<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, 1999
( ) 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 87-0365268
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
755 BOARDMAN-CANFIELD ROAD, BOARDMAN, OHIO 44512
(Address of principal executive offices)
(330) 965-9910
(Registrant's telephone number, including area code)
Not applicable
(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, 14,321,616 shares outstanding at
September 30, 1999
<PAGE> 2
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - December 31, 1998 and September 30,
1999
Consolidated Statements of Operations - Three and nine months ended
September 30, 1998 and 1999
Consolidated Statements of Cash Flows - Nine months ended September
30, 1998 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART I --FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
American Architectural Products Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31 September 30
1998 1999
----------- ------------
Assets
------
<S> <C> <C>
Current Assets
Cash $ 88,000 $ 185,000
Accounts receivable 28,501,000 34,743,000
Inventories 32,587,000 34,908,000
Prepaid expenses and other current assets 1,078,000 2,610,000
------------ ------------
Total Current Assets 62,254,000 72,446,000
Other Assets
Property and equipment, net 80,553,000 79,608,000
Cost in excess of net assets acquired, net 31,362,000 30,822,000
Deferred financing costs, net 6,485,000 5,803,000
Deposits and other assets 6,405,000 8,550,000
------------ ------------
Total Noncurrent Assets 124,805,000 124,783,000
Total Assets $187,059,000 $197,229,000
============ ============
Liabilities and Stockholders' Deficit
-------------------------------------
Current Liabilities
Revolving line-of-credit $ 12,447,000 $ 19,948,000
Accounts payable - trade 17,394,000 20,702,000
Accrued expenses 11,860,000 18,684,000
Current portion of accrued warranty obligations 2,804,000 2,848,000
Current portion of capital lease obligations 822,000 1,232,000
Current maturities of long-term debt - 7,500,000
Other current liabilities 1,972,000 2,011,000
------------ ------------
Total Current Liabilities 47,299,000 72,925,000
Long-Term Liabilities
Long-term debt, less current portion 132,500,000 125,000,000
Long-term capital lease obligations, less current portion 833,000 2,735,000
Accrued warranty obligations, less current portion 3,337,000 2,826,000
Other liabilities 4,519,000 2,914,000
------------ ------------
Total Long-Term Liabilities 141,189,000 133,475,000
------------ ------------
Total Liabilities 188,488,000 206,400,000
Stockholders' Deficit:
Common stock, $.001 par, authorized 100,000,000 shares;
outstanding 13,533,004 shares and 14,321,616 shares
at December 31, 1998 and September 30, 1999, respectively 14,000 14,000
Additional paid in capital 8,144,000 9,142,000
Accumulated deficit (9,587,000) (18,327,000)
------------- --------------
Total Stockholders' Deficit (1,429,000) (9,171,000)
------------- --------------
Total Liabilities and Stockholders' Deficit $187,059,000 $ 197,229,000
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
American Architectural Products Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended September 30 Months Ended September 30
1998 1999 1998 1999
---------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net sales $ 77,419,000 $86,465,000 $184,665,000 $240,374,000
Cost of sales 61,591,000 69,263,000 145,135,000 194,080,000
------------ ----------- ------------ ------------
Gross profit 15,828,000 17,202,000 39,530,000 46,294,000
Selling expense 6,386,000 7,074,000 16,402,000 20,943,000
Special - non-cash stock compensation - - 1,833,000 -
General and administrative expenses 5,653,000 5,754,000 15,860,000 18,229,000
------------ ----------- ------------ ------------
Income from operations 3,789,000 4,374,000 5,435,000 7,122,000
Interest expense, net 4,733,000 5,125,000 11,576,000 14,710,000
Special - financing and acquisition costs - 379,000 - 1,031,000
Other (income) expense (44,000) 119,000 105,000 121,000
------------ ----------- ------------ ------------
Loss before income taxes (900,000) (1,249,000) (6,246,000) (8,740,000)
Income tax provision - - - -
------------ ----------- ------------ ------------
Net loss $ (900,000) $(1,249,000) $ (6,246,000) $ (8,740,000)
============ =========== ============ ============
Net loss per share, basic and diluted $ (0.07) $ (0.09) $ (0.45) $ (0.62)
============ =========== ============ ============
Weighted average shares of common
stock outstanding, basic and diluted 13,773,004 14,321,837 13,772,470 14,018,420
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
