<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from ___________________to _______________________.
Commission file number: 0-25634
-------
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.) 87-0365268
755 BOARDMAN-CANFIELD ROAD, BOARDMAN, OHIO 44512
(Address of principal executive offices)
(330) 965-9910
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common stock, $.001 par value, 13,473,004 shares outstanding at September 30,
1998
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AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
American Architectural Products Corporation
As of September 30, 1998 and for the three and nine
months ended September 30, 1998 and 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
Item 1. FINANCIAL STATEMENTS
American Architectural Products Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
1997 1998
------------- -------------
Assets
------
Current Assets
<S> <C> <C>
Cash $ 40,132,238 $ 1,199,810
Accounts receivable 18,737,290 35,387,963
Inventories 21,458,399 36,290,195
Prepaid expenses and other current assets 1,619,946 1,710,219
------------- -------------
Total Current Assets 81,947,873 74,588,187
Other Assets
Property and equipment, net 37,947,648 76,777,628
Cost in excess of net assets acquired, net 29,846,895 31,849,867
Deferred financing costs, net 5,985,360 7,010,059
Deposits and other assets 2,595,933 4,283,389
------------- -------------
Total Noncurrent Assets 76,375,836 119,920,943
Total Assets $ 158,323,709 $ 194,509,130
============= =============
Liabilities & Stockholders' Equity
----------------------------------
Current Liabilities
Accounts payable $ 9,352,228 $ 16,399,389
Accrued expenses 8,497,788 17,395,975
Accrued warranty obligations--current portion 1,991,544 1,936,635
Capital lease obligations--current portion 573,161 660,986
Line of credit -- 16,273,497
Long term debt--current portion 60,848 7,500,000
------------- -------------
Total Current Liabilities 20,475,569 60,166,482
Long-Term Liabilities
Long-term debt, less current maturities 125,114,401 125,000,000
Long-term capital lease obligations, less current portion 769,620 263,535
Accrued warranty obligations, less current portion 2,834,183 2,503,880
Other liabilities 3,548,801 3,926,280
------------- -------------
Total Long-Term Liabilities 132,267,005 131,693,695
------------- -------------
Total Liabilities 152,742,574 191,860,177
Stockholders' Equity:
Common stock, $.001 par, authorized 100,000,000 shares;
outstanding 13,458,479 shares and 13,473,004 shares
at December 31, 1997 and September 30, 1998, respectively 13,458 13,473
Additional paid in capital 6,310,641 6,453,612
Accumulated deficit (742,964) (3,818,132)
------------- -------------
Total Stockholders' Equity 5,581,135 2,648,953
Total Liabilities & Stockholders' Equity $ 158,323,709 $ 194,509,130
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
American Architectural Products Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited)
For the Three For the Nine
Months Ended September 30 Months Ended September 30
1997 1998 1997 1998
---------------------------------- --------------------------gg------
<S> <C> <C> <C> <C>
Net sales $ 25,410,114 $ 77,419,565 $ 65,019,846 $ 184,665,599
Cost of sales 19,964,345 61,591,091 50,977,914 145,135,243
------------- ------------- ------------- -------------
Gross profit 5,445,769 15,828,474 14,041,932 39,530,356
Selling expense 1,744,528 6,385,911 4,928,532 16,402,082
General and administrative expenses 2,326,425 5,653,456 6,255,760 15,860,304
------------- ------------- ------------- -------------
Income from operations 1,374,816 3,789,107 2,857,640 7,267,970
Interest expense 916,746 4,739,943 2,313,057 12,181,339
Interest income -- (7,083) -- (605,219)
Other (income) expense (54,854) (43,877) (95,674) 105,025
------------- ------------- ------------- -------------
Income (loss) before taxes 512,924 (899,876) 640,257 (4,413,175)
Income tax provision (benefit) 210,389 (314,956) 256,928 (1,338,007)
------------- ------------- ------------- -------------
Net income (loss) $ 302,535 $ (584,920) $ 383,329 $ (3,075,168)
============= ============= ============= =============
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
American Architectural Products Corporation
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine
Months Ended September 30
1997 1998
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 383,329 $ (3,075,168)
