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 March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period From _________________to ___________________.
Commission file number: 0-25634
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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 June 30,
2002
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
FORM 10-Q
INDEX
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - December 31, 2001 and March 31, 2002
Consolidated Statements of Operations - Three months ended March 31, 2001 and 2002
Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and 2002
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)
March 31, December 31,
2002 2001
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,420 $ 2,762
Accounts receivable, less allowance
for doubtful accounts of $1,555 and $983 11,665 12,402
Inventories 6,413 6,148
Prepaid expenses and other current assets 1,114 1,329
Assets held for sale 25,402 35,500
-------- --------
TOTAL CURRENT ASSETS 47,014 58,141
-------- --------
PROPERTY AND EQUIPMENT
Land and improvements 1,105 1,105
Buildings and improvements 9,438 9,412
Machinery, tools and equipment 15,460 15,401
Computers and office equipment 2,696 2,830
Construction in Progress 486 121
-------- --------
29,185 28,869
Less accumulated depreciation (10,073) (9,509)
-------- --------
NET PROPERTY AND EQUIPMENT 19,112 19,360
-------- --------
OTHER
Cost in excess of net assets acquired, net
of accumulated amortization of $2,484 8,670 8,670
Other, net of accumulated amortization of $1,014 and $717 3,519 1,867
-------- --------
TOTAL OTHER ASSETS 12,189 10,537
-------- --------
$ 78,315 $ 88,038
======== ========
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
(Unaudited)
March 31, December 31,
2002 2001
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Debtor-in-possession revolving credit and term loan $ 17,100 $ 18,583
Accounts payable - trade 5,394 3,304
Accrued Expenses
Compensation and related benefits 1,134 1,185
Current portion of warranty obligations 583 973
Other 2,310 1,434
Liabilities held for sale 8,863 14,446
--------- ---------
TOTAL CURRENT LIABILITIES 35,384 39,925
Accrued warranty obligations, less current portion 1,609 1,214
Other 2,473 2,264
Liabilities subject to compromise 159,308 159,360
--------- ---------
TOTAL LIABILITIES 198,774 202,763
--------- ---------
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 (129,515) (123,781)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (120,459) (114,725)
--------- ---------
$ 78,315 $ 88,038
========= =========
See accompanying notes to consolidated financial statements.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three months ended
March 31,
---------------------
2002 2001
-------- --------
Net Sales $ 21,661 $ 19,943
Cost of Sales 18,365 17,798
-------- --------
GROSS PROFIT 3,296 2,145
Selling Expense 2,293 2,109
General and Administrative Expenses 2,107 2,357
-------- --------
OPERATING LOSS FROM CONTINUING OPERATIONS (1,104) (2,321)
-------- --------
Other Income (Expense)
Interest expense, net (291) (527)
Miscellaneous 60 14
Reorganization Costs (854) (646)
-------- --------
Total Other Expense (1,085) (1,159)
-------- --------
LOSS FROM CONTINUING OPERATIONS (2,189) (3,480)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (3,545) 246
-------- --------
NET LOSS $ (5,734) $ (3,234)
======== ========
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Continuing operations $ (0.15) $ (0.25)
Discontinued operations (0.26) 0.02
-------- --------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.41) $ (0.23)
======== ========
See accompanying notes to consolidated financial statements.