American Architectural Products Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine
Months Ended September 30
1998 1999
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,246,000) $ (8,740,000)
Adjustments to reconcile net loss to cash from
operating activities
Depreciation 4,803,000 6,755,000
Amortization 1,657,000 2,851,000
Special - non-cash stock compensation 1,833,000 --
Special - loss on financing and acquisition costs -- 1,031,000
Loss on sale of fixed assets 167,000 55,000
Changes in operating assets and liabilities:
Accounts receivable, net (11,789,000) (6,242,000)
Inventories (2,569,000) (2,321,000)
Prepaid expenses and other current assets (519,000) (1,532,000)
Accounts payable 5,867,000 3,308,000
Accrued expenses 5,623,000 6,483,000
Other 823,000 (2,832,000)
------------ --------------
Cash flows from operating activities (350,000) (1,184,000)
------------ --------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (48,204,000) --
Acquisition related costs -- (770,000)
Sale of business 1,186,000 --
Purchase of property and equipment (5,738,000) (6,216,000)
Proceeds from sale of property and equipment 853,000 3,176,000
Other, net (391,000) --
------------ --------------
Cash flows from investing activities (52,294,000) (3,810,000)
------------ --------------
Cash flows from financing activities:
Net borrowings on line-of-credit 16,273,000 7,501,000
Payments on long-term debt (175,000) --
Payments for financing costs (1,888,000) (1,707,000)
Capital lease payments (498,000) (703,000)
------------ --------------
Cash flows from financing activities 13,712,000 5,091,000
------------ --------------
Net (decrease) increase in cash and cash equivalents (38,932,000) 97,000
Cash and cash equivalents, beginning balance 40,132,000 88,000
------------ --------------
Cash and cash equivalents, ending balance $ 1,200,000 $ 185,000
============ ==============
</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., Thermetic Glass, Inc.
(Thermetic), Binnings Building Products, Inc. (Binnings), Danvid Window Company,
American Glassmith, Inc., Modern Window Corporation, VinylSource, Inc.
(VinylSource), Denver Window Corporation and American Weather-Seal Company
(Weather-Seal).
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. 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 the year ended December 31, 1999. 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, 1998
included in the annual report on Form 10-K.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
2. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------------- ------------------
(in thousands)
<S> <C> <C>
Raw materials $ 17,368 $ 20,100
Work-in-process 3,495 6,046
Finished goods 11,724 8,762
----------- -----------
$ 32,587 $ 34,908
=========== ===========
</TABLE>
<PAGE> 7
3. Net Loss Per Share
Basic and diluted loss per common share amounts were computed by dividing net
loss by the weighted average number of common shares outstanding. A summary of
the basic and diluted loss per share amounts for the three and nine months ended
September 30 is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------------- --------------------------------------
1998 1999 1998 1999
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Net loss $ (900,000) $ (1,249,000) $ (6,246,000) $ (8,740,000)
Shares, basic and diluted 13,773,004 14,321,837 13,772,470 14,018,420
Basic and diluted loss per share $ (0.07) $ (0.09) $ (0.45) $ (0.62)
</TABLE>
The weighted average number of common shares outstanding for the three and nine
months ended September 30, 1998 included an estimate of 300,000 common shares
issued in January 1999 in connection with the Thermetic acquisition.
For all periods presented, certain common stock equivalents were excluded from
the computation of diluted net loss per share since their inclusion in the
computation would have an anti-dilutive effect.
4. Comprehensive Income
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. For the three
and nine months ended September 30, 1999, comprehensive income for the Company
did not differ from net income.
5. Revolving Line-of-Credit
In May 1999, the Company, with the consent of its bondholders, amended its
revolving credit facility to increase the loan commitment from $25 million to
$35 million through August 13, 1999 to assist the Company with seasonal working
capital needs. Fees of approximately $1.0 million were incurred related to the
consent and amendment which were capitalized and amortized over the term of the
amendment. At September 30, 1999, the Company had $5.1 million available under
the facility. The weighted average interest rate on borrowings under the credit
facility was 8.0 % at September 30, 1999.
