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, 2001
( ) 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.)
860 Boardman-Canfield Road, Boca Building, Suite 107
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 ( ) 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, 13,821,616 shares outstanding at April
30, 2002
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2001 and December 31, 2000
Consolidated Statements of Operations - Three and nine months
ended September 30, 2001 and 2000 Consolidated Statements of
Cash Flows - Nine months ended September 30, 2001 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
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
(Unaudited)
September 30, December 31,
2001 2000
---------------- ----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 516 $ 158
Accounts receivable, less allowance
for doubtful accounts of $1,692 and $1,764 29,266 25,517
Inventories 20,645 25,121
Prepaid expenses and other current assets 2,866 4,703
Assets of discontinued operations, net 1,652 1,734
Assets held for sale 1,373 1,421
----------- -----------
TOTAL CURRENT ASSETS 56,318 58,654
----------- -----------
PROPERTY AND EQUIPMENT
Land and improvements 1,438 1,538
Buildings and improvements 14,197 13,529
Machinery, tools and equipment 26,461 29,244
Computers and office equipment 7,890 7,437
Construction in progress 81 --
----------- -----------
50,067 51,748
Less accumulated depreciation (17,328) (13,825)
----------- -----------
NET PROPERTY AND EQUIPMENT 32,739 37,923
----------- -----------
OTHER
Cost in excess of net assets acquired, net
of accumulated amortization of $2,989
and $2,987 10,833 13,939
Deferred financing costs, net of accumulated
amortization of $721 and $6 232 947
Other, net of accumulated amortization of $896 and $717 2,003 2,154
----------- -----------
TOTAL OTHER ASSETS 13,068 17,040
----------- -----------
$ 102,125 $ 113,617
=========== ===========
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
(Unaudited)
September 30, December 31,
2001 2000
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Debtor-in-possession revolving credit and term loan $ 24,215 $ 16,743
Accounts payable - trade 8,727 3,654
Accrued Expenses
Compensation and related benefits 4,417 3,068
Current portion of warranty obligations 1,729 1,692
Other 4,072 3,895
------------ ------------
TOTAL CURRENT LIABILITIES 43,160 29,052
Accrued warranty obligations, less current portion 3,570 3,305
Other 2,306 2,744
Liabilities subject to compromise 160,669 168,554
------------ ------------
TOTAL LIABILITIES 209,705 203,655
------------ ------------
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 issued; 13,821,616 shares outstanding 14 14
Additional paid-in capital 9,142 9,142
Treasury stock, at cost (100) (100)
Retained deficit (116,636) (99,094)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (107,580) (90,038)
------------ ------------
$ 102,125 $ 113,617
============ ============
See accompanying notes to consolidated financial statements.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Sales $ 62,221 $ 69,836 $ 184,996 $ 210,100
Cost of Sales 55,489 56,962 159,144 171,767
------------ ------------ ------------ ------------
GROSS PROFIT 6,732 12,874 25,852 38,333
Selling Expense 5,619 6,158 16,447 19,707
Asset Impairment 5,041 1,615 5,041 1,615
General and Administrative Expenses 4,758 5,159 13,644 16,506
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
(8,686) (58) (9,280) 505
------------ ------------ ------------ ------------
Other Income (Expense)
Interest expense, net (516) (4,703) (1,648) (13,828)
Gain on sale of business -- -- -- 3,593
Miscellaneous (2,636) (63) (2,907) (792)
------------ ------------ ------------ ------------
Total Other (Expense) (3,152) (4,766) (4,555) (11,027)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE REORGANIZATION COSTS AND
INCOME TAX BENEFIT (11,838) (4,824) (13,835) (10,522)
Reorganization Costs 691 -- 3,781 --
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX BENEFIT (12,529) (4,824) (17,616) (10,522)
Income Tax Benefit -- -- -- --
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (12,529) (4,824) (17,616) (10,522)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 52 (65) 74 (653)
------------ ------------ ------------ ------------
NET LOSS $ (12,477) $ (4,889) $ (17,542) $ (11,175)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON
SHARE
Continuing operations $ (0.90) $ (0.34) $ (1.27) $ (0.73)
Discontinued operations -- -- -- (0.05)
------------ ------------ ------------ ------------
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (0.90) $ (0.34) $ (1.27) $ (0.78)
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Nine months ended
September 30,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $ (17,616) $ (10,522)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities before reorganization
costs:
Depreciation 4,304 5,399
Amortization 1,347 1,554
Loss on sale or disposal of property and equipment 100 130
Loss (Gain) on sale of business 26 (3,593)
Provision for credit losses 1,797 --
Asset Impairment 8,571 1,615
Reorganization Costs 3,781 --
Changes in assets and liabilities, net of effects of business acquisitions and
divestitures and discontinued operations:
Accounts receivable (3,749) (4,325)
Inventories (198) 791
Prepaid and other current assets (329) (1,017)
Other assets (27) 1,373
Accounts payable 5,073 (4,294)
Accrued expenses and other liabilities 1,191 9,713
Liabilities subject to compromise (8,171) --
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES BEFORE REORGANIZATION COSTS (3,900) (3,176)
NET CASH USED FOR REORGANIZATION COSTS (2,157) --
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (6,057) (3,176)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,953) (1,749)
Proceeds from the sale of property and equipment 1,182 533
Proceeds from the sale of business 558 10,407
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,213) 9,191
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving line of credit and term 7,472 (1,118)
note
Payments on long-term debt and capital leases -- (1,189)
Payments for debt issue costs -- (2,102)
------------ ------------
NET CASH PROVIDED BY (USED IN)FINANCING ACTIVITIES 7,472 (4,409)
------------ ------------
CASH FLOWS PROVIDED BY CONTINUING OPERATIONS 202 1,606
CASH FLOWS PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 156 (1,628)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 358 (22)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 158 56
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 516 $ 34
============ ============
See accompanying notes to consolidated financial statements.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
American Architectural Products Corporation (AAPC or 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 - formerly known as American Architectural Products, Inc.,
AAP), Thermetic Glass, Inc. (Thermetic), Binnings Building Products, Inc.
