 8-K dated
December 10, 1997.
E Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form 10-SB filed April 17, 1997.
F Incorporated by reference to the Company's Registration Statement on Form S-4
filed January 15, 1998.
Item 14(b)
The Company filed one report on Form 8-K during the fourth quarter of 1997. The
current report, dated December 10, 1997, reported the acquisitions by the
Company of Binnings, Danvid, American Glassmith and Modern and the Offering by
the Company pursuant to Rule 144A of its $125,000,000 11 3/4% Senior Notes due
2007.
<PAGE> 1
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of the Company
and its predecessors for the five years ended December 31, 1997. The selected
financial data for the Company for 1996 and 1997 were derived from the audited
consolidated financial statements of the Company for the period from June 19,
1996 (inception) through December 31, 1996 and for the year ended December 31,
1997, included elsewhere in this Report. The selected financial data for the
predecessors for 1996 and 1995 were derived from the audited combined financial
statements of Eagle Window & Door, Inc. and Subsidiaries and Taylor Building
Products Company included elsewhere in this Report; and the audited combined
financial statements of Mallyclad Corporation and Vyn-L Corporation included
elsewhere in this Report. The historical financial data for the Predecessors for
1994 were derived from the audited combined financial statements of Eagle Window
& Door, Inc. and Subsidiaries and Taylor Building Products Company that are not
included in this Report; and the audited combined financial statements of
Mallyclad Corporation and Vyn-L Corporation that are not included in this
Report. The selected financial data for the predecessors for 1993 were derived
from the unaudited combined financial statements of Eagle Window & Door, Inc.
and Subsidiaries and Taylor Building Products Company, that are not included in
this Report; the unaudited financial statements of Mallyclad Corporation, that
are not included in this Report; and the unaudited financial statements of Vyn-L
Corporation which are not included in this Report.
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements along with the notes thereto
of the Company, Eagle Window & Door, Inc. and Subsidiaries and Taylor Building
Products Company, and Mallyclad Corporation and Vyn-L Corporation included
elsewhere in this Report.
================================================================================
<TABLE>
<CAPTION>
Predecessors(2) The Company(1), (3)
--------------------------------------- ----------------------------------
Pre-Acq. 1996
1993 1994 1995 1996 AAPC Combined(4) 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales.............................................. $116,809 $97,209 $76,955 $41,887 $25,249 $ 67,136 $ 94,252
Cost of Sales...................................... 103,260 87,181 71,164 35,430 19,027 54,457 74,304
------------------------------------------------------------------------
Gross Profit..................................... 13,549 10,028 5,791 6,457 6,222 12,679 19,948
Selling, general & administrative expenses......... 20,211 14,929 12,983 7,440 4,060 11,500 17,178
Restructuring charge............................... 0 0 840 0 0 0 0
------------------------------------------------------------------------
Operating income (loss).......................... (6,662) (4,901) (8,032) (983) 2,162 1,179 2,770
Interest expense (income), net..................... 2,023 2,040 1,755 1,143 756 1,899 3,928
Other expense (income)............................. (192) (93) 299 480 5 485 (3)
------------------------------------------------------------------------
Income (loss) before provision for income
taxes.......................................... (8,493) (6,848) (10,086) (2,606) 1,401 (1,205) (1,155)
Income tax provision (benefit)..................... (2,975) (2,508) (3,578) (908) 640 (268) (390)
------------------------------------------------------------------------
Income (loss) before extraordinary item............ (5,518) (4,340) (6,508) (1,698) 761 (937) (765)
Extraordinary item, net of income tax benefit of
$282,000......................................... 0 0 0 0 0 0 (494)
------------------------------------------------------------------------
Net income (loss)................................ $ (5,518) $(4,340) $(6,508) $(1,698) $ 761 $ (937) $ (1,259)
------------------------------------------------------------------------
Net income per common share before extraordinary
item............................................. $ .10 $ (.06)
Extraordinary item................................. -- (.04)
Basic income (loss) per common share............... $ .10 $ (.10)
Diluted income (loss) per common share............. $ .09 $ (.10)
Weighted average common shares outstanding,
basic............................................ 7,884,000 12,982,200
Weighted average common shares outstanding,
diluted.......................................... 8,160,000 12,982,200
Other Data:
Depreciation & amortization........................ $ 3,354 $ 3,976 $ 3,392 $ 2,698 $ 442 $ 3,140 $ 2,680
Capital expenditures............................... 2,229 1,993 2,621 1,683 429 2,112 1,548
Balance Sheet Data:
Cash and cash equivalents.......................... $ 250 $ 288 $ 861 $ 964 $ 40,132
Total assets....................................... 50,895 39,440 26,629 42,744 158,324
Working Capital (Deficit).......................... 29,047 (5,276) (9,736) 176 61,472
Long-term debt and capital lease obligations (5)... 22 0 0 23,010 126,518
Stockholders' Equity (Deficit)..................... 37,002 2,540 (3,969) 4,277 5,581
</TABLE>
================================================================================
(1) For financial reporting purposes, the Company represents AAPC after giving
effect to the series of transactions described below.
ETC was formed in June 1996. Effective June 25, 1996, ETC's ultimate
controlling shareholder acquired Mallyclad and Vyn-L. Subsequently, on
December 18, 1996, Mallyclad and Vyn-L were merged into ETC. Based on the
control maintained by this
18
<PAGE> 2
shareholder, the merger was considered a transaction among companies under
common control and, accordingly, accounted for at the shareholder's
historical cost and included in the accounts of ETC effective June 25, 1996.
Effective August 29, 1996, ETC acquired Eagle and Taylor. The acquisition was
accounted for as a purchase with the assets acquired and the liabilities
assumed recorded at estimated fair values and the results of operations
included in ETC's financial statements from the date of acquisition.
Effective December 18, 1996, ETC acquired and combined with FCEI. The
acquisition was accounted for as a purchase and, accordingly, the assets
acquired and liabilities assumed by ETC were recorded at their estimated fair
values and the results of FCEI's operations and included in the financial
statements of ETC from the date of the acquisition. The merged entity
subsequently changed its name to American Architectural Products Corporation
(AAPC).
For the purposes of presenting the selected financial data, Eagle and Taylor,
and Mallyclad and Vyn-L are considered to be the Predecessors and their
financial data are presented on a combined basis. The financial data for the
period after the acquisitions are presented on different cost bases than the
financial data before the acquisitions and, therefore, are not comparable.
(2) Selected financial data for the Predecessors for 1993 through 1995 were
derived from the audited combined financial statements of Eagle and Taylor
for 1994 and 1995, and the unaudited combined financial statements of Eagle
and Taylor for 1993; the unaudited financial statements of Mallyclad for the
fiscal year ended November 30, 1993; the unaudited financial statements of
Vyn-l for the fiscal year ended February 28, 1994; and the audited combined
financial statements of Mallyclad and Vyn-L for the years ended November 30,
1994 and 1995. Selected financial data for the predecessors for 1996 were
derived from the audited combined financial statements of Eagle and Taylor
for the period January 1, 1996 through August 29, 1996, and the audited
combined financial statements of Mallyclad and Vyn-L for the period December
1, 1995 through June 30, 1996.
(3) Selected financial data for the Company for 1996 and 1997 were derived from
the audited financial statements of the Company for the period from June
1996 (inception) through December 31, 1996, and the audited financial
statements for the year ended December 31, 1997. These financial statements
include the operations of Mallyclad and Vyn-L from June 25, 1996, and the
operations of Eagle and Taylor from August 29, 1996. The results of
operations of Western and Thermetic are included in the Company's 1997
selected financial data from March 14, 1997 and July 18, 1997, respectively,
their acquisition dates. The results of operations of Binnings, Danvid,
American Glassmith and Modern are included in the Company's selected
financial data from December 10, 1997, their acquisition date.
(4) Selected financial data for Combined 1996 include the 1996 selected
financial data of the Predecessors (note (2) above) and the 1996 selected
financial data of the Company (notes (1) and (3) above) without giving
effect to purchase accounting or the impact of financing and capitalization
relating to the acquisitions of Eagle, Taylor, Mallyclad, Vyn-L and Forte.
(5) Includes revolving line of credit at December 31, 1996.
19
<PAGE> 3
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
In August 1996, Eagle and Taylor were acquired by ETC as the foundation for the
consolidation of a series of acquisitions in the fenestration industry. In
December 1996, ETC acquired and combined with FCEI, a publicly held company
whose wholly owned subsidiary, Forte Inc., is a manufacturer of commercial
aluminum windows. Subsequent to this transaction, the entity changed its name to
American Architectural Products Corporation. ETC and Forte became wholly-owned
subsidiaries of the Company. AAPC has since acquired Western, Thermetic,
Binnings, Danvid, American Glassmith and Modern.
ETC was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired two companies, Eagle and Taylor, on August 29, 1996.
The acquisitions of Eagle and Taylor was accounted for as a purchase, with the
assets acquired and the liabilities assumed recorded at estimated fair market
values and the results of the Eagle and Taylor operations included in ETC's
consolidated financial statements from the date of acquisition.
ETC's ultimate controlling stockholder acquired 100% ownership of two other
companies, Mallyclad and Vyn-L, on June 25, 1996. On December 18, 1996,
Mallyclad and Vyn-L collectively were merged into ETC concurrently with the FCEI
combination described below. The merger was accounted for at historic cost in a
manner similar to a pooling of interests. The operating results of Mallyclad and
Vyn-L from the date of its acquisition by ETC's ultimate controlling stockholder
are included in the consolidated financial statements. Eagle, Taylor, Mallyclad
and Vyn-L, are considered predecessors of ETC for financial reporting purposes.
On March 14, 1997, AAPC acquired the stock of Western and on July 18, 1997,
AAPC acquired the stock of Thermetic. The acquisitions were accounted for as
purchases, with the purchase prices allocated among the assets acquired and
liabilities assumed based on their estimated fair market values, and the results
of their operations were included in the consolidated financial statements from
the respective dates of acquisition.
On December 10, 1997, AAPC consummated the acquisitions of Binnings, Danvid,
American Glassmith, and Modern. The Company financed these acquisitions with a
portion of the proceeds from the issuance of $125,000,000 of 11 3/4% Senior
Notes due 2007 (Notes). The acquisitions were accounted for as purchases, with
purchase prices allocated among the assets acquired and liabilities assumed
based on their estimated fair market values. The results of their operations
were included in the AAPC consolidated financial statements from the December
10, 1997 acquisition date.
BASIS OF PRESENTATION
The following table sets forth net sales and expenses in aggregate dollars and
as a percentage of net sales for the Company and its predecessors -- Eagle,
Taylor, Mallyclad and Vyn-L -- for the years ended December 31, 1995, 1996 and
1997. As a result of the acquisitions discussed above, and the related
differences in cost bases of the assets and liabilities of the Company after the
acquisitions and the cost bases of the Predecessors, the results of operations
for the years presented are not comparable. Such lack of comparability is
explained in the discussion below. The following financial data should be read
in conjunction with the audited financial statements along with notes thereto of
the Company, Eagle Window & Door, Inc. and Subsidiaries and Taylor Building
Products Company, and Mallyclad Corporation and Vyn-L Corporation.
20
<PAGE> 4
================================================================================
<TABLE>
<CAPTION>
1995(1) 1996(2) 1997(3)
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except footnotes)
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................................... $76,955 100.0% $67,136 100.0% $94,252 100.0%
Cost of Sales....................................... 71,164 92.5% 54,457 81.1% 74,304 78.9%
------------------------------------------------------------
Gross Profit...................................... 5,791 7.5% 12,679 18.9% 19,948 21.1%
Selling, general & administrative expenses (4)...... 12,983 16.9% 11,500 17.1% 17,178 18.2%
Restructuring charge................................ 840 1.1% 0 0.0% 0 0.0%
------------------------------------------------------------
Operating income (loss)........................... (8,032) (10.5)% 1,179 1.8% 2,770 2.9%
Interest expense (income), net (4).................. 1,755 2.3% 1,899 2.9% 3,928 4.1%
Other (income) expense.............................. 299 0.4% 485 0.7% (3) 0.0%
------------------------------------------------------------
Loss before income taxes............................ (10,086) (13.2)% (1,205) (1.8)% (1,155) (1.2)%
Income tax benefit (4).............................. (3,578) (4.7)% (268) (0.4)% (390) (0.4)%
------------------------------------------------------------
Loss before extraordinary item...................... (6,508) (8.5)% (937) (1.4)% (765) (0.8)%
Extraordinary item, net of income tax benefit of
$282,000.......................................... 0 0.0% 0 0.0% (494) (0.5)%
------------------------------------------------------------
Net loss............................................ $(6,508) (8.5)% $ (937) (1.4)% $(1,259) (1.3)%
------------------------------------------------------------
</TABLE>
================================================================================
1. Financial data for 1995 is that of the predecessors and were derived from the
audited combined financial statements of Eagle and Taylor for the year ended
December 31, 1995 and the audited combined financial statements of Mallyclad
and Vyn-L for the fiscal year ended November 30, 1995. Because the financial
data of the predecessors is presented on cost bases different from that of
the Company after the acquisitions, the financial data are not comparable to
the 1996 and 1997 financial data (see notes (2) and (3) below)
2. Financial data presented for 1996 include the combination of financial data
of the Company and its predecessors -- Eagle and Taylor, Mallyclad and Vyn-L.
Financial data for the Company for 1996 were derived from the audited
consolidated financial statements of the Company for the period from June 19,
1996 (inception) through December 31, 1996. These financial statements
include the operations of Mallyclad and Vyn-L from June 25, 1996, and the
operations of Eagle and Taylor from August 29, 1996. Financial data for Eagle
and Taylor for 1996 were derived from the combined audited financial
statements of Eagle and Taylor for the period from January 1, 1996 to August
29, 1996. Financial data for Mallyclad and Vyn-L for 1996 were derived from
the audited combined financial statements of Mallyclad and Vyn-L for the
period December 1, 1995 to June 25, 1996. Because the financial data for 1996
include data of the Company and its Predecessors, which are presented on
different cost bases, such data are not comparable to the financial data for
1995 and 1997.
3. Financial data for 1997 were derived from the consolidated financial
statements of the Company for the year ended December 31, 1997. Because the
financial data of the Company for 1997 are presented on different cost bases,
such data are not comparable to the financial data for 1995 and 1996.