6. Special Charge
Included in the three months ended September 30, 1999 was a special charge of
$0.4 million for costs incurred in connection with an abandoned acquisition and
financing costs.
<PAGE> 8
7. Income Taxes
The Company established a full valuation allowance on its income tax benefit for
the three and nine months ended September 30, 1999 and 1998.
8. Segment Information
<TABLE>
<CAPTION>
Three months ended September 30
---------------------------------------------------------------------------------
1998 1999
-------------------------------------- --------------------------------------
Residential Commercial Extrusion Residential Commercial Extrusion
------------ ------------- ----------- ------------ ------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 67,010 $ 858 $ 9,551 $ 73,460 $ 1,048 $ 11,957
Intersegment revenues 1,207 227 275 1,258 8 858
Operating profit (loss) 5,874 (655) 126 6,356 (505) 198
Total assets 144,723 12,656 28,314 138,505 12,965 41,386
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30
---------------------------------------------------------------------------------
1998 1999
-------------------------------------- --------------------------------------
Residential Commercial Extrusion Residential Commercial Extrusion
------------ ------------- ----------- ------------ ------------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 163,626 $ 1,977 $ 19,062 $ 201,326 $ 2,661 $ 36,387
Intersegment revenues 2,280 478 275 3,415 10 1,841
Operating profit (loss) 12,952 (1,467) 402 13,748 (1,562) 954
Total assets 144,723 12,656 28,314 138,505 12,965 41,386
</TABLE>
A reconciliation of combined operating profit for the residential, commercial
and extrusion segments to consolidated loss before income taxes for the three
and nine months ended September 30 is as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------------------------- -------------------------------
1998 1999 1998 1999
------------------- ----------------- -------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
Total profit from operating segments $ 5,345 $ 6,049 $ 11,887 $ 13,140
Less:
Corporate and eliminations 1,556 1,675 6,452 6,018
Other expenses (44) 498 105 1,152
Interest expense, net 4,733 5,125 11,576 14,710
------------------ ----------------- -------------- ---------------
Loss before income taxes $ (900) $ (1,249) $ (6,246) $ (8,740)
================== ================= ============== ===============
</TABLE>
9. Pending Acquisitions
In 1998, the Company entered into agreements to acquire TSG Industries, Inc.
("TSG"), NuSash of Indianapolis, Inc. and Jarar Window Systems, Inc. (together,
"NuSash") and RC Aluminum Industries, Inc. ("RC Aluminum"), (collectively, the
"Pending Acquisitions"). TSG is a fabricator and installer of engineered glazing
systems, including glass windows, walls and doors and aluminum
<PAGE> 9
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 total purchase price of the Pending Acquisitions is estimated to be $49.2
million. The cash portion of this purchase price approximates $47.9 million and
is expected to be funded through a financing transaction and the sale of
non-strategic assets. The remainder of the 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. If the acquisitions are not completed,
certain costs incurred and capitalized in connection with the acquisitions will
be charged to expense.
10. Subsequent Events
On October 1, 1999, a fire at the Kreidel Plastics Extrusion plant of
Weather-Seal destroyed a substantial portion of the assets, with an estimated
book value of $2.3 million, at the 32,000 square foot manufacturing facility. As
the facility was insured, the Company does not believe the casualty loss will
result in a material financial or operational impact. The Company does not plan
to continue operations at this location but will use other facilities to
manufacture product previously supplied from Kreidel.
In October 1999, Binnings closed on the acquisition of TM Window and Door
Products, a manufacturer of aluminum windows and doors for both residential and
commercial uses. TM is located in Pompano Beach, Florida. The Company paid the
purchase price of approximately $6.0 million through periodic cash advances to
TM over the past several months, $4.0 million of which were recorded in deposits
and other assets at September 30, 1999.
In October 1999, the Company entered into a definitive agreement to sell all of
the assets of Taylor Building Products, Inc., a subsidiary of Eagle & Taylor
Company. Taylor is a manufacturer of steel entry doors and garage doors.
Consummation of this transaction is subject to a number of conditions as well as
other customary closing conditions. The Company currently expects this
transaction to close on or before November 29, 1999 and anticipates recording a
gain on the sale.