(Binnings), Danvid Window Company (Danvid), Modern Window Corporation (Modern),
American Glassmith Corporation (American Glassmith), Denver Window Corporation
(Denver), Eagle Window and Door Center, Inc. (EWDC) and American Weather-Seal
Company (Weather-Seal). Western Insulated Glass Co. (n.k.a. WIG Liquidation
Company) (Western) and VinylSource, Inc. (VinylSource) were sold in March 2000
and May 2000, respectively.
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.
On December 18, 2000, the Company filed for voluntary protection under Chapter
11 of the United States Bankruptcy Code (the filing) in the United States
Bankruptcy Court in the Northern District of Ohio (the Bankruptcy Court). The
Company is presently operating its business as a debtor-in-possession under
Chapter 11 and is subject to the jurisdiction and supervision of the Bankruptcy
Court. The accompanying consolidated financial statements have been prepared in
accordance with AICPA Statement of Position 90-7 (SOP 90-7), "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" as more fully
described in Note 2.
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, 2001. 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, 2000
included in the annual report on Form 10-K.
The balance sheet at December 31, 2000 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.
Certain amounts reported in prior period financial statements have been
reclassified to conform with the September 30, 2001 presentation.
2. Bankruptcy Proceedings and Going Concern Considerations:
As a result of the filing, the Company is presently operating its businesses as
a debtor-in-possession under Chapter 11 and is subject to the jurisdiction and
supervision of the Bankruptcy Court. In Chapter 11 cases, substantially all
liabilities as of the date of the filing of the petition for reorganization are
subject to the treatment set forth under a plan of reorganization to be voted
upon by the Company's impaired creditors and stockholders and confirmed by the
Bankruptcy Court. The ultimate amount and treatment terms for such liabilities
are subject to a plan of reorganization and, accordingly, are not presently
determinable. In addition, on December 18, 2000, the Bankruptcy Court issued an
order authorizing the Company to pay certain pre-petition claims of essential
vendors and suppliers. Accordingly, these amounts have been paid or are included
in the appropriate liability captions on the consolidated balance sheets.
An unsecured creditors' committee has been appointed by the Bankruptcy Court.
The official committee and legal representatives are the primary entities with
which the Company is negotiating the terms of a plan of reorganization. The
Bankruptcy Court approved an extension to July 19, 2002 during which the Company
has the exclusive right to file a reorganization plan.
The consolidated financial statements of the Company and its subsidiaries were
prepared on the going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business. However, during the years ended December 31, 2000, 1999 and
1998, the Company incurred losses of $41.9 million, $47.1 million and $8.8
million, respectively. Further, the Company's ongoing debt service obligations
included 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. The Company did not have
sufficient liquidity to make the June 1, 2000 through June 1, 2001 interest
payments. Accordingly, the Company was in default of the indenture.
Additionally, the Company was in violation of certain of its covenants under the
line of credit facility at December 31, 1999 but obtained waivers for those
violations. These events, among other things, led to the Chapter 11 filings;
therefore, the realization of assets and liquidation of liabilities is subject
to significant uncertainty.
In the Chapter 11 proceedings (subject, in certain circumstances, to Bankruptcy
Court approval), the debtors may sell or otherwise dispose of assets, and
liquidate or settle liabilities, for amounts other than those reflected in the
consolidated financial statements. The amounts reported in the consolidated
financial statements do not give effect to any adjustments to the carrying value
of assets or amounts of liabilities that might result as a consequence of
actions taken pursuant to a plan of reorganization, which adjustments could be
material. The continuation of the Company as a going concern is contingent upon,
among other factors, the ability of the debtors to (1) formulate and file a plan
which will gain the approval of the creditors and other parties in interest and
confirmation by the Bankruptcy Court; (2) maintain debtor-in-possession
financing; (3) achieve profitable operations; (4) obtain adequate shipments of
merchandise from suppliers at acceptable credit terms; and (5) obtain post
reorganization financing. There can be no assurances that the above conditions
can be met.