4. In addition to comparability issues relating to differences in asset and
liability bases described in notes (1) through (3) above, other factors
affect the comparability of the financial data from year to year. The former
parent of Eagle and Taylor provided treasury functions and allocated various
general and administrative expenses. Interest expense allocated by the former
parent of Eagle and Taylor approximated $1.8 million in 1995 and $1.1 million
for the eight months ended August 29, 1996 and was treated as contributed
capital of Eagle and Taylor by the former parent. A management fee based on
budgeted sales was charged by the former parent to Eagle and Taylor,
approximating $1.3 million and $1.0 million for the year ended December 31,
1995 and the eight months ended August 29, 1996, respectively. Other expenses
charged to Eagle and Taylor by the former parent that were specifically
incurred for those companies for items such as general insurance, health
insurance and workers compensation insurance approximated $3.6 million and
$1.7 million for the year ended December 31, 1995, and the eight months ended
August 29, 1996, respectively. Eagle and Taylor filed their tax returns on a
consolidated basis with their former parent and all provisions for federal
and state income taxes, including provisions for deferred taxes, were
provided through intercompany accounts. Because these charges to Eagle and
Taylor from their former parent may differ from such charges for those
entities as part of the Company, comparison of 1995, 1996 and 1997 may not be
meaningful.
RESULTS OF OPERATIONS
Results of operations for the periods presented reflect a number of significant
events or factors. In 1995, the operations at Taylor were restructured by
eliminating non-core product lines and closing related manufacturing and
distribution facilities (the "Taylor Restructuring"). The near term impact of
these measures was a significant decrease in total sales and a nonrecurring
restructuring charge; however, in recent periods these measures have produced an
increase in gross margins at this operation. Gross profit from Taylor was
negatively impacted by the introduction of an automated door line, which was
installed in 1993. While attempting to reach targeted operational efficiencies,
Taylor was required to run a dual line for manufacturing doors from 1993 until
1995, which adversely affected gross margin. Also, during the majority of the
period for which results of operations are presented, Eagle and Taylor were
being marketed for sale by their former parent. This had a negative effect on
sales at both divisions since distributors and their customers were concerned
about the future of these businesses. The sale of these facilities to the
Company in August 1996 permitted the divisions to stabilize their long-standing
relationships with customers by eliminating the uncertainty concerning the
direction and strategy of these businesses. This resulted in increased sales at
Eagle during 1996 and 1997.
The future operations of the Company will depend on a number of factors,
including the successful integration of the acquired companies to take advantage
of their increased purchasing power, distribution capabilities and product
lines; continued improvements in manufacturing processes, including greater
vertical integration; establishment of company-wide management information
systems; increased penetra-
21
<PAGE> 5
tion of fast growing markets, both product (such as vinyl) and geographic;
continued growth in the new home and repair/remodel markets; stability in raw
material prices; continuation of key customer and distributor relationships; and
other factors.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO COMBINED YEAR ENDED DECEMBER 31,
1996
Net Sales. Net Sales increased by $27.1 million, or 40.4%, to $94.2 million
in 1997 as compared to $67.1 million in 1996. The increase was primarily the
result of the acquisitions of Western, Thermetic, Binnings, Danvid, American
Glassmith, and Modern. The acquisitions accounted for $13.1 million or 48.3% of
the total increase in net sales. The remaining increase was primarily due to
higher revenues at Eagle, which had an increase in net sales of $11.2 million.
The increase in revenue was primarily a result of increased volumes generated by
stabilized customer relationships, new customer additions and an improved
product mix.
Cost of Sales. Cost of sales increased from $54.5 million, or 81.1% of net
sales, for the year ended December 31, 1996, to $74.3 million or 78.9% of net
sales for the year ended December 31, 1997. The $19.8 million or 36.3% increase
in cost of sales is comprised of a $10.0 million increase resulting from the
above listed acquisitions and $9.8 million due to overall volume increases.
Gross Profit. Gross Profit for the year ended December 31, 1997 was $19.9
million, representing an increase of $7.3 million or 57.3%, from 1996. Gross
profit attributable to the companies acquired during 1997 was $3.1 million or
42.5% of the overall increase. The remaining $4.2 million increase resulted
primarily from Eagle's increase of $4.0 million, Taylor's increase of $2.0
million, partially offset by the negative margin of $1.0 million from the
Company's contract commercial product line. Gross profit as a percentage of
sales increased from 18.9% in 1996 to 21.1% in 1997 as a result of an increase
in sales volumes relative to fixed costs.
Selling, General, and Administrative Expenses. SG&A expenses increased $5.7
million or 49.6% to $17.2 million in 1997 as compared to $11.5 million in 1996.
SG&A expenses as a percentage of sales were 18.2% in 1997 compared to 17.1% in
1996. The increase between years was primarily the result of the inclusion of
newly acquired companies of $2.6 million and additional administrative costs
related to the addition of a corporate headquarters and corporate management of
$2.4 million for the year.
Operating Income. Operating income increased $1.6 million from an operating
income of $1.2 million in 1996 to an operating income of $2.8 million for 1997.
The increase is attributable to additional operating income of $0.5 million from
acquired companies and the increase in gross profit from existing operations,
partially offset by an increase in selling, general and administrative expenses.
Interest Expense. Interest expense for the years ended December 31, 1997 and
1996 was $3.9 million and $1.9 million, respectively. The $2.0 million increase
is attributable to interest of $0.3 million from companies acquired in 1997,
interest of $0.9 million on the Notes issued in December 1997 and interest on
additional borrowings related to the operations and working capital of $0.8
million. The previous parent of Eagle and Taylor allocated interest expense to
the entities during the eight months ended August 29, 1996 (predecessor period),
and accordingly, interest is not comparable with the same period in 1996.
Income Taxes. The Company recorded a tax benefit of $0.4 million at December
31, 1997 on a net loss before extraordinary items of $1.2 million, resulting in
a tax benefit at an effective tax rate of 33.8%. Prior to their acquisitions,
Eagle and Taylor were included in the consolidated return of their former
parent, and accordingly, the provision for income taxes for the year ended
December 31, 1996 is not indicative of the amounts that would have been recorded
on a separate basis and are not comparable.
Extraordinary Loss. In 1997, the Company recorded an extraordinary item, loss
on extinguishment of debt of $0.5 million, net of related tax benefit of $0.3
million, relating to a prepayment penalty and deferred financing costs charged
to expense on the retirement of existing debt with a portion of proceeds of the
Notes.
Net Loss. The Company's consolidated net loss increased to $1.3 million in
1997 as compared to $0.9 million in 1996. The factors cited above were
responsible for the increase in the net loss.
COMPARISON OF COMBINED YEAR ENDED DECEMBER 31, 1996 TO COMBINED YEAR ENDED
DECEMBER 31, 1995
Net Sales. Net Sales decreased 12.9%, to $67.1 million, for 1996 as compared
to $77.0 million for 1995. The decrease was primarily a result of the Taylor
Restructuring. This was offset in part by nominal increases in net sales for the
remaining operations as a result of increases in volume and pricing during the
year.
Cost of Sales. Cost of sales decreased from $71.2 million, or 92.5% of net
sales, for the year ended December 31, 1995, to $54.5 million, or 81.1% of net
sales, for the year ended December 31, 1996. The $16.7 million, or 23.5%,
decrease in cost of sales is primarily due to the $15.5 million decrease in cost
of sales at Taylor due to the Taylor Restructuring, which was substantially
completed in 1995. The decrease in cost of sales as a percentage of sales
reflects efficiencies gained from the Taylor Restructuring and production
efficiencies arising from the increased use of automated manufacturing equipment
at Taylor.
22
<PAGE> 6
Gross Profit. Gross profit for the year ended December 31, 1996 was $12.7
million, representing an increase of $6.9 million, or 119.0%, from 1995. Gross
profit as a percentage of sales increased from 7.5% in 1995 to 18.9% in 1996 due
to margin improvements resulting from the Taylor Restructuring. In addition,
lower depreciation for the period subsequent to the acquisition of Eagle and
Taylor due to lower bases of assets, based on the allocation of purchase price,
compared to the historical bases of assets prior to the acquisition, improved
gross profit.
Selling, General, and Administrative Expenses. SG&A expenses, as a percentage
of sales, were 17.1% in 1996 compared to 16.9% in 1995. The percentage increase
was due primarily to the decrease in revenues between years while SG&A expenses
did not decline proportionately due to the fixed nature of certain expenditures
in this category. Although SG&A as a percentage of sales increased, total SG&A
expenses decreased by $1.5 million, or 11.5%, to $11.5 million in 1996. The
Taylor Restructuring accounted for a $2.7 million reduction in SG&A expenses,
which was partially offset by an increase in SG&A expenses for Eagle of $1.1
million.
Operating Income (Loss). Operating income, excluding the nonrecurring
restructuring charges in 1995, increased by $8.4 million from the operating loss
of $7.2 million in 1995. This is attributable to the improved operating profit
resulting from the Taylor restructuring and the reduction in SG&A expenses.
Interest Expense. Interest expense, as a percentage of sales, was 2.9% in
1996 compared to 2.3% in 1995. Interest expense increased by approximately $0.1
million, or 5.6%, to $1.9 million in 1996. The former parent of Eagle and Taylor
provided cash management services to Eagle and Taylor and charged interest
expense relating to the amounts payable to affiliates. This interest expense
approximated $1.8 million in 1995 and $1.1 million for the eight months ended
August 29, 1996. Interest expense for the combined year ended December 31, 1996
also includes approximately $0.8 million incurred by the Company during its
ownership of Eagle and Taylor.
Income Taxes. The Company has recorded a tax benefit of $0.3 million on a
loss before taxes of $1.2 million for the combined year ended December 31, 1996.
The benefit results from income tax expense recorded at an effective rate of 46%
on income before taxes for the period under the Company's ownership and an
income tax benefit recorded at an effective rate of 35% on losses before taxes
of the Predecessors. The effective rate for the period under the Company's
ownership was determined using the Company's operating results and the bases of
its assets and liabilities adjusted for purchase accounting for the
acquisitions, and differs from the statutory tax rates as a result of valuation
allowance adjustment, non-deductible expenses and state taxes. Prior to the
acquisitions, Eagle and Taylor were included in the consolidated income tax
returns of their parent and recorded income taxes in their accounts at a
prescribed effective rate. Accordingly, income taxes for the combined year ended
December 31, 1996 are not indicative of the amounts that would have been
recorded on a stand-alone basis and are not comparable to prior years.
Net Loss. The Company's consolidated net loss decreased by $5.6 million, or
86.2%, to $0.9 million in 1996 compared to $6.5 million net loss incurred in
1995. The Company reported net income of $0.8 million for the period under its
ownership. The factors cited above were responsible for the decrease in net loss
of the Company.
YEAR 2000
The Company is in the process of performing a comprehensive review of its
computer systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the issue. The
Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company presently believes that, with
modifications to existing software and converting to new software, the Year 2000
problem will not pose significant operational problems for the Company's
computer systems as so modified and converted. However, if such modifications
and conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended December 31, 1995, 1996 and 1997, the Company's principal
sources of funds consisted of cash from operations and various financings. The
Company financed acquisitions through secured senior debt facilities and
subordinated debt. In December 1997, the Company issued $125,000,000 of 11.75%
Senior Notes, due 2007, to extinguish existing debt, finance the acquisitions of
Binnings, Danvid, American Glassmith and Modern and provide working capital,
fund general corporate expenses and finance future acquisitions.
Approximately $33.8 million of the net proceeds of the Notes were used to
repay indebtedness under existing debt agreements, including prepayment
penalties. The weighted average interest rate of the indebtedness repaid on
December 10, 1997 was 9.7%. The Company used approximately $47.8 million of the
net proceeds to pay the cash portion of the purchase price for the acquisitions
consummated on December 10, 1997.
23
<PAGE> 7
The Company's principal liquidity requirements are for debt service
requirements under the Notes and for working capital needs and capital
expenditures. The Company's annual debt service requirements, including capital
lease obligations, will increase from $6.4 million in 1997 to $15.5 million
based on outstanding obligations as of December 31, 1997.
The Company is presently in negotiations to secure a revolving credit facility
of $25 million to provide additional liquidity. The Company believes that cash
generated from operations together with the expected proceeds from the revolving
credit facility will be sufficient to permit the Company to meet its expected
operating needs, planned capital expenditures and debt service requirements.
However, there can be no assurance that sufficient funds will be available from
operations or under future revolving credit or other borrowing arrangements to
meet the Company's cash needs. Future acquisitions may require additional
financing and there can be no assurance that such funds would be available on
terms satisfactory to the Company, if at all. Furthermore, the Company is
limited in obtaining future financing under the terms of the Notes. In addition,
the Company's future operating performance and ability to meet its financial
obligations will be subject to future economic conditions and to financial,
business and other factors, many of which will be beyond the Company's control.
Cash provided by operations was $2.6 million, $4.5 million and $1.5 million
for the years ended December 31, 1995, 1996 and 1997, respectively. The decrease
in operating cash for 1997 over the prior years reflects increases in the
Company's working capital accounts which primarily consisted of an increase in
accounts receivable of $1.2 million, a decrease in accounts payable of $1.9
million, offset by a $1.2 million decrease in inventories. The Company's working
capital requirements for inventory and accounts receivable are impacted by
changes in raw material costs, the availability of raw materials, growth of the
Company's business and seasonality. As a result, such requirements may fluctuate
significantly.
Capital expenditures for the years ended December 31, 1995, 1996 and 1997 were
$2.6 million, $2.1 million and $1.5 million, respectively. Capital outlays
included manufacturing equipment and computer software and hardware. In
addition, in 1996 the Company entered into a $1.6 million capital lease to
purchase computer hardware and software. Management expects that its capital
expenditure program will continue at a sufficient level to support the strategic
and operating needs of the Company's operating subsidiaries. This level of
expenditure may be higher than historical levels. Future capital expenditures
are expected to be funded from internally generated funds, leasing programs and
the Company's credit facilities.
The Company made cash payments of $53.0 million relating to acquisitions in
1997. This compares to $12.8 million in 1996. In January 1998, the Company
purchased all of the assets of the vinyl division of EASCO Aluminum Company, an
Austintown, Ohio manufacturer of vinyl extrusions for the fenestration industry.
The cash payment for this acquisition was $13.3 million. Also in January 1998,
the Company purchased all of the assets of Blackhawk Architectural Products, a
steel security door manufacturer for a cash payment of $400,000. In February
1998, the Company signed a Letter of Intent with Louisiana Pacific to purchase
its Weather-Seal division. This division consists of six manufacturing
facilities throughout Ohio producing aluminum and vinyl extrusions, and wood and
vinyl windows. The Letter of Intent obligated the Company to make a $1 million
deposit into an escrow account, which will be applied toward the purchase price.
