<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 period ended March 31, 2000
( ) 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.)
3000 Northwest 125th St., Miami, Florida 33167
(Address of principal executive offices)
(305) 681-0848
(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 ( ) No (X)
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 March
31, 2000
<PAGE> 2
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - December 31, 1999 and March 31, 2000
Consolidated Statements of Operations - Three months ended
March 31, 1999 and 2000
Consolidated Statements of Cash Flows - Three months ended
March 31, 1999 and 2000
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
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 56,000 $ 22,000
Accounts receivable, less allowance
for doubtful accounts of $1,299,000 and $1,122,000 30,278,000 30,914,000
Accounts receivable - related parties 452,000 77,000
Inventories 28,659,000 26,099,000
Prepaid expenses and other current assets 2,756,000 2,826,000
Assets of discontinued operations, net 3,384,000 4,101,000
Assets held for sale 5,984,000 5,984,000
------------ ------------
TOTAL CURRENT ASSETS 71,569,000 70,023,000
------------ ------------
PROPERTY AND EQUIPMENT
Land and improvements 1,538,000 1,538,000
Buildings and improvements 17,473,000 17,301,000
Machinery, tools and equipment 41,183,000 40,382,000
Computers and office equipment 8,326,000 8,147,000
------------ ------------
68,520,000 67,368,000
Less accumulated depreciation (14,719,000) (15,860,000)
------------ ------------
NET PROPERTY AND EQUIPMENT 53,801,000 51,508,000
------------ ------------
OTHER
Cost in excess of net assets acquired, net
of accumulated amortization of $2,587,000
and $2,832,000 22,902,000 22,453,000
Deferred financing costs, net of accumulated
amortization of $2,601,000 and $2,806,000 5,598,000 5,393,000
Other, net of accumulated amortization of $480,000 and $539,000 3,202,000 4,103,000
------------ ------------
TOTAL OTHER ASSETS 31,702,000 31,949,000
------------ ------------
$157,072,000 $153,480,000
============ ============
</TABLE>
<PAGE> 4
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Revolving line-of-credit $ 23,260,000 $ 21,634,000
Accounts payable - trade 22,277,000 19,850,000
Payable to seller for purchase price adjustment 1,463,000 1,048,000
Accrued Expenses
Compensation and related benefits 5,010,000 4,222,000
Current portion of warranty obligations 2,370,000 2,361,000
Other 8,770,000 13,335,000
Current portion of capital lease
obligations 1,239,000 889,000
Current maturities of long-term debt 435,000 132,771,000
------------ ------------
TOTAL CURRENT LIABILITIES 64,824,000 196,110,000
Long-term debt, less current maturities 132,519,000 19,000
Long-term capital lease obligations,
less current portion 2,579,000 2,708,000
Accrued warranty obligations, less current portion 2,177,000 2,182,000
Other 2,547,000 2,534,000
------------ ------------
TOTAL LIABILITIES 204,646,000 203,553,000
------------ ------------
STOCKHOLDERS' DEFICIT
Preferred stock, Series A convertible, $.001 par,
20,000,000 shares authorized; no shares
outstanding -- --
Preferred stock, Series B convertible, $.01
par, 30,000 shares authorized; no shares
outstanding -- --
Common stock, $.001 par, 100,000,000 shares
authorized; 14,321,616 shares outstanding 14,000 14,000
Additional paid-in capital 9,142,000 9,142,000
Retained deficit (56,730,000) (59,229,000)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (47,574,000) (50,073,000)
------------ ------------
$157,072,000 $153,480,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31,
---------------------------------
1999 2000
----------- -----------
<S> <C> <C>
Net Sales $71,361,000 $68,999,000
Cost of Sales 58,010,000 57,407,000
----------- -----------
GROSS PROFIT 13,351,000 11,592,000
Selling Expense 6,728,000 6,808,000
General and Administrative Expenses 5,845,000 6,008,000
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 778,000 (1,224,000)
----------- -----------
Other Income (Expense)
Interest expense, net (4,369,000) (4,619,000)
Gain on sale of business -- 3,593,000
Miscellaneous (71,000) (249,000)
----------- -----------
Total Other Income (Expense) (4,440,000) (1,275,000)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAX BENEFIT (3,662,000) (2,499,000)
Income Tax Benefit -- --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (3,662,000) (2,499,000)
LOSS FROM DISCONTINUED OPERATIONS (482,000) --
----------- -----------
NET LOSS $(4,144,000) $(2,499,000)
=========== ===========
BASIC AND DILUTED LOSS PER COMMON SHARE
Continuing operations $ (0.27) $ (0.17)