Adjustments to reconcile net income to cash from
operating activities
Depreciation 1,512,557 4,803,162
Amortization 453,422 1,657,023
(Gain) loss on sale of fixed assets (67,616) 166,860
Changes in operating assets and liabilities:
Accounts receivable, net (2,824,970) (11,789,192)
Inventories (492,620) (2,568,762)
Prepaid expenses and other current assets (224,288) (519,226)
Accounts payable 1,211,487 5,867,630
Accrued expenses 693,000 4,284,921
Other (417,590) 822,836
-------------------------------
Net cash from operating activities 226,711 (349,916)
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (3,167,687) (48,204,212)
Sale of business - 1,186,000
Purchase of property and equipment (918,708) (5,738,180)
Proceeds from sale of property and equipment - 853,101
Other, net (75,843) (391,335)
-------------------------------
Net cash from investing activities (4,162,238) (52,294,626)
-------------------------------
Cash flows from financing activities:
Net borrowings on line-of-credit 3,994,693 16,273,497
Payments on long-term debt (1,518,195) (175,249)
Proceeds from long-term debt 1,844,806 -
Payments for financing costs - (1,887,874)
Capital lease payments (412,757) (498,260)
Proceeds from preferred stock, Series B 495,800 -
Other (165,890) -
-------------------------------
Net cash from financing activities 4,238,457 13,712,114
-------------------------------
Net decrease in cash 302,930 (38,932,428)
Cash, beginning balance 964,062 40,132,238
-------------------------------
Cash, ending balance $ 1,266,992 $ 1,199,810
===============================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 6
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
American Architectural Products Corporation (the "Company") is principally
engaged in the business of manufacturing residential, non-residential and
architectural windows and doors through its wholly owned subsidiaries Eagle &
Taylor Company, Forte, Inc., Western Insulated Glass, Co. ("Western"), Thermetic
Glass, Inc. ("Thermetic"), Binnings Building Products, Inc. ("Binnings"), Danvid
Window Company ("Danvid"), American Glassmith Corporation ("American
Glassmith"), Modern Window Corporation ("Modern"), VinylSource, Inc.
("VinylSource"), Denver Window Corporation ("Denver") and American Weather-Seal
Company ("Weather-Seal").
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of financial position
and results of operations have been made. Operating results for interim periods
are not necessarily indicative of results that may be expected for a full year.
The information included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and notes thereto of the Company for the
year ended December 31, 1997 included in the annual report on Form 10-K.
2. Acquisitions & Divestiture
Acquisition of VinylSource
On January 23, 1998, the Company acquired substantially all of the assets of the
vinyl division of Easco, Inc., an Austintown, Ohio manufacturer of vinyl
extrusions for the fenestration industry, and operates the facility through its
wholly-owned subsidiary VinylSource. The purchase price approximated $13,475,000
and was allocated to net assets acquired based on estimated fair market values
including current assets of $4,654,000, property and equipment and other
noncurrent assets of $9,929,000 and current liabilities of $1,108,000. The
Company used cash to finance the acquisition. The accounts of VinylSource are
included in the Company's consolidated financial statements from the January 23,
1998 acquisition date.
Divestiture of Mallyclad Corporation
On March 31, 1998, the Company sold Mallyclad Corporation ("Mallyclad"), a
division of Eagle & Taylor Company, to a related party, for approximately $1.2
million. The Company sold this division, a manufacturer of vinyl laminates for
steel and aluminum consumer and commercial customers, at its basis and therefore
recognized no gain or loss on this transaction.
Acquisition of Denver
On April 16, 1998, the Company acquired substantially all of the assets of
Denver. The acquisition was accounted for as a purchase. The purchase price
approximated $221,000 and was allocated to net assets acquired based on
estimated fair market values including current assets of $396,000, property and
equipment of $67,000 and current liabilities of $242,000. The Company used cash
to
<PAGE> 7
finance the acquisition. The accounts of Denver are included in the Company's
consolidated financial statements from the April 16, 1998 acquisition date.