The deposit will be considered a termination fee payable to Louisiana Pacific in
the event the transaction does not close because the Company abandons or
otherwise fails to consummate the transaction unless because of discovery or
occurrence of any material adverse condition. In March 1998, the Company sold
its Mallyclad division to a related party for $1.2 million.
Cash payments on long term debt were $23.6 million for the year ended December
31, 1997 as compared to $1.1 million for the year ended December 31, 1996. Net
activity on the Company's lines of credit resulted in cash outflows of $5.9
million in 1997. The Company generated proceeds of $125.0 million from the
issuance of the Notes in December 1997. In addition the Company paid
approximately $6.0 million in related fees and expenses associated with the debt
financing. The Company expects to pursue additional financing opportunities to
fund its growth strategy. The Company raised $425 thousand through the issuance
of preferred stock during the second and third quarters of 1997. The funds were
used for general corporate purposes during this time period.
The Company believes that cash flow from operations, together with other
sources of funds, will be adequate to meet its anticipated requirements for
working capital, capital expenditures and debt service costs.
SEASONALITY
The Company's business is seasonal since its primary revenues are driven by
residential construction. Inclement weather during the winter months,
particularly in the northeast and midwest regions of the United States, usually
reduces the level of building and remodeling activity in both the home
improvement and new construction markets and, accordingly, has an adverse impact
on the demand for fenestration products. Traditionally, the Company's lowest
sales levels usually occur during the first and fourth
24
<PAGE> 8
quarters. The Company believes that its 1997 acquisitions in the southwestern
and southeastern United States will minimize the risk to the Company for
potentially unusual inclement weather conditions in the midwest and the
northeast. Because a high percentage of the Company's manufacturing overhead and
operating expenses are relatively fixed throughout the year, operating income
has historically been lower in quarters with lower sales. Working capital
requirements and borrowings to satisfy working capital requirements, are usually
at their highest level during the second and third quarters.
CYCLICALITY
Demand in the window and door manufacturing industry is influenced by new home
construction activity and the demand for replacement products. Trends in the
housing sector directly impact the financial performance of the Company.
Accordingly, the strength of the U.S. economy, the age of existing home stock,
job growth, consumer confidence, consumer credit, interest rates and migration
of the inter/intra U.S. population have a direct impact on the Company. Any
declines in new housing starts and/or demand for replacement products may
adversely impact the Company and there can be no assurance that any such adverse
effects would not be material.
INFLATION AND RAW MATERIAL COSTS
During the past several years, the rate of inflation has been relatively low and
has not had a significant impact on the Company's operations. However, the
Company purchases raw materials, such as aluminum, wood, vinyl and glass, that
are subject to fluctuations in price that may not reflect the general rate of
inflation, and are more closely tied to the supply of and demand for the
particular commodity. Specifically, there have been periods of significant and
rapid changes in aluminum prices, with a concurrent short-term impact on the
Company's operating margins. In some cases, generally where the increases have
been modest, the Company has been able to mitigate the effect of these price
increases over the long-term by passing them on to customers.
25
<PAGE> 9
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for the period from
June 19, 1996 (date of inception) to December 31, 1996
and the year ended December 31, 1997................... F-5
Consolidated Statements of Stockholders' Equity for the
period from June 19, 1996 (date of inception) to
December 31, 1996 and the year ended December 31,
1997................................................... F-6
Consolidated Statements of Cash Flows for the period from
June 19, 1996 (date of inception) to December 31, 1996
and the year ended December 31, 1997................... F-7
Notes to Consolidated Financial Statements................ F-8
EAGLE WINDOW AND DOOR, INC. AND SUBSIDIARIES AND TAYLOR
BUILDING PRODUCTS COMPANY
Independent Auditors' Report.............................. F-22
Combined Balance Sheets at December 31, 1995 and August
29, 1996............................................... F-23
Combined Statements of Operations and Accumulated Deficit
for the year ended December 31, 1995 and for the eight
months ended August 29, 1996........................... F-24
Combined Statements of Cash Flows for the year ended
December 31, 1995 and for the eight months ended August
29, 1996............................................... F-25
Notes to Combined Financial Statements.................... F-26
MALLYCLAD CORPORATION AND VYN-L CORPORATION
Report of Independent Certified Public Accountants........ F-31
Combined Balance Sheets at November 30, 1995 and June 30,
1996................................................... F-32
Combined Statements of Operations and Retained Earnings
for the year ended November 30, 1995 and for the seven
months ended June 30, 1996............................. F-33
Combined Statements of Cash Flows for the year ended
November 30, 1995 and for the seven months ended June
30, 1996............................................... F-34
Notes to Combined Financial Statements.................... F-35
</TABLE>
F-1
<PAGE> 10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
American Architectural Products Corporation
We have audited the accompanying consolidated balance sheets of American
Architectural Products Corporation as of December 31, 1996 and 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows from the date of inception (June 19, 1996) to December 31, 1996 and for
the year 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Architectural Products Corporation as of December 31, 1996 and 1997, and the
results of its operations and its cash flows from the date of inception (June
19, 1996) to December 31, 1996 and for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
February 26, 1998
F-2
<PAGE> 11
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 964,062 $ 40,132,238
Accounts receivable, less allowance for doubtful accounts
of $439,000 and $839,000............................... 6,302,694 18,602,772
Advances to affiliates.................................... 463,750 134,518
Inventories (Note 3)...................................... 10,971,144 21,458,399
Prepaid expenses and other current assets................. 664,401 1,619,946
----------- ------------
TOTAL CURRENT ASSETS........................................ 19,366,051 81,947,873
----------- ------------
PROPERTY AND EQUIPMENT (Note 6)
Land and improvements..................................... 281,096 3,283,865
Buildings and improvements................................ 5,409,631 15,253,783
Machinery, tools and equipment............................ 8,244,548 20,139,885
Computers and office equipment............................ 2,524,884 2,821,989
----------- ------------
16,460,159 41,499,522
Less accumulated depreciation............................. (321,315) (3,551,874)
----------- ------------
NET PROPERTY AND EQUIPMENT.................................. 16,138,844 37,947,648
----------- ------------
OTHER
Cost in excess of net assets acquired, net of accumulated
amortization of $74,000 and $464,000 (Note 2).......... 6,850,059 29,846,895
Deferred financing costs.................................. 381,936 5,985,360
Other..................................................... 7,001 2,595,933
----------- ------------
TOTAL OTHER ASSETS.......................................... 7,238,996 38,428,188
----------- ------------
$42,743,891 $158,323,709
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 12
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line-of-credit (Note 4)......................... $ 5,476,759 $ --
Accounts payable -- trade................................. 5,766,803 9,352,228
Payable to seller for purchase price adjustment........... 1,462,500 --
Accrued Expenses
Compensation and related benefits...................... 838,717 3,521,683
Current portion of warranty obligations................ 1,100,000 1,991,544
Other.................................................. 2,558,901 4,976,105
Current portion of capital lease obligations (Note 6)..... 488,984 573,161
Current maturities of long-term debt (Note 5)............. 1,497,653 60,848
----------- ------------
TOTAL CURRENT LIABILITIES................................... 19,190,317 20,475,569
LONG-TERM DEBT, less current maturities (Note 5)............ 14,478,317 125,114,401
LONG-TERM CAPITAL LEASE OBLIGATIONS, less current portion
(Note 6).................................................. 1,067,616 769,620
ACCRUED WARRANTY OBLIGATIONS, less current portion.......... 3,281,079 2,834,183
OTHER....................................................... 450,000 3,548,801
----------- ------------
TOTAL LIABILITIES........................................... 38,467,329 152,742,574
----------- ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Notes 8 and 9)
Preferred stock, Series A convertible, $.001 par,
20,000,000 shares authorized; 1,000,000 shares
outstanding in 1996.................................... 1,000 --
Preferred stock, Series B convertible, $.01 par, 30,000
shares authorized; no shares outstanding............... -- --
Common stock, $.001 par, 100,000,000 shares authorized;
4,860,580 and 13,458,479 shares outstanding............ 4,861 13,458
Additional paid-in capital................................ 3,679,612 6,310,641
Retained earnings (deficit)............................... 591,089 (742,964)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY.................................. 4,276,562 5,581,135
----------- ------------
$42,743,891 $158,323,709
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 13
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM DATE OF INCEPTION
(JUNE 19, 1996) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---------------------- ------------
<S> <C> <C>
NET SALES................................................... $25,248,908 $ 94,252,582
COST OF SALES............................................... 19,026,604 74,304,379
----------- ------------
GROSS PROFIT................................................ 6,222,304 19,948,203
SELLING EXPENSE............................................. 1,908,900 6,849,158
GENERAL AND ADMINISTRATIVE EXPENSES......................... 2,150,968 10,329,496
----------- ------------
INCOME FROM OPERATIONS...................................... 2,162,436 2,769,549
----------- ------------
OTHER INCOME (EXPENSE)
Interest expense.......................................... (755,758) (3,927,924)
Miscellaneous............................................. (5,589) 3,644
----------- ------------
TOTAL OTHER INCOME (EXPENSE)................................ (761,347) (3,924,280)
----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.... 1,401,089 (1,154,731)
INCOME TAXES (BENEFIT) (NOTE 10)............................ 640,000 (390,000)
----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..................... 761,089 (764,731)
EXTRAORDINARY ITEM
Loss on extinguishment of debt, net of income tax benefit
of $282,000 (Note 5)................................... -- (494,110)
----------- ------------
NET INCOME (LOSS)........................................... $ 761,089 $ (1,258,841)
=========== ============
BASIC INCOME (LOSS) PER COMMON SHARE (NOTE 12)
Income (loss) before extraordinary item................... $ .10 $ (.06)
Extraordinary item........................................ -- (.04)
----------- ------------
BASIC NET INCOME (LOSS) PER COMMON SHARE.................. $ .10 $ (.10)
=========== ============
DILUTED INCOME (LOSS) PER COMMON SHARE (NOTE 12)
Income (loss) before extraordinary item................... $ .09 $ (.06)
Extraordinary item........................................ -- (.04)
----------- ------------
DILUTED NET INCOME (LOSS) PER COMMON SHARE................ $ .09 $ (.10)
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 14
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FROM DATE OF INCEPTION (JUNE 19, 1996) TO DECEMBER 31, 1996
AND YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B COMMON STOCK ADDITIONAL RETAINED
-------------------- --------------- -------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------ ------ ------ ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital contribution in
connection with acquisition
of Mallyclad and Vyn-L
(Note 2)................... -- $ -- -- $ -- -- $ -- $ 77,473 $ --
Distribution to stockholder
of Mallyclad............... -- -- -- -- -- -- -- (170,000)
Issuance of common stock for
cash....................... -- -- -- -- 10 1 604,999 --
Recapitalization (Note 2).... 1,000,000 1,000 -- -- (10) (1) (999) --
Issuance of shares in reverse
acquisition (Note 2)....... -- -- -- -- 4,860,580 4,861 2,998,139 --
Net income for the period.... -- -- -- -- -- -- -- 761,089
---------- ------- ------ ---- ---------- ------- ---------- -----------
Balance, December 31, 1996... 1,000,000 1,000 -- -- 4,860,580 4,861 3,679,612 591,089
Conversion of preferred
stock, Series A to common
stock(Note 1).............. (1,000,000) (1,000) -- -- 7,548,632 7,548 (6,548) --
Issuance of shares to an
officer (Note 1)........... -- -- -- -- 171,842 172 (172) --
Issuance of preferred stock,
Series B (Note 8).......... -- -- 4,250 43 -- -- 500,169 --
Issuance of warrants to
purchase common stock...... -- -- -- -- -- -- 120,500 --
Conversion of preferred
stock, Series B to common
stock (Note 8)............. -- -- (4,250) (43) 108,810 109 (66) --
Issuance of common stock
options in exchange for
services................... -- -- -- -- -- -- 68,000 --
Issuance of shares in
connection with
acquisitions (Note 2)...... -- -- -- -- 768,615 768 1,949,146 --
Discount on conversion of
Series B Preferred, treated
as dividends (Note 8)...... -- -- -- -- -- -- -- (75,212)
Net loss for the year........ -- -- -- -- -- -- -- (1,258,841)
---------- ------- ------ ---- ---------- ------- ---------- -----------
Balance, December 31, 1997... -- $ -- -- $ -- 13,458,479 $13,458 $6,310,641 $ (742,964)
========== ======= ====== ==== ========== ======= ========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------
<S> <C>
Capital contribution in
connection with acquisition
of Mallyclad and Vyn-L
(Note 2)................... $ 77,473
Distribution to stockholder
of Mallyclad............... (170,000)
Issuance of common stock for
cash....................... 605,000
Recapitalization (Note 2).... --
Issuance of shares in reverse
acquisition (Note 2)....... 3,003,000
Net income for the period.... 761,089
-----------
Balance, December 31, 1996... 4,276,562
Conversion of preferred
stock, Series A to common
stock(Note 1).............. --
Issuance of shares to an
officer (Note 1)........... --
Issuance of preferred stock,
Series B (Note 8).......... 500,212
Issuance of warrants to
purchase common stock...... 120,500
Conversion of preferred
stock, Series B to common
stock (Note 8)............. --
Issuance of common stock
options in exchange for
services................... 68,000
Issuance of shares in
connection with
acquisitions (Note 2)...... 1,949,914
Discount on conversion of
Series B Preferred, treated
as dividends (Note 8)...... (75,212)
Net loss for the year........ (1,258,841)
-----------
Balance, December 31, 1997... $ 5,581,135
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 15
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM DATE OF INCEPTION
(JUNE 19, 1996) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---------------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 761,089 $ (1,258,841)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Extraordinary loss on extinguishment of debt........... -- 416,110
Depreciation........................................... 325,460 2,102,288
Amortization........................................... 117,038 578,044
Gain on sale of equipment.............................. (29,400) (44,767)
Deferred income taxes.................................. 311,469 (672,000)
Changes in assets and liabilities
Accounts receivable -- trade........................... 1,771,004 (1,229,121)
Advances to affiliates................................. (463,750) 329,232
Inventories............................................ (793,164) 1,171,735
Prepaid and other current assets....................... (86,800) 100,319
Other assets........................................... (6,601) 5,143
Accounts payable....................................... 2,312,844 (1,904,306)
Accrued expenses....................................... 1,031,527 1,858,017
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 5,250,716 1,451,853
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of equipment....................... 98,200 130,500
Purchase of property and equipment........................ (429,048) (1,547,644)
Acquisitions of businesses, net of cash acquired.......... (12,781,372) (52,899,930)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES....................... (13,112,220) (54,317,074)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving
lines-of-credit........................................ 5,476,759 (5,936,759)
Proceeds from long-term debt.............................. 4,213,000 127,094,806
Payments for debt issue costs............................. (425,102) (6,052,860)
Payments on long-term debt and capital lease
obligations............................................ (1,121,564) (23,567,590)
Issuance of common and preferred stock and capital
contributions.......................................... 682,473 495,800
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 8,825,566 92,033,397
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 964,062 39,168,176
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- 964,062
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 964,062 $ 40,132,238
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 16
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND BASIS OF PRESENTATION
American Architectural Products Corporation (AAPC or the Company) is
principally engaged in the business of manufacturing residential, commercial and
architectural windows and doors through its wholly-owned subsidiaries, Eagle &
Taylor Company (formerly known as American Architectural Products, Inc. -- AAP),
Forte, Inc. (Forte), Western Insulated Glass Co. (Western), Thermetic Glass,
Inc. (Thermetic), Binnings Building Products, Inc. (Binnings), Danvid Window
Company (Danvid), Modern Window Corporation (Modern) and American Glassmith
Corporation (American Glassmith).