AMERICAN ARCHITECTURAL PRODUCTS CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Three months ended
March 31,
2002 2001
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations $(2,189) $(3,480)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities before reorganization
costs:
Depreciation 616 880
Amortization 59 470
Reorganization costs 854 646
Changes in assets and liabilities, net of effects of business
acquisitions and divestitures and discontinued operations:
Accounts receivable (2,290) (1,371)
Advances to affiliates classified as discontinued operations (173) (34)
Inventories (265) (55)
Prepaid and other current assets (366) (366)
Other assets (273) --
Accounts payable 1,266 1,798
Accrued expenses and other liabilities 614 381
Liabilities subject to compromise 298 (1,805)
------- -------
NET CASH USED IN CONTINUING OPERATIONS
BEFORE REORGANIZATION COSTS AND DISCONTINUED OPERATIONS (1,849) (2,936)
NET CASH USED FOR REORGANIZATION COSTS (854) (646)
------- -------
NET CASH USED FOR CONTINUING OPERATIONS (2,703) (3,582)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 2,012 239
------- -------
NET CASH USED IN OPERATING ACTIVITIES (691) (3,343)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (358) (110)
Proceeds from the sale of property and equipment 156 --
------- -------
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS (202) (110)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF DISCONTINUED
OPERATIONS 2,060 (1,317)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,858 (1,427)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings on revolving line of credit (1,482) 6,289
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES OF CONTINUING
OPERATIONS (1,482) 6,289
NET CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS (27) (55)
------- -------
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,509) 6,234
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (342) 1,464
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,762 158
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,420 $ 1,622
======= =======
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), and American Weather-Seal
Company (Weather-Seal). Denver Window Corporation (Denver) was a subsidiary at
March 31, 2001 and was sold in September 2001. TM Window and Door (TMWD) was a
subsidiary at December 31, 2001 and, together with the Binnings Pan American
division of Binnings (Pan Am) was sold in February 2002. American Glassmith
Corporation (American Glassmith) was also a subsidiary at December 31, 2001 and
was sold in March 2002.
The Company adopted the provisions of the Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
for the Impairment of or Disposal of Long-Lived Assets issued in August 2001. In
conjunction with the adoption of SFAS No. 144, the Company has classified all of
the operations discussed in Note 7 as discontinued operations in the
accompanying financial statements and, accordingly, unless otherwise stated, the
accompanying notes for all years presented exclude the amounts related to these
discontinued operations.
As a result of its discontinuance of its extrusion segment in 2001, the Company
now operates in one business segment, residential fenestration products. The
products include a variety of window and door products manufactured for use in
homes and light commercial businesses and consist primarily of aluminum and
vinyl windows and doors.
On January 1, 2002 the Company adopted the provisions of SFAS 142, "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Company ceased
amortization of goodwill on January 1, 2002 and will review goodwill for
impairment at least annually.
On December 18, 2000, the Company 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 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, 2002. 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, 2001
included in the annual report on Form 10-K.
The balance sheet at December 31, 2001 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 prior period amounts have been reclassified to
conform with current period presentation.
2. BANKRUPTCY PROCEEDINGS AND GOING CONCERN CONSIDERATIONS:
On December 18, 2000, 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 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
Company has requested the Bankruptcy Court approve an extension to October 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, 2001, 2000 and
1999, the Company incurred losses of $24.7, $42.4 million, and $47.1 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 December 1, 2001 interest payments.
Accordingly, the Company was in default of the indenture. Furthermore, 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):
March 31, December 31,
2002 2001
-------- --------
Accounts payable $ 8,294 $ 8,318
Accrued interest payable 17,299 17,299
Accrued liabilities 1,188 1,188
Debt 132,527 132,557
-------- --------
Total liabilities subject to compromise $159,308 $159,360
======== ========
Interest on certain pre-petition debt is not accrued after the bankruptcy
filing. Such contractual interest expense not recorded totaled $3.8 million and
$3.9 million for the three months ended March 31, 2002 and 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 lender (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 March
31, 2002. At March 31, 2002, the interest rate was 5.5% on the line of credit
and 6.25% on the term loan, with aggregate availability of $4.3 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. As discussed in
Note 7, proceeds from the sale of Eagle were used to pay off the outstanding
balance of the DIP Facility during the second quarter of 2002.
Outstanding balances (in thousands) are as follows:
March 31, December 31,
2002 2001
------------- -------------
Line of credit $ 11,330 $ 12,199
Term loan 5,770 6,384
------------- -------------
$ 17,100 $ 18,583
============= =============
Reorganization Costs
The amounts reflected as reorganization costs in the consolidated statement of
operations consist primarily of professional fees for the three months ended
March 31, 2002 and 2001.