Discontinued operations (0.03) --
----------- -----------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.30) $ (0.17)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
March 31,
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $(3,662,000) $(2,499,000)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Depreciation 1,977,000 2,079,000
Amortization 588,000 518,000
Loss on sale of property and equipment 32,000 --
Gain on sale of business -- (3,593,000)
Changes in assets and liabilities, net of effects of business acquisitions and
divestitures and discontinued operations:
Accounts receivable (5,351,000) (1,181,000)
Inventories (743,000) 1,583,000
Prepaid and other current assets (1,941,000) (97,000)
Other assets (1,262,000) (284,000)
Accounts payable 1,098,000 (1,765,000)
Accrued expenses and other liabilities 5,323,000 4,111,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (3,941,000) (1,128,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,121,000) (699,000)
Proceeds from the sale of business -- 4,521,000
Acquisition costs (415,000) --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,536,000) 3,822,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving line of credit 7,807,000 (1,626,000)
Payments on long-term debt and capital lease
Obligations (340,000) (385,000)
----------- -----------
NET CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES 7,467,000 (2,011,000)
----------- -----------
CASH FLOWS PROVIDED BY CONTINUING OPERATIONS 990,000 683,000
CASH FLOWS USED IN DISCONTINUED OPERATIONS (231,000) (717,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 759,000 (34,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 88,000 56,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 847,000 $ 22,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
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 and architectural windows
and doors through its wholly owned subsidiaries Eagle & Taylor Company (ETC),
Forte, Inc. (Forte), Western Insulated Glass, Co. (Western), Thermetic Glass,
Inc., Binnings Building Products, Inc. (Binnings), Danvid Window Company,
American Glassmith, Inc., Modern Window Corporation, VinylSource, Inc.
(VinylSource), Denver Window Corporation, American Weather-Seal Company and TM
Window & Door. In 2000, the Company sold Western and VinylSource.
In addition, in May 2000, the Company completed its previously announced plan to
exit its commercial business segment activities carried out through Forte. Forte
has been reflected as a discontinued operation in the accompanying financial
statements and, accordingly, unless otherwise stated, the accompanying notes for
all periods presented exclude amounts related to this discontinued operation.
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, 2000. 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, 1999
included in the annual report on Form 10-K.
The balance sheet at December 31, 1999 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. Divestiture
In March 2000, the Company sold substantially all of the assets of Western for
approximately $5.6 million, receiving $4.5 million in cash and accepting a note
receivable for $1.1 million. The buyer will pay interest on the note monthly at
the annual rate of 8%. The note is due in full in February 2002. The Company
recorded a gain of approximately $3.6 million on the sale. Additionally, Western
signed a distributorship agreement with the Company for the right to distribute
certain AAPC products.
3. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- --------------
<S> <C> <C>
Raw materials $16,283,000 $14,886,000
Work-in-process 4,372,000 4,631,000
Finished goods 8,004,000 6,582,000
----------- -----------
$28,659,000 $26,099,000
=========== ===========
</TABLE>
<PAGE> 8
4. Assets Held for Sale
In the fourth quarter 2000, the Company moved its Binnings extrusion and
manufacturing operations from Aventura, Florida to a newly leased 190,000 square
foot facility in Miami, Florida. The Aventura facility is owned and the Company
is currently attempting to sell the facility. The Company booked a loss,
including estimated costs to sell, in the fourth quarter of 1999 to reduce this
property to its estimated net realizable value.
As part of the agreement on the sale of Taylor Building Products, Inc., a
division of ETC, the Company retained the real property of this business.
However, the buyer is required to purchase it within a period not to exceed
nineteen months provided certain conditions are met. The Company expects to sell
this property to the buyer at its approximate net book value of $1.5 million in
the third quarter of 2000.