AAP was incorporated on June 19, 1996 and had no significant operations or
assets until it acquired Eagle Window and Door, Inc. (Eagle) and Taylor Building
Products Company (Taylor) on August 29, 1996 (see Note 2). The accounts of Eagle
and Taylor are included in the consolidated financial statements from the August
29, 1996 acquisition date. AAP subsequently changed its name to Eagle & Taylor
Company.
On June 25, 1996, AAP's ultimate controlling stockholder acquired ownership of
Mallyclad Corp. (Mallyclad) and Vyn-L Corporation (Vyn-L). On December 18, 1996,
Mallyclad and Vyn-L were merged into AAP. Based on the control maintained by
this stockholder over AAP, Mallyclad and Vyn-L, the merger was considered to be
a transaction among companies under common control and was accounted for at
historical cost in a manner similar to a pooling of interests. Accordingly, the
accounts of Mallyclad and Vyn-L are included in the consolidated financial
statements from the June 25, 1996 acquisition date.
Prior to December 18, 1996, Forte Computer Easy, Inc. (FCEI) had a single
wholly-owned operating subsidiary, Forte, Inc. (Forte), based in Youngstown,
Ohio. Forte manufactures large contract commercial aluminum windows and security
screen windows and doors.
On December 18, 1996, pursuant to an Agreement and Plan of Reorganization
dated October 25, 1996 between FCEI and AAP Holdings, Inc. (the Agreement), FCEI
acquired all of the issued and outstanding shares of capital stock of AAP in
exchange for 1,000,000 shares of Series A Convertible Preferred Stock of FCEI
(the Series A Preferred). Under the terms of the Agreement and the Series A
Preferred, AAP Holdings, Inc. obtained 60 percent of the voting control of FCEI.
Although FCEI is the parent of AAP following the transaction, the transaction
was accounted for as a recapitalization of AAP and a purchase by AAP of FCEI
because the stockholders of AAP obtained a majority of the voting rights in FCEI
as a result of the transaction (see Note 2). The 1996 consolidated financial
statements include the accounts of AAP for the period from its inception (June
19, 1996), and the accounts of FCEI from December 18, 1996, the effective date
of the acquisition.
At a special stockholders' meeting held on April 1, 1997, FCEI stockholders
approved the reincorporation of FCEI in Delaware. Consequences of the
reincorporation plan included the change of FCEI's name to American
Architectural Products Corporation; an increase in the authorized common stock
of the Company to 100,000,000 shares; a 1 for 10 reverse stock split of the
Company's common stock; the conversion of 1,000,000 shares of Series A Preferred
held by AAP Holdings, Inc. into 7,548,632 shares of common stock; and the
issuance of 171,842 shares of common stock to an officer to satisfy a commitment
of the Company. The reincorporation did not result in any substantive change to
the Company's business, assets, liabilities, net worth or operations, nor did it
result in any change in the ownership interest of any stockholder of the
Company. The number of shares and per share amounts give retroactive recognition
to the changes in capital structure for all periods presented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AAPC and its
wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the 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 these estimates.
F-8
<PAGE> 17
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. Based on
the borrowing rates currently available to the Company, the carrying amounts of
long-term debt approximate fair value.
REVENUE RECOGNITION
The Company operates in two industry segments, the residential and specialty
commercial window and door products segment and the large commercial contract
window and door products segment (see Note 13). Revenues from the residential
and specialty commercial products segment are recorded upon the shipment of
product to the customer. Revenues from the large commercial contract segment are
recognized using the percentage-of-completion method of accounting in the
proportion that costs bear to total estimated costs at completion. Revisions of
estimated costs or potential contract losses are recognized in the period in
which they are determined. Costs in excess of billings, billings in excess of
costs and retainages recorded were not material as of December 31, 1996 and
1997.
CASH EQUIVALENTS
Cash equivalents are highly liquid investments with original maturity of three
months or less.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
The Company maintains cash and cash equivalents with various major financial
institutions. The Company performs periodic evaluations of the relative credit
standing of these institutions and limits the amount of exposure with any
institution. At December 31, 1997, deposits and highly liquid investments
totalling approximately $38 million were on deposit at two financial
institutions.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across many
geographic areas. However, the Company is principally engaged in the business of
manufacturing residential, commercial and architectural windows and doors.
Therefore, its customer base is concentrated in the construction business.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20-25
Machinery and equipment..................................... 7-10
Computers and office equipment.............................. 3-7
Tools, dies and fixtures.................................... 3-7
</TABLE>
Expenditures for renewals and betterments are capitalized. Expenditures for
maintenance and repairs are charged against income as incurred.
LONG-LIVED ASSETS
The Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable.
F-9
<PAGE> 18
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over 25 years using
the straight-line method. The Company periodically evaluates the recoverability
of the cost in excess of net assets acquired by allocating the cost in excess of
net assets acquired to the assets being tested for recoverability and by
comparing anticipated undiscounted future cash flows from operating activities
with the carrying amounts of the related assets. The factors considered by
management in performing this assessment include current operating results,
business prospects, market trends, competitive activities and other economic
factors.
DEFERRED FINANCING COSTS
Costs to obtain financing have been capitalized and are being amortized using
the straight-line method over the term of the underlying debt.
WARRANTY OBLIGATIONS
Certain of the Company's subsidiaries sell their products with limited
warranties of two to 25 years. 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 consolidated balance sheets.
INCOME TAXES
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 the tax bases of the Company's
assets and liabilities.
AAP filed its income tax return on a consolidated basis with its former parent
company until December 18, 1996, the date of reorganization with FCEI.
ADVERTISING
The cost of advertising is charged against income as incurred. Advertising
expense was $263,000 for the period from inception to December 31, 1996 and
$948,000 for the year ended December 31, 1997, respectively.
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.
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 Postretirement Benefits"
(SFAS 132), which revises employers' disclosures about pension and
F-10
<PAGE> 19
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
other postretirement 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.
2. RECAPITALIZATION AND ACQUISITIONS:
RECAPITALIZATION AND ACQUISITION OF FCEI
Effective December 18, 1996, FCEI acquired the stock of AAP in a reverse
acquisition in which AAP's stockholders acquired voting control of FCEI. The
acquisition was accomplished through an exchange of stock in which FCEI
exchanged 1,000,000 shares of Series A Preferred and options to purchase 879,834
shares of FCEI common stock for 100% of the outstanding stock of AAP. Upon
completing the transaction, the stockholders of AAP controlled 60% of the voting
rights of the combined Company.
For financial reporting purposes, AAP is deemed to be the acquiring entity.
The merger has been reflected in the accompanying consolidated financial
statements as (a) the recapitalization of AAP (whereby the issued and
outstanding stock of AAP was converted into 1,000,000 shares of Series A
Preferred and options to purchase 879,834 shares of common stock -- see Note 9)
and (b) the issuance of the securities discussed in the following paragraph by
AAP in exchange for all of the outstanding equity securities of FCEI.
In the merger, AAP is deemed to have issued 4,860,580 shares of common stock,
committed itself to issue an additional 171,842 shares of common stock and to
have issued 586,556 stock options to FCEI stockholders (see Note 9). The
estimated fair value assigned to the securities issued was $3,003,000, which was
determined based on the estimated fair value of the securities of AAP which were
obtained by the FCEI stockholders in the reverse acquisition, an assessment of
the trading prices of FCEI stock preceding the reverse acquisition, and the
appraised value of the FCEI assets acquired.
The acquisition was recorded using the purchase method of accounting.
Accordingly, the consideration of $3,100,000, including transaction costs, was
allocated to the FCEI net assets acquired based on estimated fair values
including current assets of $1,871,000, property and equipment of $7,516,000,
long-term debt of $4,030,000 and current liabilities of $2,257,000. The results
of FCEI's operations are included in the accompanying consolidated financial
statements from the date of acquisition.
ACQUISITION OF EAGLE AND TAYLOR
On August 29, 1996, AAP acquired the stock and certain assets and liabilities
of Eagle and Taylor. Eagle is based in Dubuque, Iowa and manufactures and
distributes aluminum clad and all wood windows and doors. Taylor is based in
West Branch, Michigan and manufactures entry and garage doors. The acquisition
was accounted for as a purchase. The purchase price approximated $22,202,000 and
was allocated to the net assets acquired based on estimated fair values
including current assets of $17,123,000, property and equipment of $6,805,000,
accrued warranty obligations of $4,600,000, and current and other liabilities of
$4,362,000. Cost in excess of net assets acquired of $7,236,000 was recorded and
is being amortized over 25 years. Subordinated notes payable to the seller
totalling $8,000,000 were used to finance a portion of the acquisitions (see
Note 5). The results of Eagle and Taylor operations are included in the
accompanying consolidated financial statements from the August 29, 1996
acquisition date.
ACQUISITION OF MALLYCLAD AND VYN-L
The June 25, 1996 acquisition of Mallyclad and Vyn-L was accounted for as a
purchase. Mallyclad and Vyn-L are based in Madison Heights, Michigan and process
and manufacture vinyl clad steel and aluminum coils and cut-to-length sheets.
The purchase price approximated $1,009,000 and was allocated to net assets
acquired based on estimated fair values including current assets of $900,000,
property and equipment of $205,000, other assets of
F-11
<PAGE> 20
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECAPITALIZATION AND ACQUISITIONS: (CONTINUED)
$170,000, and current liabilities of $266,000. The accounts of Mallyclad and
Vyn-L are included in the accompanying consolidated financial statements from
the June 25, 1996 acquisition date.
ACQUISITION OF WESTERN
On March 14, 1997, the Company acquired all of the stock of Western. Western
is based in Phoenix, Arizona and manufactures custom residential aluminum
windows and doors. The acquisition was accounted for as a purchase. The purchase
price approximated $2,400,000 and was allocated to net assets acquired based on
estimated fair values including current assets of $1,976,000, property and
equipment of $961,000, and current liabilities of $537,000. Notes to sellers
approximating $779,000 were used to finance a portion of the acquisition.
Additionally, Western was financed with a revolving line-of-credit and term
notes with a bank totalling approximately $1,400,000. The accounts of Western
are included in the accompanying consolidated financial statements from the
March 14, 1997 acquisition date.
ACQUISITION OF THERMETIC
On July 18, 1997, the Company acquired all of the stock of Thermetic, a
Toluca, Illinois manufacturer of residential vinyl windows. The acquisition was
accounted for as a purchase. The purchase price approximated $4,500,000 and was
allocated to net assets acquired based on estimated fair values including
current assets of $1,700,000, property and equipment of $2,300,000, current
liabilities of $1,400,000 and long-term liabilities of $2,100,000. Costs in
excess of net assets acquired of $4,000,000 was recorded and is being amortized
over 25 years.
The Thermetic acquisition was financed through the issuance of $2,500,000 in
convertible secured debentures to the seller, the issuance of 384,000 shares of
the Company's common stock and a commitment to issue an aggregate number of
additional shares of the Company's common stock eighteen months after closing
having a market value of $1,000,000 when issued. The accounts of Thermetic are
included in the accompanying consolidated financial statements from the July 18,
1997 acquisition date.
ACQUISITIONS OF BINNINGS, DANVID, AMERICAN GLASSMITH AND MODERN
On December 10, 1997, the Company acquired all of the outstanding stock of
Binnings Building Products, Inc. (Binnings), and substantially all of the assets
of Danvid Company, Inc. and Danvid Window Company (collectively Danvid),
American Glassmith, Inc. (American Glassmith), and Modern Window Corporation
(Modern), collectively the "Acquisitions". Binnings, located in Lexington, North
Carolina, manufactures residential vinyl windows and aluminum windows and storm
doors. Danvid, located in Carrollton, Texas, manufacturers and installs
residential aluminum windows and doors and vinyl windows. American Glassmith,
located in Columbus, Ohio, manufactures decorative glass lites and laminated
glass. Modern, located in Oak Park, Michigan, manufactures residential vinyl
windows and doors. Each of these acquisitions was accounted for as a purchase.
The purchase prices and allocation of these purchase prices are as follows:
<TABLE>
<CAPTION>
MODERN &
AMERICAN
BINNINGS DANVID GLASSMITH
----------- ----------- -----------
<S> <C> <C> <C>
PURCHASE PRICE.............................................. $26,987,000 $17,403,000 $ 5,704,000
=========== =========== ===========
ALLOCATION
Current assets............................................ $13,281,000 $ 5,343,000 $ 2,526,000
Property and equipment.................................... 14,667,000 1,876,000 2,785,000
Other assets.............................................. 157,000 2,151,000 50,000
Current liabilities....................................... 4,521,000 3,048,000 907,000
Long-term liabilities..................................... 1,323,000 2,151,000 342,000
----------- ----------- -----------
NET ASSETS ACQUIRED......................................... $22,261,000 $ 4,171,000 $ 4,112,000
=========== =========== ===========
EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF NET ASSETS
ACQUIRED.................................................. $ 4,726,000 $13,232,000 $ 1,592,000
=========== =========== ===========
</TABLE>
F-12
<PAGE> 21
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. RECAPITALIZATION AND ACQUISITIONS: (CONTINUED)
The accounts of the Acquisitions were included in the Company's consolidated
financial statements from the December 10, 1997 acquisition date. The
Acquisitions were financed primarily with a portion of the proceeds from the
issuance of $125,000,000 of 11 3/4% Senior Notes due on December 1, 2007 (see
Note 5).