3. INVENTORIES
Inventories consisted of the following (in thousands):
March 31, December 31,
2002 2001
------ ------
Finished goods $1,255 $ 873
Work-in-process 909 898
Raw materials 4,249 4,377
------ ------
$6,413 $6,148
====== ======
4. 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
March 31,
---------------------------
2002 2001
-------- --------
(In Thousands, Except Per Share Data)
NET INCOME (LOSS)
Continuing operations $ (2,189) $ (3,480)
Discontinued operations (3,545) 246
-------- --------
$ (5,734) $ (3,234)
======== ========
SHARES
Basic and diluted 13,822 13,822
PER COMMON SHARE - BASIC AND DILUTED
Continuing operations $ (0.15) $ (0.25)
Discontinued operations (0.26) .02
-------- --------
$ (0.41) $ (0.23)
======== ========
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.
5. 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, 2002 and 2001, comprehensive income for the Company did
not differ from net income.
6. INCOME TAXES
The Company established a full valuation allowance on its income tax benefit for
the three months ended March 31, 2002 and 2001.
7. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
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. The Company discontinued manufacturing operations at Forte in
May 2000. In April 2002, the Company agreed to sell the remaining property for
approximately $375,000 less certain selling costs provided certain conditions
are met and subject to Bankruptcy Court approval. The Company recorded a loss on
disposal of $437,000 at March 31, 2002 to write down the recorded value of this
property to the estimated fair value based on the selling price.
In January 2001, the Company announced the discontinuance of its Eagle Window
and Door Center, Inc. (EWDC) operations. The Company substantially completed its
plan to exit this business in December 2001.
On January 31, 2002 the Company completed the sale of Weather-Seal's aluminum
extrusion operations (the Aluminum Extrusion Group or AEG) for $1.5 million cash
and the assumption of certain post-petition liabilities.
On February 15, 2002, the Company completed the sale of certain assets of the
Binnings Pan American (BPA) and TM Window and Door (TM) divisions of Binnings
for $500,000 cash, a $1.7 million note receivable and the assumption of certain
liabilities. AEG and a portion of BPA comprised the Company's extrusion segment.
Extrusion products consist of aluminum extrusions used primarily in the
fenestration products industry. These businesses supplied a portion of the raw
materials used in the manufacture of windows by the Company. The consummation of
these transactions completes the Company's exit from the extrusion segment.
On March 22, 2002, the Company completed the sale of certain assets of American
Glassmith (AGI) for $350,000 cash and the assumption of post-petition
liabilities.
On May 6, 2002, the Company completed the sale of ETC's Eagle Window and Door,
Inc. division and its subsidiary, Eagle Service Company (collectively, "Eagle")
as more thoroughly discussed in Note 8.
In July 2002, the Company signed an agreement to sell substantially all of the
assets of Thermetic (TGI) for $1.3 million, the assumption of post-petition
liabilities subject to a working capital adjustment. The agreement requires
Bankruptcy Court approval. The Company expects to close this transaction during
the third quarter of 2002. The Company recorded an impairment charge of $840,000
at March 31, 2002 based on the expected proceeds from the sale. This charge is
recognized as a loss on disposal.