Liabilities Subject to Compromise
As reflected in the consolidated financial statements, "liabilities subject to
compromise" refer to liabilities incurred prior to the commencement of the
Chapter 11 case. The amounts of the various liabilities that are subject to
compromise are set forth below. These amounts represent the Company's estimate
of known or potential pre-petition claims to be resolved in connection with the
Chapter 11 case. Such claims remain subject to future adjustments. Adjustments
may result from (1) negotiations; (2) actions of the Bankruptcy Court; (3)
rejection of executory contracts and unexpired leases; (4) the determination as
to the value of any collateral securing claims; (5) proofs of claim; or (6)
other events. Payment terms for these amounts will be established in connection
with the Chapter 11 case.
Liabilities subject to compromise in the consolidated balance sheet consist of
the following items (in thousands):
September 30, December 31,
2001 2000
--------------- ------------------
Accounts payable $ 8,656 $ 15,469
Accrued interest payable 17,299 17,298
Accrued liabilities 1,473 2,055
Debt 133,241 133,732
-------- --------
Total liabilities subject to compromise $160,669 $168,554
======== ========
Interest on certain pre-petition debt is not accrued after the bankruptcy
filing. Such contractual interest expense not recorded totaled $3.8 million and
$11.5 million, respectively, for the quarter-to-date and year-to-date periods
ended September 30, 2001, respectively.
Debtor-In-Possession Financing
In connection with the bankruptcy filing, the Company obtained an aggregate $35
million debtor-in-possession credit facility, subject to an available collateral
base, from a group of lenders (the DIP Facility) which expires upon either the
effective date of the plan of reorganization or forty-five days after the filing
date if the final financing order has not been duly entered on or prior to such
date, but no later than two years from entry date of the interim financing order
entered on docket of bankruptcy case. The credit is secured by certain accounts
receivable, inventories and property and equipment of the Company. This facility
consists of up to a $29 million line of credit, including a $5 million
subfacility for issuance of letters of credit, and a multiple draw term loan in
an aggregate principal amount not to exceed $10 million. Interest is payable on
a monthly basis based upon the interest rate applicable to the line of credit
and the term loan of the prime rate plus .75% and 1.5% respectively. By
agreement, the facility has a commitment fee on unused portions of .5% at
September 30, 2001. At September 30, 2001, the interest rate was 6.75% on the
line of credit and 7.5% on the term loan, with aggregate availability of $5.8
million under the facility. This facility has priority in the bankruptcy
proceeding.
The DIP Facility requires the Company to meet a number of covenants which
include minimum quarterly earnings before interest, taxes, depreciation,
amortization and certain non-cash gains and losses as defined in the credit
agreement (EBITDA) and minimum fixed charge coverage ratios. The Company was in
violation of these covenants as outlined in the facility on March 31, June 30,
and September 30, 2001. The Company obtained waivers releasing it from its
requirement to meet those thresholds in 2001.
Outstanding balances (in thousands) are as follows:
September 30, December 31,
2001 2000
-------------- --------------
Line of credit $ 17,831 $ 8,743
Term loan 6,384 8,000
----------- -----------
$ 24,215 $ 16,743
=========== ===========
Reorganization Costs
The amounts reflected as reorganization costs (in thousands) in the consolidated
statement of operations consisted of the following:
Three months ended Nine months ended
September 30, 2001 September 30, 2001
------------------- -------------------
Plant closing $ -- $ 1,759
Professional fees 664 1,943
Other 27 79
----------- -----------
Total Reorganization Costs $ 691 $ 3,781
=========== ===========
In February 2001, the Company announced the shutdown of its wood window
manufacturing operation in Ottawa, Ohio effective April 2001. In April 2001 the
Bankruptcy Court approved the shutdown plan which was substantially completed by
the end of April 2001. The plant closing charges reflected above are associated
with this restructuring effort and include severance costs of $619 thousand and
a loss on the liquidation of assets of $1.1 million. Accrued severance costs of
$555 thousand and $64 thousand were paid during the second and third quarters of
2001, respectively.
Professional fees incurred consisted primarily of consulting and legal fees for
bankruptcy activity and restructuring efforts. At September 30, 2001,
approximately $485 thousand of professional fees included in reorganization
costs remain unpaid.
3. Divestiture
In September 2001, the Company sold substantially all of the assets of Denver
and ETC's distribution operations in the Denver, Colorado area for approximately
$558 thousand. The Company recognized a $26 thousand loss on the sale.
4. Inventories
Inventories (in thousands) consisted of the following:
September 30, December 31,
2001 2000
------------- -------------
Finished goods $ 5,103 $ 6,793
Work-in-process 2,724 3,177
Raw materials 12,818 15,151
----------- -----------
$ 20,645 $ 25,121
=========== ===========
5. Assets Held for Sale
As part of the agreement on the sale of Taylor Building Products, Inc. in
December 1999, the Company retained the real property which has a book value of
$1.4 million. However, the buyer is required to purchase the property within a
period not to exceed nineteen months from the closing date, provided certain
conditions are met. The obligation of the buyer to purchase the real property
for $2.6 million is currently being contested.
6. Impairment Losses
As a result of continuing operating losses and its inability to meet current
year projections through the end of the third quarter of 2001, the Company
evaluated the results of future operations and their impact on the recorded
value of long-lived assets at both of its Florida window manufacturing
operations. Because these operations were experiencing negative cash flows, and
are projecting future negative cash flows, an orderly liquidation value
appraisal was used to determine the fair value of some of the long-lived assets.