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma information for the year ended December 31, 1996 has
been prepared assuming that the offering of $125,000,000 of 11 3/4% Senior Notes
due December 1, 2007 (the Offering) and the acquisitions of FCEI, Eagle &
Taylor, Mallyclad and Vyn-L, Western, Thermetic, Binnings, Danvid, American
Glassmith and Modern had occurred on January 1, 1996. The following pro forma
information for the year ended December 31, 1997 has been prepared assuming that
the Offering and the acquisitions of Western, Thermetic, Binnings, Danvid,
American Glassmith and Modern had occurred on January 1, 1997. The pro forma
information includes adjustments for interest expense for the Senior Notes,
adjustments to selling, general and administrative expenses for decreases in
compensation expense for certain officers and members of Board of Directors of
the Acquisitions, adjustments to depreciation expense based on the estimated
fair market value of the property and equipment acquired, amortization of cost
in excess of net assets acquired arising from the acquisitions, and adjustments
for income taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales................................................... $ 176,000 $ 192,000
Net loss.................................................... (7,000) (5,600)
Basic and diluted net loss per common share................. (.53) (.42)
=========== ===========
</TABLE>
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Raw materials............................................... $ 7,664,000 $12,980,000
Work-in-process............................................. 1,266,000 3,071,000
Finished goods.............................................. 2,041,000 5,407,000
----------- -----------
$10,971,000 $21,458,000
=========== ===========
</TABLE>
4. REVOLVING LINE-OF-CREDIT:
At December 31, 1996, the Company had $5,477,000 outstanding under a
subsidiary's revolving line-of-credit facility whereby the subsidiary could
borrow or issue letters-of-credit of up to $13,000,000 based on available
collateral. Borrowings accrue interest at 1.5% above the prime rate and interest
was payable monthly. The outstanding borrowings were paid in full in 1997 with a
portion of the proceeds of the Notes (see Note 5).
F-13
<PAGE> 22
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
11 3/4% senior notes, due 2007.............................. $ -- $125,000,000
Term notes payable to bank, due August 2001, payable in
monthly installments of $55,407 plus interest at the prime
rate plus 1.5%............................................ 3,113,000 --
Subordinated notes payable, due August 1999, with interest
payable monthly at the rate of 10%........................ 8,000,000 --
Term note payable to bank, due January 2001, payable in
monthly installments of $30,000 including interest at the
prime rate plus 2.0%, secured by substantially all of the
assets of a subsidiary.................................... 2,625,000 --
Other....................................................... 2,238,000 175,000
----------- ------------
15,976,000 125,175,000
Less current portion........................................ 1,498,000 61,000
----------- ------------
$14,478,000 $125,114,000
=========== ============
</TABLE>
In December 1997, the Company issued $125,000,000 of 11.75% Senior Notes (the
"Notes"). The Notes are senior unsecured obligations of the Company and will
mature on December 1, 2007. Interest on the Notes is payable semi-annually on
June 1 and December 1 of each year, commencing June 1, 1998. The Notes are
unconditionally guaranteed by each of the Company's subsidiaries and by each
subsidiary acquired thereafter.
Of the approximately $118.5 million in net proceeds received by the Company
from the issuance of the Notes, approximately $47.8 million was used to fund the
cash portion of the purchase price of the Acquisitions (including the repayment
of the assumed debt) and approximately $33.8 million was used to repay
substantially all of the existing indebtedness of the Company. The remaining
proceeds are intended to be used by the Company for additional acquisitions,
working capital and general corporate purposes.
Except as set forth below, the Company may not redeem the Notes prior to
December 1, 2002. On or after December 1, 2002, the Company may redeem the
Notes, in whole or in part, at any time, at redemption prices ranging from 105%
of the principal amount in 2002 to 100% of the principal amount in 2005 and
thereafter, together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to December 1, 2000, the Company may,
subject to certain requirements, redeem up to 35% of the aggregate principal
amount of the Notes with the cash proceeds of one or more public equity
offerings at a redemption price equal to 110% of the principal amount to be
redeemed, together with accrued and unpaid interest.
The provisions of the Notes limit the Company and its subsidiaries from
incurring additional indebtedness unless the Company meets certain consolidated
coverage ratios as defined in the Notes. Notwithstanding this restriction, the
Company is permitted to incur secured indebtedness of $25 million. Other
covenants of the Notes include, but are not limited to, limitations on
restricted payments, as defined, such as payment of dividends, repurchase of the
Company's capital stock, redemption of subordinated obligations, certain
investments, in addition to limitations on sale/leaseback transactions,
affiliate transactions and mergers or consolidations.
The approximate maturities of long-term debt are as follows: 1998 -- $61,000;
1999 -- $54,000; 2000 -- $58,000; 2001 -- $2,000; 2002 -- $-0-; and thereafter
- -$125,000,000.
In connection with the repayment of existing indebtedness from the proceeds of
the Notes, the Company recognized as expense deferred financing costs related to
the existing indebtedness and incurred a prepayment penalty resulting in an
extraordinary loss of $494,000 ($.04 per share), net of related income tax
benefits of $282,000.
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
Certain leased assets are capitalized and consist of computer equipment and
delivery equipment with a cost of $1,578,000 and $1,931,000 at December 31, 1996
and 1997, respectively. Accumulated depreciation related to these
F-14
<PAGE> 23
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
leased assets was $-0- and $388,000 at December 31, 1996 and 1997, respectively.
The Company also leases buildings and equipment under operating leases.
At December 31, 1997, the future minimum lease payments under operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
1998........................................................ $2,412,000 $ 654,000
1999........................................................ 1,863,000 734,000
2000........................................................ 1,260,000 51,000
2001........................................................ 1,017,000 38,000
2002........................................................ 746,000 8,000
Thereafter.................................................. 1,248,000 --
---------- ----------
Total............................................. $8,546,000 1,485,000
==========
Less amount representing interest........................... 142,000
----------
Net present value........................................... 1,343,000
Less current portion........................................ 573,000
----------
Long-Term Capital Lease Obligations......................... $ 770,000
==========
</TABLE>
Rental expense incurred for operating leases was $217,000 and $844,000, from
the period from inception to December 31, 1996 and for the year ended December
31, 1997, respectively.
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 consolidated financial statements
of the Company.
7. BENEFIT PLANS:
All eligible nonunion employees of the Company participate in 401(k) plans
which include provisions for Company matching contributions. Additionally, union
employees at a subsidiary participate in a multiemployer pension plan into which
that subsidiary contributes $0.22 per hour worked. Expenses incurred relating to
these plans were $89,000 and $399,000 from inception to December 31, 1996 and
for the year ended December 31, 1997.
8. STOCKHOLDERS' EQUITY:
SERIES A PREFERRED STOCK
The Series A Preferred is voting preferred stock and has the same number of
votes as the number of shares of common stock into which the Series A Preferred
would be convertible if converted in full on the record date.
No dividends may be paid with respect to the common stock unless a dividend is
paid to the holders of the Series A Preferred. Any dividends paid are required
to be allocated pro rata among the holders of the common stock and Series A
Preferred as though the Series A Preferred had been converted in full to common
stock on the dividend payment date.
The Series A Preferred has a liquidation preference over the common stock in
the amount of $.10 per share. Any amounts remaining will be allocated to the
common stock and Series A Preferred holders as if the Series A Preferred had
been converted in full upon such liquidation.
SERIES B PREFERRED STOCK
In 1997, the Company received proceeds of $425,000 from the private placement
of 4,250 shares of Series B Cumulative Redeemable Convertible Preferred Stock
(the Series B Preferred). The Series B Preferred accrues cumulative dividends at
the annual rate of $8.00 per share commencing July 1, 1998, payable either in
cash or
F-15
<PAGE> 24
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY: (CONTINUED)
common stock at the election of the Company. Each share of Series B Preferred is
convertible, at the option of the holder, into shares of common stock. The
redemption price of $100 per share of Series B Preferred plus any cumulative
unpaid dividends can be used to purchase shares of common stock at market value.
However, a discount from the quoted market price of common stock was applicable
for holders exercising conversion rights prior to August 31, 1997 and the
discounts are accounted for as dividends to the holders. As of December 31,
1997, all of the Series B preferred shares issued have been converted to common
stock.
The Series B Preferred is voting preferred stock and each share of Series B
Preferred Stock entitles the holder to one vote. The Series B Preferred will be
entitled to vote as a separate class with respect to all matters that would
adversely affect the powers, preferences or rights of Series B Preferred Stock.
STOCK WARRANTS
In April and June 1997, the Company issued promissory notes with detachable
stock warrants to accredited investors for proceeds totalling $450,000. The
warrants, which expire in one year, grant the note holders the right to purchase
128,571 shares of the Company's common stock at $3.50 per share. The fair value
attributable to these warrants has been recognized as additional paid in capital
and the resulting discount was amortized over the term of the notes which ended
in December 1997. Furthermore, in connection with an additional series of
financing transactions, the Company issued warrants to purchase 27,926 shares of
common stock at an exercise price of $3.50 per share, expiring on September 1,
1998.
9. STOCK OPTIONS:
As part of the consideration paid in the acquisition of FCEI in December 1996,
the Company is deemed to have issued to certain FCEI stockholders options to
purchase an aggregate of 586,556 shares of the Company's common stock at prices
ranging from $2.50 to $5.00 per share ("FCEI Options"). The FCEI Options were
deemed to have been issued in exchange for previously outstanding options
granted under the FCEI Employee Incentive Stock Option Plan.
As part of the recapitalization of AAP that occurred in connection with the
acquisition of FCEI (see Note 2), AAP Holdings, Inc. received options to
purchase 879,834 shares of common stock of the Company ("AAPH Options"). The
AAPH Options are equivalent to 1.5 times the number of shares of the Company's
common stock subject to the 586,556 FCEI Options. The AAPH Options are identical
in price and exercise terms to the FCEI Options and are exercisable only to the
extent that the FCEI Options are exercised.
At December 31, 1997, 471,770 FCEI Options and 707,655 AAPH Options remain
outstanding. These exercisable options have an option price of $3.75 and expire
in 1998.
In 1996, the Company adopted the American Architectural Products Corporation
Stock Option Plan (the "Plan") whereby 10,000,000 shares of the Company's common
stock have been authorized for issuance under the Plan. Shares of common stock
have been made available for grant to directors, officers, key employees and
non-employees at the discretion of the Board of Directors. The exercise price of
stock options granted to employees and non-employee directors equals the market
price or 110% of the market price of the Company's common stock at the date of
grant. The stock options issued to employees have a ten year term and vest in
20% increments over five years. Stock options issued to non-employee directors
have a ten year term and vest within one year.
Certain options have been granted to non-employees based on negotiated terms.
Stock options issued to non-employees are recorded at fair value with a related
charge against income.
The Company applies the intrinsic value method in accounting for its stock
options issued to employees. Accordingly, no compensation cost has been
recognized for stock options issued to employees. The following table sets forth
the Company's net income (loss) and net income (loss) available per common share
on a pro forma basis
F-16
<PAGE> 25
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCK OPTIONS: (CONTINUED)
had compensation expense for the Company's stock options issued to employees
been determined based on the fair value at the grant dates:
<TABLE>
<CAPTION>
FROM DATE OF INCEPTION
(JUNE 19, 1996) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---------------------- -----------------
<S> <C> <C>
NET INCOME (LOSS)
As reported......................................... $ 761,000 $(1,259,000)
Pro forma........................................... $ 761,000 $(1,329,000)
BASIC NET INCOME (LOSS) PER COMMON SHARE
As reported......................................... $ .10 $ (.10)
Pro forma........................................... $ .10 $ (.10)
DILUTED NET INCOME (LOSS) PER COMMON SHARE
As reported......................................... $ .09 $ (.10)
Pro forma........................................... $ .09 $ (.10)
</TABLE>
The fair value for the these stock options was estimated at the dates of grant
using a Black-Scholes option pricing model with the following
weighted -- average assumptions: a risk-free interest rate of 6.5%, a dividend
yield percentage of 0%, common stock volatility of .35 and an expected life of
the options of 5 years.
A summary of activity related to stock options for the Company's plan from the
date of inception to December 31, 1996 and for the year ended December 31, 1997
is as follows.
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of the period................. -- $ -- 6,000 $4.69
Granted.............................................. 6,000 4.69 534,000 5.31
Exercised............................................ -- -- -- --
Forfeited............................................ -- -- -- --
----- ----- ------- -----
Outstanding, end of the period....................... 6,000 $4.69 540,000 $5.30
===== ===== ======= =====
</TABLE>
The weighted average fair value of the options granted during the periods
ended December 31, 1996 and 1997 were $1.97 and $1.87, respectively.
The following is a summary of stock options outstanding and exercisable at
December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
PRICE RANGE NUMBER LIFE (YEARS) PRICE NUMBER PRICE
- ----------- ------ ------------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
$3.88 -- $4.69......................... 131,000 8.38 $4.02 41,000 $4.32
$5.43 -- $6.19......................... 409,000 7.98 5.72 104,000 5.44
------- ---- ----- ------- -----
540,000 8.08 $5.30 145,000 $5.12
======= ==== ===== ======= =====
</TABLE>
In February 1998, the Board of Directors rescinded 209,000 and 100,000 stock
options with an exercise price of $5.63 and $6.19, respectively. These stock
options were reissued in February 1998 at the following prices: 209,000
options -- $3.56; and 100,000 options -- $3.92.