Acquisition of Weather-Seal
On June 12, 1998, the Company acquired substantially all of the assets of the
Weather-Seal division of Louisiana-Pacific Corporation. The acquisition was
accounted for as a purchase, with the purchase price of $40,000,000 allocated to
net assets acquired based on estimated fair market values including current
assets of $13,800,000, property and equipment of $29,500,000, current
liabilities of $2,600,000 and long-term liabilities of $700,000. The acquisition
was financed with $16,600,000 in borrowings from the Company's line-of-credit
facility, $7,500,000 in a subordinated seller note (the "Seller Note") and the
remainder with cash. The accounts of Weather-Seal are included in the Company's
consolidated financial statements from the June 12, 1998 acquisition date.
The following pro forma information for the nine months ended September 30, 1997
has been prepared assuming that the acquisitions of Western, Thermetic,
Binnings, Danvid, American Glassmith, Modern, VinylSource, Denver and
Weather-Seal (collectively, the "Acquisitions"), the December 10, 1997 offering
of the $125 million of 11 3/4% Senior Notes due 2007 (the "Senior Notes"), the
issuance of the Seller Note and the advances on the line-of-credit facility
relating to the Acquisitions, as well as the sale of Mallyclad, had occurred at
the beginning of that period. The pro forma information for the nine months
ended September 30, 1998 has been prepared assuming that the acquisitions of
VinylSource, Denver and Weather-Seal (collectively, the "1998 Acquisitions") and
the sale of Mallyclad had occurred at the beginning of that period. The pro
forma information includes adjustments to interest expense for the offering of
the Senior Notes, Seller Note and the Company's line-of-credit facility,
adjustments to selling, general and administrative expenses for decreases in
compensation expenses for certain officers and members of Board of Directors of
the acquired companies, adjustments to depreciation expense based on the
allocation of purchase price to the property and equipment acquired, adjustments
to amortization for cost in excess of net assets acquired arising from the
acquisitions and adjustments to income taxes. The 1997 pro forma weighted
average number of common shares outstanding includes shares committed to be
issued in connection with acquisition of Danvid and Thermetic. The pro forma
sales and net loss amounts are as follows for the nine months ended
September 30:
<TABLE>
<CAPTION>
1997 1998
----------------- ---------------
<S> <C> <C>
Sales $ 194,487 $ 206,065
Net loss (9,925) (6,794)
Net loss per share - basic and diluted (0.72) (0.49)
</TABLE>
<PAGE> 8
3. Net Income (Loss) Per Share
Basic 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. A summary of the basic and diluted income (loss) per
share amounts for the three and nine months ended September 30 is as follows:
<TABLE>
<CAPTION>
Three months Nine months
------------------------------ -------------------------------
1997 1998 1997 1998
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 302,535 $ (584,920) $ 383,329 $ (3,075,168)
Preferred stock dividend (4,412) -- (75,212) --
------------ ------------ ------------ ------------
Net income (loss) available to common
shareholders $ 298,123 $ (584,920) $ 308,117 $ (3,075,168)
Shares 13,236,587 13,773,004 12,825,598 13,772,470
Basic income (loss) per share $ 0.02 $ (0.04) $ 0.02 $ (0.22)
Effect of dilutive securities -- -- 231,249 --
Diluted income (loss) per share $ 0.02 $ (0.04) $ 0.02 $ (0.22)
</TABLE>
The weighted average numbers of common shares outstanding for the three and nine
months ended September 30, 1997 and 1998 include additional common shares
issuable in January 1999 in connection with the Thermetic acquisition based on
average market prices.
4. Inventories
Inventories at September 30 consisted of the following:
<TABLE>
<CAPTION>
1998
---------------------
<S> <C>
Raw materials $ 19,915,848
Work-in-process 4,936,296
Finished goods 11,438,051
---------------------
$ 36,290,195
=====================
</TABLE>
5. Comprehensive Income
On January 1, 1998, the Company adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) which establishes standards for reporting and displaying
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. For the nine months ended
September 30, 1998, comprehensive income for the Company does not differ from
net income.
6. Financing Arrangements
In connection with the Company's acquisition of Weather-Seal on June 12, 1998,
the Company issued an unsecured subordinated promissory note to the seller in
the amount of $7.5 million. The note bears interest based on LIBOR plus 1.5% and
is due June 30, 1999 unless the Company
<PAGE> 9
consummates a debt or equity offering, in which case the Company is required to
repay the note in full from the proceeds therefrom. The interest rate at
September 30, 1998 was 6.875% per annum.