As a result of this analysis, the Company recorded impairment charges of $7.1
million, including goodwill write-downs of $2.6 million and property and
equipment write-downs of $2.4 million and inventory and prepaid expense
write-downs of $2.1 million charged to cost of sales during the third quarter of
2001.
Also during the third quarter of 2001, the Company recognized a $1.4 million
impairment charge reflected in cost of sales based on an evaluation of the net
realizable value of inventory at its aluminum extrusion facilities in Ohio and
its American Glassmith operation.
In November 2000, the Company sold the former Binnings manufacturing facility in
Aventura, Florida. The Company recorded an impairment loss of $1.7 million
during the third quarter of 2000 to reduce the carrying value of this asset held
for sale to net realizable value.
7. 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:
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------------------------ ------------------------------
(in thousands, except per share data)
NET LOSS
Continuing operations $ (12,529) $ (4,824) $ (17,616) $ (10,522)
Discontinued operations 52 (65) 74 (653)
------------------------------ ------------------------------
$ (12,477) $ (4,889) $ (17,542) $ (11,175)
============================== ==============================
SHARES
Basic and diluted 13,822 14,321 13,822 14,321
PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ (0.90) $ (0.34) $ (1.27) $ (0.73)
Discontinued operations -- -- -- (0.05)
------------------------------ ------------------------------
$ (0.90) $ (0.34) $ (1.27) $ (0.78)
============================== ==============================
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.
8. 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 September 30, 2001 and 2000, comprehensive income for the Company
did not differ from net income.
9. Income Taxes
The Company established a full valuation allowance on its income tax benefit for
the three and nine months ended September 30, 2001 and 2000.
10. Segment Information
Three months ended September 30
-----------------------------------------------------
2001 2000
------------------------- -------------------------
Residential Extrusion Residential Extrusion
------------ ----------- ------------ -----------
(in thousands)
Revenues from external customers $ 58,847 $ 3,374 $ 64,391 $ 5,445
Intersegment revenues -- 628 -- 816
Operating profit (loss) (6,799) (1,050) 2,420 (1,122)
Total assets 91,128 6,838 120,805 10,016
Nine months ended September 30
-----------------------------------------------------
2001 2000
------------------------- -------------------------
Residential Extrusion Residential Extrusion
------------ ----------- ------------ -----------
(in thousands)
Revenues from external customers $ 174,402 $ 10,594 $ 190,409 $ 19,691
Intersegment revenues -- 2,271 -- 2,701
Operating profit (loss) (3,615) (3,144) 8,703 (4,021)
Total assets 91,128 6,838 120,805 10,016
A reconciliation of combined operating profit (loss) for the residential and
extrusion segments to consolidated loss before income taxes is as follows:
Three months ended Nine months ended
September 30 September 30
--------------------------------------------------------
2001 2000 2001 2000
--------------------------------------------------------
(in thousands)
Total profit (loss) from operating segments $ (7,849) $ 1,298 $ (6,759) $ 4,682
Less:
Corporate expenses and eliminations 837 1,356 2,521 4,177
Other (income) expenses 2,636 63 2,907 (2,801)
Interest expense, net 516 4,703 1,648 13,828
Reorganization costs 691 -- 3,781 --
--------------------------------------------------------
Loss from continuing operations before income taxes $ (12,529) $ (4,824) $ (17,616) $ (10,522)
========================================================
11. 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 manufacturing
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 the nine months ended September 30,
2001 and 2000 were $210 thousand and $124 thousand, respectively. The Company
did not recognize income tax benefits on the losses from discontinued
operations. The income from discontinued operations for the period ended
September 30, 2001 was $74 thousand and consisted of the income generated from
operations.
The net assets of Forte have been reported in the accompanying consolidated
balance sheets as assets of discontinued operations, net and are classified as
current based on the expected timing of recoverability. A summary of the net
assets of this discontinued business is as follows:
September 30, December 31,
2001 2000
----------------- ----------------
(in thousands)
Accounts receivable $ 109 $ 204
Property, plant and equipment 1,543 1,530
----------------- ----------------
Net Assets $ 1,652 $ 1,734
================= ================
12. Subsequent Events
In December 2001, the Company agreed to sell certain assets of its American
Weather-Seal Co.'s aluminum extrusion operations (the Aluminum Extrusion Group
or AEG). The agreement provides for the sale of accounts receivable, inventory,
prepaid expenses, deposits and certain fixed assets and the assumption of
certain post-petition liabilities for $1.5 million in cash. In conjunction with
sale, the Company plans to shut down one of AEG's manufacturing facilities and
sell certain property and equipment. AEG reported quarter-to-date September 30,
2001 revenues and a loss on continuing operations of $2.9 million and $.6
million, respectively. Revenues and losses from continuing operations for the
year-to-date period ending September 30, 2001 totaled $9.3 million and $1.4
million, respectively. AEG is part of the Company's extrusion business segment.
The Company recognized a loss on the sale and shutdown of approximately $2.3
million in the fourth quarter of 2001. This transaction was completed on January
31, 2002.