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Results of Operations
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Sales. Net sales for the three months ended September 30, 1999 were $86.5
million, a $9.0 million increase over the three months ended September 30, 1998.
Net sales in the residential segment increased approximately $6.1 million over
the comparable period of the prior year due to sales of residential aluminum,
wood and aluminum-clad wood windows and doors from existing businesses
increasing 11% over the prior year period. The growth in this business is the
result of higher volumes generated by stronger customer relationships, new
customer additions and an improved product mix offering. Extrusion sales were
$12.8 million for the three months ended September 30, 1999, an increase of
approximately $3.0 million over the comparable period of the prior year
primarily due to increased intercompany sales.
Gross Profit. Gross profit increased $1.4 million to $17.2 million for the three
months ended September 30, 1999 from $15.8 million for the three months ended
September 30, 1998. The residential segment accounted for $1.1 million of the
increase. Gross profit for the three months ended September 30, 1999 for the
commercial segment increased $0.2 million over the same period in 1998. Gross
margin for the three months ended September 30, 1999 was 19.9% compared to 20.4%
for the three months ended September 30, 1998. The decrease in gross margin
reflects the lower margins associated with the companies acquired in 1998.
Although the Company has achieved improved margins for the 1998 acquisitions in
post-acquisition operations, their margins have not yet reached the levels of
the Company's core businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1999 were $12.8
million compared to $12.0 million for the comparable period in 1998. Increased
selling, general and administrative costs in the residential segment account for
approximately $0.7 million of the increase, due to increased sales volume.
Selling, general and administrative expenses for the commercial and extrusion
segment were comparable for both periods presented.
Income from Operations. Income from operations for the three months ended
September 30, 1999 was $4.4 million, compared to $3.8 million for the three
months ended September 30, 1998.
Interest Expense. Net interest expense increased from $4.7 million for the three
months ended September 30, 1998 to $5.1 million for the three months ended
September 30, 1999. The increase relates principally to interest and
amortization on fees and expenses incurred in connection with the increase to
the line of credit facility.
Income Taxes. The Company established a full valuation allowance on its income
tax benefit recorded for the three months ended September 30, 1999 and 1998.
Net Loss. The Company's net loss increased $0.3 million to $1.2 million in 1999
from $0.9 million
<PAGE> 11
in 1998. The increase in net loss is attributable to the factors cited above.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Sales. Net sales for the nine months ended September 30, 1999 were $240.4
million, a $55.7 million increase over the nine months ended September 30, 1998.
Net sales in the residential segment increased approximately $36.6 million over
the comparable period of the prior year due in part to the inclusion of $15.8
million in sales for Weather-Seal, which was not included in the corresponding
period of the prior year. Additionally, sales of residential aluminum, wood and
aluminum-clad wood windows and doors from existing businesses increased 16.9%
over the prior year period. The growth in this business is the result of higher
volumes generated by stronger customer relationships, new customer additions and
an improved product mix offering. Sales in the commercial segment increased $0.2
million over the comparable period of 1998. Extrusion sales were $38.2 million
for the nine months ended September 30, 1999, an increase of approximately $18.9
million over the comparable period of the prior year. Approximately $12.1
million of this increase can be attributed to the inclusion of sales from
VinylSource and Weather-Seal, which were not included in the comparable prior
year period, with the remaining due to increased sales at the existing extrusion
business.
Gross Profit. Gross profit increased $6.8 million to $46.3 million for the nine
months ended September 30, 1999 from $39.5 million for the nine months ended
September 30, 1998. The residential segment accounted for $5.5 million of the
increase. Acquisitions represented $1.6 million of this increase with the
remaining increase due to higher sales volumes from existing businesses. The
extrusion segment increased $1.1 million, primarily related to acquisitions.