In June 1998, the Company secured a revolving credit facility to provide
additional liquidity of up to $25 million. The facility has a three year term,
is secured by substantially all assets of the Company and bears interest at
either a LIBOR based rate or a rate based on the bank's base rate in effect, at
the Company's election. The Company used approximately $16.6 million in
borrowings under the facility to pay a portion of the Weather-Seal acquisition
purchase price. At September 30, 1998, the Company had $8.7 million available
under the facility, which has certain restrictive covenants, the most
significant of which pertain to minimum fixed charge coverage and minimum
consolidated net worth. Borrowings on the facility were accruing interest at a
rate of 8.268% per annum at September 30, 1998.
7. Pending Acquisitions
In August 1998, the Company entered into definitive agreements to acquire TSG
Industries, Inc. ("TSG"), NuSash of Indianapolis, Inc. and Jarar Window Systems,
Inc. (together, "NuSash"), RC Aluminum Industries, Inc. ("RC Aluminum") and four
affiliated corporations located in the southwest region of the United States
(the "Southwestern U.S. Businesses"), and in September 1998, the Company entered
into a definitive agreement to acquire three affiliated entities located in the
Eastern region of the United States ("Eastern U.S. Businesses", and
collectively, the "Pending Acquisitions"). TSG is a fabricator and installer of
engineered glazing systems, including glass windows, walls and doors and
aluminum curtain walls for large non-residential construction projects. NuSash
distributes Weather-Seal and other vinyl replacement windows for residential
use. RC Aluminum manufactures a wide range of non-residential fenestration
products including windows, sliding glass doors, railings and curtain walls and
specializes in prestigious high-rise development projects. The Southwestern U.S.
Businesses manufacture and distribute aluminum windows and doors, dimensional
lumber and millwork to contractors in various metropolitan areas for residential
applications. The Eastern U.S. Businesses design, manufacture and install
aluminum, glass and granite curtain walls for commercial and institutional
buildings.
The total purchase price of the Pending Acquisitions is estimated to be $106.0
million. The cash portion of this purchase price is estimated to approximate
$96.1 million and is expected to be financed from the proceeds of a debt or
equity offering, or some combination thereof, by the Company. The remaining
purchase price is expected to be financed through the issuance of stock. The
Pending Acquisitions are subject to various closing conditions, including the
obtaining of acceptable financing and the satisfactory completion of the
Company's due diligence review. There can be no assurance that such conditions
will be satisfied or that any or all of the Pending Acquisitions will be
consummated.
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Management's Discussion and Analysis of Results of Operations
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net Sales
Net sales for the three months ended September 30, 1998 increased to $77.4
million from $25.4 million for the three months ended September 30, 1997. The
$52.0 million increase is primarily due to $49.0 million in incremental sales
volumes as a result of the acquisition of Thermetic, Binnings, Danvid, American
Glassmith, Modern, VinylSource, Denver and Weather-Seal and a $2.0 million
increase in net sales at the Company's wood and aluminum-clad wood window
manufacturer. This unit's increase in sales has resulted primarily from higher
sales volumes associated with its existing customer base.
Gross Profit
The Company's gross profit increased to $15.8 million for the three months ended
September 30, 1998 from $5.4 million for the three months ended September 30,
1997. The increase of $10.4 million resulted primarily from $8.4 million of
gross profit added by the companies acquired in 1997 and 1998. The remaining
portion of the gross profit increase was generated by the Company's wood and
aluminum-clad wood window manufacturer. The Company's gross margin was 20.4% and
21.4% for the three months ended September 30, 1998 and 1997, respectively. The
Company's wood and aluminum-clad wood window manufacturer has generated a higher
margin resulting from increased sales volumes; however, this has been offset in
part by a negative margin at the Company's non-residential aluminum contract
window manufacturer.
Selling, General & Administrative Expenses
Selling, general & administrative expenses were $12.0 million for the three
months ended September 30, 1998 compared to $4.1 million for the three months
ended September 30, 1997. Selling, general & administrative expenses relating to
the inclusion of the companies acquired in 1997 and 1998 were $6.3 million. The
remainder of the $7.9 million increase is primarily due to $0.8 million in
increased selling and administrative costs with the Company's wood and
aluminum-clad wood window manufacturer and $0.8 million in increased costs
associated with the corporate administration of a larger and more diversified
window and door manufacturer.