F-17
<PAGE> 26
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
The provision for income taxes (income tax benefit) for the period from the
date of inception to December 31, 1996 and for the year ended December 31, 1997
consist of the following:
<TABLE>
<CAPTION>
FROM DATE OF
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
CURRENT
Federal................................................... $269,000 $ --
State..................................................... 60,000 --
-------- ---------
329,000 --
DEFERRED.................................................... 311,000 (390,000)
-------- ---------
$640,000 $(390,000)
======== =========
</TABLE>
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 ASSETS
Net operating loss carryforwards.......................... $ 850,000 $3,940,000
Allowance for doubtful accounts........................... 150,000 280,000
Accrued warranty obligations.............................. 1,520,000 1,660,000
Accrued postretirement benefits........................... 150,000 150,000
Other accruals............................................ 250,000 730,000
Other..................................................... 60,000 170,000
---------- ----------
2,980,000 6,930,000
---------- ----------
DEFERRED TAX LIABILITIES
Depreciation.............................................. 2,090,000 6,220,000
Other..................................................... 180,000 480,000
---------- ----------
2,270,000 6,700,000
---------- ----------
NET DEFERRED TAX ASSETS..................................... 710,000 230,000
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS................. (710,000) (230,000)
---------- ----------
NET DEFERRED TAXES.......................................... $ -- $ --
========== ==========
</TABLE>
In recording certain acquisitions, the Company established a valuation
allowance against the entire net deferred tax assets acquired, based on
uncertainties surrounding the expected realization of these assets. In 1996 and
1997, the Company reversed the valuation allowances by $311,000 and $685,000,
respectively, and accordingly reduced cost in excess of net assets acquired.
F-18
<PAGE> 27
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES: (CONTINUED)
The actual income tax expense (income tax benefit) attributable to earnings
(loss) for the period from inception to December 31, 1996 and for the year ended
December 31, 1997 differed from the amounts computed by applying the U.S.
federal tax rate of 34 percent to pretax earnings as a result of the following:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Tax at U.S. federal statutory rate.......................... $470,000 $(390,000)
Expenses not deductible for tax purposes.................... 40,000 240,000
Valuation allowance adjustment.............................. 100,000 (240,000)
State income taxes, net of federal income tax benefit....... 40,000 --
Other....................................................... (10,000) --
-------- ---------
PROVISION FOR INCOME TAXES.................................. $640,000 $(390,000)
======== =========
</TABLE>
At December 31, 1997, the Company and its subsidiaries had net operating loss
carryforwards of approximately $15,600,000 for income tax purposes which expire
between 1999 and 2012. Due to changes in ownership, utilization of approximately
$14,300,000 of the net operating loss carryforwards is limited to approximately
$550,000 per year. The remaining $1,300,000 may be utilized without limitation.
11. RELATED PARTY TRANSACTIONS:
The Company paid management fees to its majority stockholder of approximately
$120,000 and $250,000 for the period from inception to December 31, 1996 and for
the year ended December 31, 1997. Additionally, the Company paid $835,000 for
acquisition services and $571,000 for other transaction services in 1997 to its
majority stockholder. In 1997, the Company paid $450,000 to a Company affiliated
with AAPH Holdings, Inc. for air charter services.
12. NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share amounts have been computed in accordance
with Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128). Basic net income (loss) per common share amounts were computed by
dividing net income (loss) less preferred stock dividends by the weighted
average number of common shares outstanding. Diluted income (loss) per share
amounts give effect to dilutive common stock equivalents outstanding.
A summary of the basic and diluted earnings (loss) per share computations
follow.
<TABLE>
<CAPTION>
DATE OF INCEPTION (JUNE 16, 1996)
TO DECEMBER 31, 1996
------------------------------------
PER SHARE
INCOME SHARES AMOUNT
--------- ---------- ---------
<S> <C> <C> <C>
Income before extraordinary item........................... $ 761,000
Preferred stock dividends.................................. --
---------
BASIC INCOME PER COMMON SHARE
Income available to common stockholders.................. 761,000 7,884,000 $ .10
=====
EFFECT OF DILUTIVE SECURITIES
Common Stock Options..................................... 276,000
--------- ---------- -----
DILUTIVE EARNINGS PER COMMON SHARE......................... $ 761,000 8,160,000 $ .09
========= ========== =====
</TABLE>
F-19
<PAGE> 28
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. NET INCOME (LOSS) PER COMMON SHARE: (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------
PER SHARE
LOSS SHARES AMOUNT
--------- ---------- ---------
<S> <C> <C> <C>
Loss before extraordinary item............................. $(765,000)
Preferred stock dividends.................................. (75,000)
---------
BASIC LOSS PER COMMON SHARE
Loss available to common stockholders.................... (840,000) 12,982,000 $(.06)
=====
EFFECT OF DILUTIVE SECURITIES
Common Stock Options..................................... --
--------- ---------- -----
DILUTIVE LOSS PER COMMON SHARE............................. $(840,000) 12,982,000 $(.06)
========= ========== =====
</TABLE>
The weighted average number of common shares outstanding for 1996 includes the
7,548,632 common shares issued upon the conversion of all of the Series A
Preferred (which based on its terms, the Company believed was common stock in
substance) and the 171,842 shares issued by the Company in 1997 to fulfill an
obligation to an officer.
The weighted average number of common shares outstanding for 1997 includes
approximately 300,000 additional common shares issuable in January 1999 in
connection with the Thermetic acquisition based on the average market price.
13. SEGMENT INFORMATION:
The Company operates in two separate segments. The first includes the
manufacturing and distribution of residential and specialty commercial
fenestration products. The product lines within this segment include aluminum,
wood and vinyl windows, doors, and other fenestration products such as storm
windows and doors, and decorative glass. The second classification is large
contract commercial fenestration products including aluminum windows, security
windows, screens and doors used primarily in commercial buildings such as
schools and dormitories, office and governmental buildings, and low-income
housing.
INFORMATION BY SEGMENT
<TABLE>
<CAPTION>
RESIDENTIAL
AND SPECIALTY CONTRACT
COMMERCIAL COMMERCIAL
FENESTRATION FENESTRATION
PRODUCTS PRODUCTS
------------- ------------
<S> <C> <C>
1997
Net sales................................................... $ 91,695,000 $ 2,558,000
Operating income (loss)..................................... 7,255,000 (1,554,000)
Assets employed at year-end................................. 105,223,000 10,694,000
Depreciation and amortization............................... 1,980,000 700,000
Capital expenditures........................................ 1,499,000 --
============ ===========
</TABLE>
The segment information does not include the identifiable assets and operating
expenses of corporate administration.
Segment information for 1996 is not presented because the Company's operations
were primarily in the residential and specialty commercial fenestration products
segment. The contract commercial fenestration products segment was acquired in
December 1996 and its results of operations from the date of acquisition were
not significant.
F-20
<PAGE> 29
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FROM DATE OF INCEPTION
(JUNE 19, 1996) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
---------------------- ------------
<S> <C> <C>
CASH PAID DURING THE PERIOD FOR
Interest................................................ $ 620,000 $ 3,017,000
Income taxes............................................ 70,000 228,000
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock and debt issued and liabilities assumed in
acquisitions............................................ $27,981,000 $22,465,000
Capital lease obligations................................. 1,578,000 --
Distribution to stockholder............................... 170,000 --
</TABLE>
15. SUBSEQUENT EVENTS:
In January 1998, the Company purchased all of the assets of the vinyl division
of EASCO Aluminum Company, an Austintown, Ohio manufacturer of vinyl extrusions
for the fenestration industry. The Company also purchased all of the assets of
Blackhawk Architectural Products, a manufacturer of steel entry doors for the
residential fenestration market. The combined purchase price of these
acquisitions was $14.8 million.
In February 1998, the Company signed a Letter of Intent with Louisiana Pacific
to purchase its Weather-Seal division. This division consists of six
manufacturing facilities throughout Ohio producing aluminum and vinyl
extrusions, and wood and vinyl windows. The Letter of Intent obligated the
Company to make a $1 million deposit into an escrow account and which will be
applied toward the purchase price. The deposit will be considered a termination
fee payable to Louisiana Pacific in the event the transaction does not close
because the Company abandons or otherwise fails to consummate the transaction
unless because of the discovery or occurrence of any material or adverse
condition.
In March 1998, the Company sold its Mallyclad division to a related party for
$1.2 million.
F-21
<PAGE> 30
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders of
Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (Wholly-Owned Subsidiaries)
We have audited the accompanying combined balance sheets of Eagle Window &
Door, Inc. and Subsidiaries and Taylor Building Products Company (Wholly-Owned
Subsidiaries), as of December 31, 1995 and August 29, 1996, and the related
combined statements of operations and accumulated deficit, and cash flows for
the year ended December 31, 1995 and the eight months ended August 29, 1996.
These combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Eagle
Window & Door, Inc. and Subsidiaries and Taylor Building Products Company
(Wholly-Owned Subsidiaries) as of December 31, 1995 and August 29, 1996, and the
results of their combined operations and cash flows for the year ended December
31, 1995 and the eight months ended August 29, 1996 in conformity with generally
accepted accounting principles.
SEMPLE & COOPER, P.L.C.
Phoenix, Arizona
January 31, 1997
F-22
<PAGE> 31
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash (Note 2)............................................. $ 750,361 $ 395,859
Accounts receivable, net (Note 1)......................... 6,954,830 7,736,517
Inventory (Notes 1 and 3)................................. 8,330,593 8,483,224
Prepaids and other........................................ 448,426 314,240
------------ ------------
Total Current Assets................................... 16,484,210 16,929,840
------------ ------------
Property, Plant and Equipment, Net (Notes 1 and 4).......... 8,760,799 6,966,340
------------ ------------
Deposits and Other Assets................................... 55,370 93,376
------------ ------------
Total Assets........................................... $ 25,300,379 $ 23,989,556
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 2,859,256 $ 2,429,053
Accrued wages and payroll taxes........................... 371,510 453,459
Payable to affiliates (Note 10)........................... 20,482,654 19,441,656
Other accrued expenses.................................... 1,527,296 2,346,756
Accrued warranty reserve--short-term portion (Note 9)..... 1,566,000 1,479,000
------------ ------------
Total Current Liabilities.............................. 26,806,716 26,149,924
------------ ------------
Long-Term Liabilities:
Accrued warranty reserve--long-term portion (Note 9)...... 3,258,800 3,148,412
------------ ------------
Commitments and Contingencies: (Note 5)..................... -- --
Stockholder's Deficit: (Note 6)
Common stock.............................................. 211,851 211,851
Additional paid-in capital................................ 26,081,937 27,224,456
Accumulated deficit....................................... (31,058,925) (32,745,087)
------------ ------------
Total Stockholder's Deficit............................ (4,765,137) (5,308,780)
------------ ------------
Total Liabilities and Stockholder's Deficit............ $ 25,300,379 $ 23,989,556
============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-23
<PAGE> 32
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE EIGHT
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, AUGUST 29,
1995 1996
------------------ -------------
<S> <C> <C>
Sales....................................................... $ 72,962,690 $ 39,971,058
Cost of Sales............................................... 67,642,530 33,832,799
------------ ------------
Gross Profit................................................ 5,320,160 6,138,259
Selling Expense............................................. 6,619,136 3,948,778
General and Administrative Expenses......................... 5,714,966 3,141,852
Restructuring Charge (Note 7)............................... 840,042 --
------------ ------------
Loss from Operations........................................ (7,853,984) (952,371)
------------ ------------
Other Income (Expense):
Interest expense (Note 10)................................ (1,755,177) (1,142,519)
Gain (Loss) on sale of assets............................. (375,325) (773,866)
Other..................................................... 38,984 274,661
------------ ------------
(2,091,518) (1,641,724)
------------ ------------
Loss before Income Tax Benefit.............................. (9,945,502) (2,594,095)
Income Tax Benefit (Note 1)................................. 3,557,425 907,933
------------ ------------
Net Loss.................................................... (6,388,077) (1,686,162)
Accumulated Deficit, Beginning of Year...................... (24,670,848) (31,058,925)
------------ ------------
Accumulated Deficit, End of Year............................ $(31,058,925) $(32,745,087)
============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-24
<PAGE> 33
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE EIGHT
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, AUGUST 29,
1995 1996
------------------ -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers.............................. $ 73,112,175 $ 39,462,693
Cash paid to suppliers and employees...................... (70,132,913) (38,177,166)
Interest paid............................................. (3,686) --
Interest received......................................... 4,504 1,340
Restructuring costs....................................... (423,909) --
------------ ------------
Net cash provided by operating activities.............. 2,556,171 1,286,867
------------ ------------
Cash Flows from Investing Activities:
Cash received from sale of equipment...................... 558,265 37,289
Purchase of equipment..................................... (2,576,407) (1,678,658)
------------ ------------
Net cash used by investing activities.................. (2,018,142) (1,641,369)
------------ ------------
Cash Flows from Financing Activities:
Repayment of debt...................................... -- --
------------ ------------
Net cash used by financing activities.................. -- --
------------ ------------
Net increase (decrease) in cash............................. 538,029 (354,502)
Cash at beginning of year................................... 212,332 750,361
------------ ------------
Cash at end of year......................................... $ 750,361 $ 395,859
============ ============
Reconciliation of Net Loss to Net Cash Provided by Operating
Activities:
Net Loss.................................................... $ (6,388,077) $ (1,686,162)
------------ ------------
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
Depreciation.............................................. 3,310,040 2,661,961
(Gain) Loss on sale of assets............................. 375,325 773,866
Abandonment of fixed assets in restructuring.............. 416,131 --
Interest expense contributed to capital by Parent
Company................................................ -- 1,142,519
Changes in Assets and Liabilities:
Accounts receivable....................................... 946,420 (781,687)
Inventory................................................. 9,903,590 (152,631)
Prepaids and other........................................ 120,959 134,186
Deposits and other........................................ 76,899 (38,005)
Accounts payable.......................................... (483,538) (430,203)
Accrued wages and payroll taxes........................... (195,608) 72,539
Other accrued expenses.................................... (255,986) 828,870
Payable to affiliates..................................... (4,944,984) (1,040,998)
Accrued warranty reserve.................................. (325,000) (197,388)
------------ ------------
8,944,248 2,973,029
------------ ------------
Net cash provided by operating activities.............. $ 2,556,171 $ 1,286,867
============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-25
<PAGE> 34
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES:
BASIS OF PRESENTATION:
The combined financial statements include the financial position, results of
operations and cash flows of Eagle Window & Door, Inc. and Subsidiaries and
Taylor Building Products Company (the Companies). All material intercompany
transactions, accounts and balances have been eliminated.
Each Company is a wholly-owned subsidiary of MascoTech, Inc. Because of these
relationships, the financial statements of the Companies have been prepared on a
combined format as if they were a single entity. In addition, MascoTech, Inc.
performed the Companies' treasury function, and allocated expenses for various
services it provided (See Note 10).