Gross profit for the nine months ended September 30, 1999 for the commercial
segment increased $0.2 million from the comparable period in 1998. Gross margin
for the nine months ended September 30, 1999 was 19.3% compared to 21.4% for the
nine months ended September 30, 1998. The decrease in gross margin reflects the
lower margins associated with the companies acquired in 1998. Although the
Company has achieved improved margins for the 1998 acquisitions in
post-acquisition operations, their margins have not yet reached the levels of
the Company's core businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1999 were $39.2
million compared to $34.1 million for the comparable period in 1998. Included in
the prior year period is a special charge of $1.8 million related to non-cash
stock compensation which did not recur in the current period. Excluding the
impact of the special charge, selling, general and administrative expenses
increased by $6.9 million during the nine months ended September 30, 1999 as
compared to the corresponding period in the prior year. Increased selling,
general and administrative costs in the residential segment account for
approximately $4.6 million of the increase, including $1.8 million related to
acquired companies not included for the comparable period in 1998 while the
remainder is related to the increased sales volume at existing businesses. The
extrusion business experienced increased selling, general and administrative
costs of $0.6 million over the prior period, primarily attributable to
acquisitions not included for the comparable period in 1998. Selling, general
and administrative expenses for the commercial segment for the nine months ended
September 30, 1999 increased $0.3 million over the same period in 1998.
Additionally, approximately $1.4 million of the increase in selling, general and
administrative expenses relates to increased corporate costs.
<PAGE> 12
Income from Operations. Income from operations for the nine months ended
September 30, 1999 was $7.1 million, compared with $5.4 million for the nine
months ended September 30, 1998. Excluding the special charge of $1.8 million
related to non-cash stock compensation in 1998, income from operations decreased
$0.1 million in 1999. The decrease resulted primarily from increased costs at
the corporate level, offset in part by increased income from operations in the
residential and extrusion businesses.
Interest Expense. Net interest expense increased from $11.6 million for the nine
months ended September 30, 1998 to $14.7 million for the nine months ended
September 30, 1999. Included in the nine months ended September 30, 1999 is
interest related to increased amounts outstanding under the Company's credit
facility and the note payable to the former owners of Weather-Seal and increased
amortization on deferred financing costs which were not included for the
comparable period in 1998. Amortization of deferred financing costs increased
$1.2 million from $0.5 million for the nine months ended September 30, 1998 to
$1.7 million for the same period in 1999. The increase relates primarily to
amortization on fees and expenses incurred in connection with the increase to
the line of credit facility.
Income Taxes. The Company established a full valuation allowance on its income
tax benefit recorded for the nine months ended September 30, 1999 and 1998.
Net Loss. The Company's net loss increased $2.5 million to $8.7 million in 1999
from $6.2 million in 1998. The increase in net loss is attributable to the
factors cited above.
Liquidity and Capital Resources
Net cash used in operating activities for the nine months ended September 30,
1999 was $1.2 million compared to $0.4 million for the nine months ended
September 30, 1998. The increase over the prior period is primarily the result
of increases in accounts receivable and inventories to support higher sales
volume.
Net cash used in investing activities amounted to $3.8 million for the nine
months ended September 30, 1999. Cash used in connection with Pending
Acquisitions and for fixed asset additions totaled $0.8 million and $6.2
million, respectively, offset by proceeds of $3.2 million from the sale of
property and equipment. Net cash used in investing activities for the nine
months ended September 30, 1998 was $52.3 million of which approximately $48.2
million related to the acquisition of a business and $4.9 million, net, for
capital expenditures, offset by $1.2 million in proceeds from the sale of a
business.
Cash flows from financing activities for the nine months ended September 30,
1999 were $5.1 million and consisted primarily of $7.5 million in net borrowings
on the Company's line-of-credit for capital expenditures and working capital
needs. This was partially offset by payments on capital leases and deferred
financing costs of $0.7 million and $1.7 million, respectively. Cash provided by
financing activities for the nine months ended September 30, 1998 was $13.7
million and was comprised of $16.3 million in net borrowings on the line of
credit offset by $1.9 million in payments
<PAGE> 13
for financing costs and payments on long-term debt and capital leases of
approximately $0.7 million.
Credit Availability
During the second quarter, the Company's revolving credit facility was amended
to increase the revolving loan commitment from $25 million to $35 million for a
period of 90 days to assist with seasonal working capital needs. This seasonal
increase returned to a $25 million commitment during the third quarter.