Income from Operations
The Company had income from operations of $3.8 million for the three months
ended September 30, 1998 compared to $1.4 million for the three months ended
September 30, 1997. Operating income from the companies acquired in 1997 and
1998 amounted to $2.1 million and the Company's wood and aluminum-clad wood
window manufacturer accounted for $1.8 million of the increase in operating
income. These increases were partially offset, however, by the increased
corporate and administrative costs totaling $0.8 million and decreased income
of $0.7 million at the Company's steel door and aluminum window and door
manufacturers.
<PAGE> 11
Interest Expense
Interest expense for the three months ended September 30, 1998 was $4.7 million
compared to interest expense of $0.9 million for the three months ended
September 30, 1997. The increase is due to the additional indebtedness incurred
by the Company consisting primarily of the Senior Notes, the Seller Note and
advances on the Company's revolving credit facility. A portion of the proceeds
of the Senior Notes and the proceeds of the Seller Note and line-of-credit
advances have been used to finance the Company's acquisitions.
Income Taxes
The Company has recorded a benefit from income taxes of $0.3 million for the
three months ended September 30, 1998 based on an estimated annual effective
tax rate.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net Sales
Net sales for the nine months ended September 30, 1998 increased to $184.7
million from $65.0 million for the nine months ended September 30, 1997. The
$119.7 million increase is primarily due to $111.2 million in incremental sales
volume from the inclusion of Western, Thermetic, Binnings, Danvid, American
Glassmith, Modern, VinylSource, Denver and Weather-Seal, a $4.8 million in
increase in sales at the Company's wood and aluminum-clad wood window
manufacturer and a $3.1 million increase at the Company's residential aluminum
window and door manufacturer. These units' increases in net sales have resulted
primarily from higher sales volumes associated with their existing customer
bases.
Gross Profit
The Company's gross profit increased to $39.5 million for the nine months ended
September 30, 1998 from $14.0 million for the nine months ended September 30,
1997. The increase of $25.5 million resulted primarily from $22.5 million of
gross profit added by the companies acquired in 1997 and 1998. The remaining
portion of the gross profit increase was generated by the Company's wood and
aluminum-clad wood window manufacturer. The Company's gross margin was 21.4% and
21.6% for the nine months ended September 30, 1998 and 1997, respectively. The
Company's wood and aluminum-clad wood window manufacturer has generated a higher
margin resulting from increased sales volumes; however, this has been offset in
part by a negative margin at the Company's non-residential aluminum contract
window manufacturer.
Selling, General & Administrative Expenses
Selling, general & administrative expenses were $32.3 million for the nine
months ended September 30, 1998 compared to $11.2 million for the nine months
ended September 30, 1997. Selling, general & administrative expenses relating to
the inclusion of the acquired companies were $16.1 million. The remainder of the
$21.1 million increase is primarily due to $2.9 million in increased costs
associated with the corporate administrative costs of a larger and more
diversified window and door manufacturer, $2.1 million in increased costs
associated with higher sales volumes at the Company's wood and aluminum-clad
wood window manufacturer and residential aluminum window and door manufacturer.
<PAGE> 12
Income from Operations
The Company had income from operations of $7.3 million for the nine months ended
September 30, 1998 compared to $2.9 million for the nine months ended September
30, 1997. Operating income from the companies acquired in 1997 and 1998 and from
the Company's wood and aluminum-clad wood window manufacturer amounted to $6.4
million and $2.4 million, respectively, and was offset in part by increased
corporate administrative costs of $2.9 million and decreased income at the
Company's steel door and aluminum window and door manufacturers of $1.2 million.
The remainder of the $4.4 million increase was related to the discontinuance of
operations at Mallyclad.
Interest Expense
Interest expense for the nine months ended September 30, 1998 was $12.2 million
compared to interest expense of $2.3 million for the nine months ended September
30, 1997. The increase is due to the additional indebtedness incurred by the
Company primarily consisting of the Senior Notes, the Seller Note and advances
on the Company's revolving credit facility.
Income Taxes
The Company has recorded an income tax benefit of $1.3 million for the nine
months ended September 30, 1998 based on an estimated annual effective tax rate.