5. 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 is as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------
1999 2000
----------- -----------
<S> <C> <C>
EARNINGS
Continuing operations $(3,662,000) $(2,499,000)
Discontinued operations (482,000) --
SHARES
Basic and diluted 13,696,687 14,321,616
PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ (0.27) $ (0.17)
Discontinued operations (0.03) --
----------- -----------
$ (0.30) $ (0.17)
=========== ===========
</TABLE>
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.
6. 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
months ended March 31, 1999 and 2000, comprehensive income for the Company did
not differ from net income.
7. Financing & Debt Service
The Company's financial statements for the year ended December 31, 1999 were
prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. During the
years ended December 31, 1997, 1998 and 1999, the Company incurred losses of
$1.3 million, $8.8 million and $47.1 million, respectively, and has periodic
debt service obligations requiring substantial liquidity. Additionally, the
Company is required by the terms of the Notes to use consideration received from
the sale of assets to pay down its secured indebtedness or reinvest the
consideration in the assets of its business or a business in a related capacity.
Such reinvestment related to the sale of Taylor is required by September 3,
2000, which is 270 days after the sale. Furthermore, as discussed below, the
Company was in violation of certain of its covenants under the line of credit
facility at December 31, 1999 and March 31, 2000 but has obtained waivers for
its violations.
The Company failed to meet a covenant required under its line of credit facility
relating to a fixed charge coverage ratio in the first quarter of 2000, but
obtained a waiver from its lenders. The Company also has doubt about its ability
to meet its covenants during the remainder of fiscal year 2000 but expects to
obtain waivers from its lenders in the event it does not meet its thresholds.
<PAGE> 9
To generate cash flow sufficient to meet its requirements, the Company is
contemplating financing transactions, which may be in addition to its current
debt structure, or restructure of that debt, and the continued sale of certain
non-core assets. Management can give no level of assurance that the Company will
be able to meet its cash flow requirements in the future. The Company's future
operating performance and ability to meet its obligation will be subject to
economic conditions and to financial, business and other factors, many of which
will be beyond the Company's control.
The Company is exploring various alternatives, including possible restructuring
of certain of its outstanding indebtedness. While there can be no assurance that
the Company will proceed with a restructuring of its indebtedness, any such
restructuring may involve the conversion of debt to equity or other similar
transactions which could result in material and substantial dilution to existing
holders of the Company's equity securities.
The Company's ongoing debt service obligations include semi-annual interest
payments of approximately $7.3 million, due each June 1 and December 1 through
December 1, 2007. The indenture governing the Notes provides that an "Event of
Default" includes the default in any payment of interest on the Notes when due,
continued for 30 days. Accordingly, the failure to make the June 1, 2000
interest payment within 30 days of the due date would constitute an Event of
Default under the indenture. Should an Event of Default occur, the Trustee
representing the noteholders or noteholders of 25% or more of the Notes may
declare the Notes, and unpaid interest, if any, due and payable immediately. The
Company did not make the interest payment on June 1, 2000 or within the 30 day
grace period, and accordingly, based on the Noteholders' rights to demand the
Notes due and payable immediately, the Company has reclassified its Notes as a
current liability. The Company continues to work with its financial advisors to
consider options relating to refinancing, raising new capital, restructuring
existing funded debt obligations and potential sales of non-core assets. The
Company will also continue to pursue the possible refinancing of its senior
secured bank revolver.
At March 31, 2000, the Company had $3.4 million available under its revolving
line-of-credit facility and the weighted average interest rate was 8.7%.
8. Income Taxes
The Company established a full valuation allowance on its income tax benefit for
the three months ended March 31, 1999 and 2000.