Additionally, terms regarding certain restrictive covenants were amended to
adjust minimum availability, permitted investments and sale/leaseback
transactions. Costs associated with this increase included consent fees paid to
bondholders and amendment fees. These financing costs were amortized over the
life of the amendment during the second and third quarters, respectively. At
September 30, 1999, the Company had $5.1 million available under the revolving
credit facility.
The Company believes that cash flow from operations, availability under the
revolving credit facility, proceeds from the sales of certain non-strategic
assets and other financing arrangements will be sufficient to meet its
anticipated requirements for working capital, capital expenditures and debt
service requirements. The Company intends to use a portion of the proceeds from
the anticipated sale of Taylor to fund the December 1, 1999 interest payment on
the Senior Notes.
The Company intends to improve its overall capital structure through a
combination of improved operating performance and access to capital markets to
allow the Company to consummate acquisitions. Prospective acquisitions are
expected to continue to play a strategic role in the Company's future to
increase our competitiveness, enhance revenue and earnings growth and increase
the total product capability. Future acquisitions are dependent on the Company's
ability to obtain acceptable financing.
The Company is reviewing its operating and cost structure with the goal of
achieving profitability and enhanced liquidity. Actions being evaluated include
the consolidation of certain facilities, personnel reductions and the sale of
certain non-strategic businesses and assets. While no formal decisions relating
to the plans have been finalized, the Company may incur certain charges against
future earnings as a result of any such plans. The costs of any such actions
will be accrued when the decisions are formalized and can be reasonably
estimated.
Seasonality
The Company's business is seasonal since a large portion of its revenues are
driven by residential construction. Inclement weather during the winter months,
particularly in the northeast and midwest regions in 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 demand for fenestration products. Traditionally, the Company's lower sales
levels occur in the first and fourth quarters, which is generally consistent
with the seasonality of the building products industry. Because a high
percentage of manufacturing overhead and operating expenses are relatively fixed
throughout the year, operating income has historically been lower in quarters
with lower sales.
<PAGE> 14
Year 2000
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without considering the impact of the
upcoming century change. Moreover, these programs often process financial and
other data that, based on the programs' inability to distinguish between the
Year 2000 and other century-end dates, could misreport or misinterpret and
report significant errors. If not corrected, many computer applications could
fail when processing data related to the Year 2000.
The Company's analysis of the Year 2000 implications includes (i) the Company's
information technology (IT) systems such as software, hardware, operating
systems, voice and data communication, (ii) the Company's non-information
technology (non-IT) systems or embedded technology such as microprocessors
contained in various equipment, safety systems, facilities and utilities, and
(iii) the readiness of key third party suppliers.
The Company is continually 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 will continue to review, each
operating unit for the appropriate information system enhancement, 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.
The Company's Year 2000 program is being implemented in four phases:
(1) Inventory - Identification and validation of all systems, both IT and
non-IT, that contain microprocessors and could be affected by the Year
2000. This process was completed in the first quarter of 1999, however, the
Company continually assesses the impact of the Year 2000 issue.
(2) Evaluation - This phase consists of determining what systems are "mission
critical" and have the potential for business disruption if lost, and what
systems are Year 2000 compliant. This phase has largely been completed,
though the Company is constantly reviewing its degree of compliance.
(3) Remediation, Implementation and Testing - The Company is making
modifications to those systems which have a Year 2000 issue. The
remediation for these select systems is not significant to the overall
operations of the Company. Some of these systems have been remediated and
will be utilized on a go forward basis. The cost of this modification is
not significant to the operations of the Company and is expected to be
approximately $155,000. In addition to the Year 2000 compliance issue, and
to allow the Company to achieve its overall operating strategy, management
intends to enhance information technology by implementing an enterprise
resource planning (ERP) system for those operating units that require
significant upgrades. Each operating unit that is targeted for this
strategic upgrade was prioritized for implementation. This prioritized list
of operating units was then segregated into multiple installation phases,
with each implementation phase having a specific implementation timeline.
The Company believes that the first phase of implementation, including Year
2000
<PAGE> 15
remediation and testing, has been completed for mission critical systems.
To date, the Company has incurred $2.2 million of costs related to the ERP
system and estimates costs to complete to be $0.2 million. In addition to
addressing the Year 2000 issue, this management information system is
expected to provide additional benefits well beyond Year 2000 compliance
including the enhancement of the Company's overall information technology
capabilities. As a result of the new ERP installation, certain modules of
the present systems are being modified as a component of the installation.