Also, in December 2001, the Company entered into an agreement to sell certain
assets of its Binnings Pan Am and TM Window and Door divisions. The agreement
provides for the sale of inventory, property and equipment and certain prepaid
expenses and deposits for $2.2 million in cash and notes and the assumption of
post-petition liabilities. The company
recognized a loss of approximately $2.2 million on the sale in the fourth
quarter of 2001. These operations reported revenues of $11.1 million and $35.7
million for the quarter-to-date and year-to-date periods ending September 30,
2001, respectively. Quarter-to-date and year-to-date operating losses reported
for the same periods were $9.6 million and $10.3 million, respectively, which
included $7.1 million of impairment charges as discussed in Note 6. The majority
of this business operates in the Company's residential window segment with
approximately $.6 million and $1.8 million of reported sales for the respective
quarter-to-date and year-to-date periods representing extrusion segment sales.
The closing of this transaction completes the Company's exit from the extrusion
segment. This transaction was completed on February 15, 2002.
Also in February 2002, the Company agreed to sell certain assets of American
Glassmith for approximately $350 thousand plus the assumption of certain
liabilities. This transaction was completed in March 2002. American Glassmith
reported revenues of $1.6 million and $5.0 million for the quarter-to-date and
year-to-date period ended September 30, 2001. American Glassmith recognized net
losses of $1.1 million and $1.2 million for the same periods, respectively,
which included $1.1 million in inventory impairment charges reflected in cost of
sales as discussed in Note 6.
On May 6, 2002, the Company completed the sale of ETC's Eagle Window and Door,
Inc. division and its subsidiary, Eagle Service Company (Eagle) for $64.7
million and the assumption of certain liabilities. Eagle reported net income of
$1.8 million on $20.4 million in revenues during the quarter ended September 30,
2001. Year-to-date September 30, 2001 net revenues of $60.0 million resulted in
net income for the period of $4.3 million.
13. Recently issued accounting standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 141, "Business Combinations" which
requires that all business combinations be accounted for under a single method,
the purchase method. Use of the pooling-of-interests method is no longer
permitted. SFAS 141 requires that the purchase method be used for business
combinations initiated after June 30, 2001. It will have no effect on the
Company's financial statements unless the Company enters into a business
combination.
In June 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible
Assets", which requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The amortization of goodwill ceases upon
adoption of the Statement which, for most companies, will be January 1, 2002.
The Company had amortization expense related to costs in excess of net assets
acquired of $454 thousand and $758 thousand for the nine months ended and $82
thousand and $253 thousand for the 3 months ended September 30, 2001 and 2000,
respectively.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations", which requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
This Statement will become effective on January 1, 2003. Management is currently
assessing the impact of this pronouncement on its financial statements.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment of or
Disposal of Long-Lived Assets". This Statement supersedes SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". This Statement also amends ARB No. 51, "Consolidated
Financial Statements". The Company adopted the provisions of this Statement on
January 1, 2001. There is no significant impact of this pronouncement on its
September 30, 2001 financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11
On December 18, 2000, American Architectural Products Corporation (the Company)
and its subsidiaries filed for voluntary bankruptcy protection under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court in
the Northern District of Ohio (the Bankruptcy Court). The Company is presently
operating its businesses as a debtor-in-possession under Chapter 11 and is
subject to the jurisdiction and supervision of the Bankruptcy Court. In Chapter
11 cases, substantially all liabilities as of the date of the filing of the
petition for reorganization are subject to settlement under a plan of
reorganization to be voted upon by the Company's impaired creditors and
stockholders and confirmed by the Bankruptcy Court. The ultimate amount and
settlement terms for such liabilities are subject to a plan of reorganization
and, accordingly, are not presently determinable. In addition, on December 18,
2000, the Bankruptcy Court issued an order authorizing the Company to pay
certain pre-petition claims of essential vendors and suppliers. Accordingly,
these amounts have been paid or are included in the appropriate liability
captions on the consolidated balance sheets.
An unsecured creditors' committee has been appointed by the Bankruptcy Court.
The official committee and legal representatives are the primary entities with
which the Company is negotiating the terms of a plan of reorganization. The
Bankruptcy Court approved an extension to July 19, 2002 during which the Company
has the exclusive right to file a reorganization plan.
The consolidated financial statements of the Company and its subsidiaries were
prepared on the going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business. However, during the years ended December 31, 2000, 1999 and
1998, the Company incurred losses of $42.4 million, $47.1 million and $8.8
million, respectively. Further, the Company's ongoing debt service obligations
included semi-annual interest payments of approximately $7.3 million, due each
June 1 and December 1 through December 31, 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. The Company did not have
sufficient liquidity to make the June 1 or December 1, 2000 interest payments.
Accordingly, the Company was in default of the indenture. Additionally, the
Company was in violation of certain of its covenants under the line of credit
facility at December 31, 1999 but obtained waivers for those violations. These
events, among other things, led to the Chapter 11 filings; therefore, the
realization of assets and liquidation of liabilities is subject to significant
uncertainty.