Liquidity and Capital Resources
Cash used in operating activities for the nine months ended September 30, 1998
was $0.3 million compared to cash provided by operating activities of $0.2
million for the nine months ended September 30, 1997. The uses reflect the
seasonal aspect of the Company's business which is affected by a general
increase in sales in the building products industry during the summer months.
This seasonality increases the need for additional working capital during the
summer months since it is necessary to carry larger receivables and inventories.
Cash used in investing activities amounted to $52.3 million for the nine months
ended September 30, 1998 and resulted primarily from the acquisition of
VinylSource, Denver and Weather-Seal which required aggregrate cash outlays of
$47.7 million. Additionally, the Company purchased $4.9 million of net property
and equipment during the period. The Company also received $1.2 million in cash
from the sale of its Mallyclad division.
Cash flows from financing activities for the nine months ended September 30,
1998 amounted to $13.7 million. The Company borrowed $16.6 million on its
revolving credit facility in connection with the acquisition of Weather-Seal.
Additionally, payments on capital lease obligations were $0.5 million and
payments related to costs incurred in securing financing were $1.9 million.
The Company believes that cash flow from operations together with other sources
of funding, will be adequate to meet its anticipated requirements for working
capital, capital expenditures and debt service costs. However, the Pending
Acquisitions described above will require additional external financing.
<PAGE> 13
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 occur in the first and fourth quarters, which is generally
consistent with the seasonality of the building products industry. The Company
believes that its 1997 acquisitions in the southwestern and southeastern United
States will minimize the Company's exposure to adverse 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, and borrowings to satisfy working capital requirements,
are usually at their highest level during the second and third quarters.
Year 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming century change in the Year 2000. Moreover, these programs
often are highly dependent upon financial and other data that, based on the
programs' inability to distinguish between the Year 2000 and other century-end
dates, could be misreported or misinterpreted and cause significant resulting
errors. If not corrected, many computer applications could fail when processing
data related to Year 2000.
The analysis of the Year 2000 implications includes ( i)the Company's
information technology such as software and hardware, ( ii) the Company's
non-information systems or embedded technology such as microcontrollers
contained in various equipment, safety systems, facilities and utilities and (
iii) the readiness of key third party suppliers (collectively, the "Year 2000
Issue").
The Company is assessing the impact of the Year 2000 Issue and has or intends to
modify portions of its hardware and software so that its computer systems will
function properly with respect to dates in the Year 2000 and thereafter. The
Company has reviewed and continues to review each operating unit for the
appropriate information system enhancements, with respect to both the Year 2000
Issue as well as strategic system upgrades. For acquired businesses, this
assessment begins during the acquisition process as part of the Company's due
diligence analysis.
To achieve its overall operating strategy, management intends to enhance its
information technology by installing new hardware and software to implement an
enterprise resource planning system (an "ERP System") for its operating units.
The ERP Systems that the Company intends to install are Year 2000 compliant.
Each operating unit is being prioritized for installation of an ERP System based
on any Year 2000 Issues, as well as acquisition transition issues and other
strategic reasons. After considering which operating units should be
prioritized, the operating units will be separated into multiple installation
phases, with each phase having its own implementation timeline. Management
believes that the first phase of implementation and installation of ERP Systems
will be completed by September, 1999.
<PAGE> 14
The total amount of costs to be incurred by the Company to address these system
enhancements cannot be reliably estimated at this time. The Company has not
expensed any material costs to date related solely to the assessment and
correction of the Year 2000 Issue.
While the Company believes its planning efforts are adequate to address its Year
2000 concerns, the Year 2000 readiness of the Company's suppliers and business
partners may lag behind the Company's efforts. The Company is assessing the
extent to which its operations are vulnerable should its suppliers fail to
properly address the Year 2000 Issue. The Company will evaluate alternative
courses of action should such suppliers and financial institutions fail to
remedy their Year 2000 problems.
New developments may occur that could affect the Company's estimates of the
amount of time and costs necessary to test and modify its systems for Year 2000
compliance. These developments include, but are not limited to ( i) the
availability and cost of personnel trained in this area, (ii ) the ability to
locate and correct all relevant computer codes and equipment and ( iii) the Year
2000 compliance that key suppliers attain.