The results of operations for AEG, BPA, TM, AGI, Eagle, TGI, EWDC and Forte
have been presented as discontinued operations in the accompanying financial
statements for all periods. The Company did not recognize income tax benefits on
the losses from discontinued operations. Net sales and net losses from
discontinued operations before inter-company eliminations by segment for each
period consist of the following (in thousands):
THREE MONTHS ENDED MARCH 31, 2002
-----------------------------------------------------------------------------------------------------------
EXTRUSION
BPA SEGMENT BPA FORTE &
AEG EXTRUSION SUB-TOTAL RESIDENTIAL TM AGI EAGLE TGI EWDC TOTAL
-------------------------------- -------------------------------------------------------------------------
Net Sales $ 874 $ 419 $ 1,293 $ 2,829 $ 1,158 $ 1,137 $ 16,292 $ 1,198 $ 5 $ 23,912
======== ========
Income (loss) from
operations $ (409) $ (267) $ (676) $ (1,582) $ (393) $ (411) $ 1,295 $ (163) $ (57) $ (1,987)
Gain (loss) on disposal (144) -- (144) (222) (246) 358 -- (840) (464) (1,558)
-------- --------
Income (loss) from
discontinued
operations $ (553) $ (267) $ (820) $ (1,804) $ (639) $ (53) $ 1,295 $ (1,003) $ (521) $ (3,545)
======== ========
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------------------------------------------
EXTRUSION
BPA SEGMENT BPA FORTE &
AEG EXTRUSION SUB-TOTAL RESIDENTIAL TM AGI EAGLE TGI EWDC TOTAL
-------------------------------- -------------------------------------------------------------------------
Net Sales $3,193 $1,153 $4,424 $8,390 $2,536 $1,669 $18,749 $ 977 $230 $36,897
================================ =====================================================================
Income (loss) from
operations $ (604) $ 173 $ (431) $ (199) $ 67 $ (146) $ 1,198 $ (154) $(89) $ 246
Gain (loss) on disposal -- -- -- -- -- -- -- -- -- --
-------------------------------- ---------------------------------------------------------------------
Income (loss) from
Discontinued
operations $ (604) $ 173 $ (431) $ (199) $ 67 $ (146) $ 1,198 $ (154) $(89) $ 246
================================ =====================================================================
Certain assets and liabilities of AEG, BPA, TM, AGI, Eagle, TGI, EWDC, and Forte
are classified as assets held for sale and liabilities held for sale,
respectively in the accompanying consolidated balance sheets. A summary of the
assets and liabilities held for sale of the discontinued businesses is as
follows (in thousands):
MARCH 31, 2002
--------------------------------------------
FORTE &
EAGLE EWDC TGI TOTAL
--------------------------------------------
Accounts receivable - net $ 7,748 $ -- $ 481 $ 8,229
Inventories 6,051 -- 758 6,809
Property and equipment 5,705 360 412 6,477
Cost in excess of net assets acquired 2,036 -- -- 2,036
Other 492 -- 18 510
--------------------------------------------
ASSETS HELD FOR SALE $22,032 $ 360 $ 1,669 $24,061
============================================
Accounts payable - trade $ 1,490 $ -- $ 184 $ 1,674
Accrued expenses 6,661 -- 185 6,846
Capital Lease Obligations 343 -- -- 343
--------------------------------------------
LIABILITIES HELD FOR SALE $ 8,494 $ -- $ 369 $ 8,863
============================================
DECEMBER 31, 2001
-----------------------------------------------------------------------------------------
FORTE &
AEG BPA TM AGI EAGLE EWDC TGI TOTAL
-----------------------------------------------------------------------------------------
Accounts receivable - net $ 718 $ 200 $ 300 $ -- $ 8,057 $ -- $ 502 $ 9,777
Inventories 1,141 3,391 39 128 6,730 -- 765 12,194
Property and equipment 80 211 813 456 5,614 823 1,251 9,248
Cost in excess of net assets acquired -- -- -- -- 2,036 -- -- 2,036
Other -- 55 -- 29 648 -- -- 732
-----------------------------------------------------------------------------------------
ASSETS HELD FOR SALE $1,939 $3,857 $1,152 $613 $23,085 $ 823 $2,518 $33,987
=========================================================================================
Accounts payable - trade $ 203 $1,625 $430 $191 $2,017 $ -- $ 142 $4,608
Accrued expenses 182 1,781 687 119 6,562 -- 224 9,555
Capital lease obligations -- -- -- -- 283 -- -- 283
-----------------------------------------------------------------------------------------
LIABILITIES HELD FOR SALE $ 385 $3,406 $1,117 $310 $8,862 $ -- $ 366 $14,446
=========================================================================================
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
$1.3 million at March 31, 2002 and December 31, 2001. 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 is currently being contested.