In the Chapter 11 proceedings (subject, in certain circumstances, to Bankruptcy
Court approval), the debtors may sell or otherwise dispose of assets, and
liquidate or settle liabilities, for amounts other than those reflected in the
consolidated financial statements. The amounts reported in the consolidated
financial statements do not give effect to any adjustments to the carrying value
of assets or amounts of liabilities that might result as a consequence of
actions taken pursuant to a plan of reorganization, which adjustments could be
material. The continuation of the Company as a going concern is contingent upon,
among other factors, the ability of the debtors to (1) formulate and file a plan
which will gain the approval of the creditors, shareholders and other parties in
interest and confirmation of the Bankruptcy Court; (2) maintain
debtor-in-possession financing; (3) achieve profitable operations; (4) obtain
adequate shipments of merchandise from suppliers at acceptable credit terms; and
(5) obtain post reorganization financing. There can be no assurances that the
above conditions can be met.
CRITICAL ACCOUNTING POLICIES
In preparing our financial statements in conformity with accounting principles
generally accepted in the United States, we make judgments and estimates about
the amounts reflected in our financial statements. As part of our financial
reporting process, our management collaborates to determine the necessary
information on which to base our judgments and develop estimates used to prepare
the financial statements. We use historical experience and available information
to make these judgments and estimates. However, different amounts could be
reported using different assumptions and in light of different facts and
circumstances. Therefore, actual amounts could differ from the estimates
reflected in our financial statements.
Our significant accounting policies are described in Note 1 of the Consolidated
Financial Statements included in our 2000 Annual Report. We believe that the
following discussion addresses our critical accounting policies.
ACCOUNTING FOR CONTINGENCIES
We accrue for contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies," or when it is probable that a liability or loss has been
incurred and the amount can be reasonably estimated. Contingencies by their
nature relate to uncertainties that require our exercise of judgment both in
assessing whether or not a liability or loss has been incurred and estimating
any amount of potential loss. The most important contingencies affecting our
financial statements include accounts receivable collectibility, inventory
valuation, pending litigation and the realization of deferred tax assets.
LONG-LIVED ASSETS
As required under SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", we evaluate the recoverability of property, plant and
equipment and intangible assets other than goodwill that are amortized whenever
events of changes in circumstances indicate the carrying amount of any such
assets may not be fully recoverable. Changes in circumstances include decreases
in market prices, adverse change in use or physical condition, technological
advances, a determination that it is more likely than not that long-lived assets
will be sold or otherwise disposed of significantly before the end of its useful
life, changes in our business model, capital structure, economic conditions or
operating performance. Our evaluation is based upon, among other things, our
assumptions about the estimated future undiscounted cash flows these assets are
expected to generate. When the sum of the undiscounted cash flows is less than
the carrying value, we will recognize an impairment loss. We continually apply
our best judgment when performing these evaluations to determine the timing of
the testing, the undiscounted cash flows used to assess recoverability and the
fair value of the asset.
RESTRUCTURING ACITIVITIES
We accrue the cost of our restructuring activities in accordance with Emerging
Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)," depending upon the facts and circumstances
surrounding the situation. We exercise our judgment in estimating the total
costs of each of these activities. As we implement these activities, the actual
costs may differ from the estimated costs due to changes in the facts and
circumstances that were not foreseen at the time of our initial cost accrual.
COMMITMENTS AND CONTINGENCIES
We are not aware of factors that are reasonably likely to adversely affect
liquidity trends or increase our risk beyond the risk factors outlined herein
and in other filings with the SEC.
OPERATING LEASES
We have entered into operating leases for certain of our facilities and
equipment. The effect of these operating leases is not considered significant in
relation to our annual cash flow from operations and total outstanding debt.
OTHER CONTRACTUAL OBLIGATIONS
We do not have material financial guarantees or other contractual commitments
that are reasonably likely to adversely affect our liquidity.
RELATED PARTY TRANSACTIONS
We do not have any related party transactions that affect our operations,
results of operations, cash flow or financial condition.
NEW ACCOUNTING STANDARDS
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," was issued. The
Statement updates, clarifies and simplifies existing accounting pronouncements.
While the technical corrections to existing pronouncements are not substantive
in nature, in some instances, they may change accounting practice. The
provisions of this standard must be applied for financial statements issued on
or after May 15, 2002, with early application encouraged. We are currently
evaluating the effects of SFAS No. 145 and are preparing a plan for
implementation.
DISCONTINUED OPERATIONS
In December 1999, the Company announced the discontinuance of the operations of
its commercial business, Forte, Inc. The operating results of this business had
continually declined and the Company discontinued manufacturing operations in
May 2000. The Company is currently seeking a buyer for the remaining assets of
the business. The Company has accounted for Forte as a discontinued operation in
the accompanying financial statements. Therefore, the following discussion and
analysis refer only to continuing businesses of the Company.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Net Sales. Net sales for the three months ended September 30, 2001 were $62.2
million as compared with $69.8 million for the three months ended September 30,
2000. The decrease of $7.6 million results from a $5.5 million net sales decline
in the residential segment including a $3.7 million decline due to the shut-down
of the Ottawa, Ohio manufacturing plant in the second quarter of 2001 and the
remaining $1.8 million residential window sales decline due to sales volume
decreases in the aluminum-clad and wood window markets. Aluminum extrusion sales
were also down $2.1 million primarily due to declining demand.