Eagle Window & Door, Inc. and Subsidiaries (Eagle) are engaged in the
manufacture of aluminum clad and all wood windows and doors. Eagle's primary
market is the construction industry. Products are marketed through various
distributors located throughout the United States and Pacific Rim. Eagle's
wholly-owned subsidiaries, Eagle Window & Door of Bellevue, Inc. and Eagle
Service Company are engaged in the sale and distribution of windows and doors
throughout the United States.
The accompanying combined financial statements include the consolidated
accounts of Eagle Window & Door, Inc. and its wholly-owned subsidiaries, Eagle
Window & Door of Bellevue, Inc. and Eagle Service Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Taylor Building Products Company (Taylor) is engaged in the manufacture of
entry and garage doors. The Company markets entry doors under the brand names of
Perma Door and Taylor Door. The Perma Door brand is primarily marketed through
millwork distributors and the Taylor Door brand is primarily marketed through
installing dealers. The Company markets garage doors under the Taylor Door brand
name throughout the United States.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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.
EARNINGS PER SHARE:
Historical earnings per share data has not been presented in the accompanying
financial statements due to the subsequent acquisition of the two Companies by
American Architectural Products, Inc. and its reverse merger with a public
reporting company (See Note 13).
ACCOUNTS RECEIVABLE:
As of December 31, 1995 and August 29, 1996, allowances have been established
for potentially uncollectible accounts receivable in the amounts of $445,418 and
$791,521, respectively.
INVENTORY:
Inventory is stated at the lower of cost (first-in, first-out method) or
market. Inventories are reviewed periodically for obsolescence, and an allowance
established to record potentially obsolete inventory at net realizable value
(See Note 3).
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to expense as incurred. Betterments
or renewals are capitalized when incurred. Depreciation expense for the year
ended December 31, 1995 and the eight months ended
F-26
<PAGE> 35
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES: (CONTINUED)
August 29, 1996, was $3,310,040 and $2,661,961, respectively. Assets are being
depreciated over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 40
Machinery and equipment..................................... 6-15
Computer and office equipment............................... 10
Tools, dies and fixtures.................................... 3
</TABLE>
INCOME TAXES:
The Companies file their income tax returns on a consolidated basis with their
parent company. All provisions for federal and state income taxes, including
provisions for deferred income taxes, are provided for through the intercompany
accounts.
ADVERTISING:
The cost of advertising is expensed as incurred. Advertising expense was
$1,192,915 and $479,300, respectively, for the year ended December 31, 1995 and
the eight months ended August 29, 1996.
2. CONCENTRATION OF CREDIT RISK:
The combined Companies maintain cash balances at various financial
institutions. At December 31, 1994 and 1995 and at August 29, 1996, the combined
Companies have uninsured cash in the approximate amounts of $734,000, $670,000
and $230,000, respectively.
3. INVENTORY:
As of December 31, 1995 and as of August 29, 1996, inventory consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 29,
1995 1996
------------ ----------
<S> <C> <C>
Raw materials............................................... $ 7,106,775 $6,118,026
Work in process............................................. 1,215,724 1,366,212
Finished goods.............................................. 1,631,594 1,473,501
----------- ----------
9,954,093 8,957,739
Less: provision for obsolete inventory...................... (1,623,500) (474,515)
----------- ----------
$ 8,330,593 $8,483,224
=========== ==========
</TABLE>
Included in the allowance for obsolete inventory as of December 31, 1995 is
approximately $1,260,000 for future losses from Taylor Building Products
Company's restructuring plan (See Note 7).
F-27
<PAGE> 36
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1995 and August 29, 1996, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 29,
1995 1996
------------ ------------
<S> <C> <C>
Land and improvements....................................... $ 407,523 $ 408,934
Buildings and improvements.................................. 7,996,419 7,698,252
Machinery and equipment..................................... 10,807,526 11,276,992
Computer and office equipment............................... 3,238,291 2,223,089
Tools, dies and fixtures.................................... 1,962,048 3,698,385
------------ ------------
24,411,807 25,305,652
Less: accumulated depreciation.............................. (15,651,008) (18,339,312)
------------ ------------
$ 8,760,799 $ 6,966,340
============ ============
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS:
The Companies are currently leasing certain office and manufacturing space in
Dubuque, Iowa and West Branch, Michigan under non-cancellable operating lease
agreements which expire through July, 1997. The terms of the leases provide for
combined monthly payments totalling approximately $12,000. The lease terms also
require the Companies to pay common area maintenance, taxes, insurance and other
costs. The Companies are also leasing equipment under various non-cancellable
operating lease agreements which expire through July, 2000. Rent expense under
the operating lease agreements was $817,418 and $477,761, respectively, for the
year ended December 31, 1995 and the eight months ended August 29, 1996.
A schedule of future minimum lease payments due under the non-cancellable
operating lease agreements, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
- ------------ ----------
<S> <C> <C>
1996................................................................. $ 595,370
1997................................................................. 330,465
1998................................................................. 221,577
1999................................................................. 88,472
2000................................................................. 4,729
----------
$1,240,613
==========
</TABLE>
CONTINGENCIES:
Environmental Issue:
Based on an evaluation of Eagle's operating facility, asbestos-containing
materials were located in various sections of the facility. No provision or
accrual has been made to provide for any potential future costs for abatement
because, in management's opinion, they should not have a material adverse effect
upon the combined financial position of the Companies. In connection with the
sale of the Companies to American Architectural Products, Inc. (See Note 13),
the former parent of the Companies agreed to bear certain abatement costs
relating to this matter.
Litigation:
At December 31, 1995 and August 29, 1996, the Companies are a party to several
lawsuits. The Companies believe that the lawsuits are without merit and intend
to vigorously defend their position. Provision for a lawsuit that was settled
subsequent to December 31, 1995 for approximately $165,000 has been charged to
operations in the accompanying financial statements for the year ended December
31, 1995. A provision has been charged to
F-28
<PAGE> 37
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
operations in the accompanying financial statements for the eight months ended
August 29, 1996 for approximately $100,000 for a lawsuit involving product
performance issues.
6. STOCKHOLDERS' EQUITY:
The stock of Taylor Building Products Company consists of 1,000 shares of $1
par value common stock authorized, issued and outstanding. The stock of Eagle
Window & Door, Inc. consists of 500,000 shares of $1 par value common stock
authorized, 210,851 shares issued and outstanding.
7. RESTRUCTURING CHARGE:
In September, 1995, Taylor's management adopted a restructuring plan to
address recurring operating losses. The goal of the plan was to reduce overhead
through a plan of business consolidation and simplification. The major
components to the plan were: (1) closure of its satellite locations in Florida
and Texas; (2) elimination of its "non-core" product lines; and (3) improve the
proficiency of its entry and garage door lines. As a result of the restructuring
plan, the Company incurred costs for liquidation of inventory, loss on the sale
and abandonment of fixed assets, severance pay, and other related costs. The
restructuring plan was completed during the first quarter of 1996.
The restructuring charge for the year ended December 31, 1995, consisted of
the following:
<TABLE>
<S> <C>
Loss on sale and abandonment of fixed assets................ $416,131
Severance pay............................................... 281,012
Other....................................................... 142,899
--------
$840,042
========
</TABLE>
8. STATEMENTS OF CASH FLOWS:
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1995, the Companies recognized an investing
activity that affected equity, but did not result in cash receipts or payments.
This non-cash activity consisted of the write off notes receivable deemed
uncollectible in the amount of $344,473.
9. WARRANTY RESERVE:
The Companies sell the majority of their products with limited warranties of
two to 25 years. At December 31, 1995 and at August 29, 1996, the accompanying
financial statements include a reserve of $4,824,800 and $4,627,412,
respectively, for estimated warranty claims based on the Companies' historical
claims experience.
10. RELATED PARTY TRANSACTIONS:
As of December 31, 1995 and August 29, 1996, the Companies had amounts payable
to affiliates of $20,482,654 and, $19,441,656, respectively. These affiliates
represent primarily the parent company and subsidiaries of the parent company.
Various shared expenses were charged to the Companies through the payable to
affiliate account. These expenses included items such as general insurance,
health insurance, and workers compensation insurance, which were charged based
on specific identification of the expense. For the year ended December 31, 1995
and the eight months ended August 29, 1996, total expenses charged to the
Companies through specific identification were $3,588,020 and $1,613,407,
respectively.
In addition, MascoTech, Inc., the parent company, charged the Companies a
management fee based on budgeted sales for the various operating subsidiaries.
For the year ended December 31, 1995 and the eight months ended August 29, 1996,
total management fees charged to the Companies were $1,314,700 and $951,000,
respectively.
MascoTech, Inc. also provided cash management services for the Companies. For
the year ended December 31, 1995 and the eight months ended August 29, 1996, the
Companies had recorded interest expense relating to the
F-29
<PAGE> 38
EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES AND
TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS: (CONTINUED)
amounts payable to affiliates of $1,755,177 and $1,142,519, respectively.
Interest expense for the eight month period ended August 29, 1996 was treated as
contributed to capital by the Parent Company.
11. BENEFIT PLANS:
401K PROFIT SHARING PLAN AND PENSION PLAN:
The Companies' former parent sponsored the MascoTech, Inc. Salaried Savings
Plan. All salaried employees of the Company with three months of service, were
eligible to participate in the Plan. The Plan operated as a 401K Savings Plan.
The Plan did not provide for a discretionary matching or profit sharing
contribution. As such, no expense has been recorded for contributions in the
accompanying financial statements.
The Companies' former parent sponsored the MascoTech, Inc. Master Hourly
Employees' Pension Plan. All hourly employees of the Companies were eligible to
participate in the Plan with participation commencing on the date of hire.
Benefits in the Plan were vested and based on the number of years of credited
service.
Pursuant to the pending sale of the Companies to American Architectural
Products, Inc., in August, 1996, and in accordance with the Stock Purchase
Agreement, coverage under these plans ceased. The seller agreed to fully vest
all participants and pay benefits in the normal course of the plans. As such, no
liability has been reported in the accompanying combined financial statements
for any potential unfunded liabilities.
POST-RETIREMENT BENEFITS:
Taylor Building Products Company sponsors a post-retirement health benefit
program pursuant to its collective bargaining contract. Under the principal
terms of the contract, the Company will pay a retired employee with a minimum of
ten years service, a benefit of $100 per month after retirement at age 62. As of
the date of the financial statements, no material post-retirement benefit
obligation has been incurred.
LABOR FORCE:
Most of the hourly employees of Taylor Building Products Company, comprising
approximately 85 percent of the Taylor labor force, are covered under a
collective bargaining agreement. The contract expired in February, 1997, and was
renegotiated for an additional five years.
12. ECONOMIC DEPENDENCY:
For the year ended December 31, 1995, Eagle Window & Door, Inc. purchased
approximately 38 percent of their materials from two suppliers. For the eight
month period ended August 29, 1996, Eagle purchased approximately 15 percent of
their materials from one supplier. At December 31, 1995 and at August 29, 1996,
amounts due to the suppliers were $254,584 and $332,179, respectively.
For the year ended December 31, 1995, and for the eight month period ended
August 29, 1996, Taylor Building Products Company purchased approximately 16
percent and 20 percent, respectively, of their materials from one supplier. At
December 31, 1995, and at August 29, 1996, amounts due to the supplier were
approximately $452,000 and $362,000, respectively.
13. SUBSEQUENT EVENT:
ACQUISITION:
Effective August 29, 1996, the Companies were acquired by American
Architectural Products, Inc. (AAP). On December 18, 1996, American Architectural
Products Holdings, Inc. (AAPH, parent of AAP) consummated transactions
contemplated under an Agreement and Plan of Reorganization dated October 25,
1996. Under terms of this Agreement, all of the capital stock of AAP was
exchanged by AAPH for a 60 percent interest in Forte Computer Easy, Inc. The
financial statements do not give effect to these transactions.
F-30
<PAGE> 39
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Mallyclad Corporation and Vyn-L Corporation
We have audited the accompanying combined balance sheets of Mallyclad
Corporation and Vyn-L Corporation as of November 30, 1995 and June 30, 1996, and
the related combined statements of operations and retained earnings, and cash
flows for the year ended November 30, 1995 and the seven months ended June 30,
1996. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Mallyclad
Corporation and Vyn-L Corporation as of November 30, 1995 and June 30, 1996, and
the results of their combined operations and their combined cash flows for the
year ended November 30, 1995 and the seven months ended June 30, 1996 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
April 28, 1997
F-31
<PAGE> 40
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, JUNE 30,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS (Note 3)
CURRENT ASSETS
Cash and equivalents...................................... $ 110,599 $ 229,615
Accounts receivable, less allowance for doubtful accounts
of $7,000 in 1996...................................... 530,410 358,731
Refundable income taxes................................... 26,160 26,160
Inventories (Note 2)...................................... 430,902 285,635
Prepaid expenses.......................................... 22,853 18,736
----------- -----------
TOTAL CURRENT ASSETS........................................ 1,120,924 918,877
----------- -----------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 128,391 128,391
Machinery and equipment................................... 2,203,868 2,205,604
Computers and office equipment............................ 85,184 87,420
----------- -----------
2,417,443 2,421,415
Less accumulated depreciation............................. (2,268,378) (2,304,178)
----------- -----------
NET PROPERTY AND EQUIPMENT.................................. 149,065 117,237
----------- -----------
OTHER ASSETS................................................ 59,481 32,896
----------- -----------
$ 1,329,470 $ 1,069,010
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving line of credit (Note 3)......................... $ 100,000 $ --
Accounts payable.......................................... 280,737 158,039
Accruals
Product claims......................................... 59,556 46,101
Commissions............................................ 28,181 20,150
Compensation........................................... 12,185 8,647
Other.................................................. 53,170 52,103
----------- -----------
TOTAL CURRENT LIABILITIES................................... 533,829 285,040
----------- -----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1 par, authorized 50,000 shares;
outstanding 50,000 shares--Mallyclad Corporation....... 50,000 50,000
Common stock, $1 par, authorized 50,000 shares;
outstanding 38,000 shares--Vyn-L Corporation........... 38,000 38,000
Retained earnings......................................... 707,641 695,970
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 795,641 783,970
----------- -----------
$ 1,329,470 $ 1,069,010
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 41
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS ENDED
NOVEMBER 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Net Sales................................................... $3,991,882 $1,915,620
Cost of Goods Sold.......................................... 3,520,971 1,596,753
---------- ----------
Gross Profit................................................ 470,911 318,867
Selling, General and Administrative Expenses................ 648,990 349,671
---------- ----------
Loss from Operations........................................ (178,079) (30,804)
Other Income--Net........................................... 37,133 19,133
---------- ----------
Loss Before Taxes on Income................................. (140,946) (11,671)
Tax Benefits (Note 6)....................................... 20,686 --
---------- ----------
Net Loss.................................................... (120,260) (11,671)
Retained Earnings, beginning of period...................... 828,901 707,641
Dividends................................................... (1,000) --
---------- ----------
Retained Earnings, end of period............................ $ 707,641 $ 695,970
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE> 42
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS ENDED
NOVEMBER 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(120,260) $ (11,671)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 81,884 35,800
Changes in operating assets and liabilities:
Receivables.......................................... 117,057 171,679
Inventories.......................................... 96,573 145,267
Prepaid expenses..................................... (2,005) 4,117
Other assets......................................... 4,561 26,585
Accounts payable..................................... (179,635) (122,698)
Accruals............................................. (16,911) (26,091)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES......... (18,736) 222,988
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to property and equipment....................... (45,325) (3,972)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit
arrangements........................................... 100,000 (100,000)
Dividends paid............................................ (1,000) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 99,000 (100,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............. 34,939 119,016
CASH AND EQUIVALENTS, at beginning of period................ 75,660 110,599
--------- ---------
CASH AND EQUIVALENTS, at end of period...................... $ 110,599 $ 229,615
========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 43
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Mallyclad Corporation (Mallyclad) manufactures vinyl clad steel and aluminum
cut to length sheets, primarily for the construction, appliance and automotive
industries. Vyn-L Corporation (Vyn-L) is a steel and aluminum processor,
performing shearing and forming functions for its customers.