In February 2002, Weather-Seal sold it administrative office building for
approximate book value of $156,000. This property was classified as held for
sale at December 31, 2001.
8. SUBSEQUENT EVENT
On May 6, 2002 the Company completed the sale of Eagle for $63.5 million and the
assumption of certain liabilities, resulting in a $47.8 million gain. A portion
of the proceeds from the sale were used to repay the outstanding loan on the
Company's DIP facility.
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
Company has requested the Bankruptcy Court approved an extension to October 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, 2001, 2000 and
1999, the Company incurred losses of $24.7, $42.4 million, and $47.1 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 December 1, 2001 interest payments.
Accordingly, the Company was in default of the indenture. Furthermore, 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
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and revenues
and expenses during the periods reported. Actual results could differ from those
estimates. The Company's significant accounting policies are described in Note 1
of the Consolidated Financial Statements included in the 2001 Annual Report. The
Company believes the following are the critical accounting policies which could
have the most significant effect on the Company's reported results and require
the most difficult, subjective or complex judgements by management. Unless
otherwise noted, the Company has not made any changes in estimates or
assumptions since December 31, 2001 that had a significant effect on the
reported amounts.
Accounting for Contingencies
The Company accrues 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 the
Company's financial statements include the establishment and assessment of the
allowance for doubtful accounts, excess and obsolete inventory reserves, product
warranty reserves and litigation accruals.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of the carrying amount of long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Company evaluates the
recoverability of goodwill annually or more frequently if events or
circumstances indicate that an asset might be impaired. The Company uses
judgment when applying the impairment rules to determine when an impairment test
is necessary. Factors the Company considers which could trigger an impairment
review include significant underperformance relative to historical operating
results or forecasted operating results, a significant decrease in the market
value of an asset, a significant change in the extent or manner in which an
asset is used, and significant negative industry or economic trends.
Restructuring Activities
The Company accrues the cost of 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. Management exercises judgment in
estimating the total costs of each of these activities. As the Company
implements restructuring 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 the initial assessment.
Accounting Change
On January 1, 2002 the Company adopted the provisions of SFAS 142, "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. The Company ceased
amortization of goodwill on January 1, 2002 and will review goodwill for
impairment at least annually.
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
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. The Company discontinued manufacturing operations at Forte in
May 2000. In April 2002, the Company agreed to sell the remaining property for
approximately $375,000 less certain selling costs provided certain conditions
are met and subject to Bankruptcy Court approval.
In January 2001, the Company announced the discontinuance of its EWDC
operations. The Company substantially completed its plan to exit this business
in December 2001.
In December 2001, the Company agreed to sell certain assets of Weather-Seal's
aluminum extrusion operations (the Aluminum Extrusion Group or AEG) for $1.5
million cash. The Company completed this sale on January 31, 2002. Also, in
December 2001, the Company entered into an agreement to sell certain assets of
the Binnings Pan American (BPA) and TM Window and Door (TM) divisions of
Binnings for $500,000 cash, a $1.7 million note receivable and the assumption of
certain liabilities. This transaction closed February 15, 2002. AEG and a
portion of Pan Am comprised the Company's extrusion segment. Extrusion products
consist of aluminum extrusions used primarily in the fenestration products
industry. These businesses supplied a portion of the raw materials used in the
manufacture of windows by the Company. The consummation of these transactions
completes the Company's exit from the extrusion segment.
In February 2002, the Company signed an agreement to sell substantially all of
the assets of American Glassmith (AGI) for $350,000 cash and the assumption of
post-petition liabilities. This sale was completed on March 22, 2002.
On May 6, 2002, the Company sold ETC's Eagle Window and Door, Inc. division and
its subsidiary, Eagle Service Company (collectively, "Eagle"), for approximately
$63.5 million.