The Company believes that its ongoing review is adequate to address its Year
2000 concerns. However, there can be no assurance that the Company's system, nor
the systems of other companies with whom the Company conducts business, will be
Year 2000 compliant prior to December 31, 1999 or that the failure of any such
system will not have a material adverse effect on the Company's business,
operating results and financial condition.
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12 Amendment No. 2 to Credit Agreement, dated as of September 30,
1998, by and among American Architechural Products Corporation,
Eagle & Taylor Company, Forte, Inc., Western Insulated Glass, Co.
Thermetic Glass, Inc. Binnings Building Products, Inc., Danvid
Window Company, Modern Window Acquisitions Corporation, Vinyl
Source, Inc. Weather-Seal Acquisition Corporation, Eagle Window &
Door Center, Inc. Denver Window Acquisition Corporation, AAPC Two
Acquisition Corporation and the Institutions from time to time
party hereto as Lenders and BankBoston, N.A. as Agent.
(b) The Company filed the following reports on Form 8-K/A during the period:
July 7, 1998 Form 8-K/A was filed as an amendment to Form 8-K dated June
12, 1998 relating to the acquisition of the Weather-Seal division of
Louisiana-Pacific Corporation.
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
Date: November 13, 1998 /s/ Frank J. Amedia
-----------------------
Frank J. Amedia
President & Chief Executive Officer
/s/ Richard L. Kovach
-------------------------
Richard L. Kovach
Chief Financial Officer
<PAGE> 1
Exhibit 10.12
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
AMENDMENT NO. 2 TO CREDIT AGREEMENT (the "AMENDMENT"), dated as of September 30,
1998, among American Architectural Products Corporation, a Delaware corporation,
Eagle & Taylor Company, a Delaware corporation, Forte, Inc., an Ohio
corporation, Western Insulated Glass, Co., an Arizona corporation, Thermetic
Glass, Inc., a Delaware corporation, Binnings Building Products, Inc., a
Delaware corporation, Danvid Window Company, a Delaware corporation, Modern
Window Acquisition Corporation, a Delaware Corporation, American Glassmith
Acquisition Corporation, a Delaware corporation, VinylSource, Inc., a Delaware
corporation, Weather-Seal Acquisition Corporation, a Delaware corporation, Eagle
Window & Door Center, Inc., a Delaware corporation, Denver Window Acquisition
Corporation, a Delaware corporation, AAPC One Acquisition Corporation, a
Delaware corporation, and AAPC Two Acquisition Corporation, a Delaware
corporation (the "Borrowers"), the institutions parties hereto (the "LENDERS"),
and BankBoston, N.A., in its capacity as contractual representative for itself
and the other Lenders (the "AGENT") under that certain Credit Agreement, dated
as of June 9, 1998, as amended, by and among the Borrowers, the Lenders and the
Agent (the "CREDIT Agreement"). Defined terms used herein and not otherwise
defined herein shall have the meaning given to them in the Credit Agreement.
WHEREAS, the Borrowers, the Lenders and the Agent have entered into the
Credit Agreement; and
WHEREAS, the Borrowers, the Lenders and the Agent have agreed to amend
the Credit Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth above, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Borrowers, the Lenders and the Agent agree as
follows:
1. AMENDMENT TO THE CREDIT AGREEMENT. Effective as of the date first
above written and subject to the execution of this amendment by the parties
hereto and the satisfaction of the conditions precedent set forth in SECTION 2
below, the Credit Agreement shall be and hereby is amended as follows:
1.1 Section 7.1 (A)(vi) of the Credit Agreement is hereby amended
to insert immediately at the end thereof the following:
In addition, the Borrowers and their respective
Subsidiaries shall deliver to the Agent, on or before November
30, 1998, a plan and forecast (including a projected balance
sheet, income statement and a statement of cash flows) of each
Borrower and its respective Subsidiaries for the four fiscal
quarter period beginning October 1, 1998 and ending September
30, 1999.