Gross Profit. Gross profit decreased $6.2 million to $6.7 million for the three
months ended September 30, 2001 from $12.9 million for the three months ended
September 30, 2000. $3.6 million of this decrease is due to inventory impairment
charges taken at the Florida window operations, the Aluminum Extrusion Group in
Ohio, and American Glassmith. The remaining decrease is primarily attributed to
the residential window sales decline and higher fixed costs at the Company's new
Eagle Window and Door manufacturing facility. The gross margin for the three
months ended September 30, 2001 was 10.8% compared to 18.4% for the three months
ended September 30, 2000. The decrease in gross margin reflects the decline in
the gross profit of the Company's residential window businesses throughout the
United States.
Selling, General and Administrative Expenses. Selling, General and
Administrative expenses, which included long-lived asset impairment charges, for
the three months ended September 30, 2001 were $15.4 million compared to $12.9
million for the comparable period in 2000. The Company's Selling, General and
Administrative costs before impairment charges decreased $.9 million. This
decrease includes a $.2 million decrease in the residential segment, $.2 million
decrease in the extrusion segment and $.5 million decrease in Corporate costs,
all of which are attributed to the Company's cost reduction efforts.
Additionally, the Company recognized a $5 million non-cash impairment charge at
one of its Florida window manufacturing operations during the third quarter of
2001. This same operation recognized a $1.6 million impairment charge during the
third quarter of 2000 to write down the carrying value of its former
manufacturing facility which was held for sale at September 30, 2000. That
facility was sold in November 2000.
Income from Operations. The Company recognized a loss from operations for the
three months ended September 30, 2001 of $8.7 million, compared to a $58
thousand loss from operations for the three months ended September 30, 2000
primarily due to the impairment charges discussed above and lower gross profit
in the third quarter.
Interest Expense. Interest expense decreased from $4.7 million for the three
months ended September 30,2000 to $.5 million for the three months ended
September 30, 2001. The Company did not record approximately $3.8 million of
interest expense during the three months ended September 30, 2001 due to the
Chapter 11 filing (see Note 2 to the consolidated financial statements).
Other Expense: Other expense increased by $2.6 million for the three months
ended September 30, 2001 compared to the same period in 2000 primarily as a
result of a provision to reserve a note receivable from a prior business
divestiture.
Reorganization Costs. Reorganization costs of $.7 million incurred during the
three months ended September 30, 2001 consist primarily of professional fees.
Income Taxes. The Company established a full valuation allowance on its income
tax benefit recorded for the three months ended September 30, 2001 and 2000.
COMPARISON OF NINE MONTHS ENDED September 30, 2001 AND 2000
Net Sales. Net sales for the nine months ended September 30, 2001 were $185.0
million as compared with $210.1 million for the nine months ended September 30,
2000. The decrease of $25.1 million results from a sales reduction of $6.9
million attributable to businesses sold (Western and VinylSource) in the first
and second quarters of 2000 and an internal sales decline of $18.2 million. The
residential window businesses experienced a $14.3 million decrease, $6.7 million
of which is due to the Ottawa plant shut-down in the second quarter of 2001. The
remaining $7.6 million residential window decrease is due primarily to sales
volume decreases in all markets. The extrusion decline reflects a $3.9 million
decrease in external
customer sales primarily due to declining volume demands at the Ohio extrusion
facilities.
Gross Profit. Gross profit decreased $12.6 million to $25.9 million for the nine
months ended September 30, 2001 from $38.3 million for the nine months ended
September 30, 2000. This decrease reflects a $3.7 million inventory adjustment
to write down inventory to market value, a $.6 million decline attributed to
businesses sold, a $1.3 million decline due to the Ottawa plant shut-down, and a
$6.9 million decline internally, primarily in the residential window segment.
This decline results directly from the residential window segment sales decline
and higher fixed costs at the Company's new Eagle Window and Door manufacturing
facility The gross margin for the nine months ended September 30, 2001 was 14.0%
compared to 18.2% for the nine months ended September 30, 2000. The decrease in
gross margin reflects the decline in the gross profit of the Company's
residential window businesses throughout the United States.
Selling, General and Administrative Expenses. Selling, General and
Administrative expenses, which include impairment charges, decreased $2.7
million from $37.8 million for the nine months ended September 30, 2000 to $35.1
million for the comparable period in 2001. $6.1 million of this decrease is
attributable to Selling, General and Administrative expenses other than
impairment charges. This decrease includes $1.1 million of expenses included in
the nine months ended September 30, 2000 attributable to businesses divested and
not included for a comparable period in 2001. The remaining $5 million decrease
resulted from a $3.3 million decrease in the residential window segment and a
$1.7 million decrease in corporate costs resulting from the Company's cost
reduction initiatives. . Additionally, the Company recognized a $5 million
non-cash impairment charge at one of its Florida window manufacturing operations
during the nine months ended September 30, 2001. This same operation recognized
a $1.6 million impairment charge during the same period of 2000 to write down
the carrying value of its former manufacturing facility which was held for sale
at September 30, 2000. That facility was sold in November 2000.