In July 2002, the Company signed an agreement to sell substantially all of the
assets of Thermetic (TGI) for $1.3 million, the assumption of post-petition
liabilities subject to a working capital adjustment. The agreement requires
Bankruptcy Court approval. The Company expects to close this transaction during
the third quarter of 2002. The Company recorded an impairment charge of $840,000
at March 31, 2002 based on the expected proceeds from the sale. This charge is
recognized as a loss on disposal.
The results of operations for AEG, Pan Am, TM, AGI, Eagle, TGI, EWDC and Forte
have been presented as discontinued operations in the accompanying financial
statements for all periods. Therefore, the following discussion and analysis
refer only to continuing businesses of the Company.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 AND 2001
Net Sales. Net sales for the three months ended March 31, 2001 were $21.7
million as compared with $19.9 million for the three months ended March 31,
2001. The increase of $1.8 million results from a $2.9 million increase in sales
at the Company's southwestern window manufacturer due to increased volumes over
the same period of the prior year. This increase was partially offset by a
decrease in sales as a result of the Company's shutdown of its Ottawa, Ohio
window manufacturing facility in April 2001.
Gross Profit. Gross profit increased $1.2 million to $3.3 million for the three
months ended March 31, 2002 from $2.1 million for the three months ended March
31, 2001. This increase is partially due to the increase in sales volumes at the
Company's southwest window manufacturing plant and the shutdown of the Ottawa,
Ohio window manufacturing facility. The gross margin for the three months ended
March 31, 2002 was 16.5% compared to 10.8% for the three months ended March 31,
2002. The increase in gross margin reflects the gross profit improvement
realized as a result of the Ottawa shutdown.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 2002 were $4.4
million compared to $4.5 million for the comparable period in 2001. The Ottawa
plant shutdown resulted in some decreased selling costs. Additionally, the
remaining Ohio window operations experienced declining general and
administrative costs as a result of cost reduction activities taken.
Operating (Loss) from Continuing Operations. The Company had a loss from
continuing operations for the three months ended March 31, 2002 of $1.1 million,
compared to a loss from continuing operations of $2.3 million for the three
months ended March 31, 2001 primarily due to improved gross profit as discussed
above.
Interest Expense. Interest expense decreased from $0.5 million for the three
months ended March 31, 2001 to $0.3 million for the three months ended March 31,
2001 due to lower interest rates on the Company's DIP facility.
Reorganization Costs. In conjunction with the filing, the Company recognized
reorganization costs of $0.9 million during the three months ended March 31,
2002 and $0.6 million during the same period in 2001. These costs consists
primarily of professional fees related to the Bankruptcy.
Income Taxes. The Company established a full valuation allowance on its income
tax benefit recorded for the three months ended March 31, 2002 and 2001.
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 DIP 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 continuing operations was $2.7 million and $3.6 million for the
three months ended March 31, 2002 and 2001, respectively. The decrease in cash
used in operations for 2002 since the prior year primarily due to improved
operating results over the same period of the prior year.
Capital expenditures for the three months ended March 31, 2002 and 2001 were
$0.2 million and $0.1 million, respectively. 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.
Net activity on the Company's line of credit resulted in net repayments of $1.5
million during the three months ended March 31, 2002 as compared with net
borrowings of $6.3 million during the three months ended March 31, 2001.
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 DIP facility. If the market rates for short term borrowings
increased by 1%, the impact would be an interest expense increase of $44,600
with a corresponding increase in loss before taxes of the same amount, for the
three months ended March 31, 2002. The amount was determined by considering the
impact of hypothetical interest rates on the Company's borrowing cost and debt
balances at March 31, 2002 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
None
(b) Reports on Form 8-K
During the first quarter of 2002, the company filed no current reports
on Form 8-K.
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 26, 2002 /s/ Joseph Dominijanni
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Joseph Dominijanni
President & Chief Executive Officer