Mallyclad and Vyn-L ("the Companies") were under common control and because of
these relationships, the financial statements of the Companies have been
prepared on a combined basis as if they were a single entity. All material
intercompany transactions, accounts and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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 these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of receivables, payables and accrued expenses approximate
fair value because of the short maturity of these items.
CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments consisting of money
market funds.
INVENTORIES
Inventories are stated at the lower of cost or market value determined on the
first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided for using
accelerated methods over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements...................................... 7-31
Machinery and equipment..................................... 7-15
Computers and office equipment.............................. 5-7
</TABLE>
Depreciation expense for the year ended November 30, 1995 and for the seven
months ended June 30, 1996, was $81,884 and $35,800, respectively.
Expenditures for renewals and betterments are capitalized. Expenditures for
maintenance and repairs are charged against income as incurred.
REVENUE RECOGNITION
Revenues from sales and the corresponding receivables are recorded upon the
shipment of product to the customer.
INCOME TAXES
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 the tax bases of the Companies'
assets and liabilities.
F-35
<PAGE> 44
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
NOVEMBER 30 JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Raw materials............................................... $355,670 $198,605
Finished goods.............................................. 75,232 87,030
-------- --------
$430,902 $285,635
======== ========
</TABLE>
3. REVOLVING LINE OF CREDIT
Mallyclad had a $400,000 revolving line of credit secured by substantially all
of the assets of Mallyclad. The outstanding borrowings on the line were $100,000
and $-0-, respectively, as of November 30, 1995, and June 30, 1996. The interest
rate on the line was prime plus 1/2 percent. Interest expense was $5,086 and
$2,110, respectively, for the periods ended November 30, 1995 and June 30, 1996.
The revolving line of credit was terminated in connection with the acquisition
of the Company's common stock (see Note 9).
4. RETIREMENT PLAN
Mallyclad sponsors a defined contribution retirement plan for salaried
employees. Employees are eligible to participate in the Plan one year after
employment. Company contributions are required in the amount of 4.3 percent of
the participant's total compensation plus 4.3 percent of the participant's
compensation in excess of $30,000. Contributions were $30,974 and $17,500,
respectively, for the periods ended November 30, 1995, and June 30, 1996.
5. COMMITMENTS
The Companies leased their facilities from a related party under
non-cancellable operating lease agreements which commenced January 1, 1994. The
operating lease agreements are for a term of five years and provide for total
monthly payments of $16,168. Rent expense under the operating lease agreements
for the periods ended November 30, 1995, and June 30, 1996 was $163,000 and
$95,000, respectively.
6. TAXES ON INCOME
The benefits (expenses) for income taxes consist of the following:
<TABLE>
<CAPTION>
SEVEN
YEAR ENDED MONTHS ENDED
NOVEMBER 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Current federal.......................................... $20,686 $ --
Deferred................................................. -- --
------- -------
Total.................................................... $20,686 $ --
======= =======
</TABLE>
Significant components of deferred taxes consist of deferred tax assets
arising from accrued expenses, allowance for doubtful accounts and depreciation.
Management has recorded a full valuation allowance against these deferred tax
assets at November 30, 1995 and at June 30, 1996.
7. MAJOR CUSTOMERS
Two customers, each individually accounting for at least 10% of combined net
sales, accounted for 23% of net sales in 1995.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest approximated interest expense.
F-36
<PAGE> 45
MALLYCLAD CORPORATION
AND VYN-L CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Cash paid for taxes on income for the periods ended November 30, 1995 and June
30, 1996 totaled $33,014 and $-0-, respectively.
9. SUBSEQUENT EVENT
On June 25, 1996, all of the outstanding stock of the Companies was purchased
by an individual. On December 18, 1996 Mallyclad and Vyn-L were merged into
American Architectural Products, Inc. (AAP), a Company controlled by this same
individual. These financial statements do not give effect to these transactions.
F-37
<PAGE> 1
EXHIBIT 21
Subsidiaries of American Architectural Products Corporation:
American Glassmith Acquisition Corporation
Binnings Building Products, Inc.
Danvid Window Company
Denver Window Acquisition Corporation
Eagle & Taylor Company
Eagle Window & Door Center, Inc.
Forte, Inc.
Modern Window Acquisition Corporation
Thermetic Glass, Inc.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 40,132,238
<SECURITIES> 0
<RECEIVABLES> 19,441,772
<ALLOWANCES> 839,000
<INVENTORY> 21,458,339
<CURRENT-ASSETS> 81,947,873
<PP&E> 41,499,522
<DEPRECIATION> 3,551,874
<TOTAL-ASSETS> 158,323,709
<CURRENT-LIABILITIES> 20,475,569
<BONDS> 126,518,030
0
0
<COMMON> 13,458
<OTHER-SE> 5,567,677
<TOTAL-LIABILITY-AND-EQUITY> 158,323,709
<SALES> 94,252,582
<TOTAL-REVENUES> 0
<CGS> 74,304,379
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,178,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,927,924
<INCOME-PRETAX> (1,154,731)
<INCOME-TAX> (390,000)
<INCOME-CONTINUING> (764,731)
<DISCONTINUED> 0
<EXTRAORDINARY> (494,110)
<CHANGES> 0
<NET-INCOME> (1,258,841)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN ARCHITECTURAL PRODUCTS
CORPORATION FOR THE QUARTERS ENDED MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER
31, 199
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR OTHER OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JUL-01-1997 APR-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 40,132,238 1,266,922 386,988 635,533
<SECURITIES> 0 0 0 0
<RECEIVABLES> 19,441,772 10,389,186 8,589,181 7,760,255
<ALLOWANCES> 839,000 643,000 0 519,000
<INVENTORY> 21,458,339 13,525,627 12,403,569 12,149,696
<CURRENT-ASSETS> 81,947,873 26,628,001 23,771,242 21,474,235
<PP&E> 41,499,522 18,901,673 17,941,066 15,643,589
<DEPRECIATION> 3,551,874 1,838,088 994,981 811,979
<TOTAL-ASSETS> 158,323,709 57,048,874 48,020,037 43,592,520
<CURRENT-LIABILITIES> 20,475,569 26,395,673 24,306,650 22,295,795
<BONDS> 126,518,030 19,134,260 18,496,531 19,286,241
0 0 0 0
0 0 3 10,000
<COMMON> 13,458 13,074 12,668 4,861
<OTHER-SE> 5,567,677 6,200,619 4,845,185 1,598,351
<TOTAL-LIABILITY-AND-EQUITY> 158,323,709 57,048,874 48,020,037 43,592,520
<SALES> 94,252,582 25,410,114 22,968,393 16,641,339
<TOTAL-REVENUES> 94,252,582 25,410,114 22,968,393 16,641,339
<CGS> 74,304,379 19,964,345 17,490,571 13,480,599
<TOTAL-COSTS> 74,304,379 19,964,345 17,490,571 13,480,599
<OTHER-EXPENSES> 17,178,654 (54,854) 3,764,639 3,347,185
<LOSS-PROVISION> 0 0 0 80,000
<INTEREST-EXPENSE> 3,927,924 916,746 781,551 614,760
<INCOME-PRETAX> (1,154,731) 512,924 985,039 (813,792)
<INCOME-TAX> (390,000) 210,389 389,546 (325,442)
<INCOME-CONTINUING> (764,731) 302,535 595,493 (488,350)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> (494,110) 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (1,258,841) 302,535 595,493 (488,350)
<EPS-PRIMARY> (.10) .02 .04 .04
<EPS-DILUTED> (.10) 0 .04 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES) AS OF AUGUST
29, 1996 AND FOR THE EIGHT MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052497
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> AUG-29-1996
<CASH> 395,859
<SECURITIES> 0
<RECEIVABLES> 7,736,517
<ALLOWANCES> 791,521
<INVENTORY> 8,483,224
<CURRENT-ASSETS> 16,929,840
<PP&E> 25,305,652
<DEPRECIATION> 18,339,312
<TOTAL-ASSETS> 23,989,556
<CURRENT-LIABILITIES> 26,149,924
<BONDS> 0
0
0
<COMMON> 211,851
<OTHER-SE> (5,520,631)
<TOTAL-LIABILITY-AND-EQUITY> 23,989,556
<SALES> 39,971,058
<TOTAL-REVENUES> 39,971,058
<CGS> 33,832,799
<TOTAL-COSTS> 33,832,799
<OTHER-EXPENSES> 7,090,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,142,519
<INCOME-PRETAX> (2,594,095)
<INCOME-TAX> (907,933)
<INCOME-CONTINUING> (1,686,162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,686,162)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MALLYCLAD CORPORATION AND VYN-L CORPORATION
AS OF JUNE 30, 1996 AND FOR THE SEVEN MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052497
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 229,615
<SECURITIES> 0
<RECEIVABLES> 358,731
<ALLOWANCES> 7,000
<INVENTORY> 285,635
<CURRENT-ASSETS> 918,877
<PP&E> 2,421,415
<DEPRECIATION> 2,304,178
<TOTAL-ASSETS> 1,069,010
<CURRENT-LIABILITIES> 285,040
<BONDS> 0
0
0
<COMMON> 88,000
<OTHER-SE> 695,970
<TOTAL-LIABILITY-AND-EQUITY> 1,069,010
<SALES> 1,915,620
<TOTAL-REVENUES> 1,915,620
<CGS> 1,596,753
<TOTAL-COSTS> 1,596,753
<OTHER-EXPENSES> 349,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,671)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,671)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN ARCHITECTURAL PRODUCTS
CORPORATION AS OF DECEMBER 31, 1996 AND FROM THE DATE OF INCEPTION
(JUNE 19, 1996) TO DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-19-1996
<PERIOD-END> DEC-31-1996
<CASH> 964,062
<SECURITIES> 0
<RECEIVABLES> 6,741,694
<ALLOWANCES> 439,000
<INVENTORY> 10,971,144
<CURRENT-ASSETS> 19,366,051
<PP&E> 16,460,159
<DEPRECIATION> 321,315
<TOTAL-ASSETS> 42,743,891
<CURRENT-LIABILITIES> 19,190,317
<BONDS> 17,532,570
0
1,000
<COMMON> 4,861
<OTHER-SE> 4,270,701
<TOTAL-LIABILITY-AND-EQUITY> 42,743,891
<SALES> 25,248,908
<TOTAL-REVENUES> 25,248,908
<CGS> 19,026,604
<TOTAL-COSTS> 19,026,604
<OTHER-EXPENSES> 4,059,868
<LOSS-PROVISION> 12,546
<INTEREST-EXPENSE> 755,758
<INCOME-PRETAX> 1,401,089
<INCOME-TAX> 640,000
<INCOME-CONTINUING> 761,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 761,089
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MALLYCLAD CORPORATION AND VYN-L CORPORATION
AS OF DECEMBER 31, 1995 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052497
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 110,599
<SECURITIES> 0
<RECEIVABLES> 530,410
<ALLOWANCES> 0
<INVENTORY> 430,902
<CURRENT-ASSETS> 1,120,924
<PP&E> 2,417,443
<DEPRECIATION> 2,268,378
<TOTAL-ASSETS> 1,329,470
<CURRENT-LIABILITIES> 533,829
<BONDS> 0
0
0
<COMMON> 88,000
<OTHER-SE> 707,641
<TOTAL-LIABILITY-AND-EQUITY> 1,329,470
<SALES> 3,991,882
<TOTAL-REVENUES> 3,991,882
<CGS> 3,520,971
<TOTAL-COSTS> 3,520,971
<OTHER-EXPENSES> 648,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (140,946)
<INCOME-TAX> (20,686)
<INCOME-CONTINUING> (120,260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,260)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EAGLE WINDOW & DOOR, INC. AND SUBSIDIARIES
AND TAYLOR BUILDING PRODUCTS COMPANY (WHOLLY-OWNED SUBSIDIARIES) AS OF DECEMBER
31, 1995 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001052497
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 750,361
<SECURITIES> 0
<RECEIVABLES> 6,954,830
<ALLOWANCES> 445,418
<INVENTORY> 8,330,593
<CURRENT-ASSETS> 16,484,210
<PP&E> 24,411,807
<DEPRECIATION> 15,651,008
<TOTAL-ASSETS> 25,300,379
<CURRENT-LIABILITIES> 26,806,716
<BONDS> 0
0
0
<COMMON> 211,851
<OTHER-SE> (4,976,988)
<TOTAL-LIABILITY-AND-EQUITY> 25,300,379
<SALES> 72,962,690
<TOTAL-REVENUES> 72,962,690
<CGS> 67,642,530
<TOTAL-COSTS> 67,642,530
<OTHER-EXPENSES> 12,334,102
<LOSS-PROVISION> 840,042
<INTEREST-EXPENSE> 1,755,177
<INCOME-PRETAX> (9,945,502)
<INCOME-TAX> (3,557,425)
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<NET-INCOME> (6,388,077)
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</TABLE>