9. Segment Information
<TABLE>
<CAPTION>
Three months ended March 31
-------------------------------------------------------------
1999 2000
------------------------------ ---------------------------
Residential Extrusion Residential Extrusion
------------ ----------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Revenues from external customers $ 58,280,000 $11,634,000 $ 59,713,000 $ 7,539,000
Intersegment revenues 997,000 451,000 688,000 1,059,000
Operating profit (loss) 2,651,000 281,000 1,063,000 (747,000)
Total assets 140,541,000 37,136,000 116,965,000 19,523,000
</TABLE>
A reconciliation of combined operating profit for the residential and
extrusion segments to consolidated loss before income taxes is as follows:
<TABLE>
<CAPTION>
Three months ended
March 31
---------------------------------
1999 2000
----------- -----------
<S> <C> <C>
Total profit from operating segments $ 2,932,000 $ 316,000
Less:
Corporate and eliminations 2,154,000 1,540,000
Other (income) expenses 71,000 (3,344,000)
Interest expense, net 4,369,000 4,619,000
----------- -----------
Loss from continuing operations before income taxes $(3,662,000) $(2,499,000)
=========== ===========
</TABLE>
<PAGE> 10
10. Discontinued Operation
On December 16, 1999, the Board of Directors of the Company approved a plan to
abandon its commercial business segment, conducted through its wholly-owned
subsidiary, Forte, which manufactures aluminum windows used in commercial
applications such as schools, dormitories, hospitals, institutions, municipal
buildings and military buildings. The Company discontinued operations at Forte
in May 2000 and is actively seeking a buyer for its remaining assets. The
results of operations for Forte have been presented as discontinued operations
in the accompanying financial statements for all periods. Net revenues
generated by Forte for three months ended March 31, 1999 and 2000 were $767,000
and $417,000, respectively. The Company did not recognize income tax benefits
on the losses from discontinued operations. The loss from discontinued
operations for the period ended March 31, 1999 was $483,000 and consisted of
the loss generated from operations.
The net assets of Forte have been reported in the accompanying consolidated
balance sheet as assets of discontinued operations, net and are classified as
current and non-current based on the expected timing of recoverability. A
summary of the net assets of this discontinued business is as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
---------- ----------
<S> <C> <C>
Accounts receivable $1,983,000 $1,627,000
Inventory 1,552,000 1,991,000
Property, plant and equipment 1,630,000 1,654,000
Other assets 135,000 67,000
---------- ----------
Assets 5,300,000 5,339,000
Accounts payable 678,000 723,000
Other liabilities 1,238,000 515,000
---------- ----------
Liabilities 1,916,000 1,238,000
---------- ----------
Net assets $3,384,000 $4,101,000
========== ==========
</TABLE>
11. Subsequent Event
In May 2000, the Company sold certain of the assets of VinylSource, including
inventories and fixed assets, for cash of $6.3 million, the approximate book
value of these assets.
<PAGE> 11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
In December 1999, the Company announced the discontinuance of the operations of
its commercial business, Forte, Inc. The operating results of this business have
continually declined and the Company implemented a plan to discontinue
operations by May 2000. The Company is currently seeking a buyer for the assets
of the business. Forte has been recorded as a discontinued operation in the
accompanying financial statements. Therefore, the following discussion and
analysis refer only to continuing businesses of the Company.
Net Sales. Net sales for the three months ended March 31, 2000 were $69.0
million as compared with $71.4 million for the three months ended March 31,
1999. The decrease of $2.4 million results primarily from $6.7 million of sales
decrease associated with divestiture of Taylor and Western, offset by $2.7
million in sales associated with TM Window & Door. The Company had internal
sales growth in the quarter of $1.6 million. Net sales in the residential
segment, excluding acquisition and divestiture activity, increased approximately
$5.0 million over the comparable period of the prior year due primarily to
strengthening customer relationships and market share gains in the aluminum-clad
wood and vinyl window markets. Extrusion sales, excluding acquisition and
divestiture activities, were down $3.4 million reflecting a $1.0 million
decrease in sales for the Kreidel extrusion plant which was destroyed by fire in
October 1999, $0.5 million decline in other vinyl sales primarily due to the
loss of a few significant customers and $1.4 million in reduced aluminum sales
due to declining demands with existing customers.