(4) Contingency planning -The Company is developing a specific contingency plan
for each business operation based on the unique aspects of each individual
business, the degree of compliance, sophistication of information
technology, an overall business assessment of third party issues, and other
pertinent factors. The contingency plans also have specific year end
activities which have been formulated on an as-needed basis including
personnel on hand or on call during the critical period, minimum inventory
for critical components, backup manual systems, if needed, and other tasks.
The Company believes the worst case scenario for suppliers would be that of some
localized disruption of services which could affect certain operating units for
a short period. While the Company's contingency plan is still being formulated,
management believes that the response will be flexible, real-time and responsive
to specific problems as they arise.
The total incremental spending by the Company relating to the Year 2000 issue is
not expected to be material to operations, liquidity or capital resources. To
date, the Company has incurred approximately $161,000 of costs and expects to
incur an additional $65,000 during the remainder of 1999 for the Year 2000
issues. The Company did not incur any expenditures related to the Year 2000
issue before 1998. This amount is exclusive of the Company's expenditures
related to the aforementioned ERP system. These costs are also exclusive of any
costs associated with any contingency plans. Implementation of the Company's
Year 2000 program is an ongoing process. Consequently, the costs estimated above
and completion dates for the various components of the plan are subject to
change.
Developments may occur that could affect the Company's estimates of the amount
of time and costs necessary to modify and test 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 success of key suppliers.
While the Company believes its efforts are adequate to address its Year 2000
concerns, there is still the uncertainty about the broader scope of the Year
2000 issue as it may affect the Company and third parties that are critical to
its operations. For example, the lack of readiness by electrical and water
utilities, financial institutions, government agencies or other providers of
general infrastructure could in some geographic areas pose impediments to our
ability to carry on normal operations in the area or areas so affected.
The Company believes that its on-going review is adequate to address its Year
2000 concerns and that the cost of its Year 2000 initiatives has not had and is
not expected to have, a material adverse
<PAGE> 16
effect on the Company's operating results or financial condition. However, there
can be no assurance that the Company's systems, nor the systems of other
companies with whom the Company conducts business, will be Year 2000 compliant
prior to December 31, 1999 or that failure of any such system will not have a
material adverse effect on the Company's business, operating results and
financial condition.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect," "anticipate," "intend," and "believe"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including changes in economic conditions in the markets served
by the Company, increasing competition, fluctuations in raw materials and energy
prices, and other unanticipated events and conditions. It is not possible to
forsee or identify all such factors. The Company makes no commitment to update
any forward-looking statement or to disclose any facts, events or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
<PAGE> 17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in short term interest rates
related to its line of credit facility and a promissory note to the former
parent of an acquired company. If the market rates for short term borrowings
increased by 1%, the impact would be an interest expense increase of $200,000,
with a corresponding increase in loss before taxes of the same amount, for the
nine months ended September 30, 1999. The amount was determined by considering
the impact of hypothetical interest rates on the Company's borrowing cost and
debt balances at September 30, 1999 by category.
<PAGE> 18
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.12h AMENDMENT NO. 8 TO CREDIT AGREEMENT dated as of October 15,
1999, 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 Buildings Products, Inc., a
Delaware corporation, Danvid Window Company, a Delaware
corporation, Modern Window Corporation, a Delaware corporation,
American Glassmith, Inc., a Delaware corporation, VinylSource,
Inc., a Delaware corporation, American Weather-Seal Company, a
Delaware corporation, Eagle Window & Door Center, Inc., a
Delaware corporation, Denver Window Company, a Delaware
corporation, AAPC One Acquisition Corporation, a Delaware
corporation, AAPC Two Acquisition Corporation, a Delaware
corporation, the institutions party to the Credit Agreement, and
BankBoston, N.A. as agent.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period.