Income from Operations. The Company had a loss from operations for the nine
months ended September 30, 2001 of $9.3 million, compared to income from
operations of $.5 million for the nine months ended September 30, 2000.
Interest Expense. Interest expense decreased from $13.8 million for the nine
months ended September 30, 2000 to $1.6 million for the nine months ended
September 30, 2001. The Company did not record approximately $11.5 million of
interest expense during the nine months ended September 30, 2001 due to the
Chapter 11 filing (see Note 2 to the consolidated financial statements).
Other Expense: Other expense increased by $2.1 million for the nin months ended
September 30, 2001 compared to the same period in 2000 primarily as a result of
a provision to reserve a note receivable from a prior business divestiture taken
in the third quarter of 2001.
Reorganization Costs. Reorganization costs of $3.8 million incurred during the
nine months ended September 30, 2001 include $1.8 million of restructuring costs
related to the Ottawa plant shutdown in April 2001. The remaining costs
primarily represent professional fees.
Income Taxes. The Company established a full valuation allowance on its income
tax benefit recorded for the nine months ended September 30, 2001 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are for debt service requirements
under the 1997 $125 million, 11 3/4% Senior Notes (Notes), the note issued in
connection with the Weather-Seal acquisition, the revolving credit facility and
for working capital needs and capital expenditures. The Company's annual
principal and interest debt service requirements, including capital lease
obligations, remain uncertain until a plan of reorganization is filed and
approved by the Bankruptcy Court.
Cash used in operating activities was $6.1 million and $3.2 million for the nine
months ended September 30, 2001 and 2000, respectively. The increase in cash
used in operations for 2001 over the same period of the prior year is primarily
due to reorganization costs and payment on pre-petition accounts payable
(included in Liabilities Subject to Compromise).
Capital expenditures for the nine months ended September 30, 2001 and 2000 were
$3.0 million and $1.7 million, respectively. The increase relates primarily to
capital investments at the new Eagle manufacturing facility. 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 nine months ended September 30, 2000 includes
$4.5 million in cash received from the sale of Western and $5.9 million in cash
received from the sale of VinylSource.
Net activity on the Company's line of credit resulted in net borrowings of $7.5
million during the nine months ended September 30, 2001 and net repayments of
$1.1 million for the same period of 2000. The Company paid approximately $1.2
million on long-term debt and capital leases and $2.1 in debt issue costs during
the nine months ended September 30, 2000.
SEASONALITY
The Company's business is seasonal since its primary revenues are driven by
residential construction. Inclement weather during the winter months,
particularly in the northeast and midwest regions of the United States, usually
reduces the level of building and remodeling activity in both the home
improvement and new construction markets and, accordingly, has an adverse impact
on the demand for fenestration products. Traditionally, the Company's lowest
sales levels usually occur during the first and fourth 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.
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. If the market rates for short term
borrowings increased by 1%, the impact would be an interest expense increase of
$62,000 corresponding increase in loss before taxes of the same amount, for the
three months ended September 30, 2001. The amount was determined by considering
the impact of hypothetical interest rates on the Company's borrowing cost and
debt balances at September 30, 2001 by category.
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On December 18, 2000, the Company and its subsidiaries filed for voluntary
protection under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court in the Northern District of Ohio (the "Bankruptcy
Court"). The Company is presently operating its business as a
debtor-in-possession under Chapter 11 and is subject to the jurisdiction and
supervision of the Bankruptcy Court.
The Company and its subsidiaries are engaged in various litigation and have a
number of unresolved claims. While the amounts claimed are substantial and the
ultimate liability with respect to such litigation and claims cannot be
determined at this time, management believes that such liability, to the extent
not provided for through insurance or otherwise, is not likely to have a
material impact on the financial condition or the results of operations of the
Company. However, all such claims arising prior to December 18, 2000 must be
resolved through confirmation of the Company's plan of reorganization as such
plan may be approved by the Bankruptcy Court.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
See Note 2 to the Consolidated Financial Statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Amendment No. 2 and Waiver to Revolving Credit and Term Loan Agreement
dated as of April 5, 2002, among American Architectural Products
Corporation, Fortified Window and Door Company f.k.a. AAPC One Acquisition
Corporation, AAPC Two Acquisition Corporation, AAPC Three Acquisition
Corporation, AAPC Four Acquisition Corporation, AAPC Five Acquisition
Corporation, AAPC Six Acquisition Corporation, American Glassmith, Inc.,
American Weather-Seal Company, Binnings Building Products, Inc., Danvid
Window Company, Denver Window Company, Eagle and Taylor Company, Eagle
Window and Door Center, Inc., Forte, Inc., Modern Window Corporation,
Thermetic Glass, Inc., VinylSource, Inc., WIG Liquidation Company, each as
debtor and debtor-in-possession and certain of the financial institutions
parties to the Existing Credit Agreement and the CIT Group Business Credit,
Inc. as agent.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the third quarter of 2001.
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: May 21, 2002 /s/ Joseph Dominijanni
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Joseph Dominijanni
Chief Executive Officer