Gross Profit. Gross profit decreased $1.8 million to $11.6 million for the three
months ended March 31, 2000 from $13.4 million for the three months ended March
31, 1999. This decrease reflects a $0.8 million decline associated with the
divestiture of Taylor and Western offset by the acquisition of TM Window & Door
and a $1.0 million decline internally. Exclusive of acquisition and divestiture
activity, the residential segment reported a $0.2 million increase in gross
profit while the extrusion segment reported a $1.2 million decline in its gross
profit. The extrusion decline results directly from the sales decline and higher
fixed costs associated with the Company's aluminum facility in the southern
United States. The gross margin for the three months ended March 31, 2000 was
16.8% compared to 18.7% for the three months ended March 31,1999. The decrease
in gross margin reflects the decline in the gross profit of the Company's
aluminum fabrication and extrusion businesses in the southern United States.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 2000 were $12.8
million compared to $12.6 million for the comparable period in 1999. The effect
of the sale of Taylor and Western and the acquisition of TM Window & Door
resulted in a net decrease of $0.5 million in selling, general and
administrative expenses for the three month period. Internally, the Company's
selling, general and administrative costs increased $0.7 million, which was
comprised of a $1.5 million increase in the residential segment, a $0.2 million
decrease in the extrusion segment and a $0.6 million decrease in corporate
costs. The increase in the residential segment results primarily from higher
selling costs with the Company's southern and southwestern aluminum operations.
The decline in corporate costs results from the downsizing and move of the
corporate offices in the fourth quarter of 1999.
(Loss)/Income from Operations. The Company had a loss from operations for the
three months ended March 31, 2000 of $1.2 million, compared to income from
operations of $0.8 million for the three months ended March 31, 1999.
Interest Expense. Interest expense increased from $4.4 million for the three
months ended March 31,1999 to $4.6 million for the three months ended March 31,
2000. The increase relates principally to interest on 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 March 31, 2000 and 1999.
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are for debt service
requirements under its Senior Unsecured Notes due 2007 (Notes), the note issued
in connection with the Weather-Seal acquisition and the revolving credit
facility and for working capital needs and capital expenditures.
Cash used in operating activities was $3.9 million and $1.1 million for
the three months ended March 31, 1999 and 2000, respectively. The decrease in
cash used in operations for 2000 over the prior year reflects better management
of operating cash through receivables and payables and the better use of
inventories in production in the first quarter.
Capital expenditures for the three months ended March 31, 1999 and 2000
were $2.1 million and $0.7 million, respectively. The Company has slowed its
capital expenditure program due to current liquidity constraints. Management
expects that its capital expenditure program will continue at a sufficient level
to support the strategic and operating needs of the Company. Future capital
expenditures are expected to be funded from internally generated funds, leasing
programs and the Company's current and future credit facilities. Cash provided
by investing activities in the three months ended March 31, 2000 includes $4.5
million in cash received from the sale of Western, which closed in March 2000
for total consideration of $5.6 million. The Company accepted a $1.1 million
term note receivable due in two years for the remaining consideration.
Net activity on the Company's line of credit resulted in sources of
cash of $7.8 million in the three months ended March 31, 1999 and a use of cash
of $1.6 million for the same period of 2000. This reflects the Company
generating cash from the sale of Western and using less cash in operations than
in 1999.
The Company's financial statements for the year ended December 31, 1999
were prepared on a going concern basis, which contemplates the realization of
assets and liabilities in the normal course of business. For the fiscal years
ended December 31, 1997, 1998 and 1999, the Company incurred losses of $1.3
million, $8.8 million and $47.1 million, respectively, and has periodic debt
service obligations requiring substantial liquidity. Additionally, the Company
is required by the terms of the Notes to use consideration received from the
sale of assets to pay down its secured indebtedness or reinvest the
consideration in the assets of its business or a business in a related capacity.
Such reinvestment of approximately $9.2 million in proceeds from the sale of
Taylor is required by September 3, 2000, which is 270 days after the sale.
Furthermore, the Company failed to meet certain covenants required under its
line of credit facility relating to fixed charge coverage ratios and minimum
EBIDTA levels at December 31, 1999 and March 31, 2000, but obtained waivers from
its lenders. The Company also has doubt about its ability to meet its covenants
during the remainder of fiscal year 2000 but expects to obtain waivers from the
lenders. These factors, among others, may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent on its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to comply with the terms of its debt
agreements, to obtain additional financing or refinancing as may be required and
ultimately, to attain profitability. To generate cash flow sufficient to meet
its requirements, the Company is contemplating financing transactions, which may
be in addition to its current debt structure or restructure of that debt and the
continued sale of certain non-core assets. Management can give no level of
assurance that the Company will be able to meet its cash flow requirements in
the future. The Company's future operating performance and ability to meet its
obligations will be subject to economic conditions and to financial, business
and other factors, many of which will be beyond the Company's control.