<PAGE> 19
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 15, 1999 /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 h
AMENDMENT NO. 8
TO
CREDIT AGREEMENT
AMENDMENT NO. 8 (the "Amendment") TO "CREDIT AGREEMENT" (as defined
below), dated as of October 15, 1999, 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 Corporation, formerly known as Modern Window
Acquisition Corporation, a Delaware corporation, American Glassmith, Inc.,
formerly known as American Glassmith Acquisition Corporation, a Delaware
corporation, VinylSource, Inc., a Delaware corporation, American Weather-Seal
Company, formerly known as Weather-Seal Acquisition Corporation, a Delaware
corporation, Eagle Window & Door Center, Inc., a Delaware corporation, Denver
Window Company, formerly known as 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 party to the Credit Agreement (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, unless otherwise specified herein, 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:
a. SECTION 7.3(B)(iii) is hereby amended to insert at the beginning
thereof the phrase "with the written consent of the Agent,".
<PAGE> 2
b. SECTION 7.3(G) is hereby amended to delete therefrom the phrase
"The Borrowers shall not make any Acquisitions unless such Acquisitions meet the
following requirements" and to substitute therefor the phrase "The Borrowers
shall not make any Acquisitions unless such Acquisitions (x) are consented to in
writing by the Agent prior to the consummation of such Acquisitions and (y)
unless such Acquisitions meet the following requirements".
c. SECTION 7.3(S) is hereby amended and restated as follows:
"(S) LIMITATION ON REVOLVING CREDIT AVAILABILITY. The Borrowers shall
not permit the Revolving Credit Availability to be less than (i) Five
Hundred Thousand Dollars ($500,000.00) between October 15, 1999 and
December 1, 1999 and (ii) Ten Million Dollars ($10,000,000) at any
time between April 15 and June 1 or between October 15 and December 1
of any year thereafter.
d. SECTION 7.4(C) is hereby amended, with such amendment to SECTION
7.4(C) being effective as of September 30, 1999, to delete therefrom the amount
"$9,100,000" and to substitute therefor the amount "$7,100,000".
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date above written, if, and only if, the Agent has received by facsimile,
with an original copy to follow within a reasonable period of time thereafter,
an executed copy of this Amendment from the Borrowers, the Required Lenders and
the Agent.
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
this 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 import shall mean and be a
reference to the Credit Agreement as amended hereby.
-2-
<PAGE> 3
(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 this 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.
The remainder of this page is intentionally blank.
-3-
<PAGE> 4
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered on the date first above written.
AMERICAN ARCHITECTURAL BANKBOSTON, N.A., individually and
PRODUCTS CORPORATION as Agent
EAGLE AND TAYLOR COMPANY By: /s/ Edward Bartkowski
--------------------------------
Name: Edward Bartkowski
FORTE, INC. Title: Authorized Officer
WESTERN INSULATED GLASS, CO.
THERMETIC GLASS, INC.
BINNINGS BUILDING PRODUCTS, INC.
DANVID WINDOW COMPANY
MODERN WINDOW CORPORATION
AMERICAN GLASSMITH, INC.
VINYLSOURCE, INC.
AMERICAN WEATHER-SEAL
COMPANY
EAGLE WINDOW & DOOR CENTER, INC.
DENVER WINDOW COMPANY
AAPC ONE ACQUISITION CORPORATION
AAPC TWO ACQUISITION CORPORATION
By: /s/ Richard L. Kovach
-----------------------------------------
(on behalf of the above-listed parties)
Name: Richard L. Kovach
Title: CFO
<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, 1999 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-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 185,000
<SECURITIES> 0
<RECEIVABLES> 36,825,000
<ALLOWANCES> 1,195,000
<INVENTORY> 34,908,000
<CURRENT-ASSETS> 72,446,000
<PP&E> 96,639,000
<DEPRECIATION> 17,031,000
<TOTAL-ASSETS> 197,229,000
<CURRENT-LIABILITIES> 72,925,000
<BONDS> 125,000,000
0
0
<COMMON> 14,000
<OTHER-SE> (9,185,000)
<TOTAL-LIABILITY-AND-EQUITY> 197,229,000
<SALES> 86,465,000
<TOTAL-REVENUES> 86,465,000
<CGS> 69,263,000
<TOTAL-COSTS> 69,263,000
<OTHER-EXPENSES> 12,828,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,125,000
<INCOME-PRETAX> (1,249,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,249,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,249,000)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