1.2 Section 7.4(B) of the Credit Agreement is hereby deleted and
replaced with the following:
(B) MINIMUM CONSOLIDATED NET WORTH. Holdings shall
not permit its Consolidated Net Worth as of September 30, 1998
to be less than $2,648,953 or at any time thereafter to be
less than the sum of (a) $3,115,045, PLUS (b) one hundred
percent (100%) of Net Income (if positive) for the fiscal
quarter ending June 30, 1998 PLUS (c) fifty percent (50%) of
Net Income (if positive) calculated separately for each fiscal
quarter ending after June 30, 1998, PLUS (d) one hundred
percent (100%) of net cash proceeds resulting from the
issuance by any Borrower of any Capital Stock.
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date above written, if, and only if, ( i) the Agent has received duly
executed originals of the Amendment from the Borrowers,
<PAGE> 2
the Lenders and the Agent and (ii) the Agent shall have received an amendment
fee of $62,500 paid to it in immediately available funds for the account of each
Lender.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The Borrowers
hereby represent and warrant as follows:
(a) This Amendment and the Credit Agreement, as amended
hereby, constitute legal, valid and binding obligations
of the Borrowers and are enforceable against the
Borrowers in accordance with their terms.
(b) Upon the effectiveness of this Amendment, the Borrowers
hereby reaffirm all representations and warranties made
in the Credit Agreement, and to the extent the same are
not amended hereby, agree that all such representations
and warranties shall be deemed to have been remade as of
the date of delivery of the Amendment, unless and to the
extent that any such representation and warranty is
stated to relate solely to an earlier date, in which case
such representation and warranty shall be true and
correct as of such earlier date.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of Section 1 hereof, on and after
the date hereof, each reference in the Credit Agreement
to "this Credit Agreement," "hereunder," "hereof,"
"herein" or words of like shall mean and be a reference
to the Credit Agreement as amended hereby.
(b) The Credit Agreement, as amended hereby, and all other
documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full
force and effect, and are hereby ratified and confirmed.
(c) Except as expressly provided herein, the execution,
delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of the
Agent or the Lenders, nor constitute a waiver of any
provision of the Credit Agreement or any other documents,
instruments and agreements executed and/or delivered in
connection therewith.
5. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the internal laws (as opposed to the conflict of law provisions)
of the State of Illinois.
6. HEADINGS. Section headings in the Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
7. COUNTERPARTS. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
on the date first above written.
AMERICAN ARCHITECTURAL BANKBOSTON, N.A., individually
PRODUCTS CORPORATION and as Agent
EAGLE AND TAYLOR COMPANY By: /s/ William J. Sherald
--------------------------------
Name: William J. Sherald
FORTE, INC. Title: Vice President
<PAGE> 3
WESTERN INSULATED GLASS, CO.
THERMETIC GLASS, INC.
BINNINGS BUILDING PRODUCTS, INC.
DANVID WINDOW COMPANY
MODERN WINDOW ACQUISITION
CORPORATION
AMERICAN GLASSMITH ACQUISITION
CORPORATION
VINYLSOURCE, INC.
WEATHER-SEAL ACQUISITION
CORPORATION
EAGLE WINDOW & DOOR CENTER, INC.
DENVER WINDOW ACQUISITION
CORPORATION
AAPC ONE ACQUISITION CORPORATION
AAPC TWO ACQUISITION CORPORATION
By: /s/ Frank J. Amedia
------------------------------------------------
(on behalf of the parties named above)
Name: Frank J. Amedia
Title: President & Chief Executive Officer
<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 SEPTEMBER 30, 1998 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,199,810
<SECURITIES> 0
<RECEIVABLES> 36,286,199
<ALLOWANCES> 898,236
<INVENTORY> 36,290,195
<CURRENT-ASSETS> 74,588,187
<PP&E> 84,795,842
<DEPRECIATION> 8,018,214
<TOTAL-ASSETS> 194,509,130
<CURRENT-LIABILITIES> 60,166,482
<BONDS> 125,000,000
0
0
<COMMON> 13,473
<OTHER-SE> 2,635,480
<TOTAL-LIABILITY-AND-EQUITY> 194,509,130
<SALES> 77,419,565
<TOTAL-REVENUES> 77,419,565
<CGS> 61,591,091
<TOTAL-COSTS> 61,591,091
<OTHER-EXPENSES> 12,039,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,739,943
<INCOME-PRETAX> (899,876)
<INCOME-TAX> (314,956)
<INCOME-CONTINUING> (584,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (584,920)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