The Company is exploring various alternatives, including possible
restructuring of certain of its outstanding indebtedness. While there can be no
assurance that the Company will proceed with a restructuring of its
indebtedness, any such restructuring may involve the conversion of debt to
equity or other similar transactions which could result in material and
substantial dilution to existing holders of the Company's equity securities.
The Company's ongoing debt service obligations include semi-annual
interest payments of approximately $7.3 million, due each June 1 and December 1
through December 1, 2007. The indenture governing the Notes provides that an
"Event of Default" includes the default in any payment of interest on the Notes
when due, continued for 30 days. Accordingly, the failure to make the June 1,
2000 interest payment within 30 days of the due date would constitute an Event
of Default under the indenture. Should an Event of Default occur, the Trustee
representing the noteholders or noteholders of 25% or more of the Notes may
declare the Notes, and unpaid interest, if any, due and payable immediately. The
Company did not make the interest payment on June 1, 2000 or within the 30 day
grace period, and accordingly, based on the Noteholders' rights to demand the
Notes due and payable immediately, the Company has reclassified its Notes as a
current liability. The Company continues to work with its financial advisors to
consider options relating to refinancing, raising new capital, restructuring
existing funded debt obligations and potential sales of non-core assets. The
Company will also continue to pursue the possible refinancing of its senior
secured bank revolver.
SEASONALITY
The Company's business is seasonal since its primary revenues are
driven by residential construction. Inclement
<PAGE> 13
weather during the winter months, particularly in the northeast and midwest
regions of the United States, usually reduces the level of building and
remodeling activity in both the home improvement and new construction markets
and, accordingly, has an adverse impact on the demand for fenestration products.
Traditionally, the Company's lowest sales levels usually occur during the first
and fourth quarters. The Company believes that its acquisitions in the
southwestern and southeastern United States minimize the risk to the Company for
potentially unusual inclement weather conditions in the midwest and the
northeast. Because a high percentage of the Company's manufacturing overhead and
operating expenses are relatively fixed throughout the year, operating income
has historically been lower in quarters with lower sales. Working capital
requirements are usually at their highest level during the second and third
quarters.
CYCLICALITY
Demand in the fenestration industry is influenced by new home
construction activity and the demand for replacement products. Trends in the
housing sector directly impact the financial performance of the Company.
Accordingly, the strength of the U.S. economy, the age of existing home stock,
job growth, consumer confidence, consumer credit, interest rates and migration
of the inter/intra U.S. population have a direct impact on the Company. Any
declines in new housing starts and/or demand for replacement products may
adversely impact the Company and there can be no assurance that any such adverse
effects would not be material.
INFLATION AND RAW MATERIAL COSTS
During the past several years, the rate of inflation has been
relatively low and has not had a significant impact on the Company's operations.
However, the Company purchases raw materials, such as aluminum, wood, vinyl and
glass, that are subject to fluctuations in price that may not reflect the
general rate of inflation, and are more closely tied to the supply of and demand
for the particular commodity. Specifically, there have been periods of
significant and rapid changes in aluminum prices, with a concurrent short-term
impact on the Company's operating margins. In some cases, generally where the
increases have been modest, the Company has been able to mitigate the effect of
these price increases over the long-term by passing them on to customers.
FORWARD-LOOKING STATEMENTS
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 conditions. It is not possible to foresee 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> 14
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 $72,000
with a corresponding increase in loss before taxes of the same amount, for the
three months ended March 31, 2000. The amount was determined by considering the
impact of hypothetical interest rates on the Company's borrowing cost and debt
balances at March 31, 2000 by category.
<PAGE> 15
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.12j WAIVER & AMENDMENT NO. 10 TO CREDIT AGREEMENT dated as of June
16, 2000, 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 three months
ended March 31, 2000.
<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: July 25, 2000 /s/ Joseph Dominijanni
-----------------------------------
Joseph Dominijanni
President & Chief Executive Officer
/s/ William T. Hull
-----------------------------------
William T. Hull
Chief Financial Officer
